Realistic cash flow with Austin SFH rentals?

[Sarah Klein]

Hi all, I would love to hear what Austin-area SFH investors are seeing realistically with their current investments.

For those of you who have invested in single-family homes in the Austin area, how much money do you pay monthly for your property, and what type of cash flows are you seeing, if any? 

If you're not cash-flow positive on a monthly basis...what is your strategy to make money with real estate in Austin? Why did you go the route to purchase a SFH?

[Steve R.]

@Sarah Klein

For one of my sfh i am getting 250$ cash flow even after paying 100$ for property management (bought for 260k). For another property i get around 125$ cash flow (bought for 280k), but higher appreciation.

[Shuang W.]

@Sarah Klein, I have a flip SFH which I bought below 300k, and the cash flow can be around 200 each month.

It's hard to get much positive cash flow in SFH in Austin today since the home prices have been increasing for the past years. When I buy an investment, I check out the potential new schools in the neighborhood, job growth in the area, house demands as investors and new residents move in, etc. House hacking can be a good strategy if you just start without much down payment.

[Neil Narayan]

Cash flow depends on how much you are putting down, which price points you are targeting and which areas. You have a better chance of cash flow if you go to the outskirts of Austin.

[Alex G.]

You also need to pay attention to tax rates in the area you're considering to buy. Rates could vary dramatically around Austin metro.  A 1% tax rate difference on a $200K property translates into a $2,000/year or $167/month cash flow. On a $300K property it's a $3,000/year and $250/month correspondingly. Across multiple properties this could swing your cashflow wildly.

As an example, in Austin an average tax rate is 2.23%. Some parts of Round Rock have 3.17% tax rate while others 2.3%. 

[Costin I.]

@Sarah Klein - you can't ask about cash flow without defining what constitutes cash flow and how is calculated (or you can't expect to receive consistent answers). Some folks consider they cash flow if the rental income covers the PITI. Others add the property management in it, while others self-manage and don't include anything for property management (although their time and effort has cost/value). Personally, I consider cash flow what remains in my pocket after ALL expenses. And IMHO, currently in Austin you can't cash flow on a long-term SFH rental without putting 30-40% down payment (or finding properties well under FMV, that even after rehab will still be 20% under ARV, plus what you have to leave as DP for the mortgage, again an effective 30-40% DP - and if you are not able to find them and BRRRR, and have to pay that 30-40%, your cash on cash ROI will be under 2% similar with just leaving the money risk free in a saving account).

Here is what I account as expenses for a correct calculation of cash flow:
1) Mortgage
2) Mortgage insurance (PMI or MIP) or FHA Risk base
3) Property Taxes
4) City Taxes
5) HOA (Home Owner's Association) Dues and Fees and Assessments
6) Insurance
  a) Property Hazard Insurance (0.3-0.45%)
  b) Flood Insurance
  c) Earthquake Insurance
  d) Umbrella Insurance
7) Vacancy Rate (usually 8% - the equivalent to one month a year, or 5-6% if multifamily and/or if experienced, if not use 8%)
8) Utilities (you’ll have these if your tenant is not covering them and/or during vacancy)
  a) Water § Sewer § Garbage
  b) Electricity
  c) Natural Gas
  d) Propane
9) General Maintenance (usually 5%)
  a) Upkeep § Landscaping
  b) Snow removal
  c) Repairs
  d) New Appliances
  e) Make ready
10) Capital Expenditures (usually 5%, higher is the property is old and obsolete, less if fully rehabbed and all mechanicals and roof are new)
11) Property Management (8%, even if you self manage, your time still has value and there might be a time when you'll want to be completely hands off or you'll not be able to do it, vacation, retirement, etc.), including...
  a) Office Supplies (e.g. stamps, envelopes)
  b) Software
  c) Gas/Mileage
  d) Advertising + Payroll
  e) Concessions
  f) Lease loss
  g) Lease renewal fees
12) Lawyer/Law office/Legal fees
13) Accounting/Bookkeeping/CPA/Tax preparer/Tax advisor

If after including all these expenses, I manage to get $100/door, I call it good. Anything above is creme.

But then, I guess, it depends on your strategy and goals. If you are looking for a place to park money from inflation, then any decent real estate is good, especially if income producing to break even. If you are counting on market appreciation, future rent increases, short term holding, or a combination, then you are speculating, not investing in RE. Different from a passive income long term wealth generation, financial independence type of path.

[Robert Tinker]

I went to Killeen for cash flow. Austin is an appreciation game in my opinion.

[Bryan Noth]

@Sarah Klein as previous posts have alluded to, your question is a complicated one for the Austin area. A typical 20% down SFR will likely not cash flow in Austin proper if you include all expenses. When you combine cap ex, vacancy, PM, repairs, and PITI the rent does not always cover it on paper. Once rented and on a 6 month stretch with no repairs or cap ex expenses you can see 'cash flow' but often some bill or 3 month vacancy is in the future that will level that surplus. I love the expression that in today's market it is increasingly more difficult to find good deals, you have to make good deals. The outskirt regions will be less expensive and increase your chances of cash flow, but you can also take steps to improve potential income via:

• More money on the down payment
• House hacking and renting out rooms
• Buying distressed and doing some rehab for a live in BRRRR

[Corey Dulimba]

@Shuang W. and/or @Steve R. can you tell us what you are considering cashflow? I'm currently only seeing the ability to cashflow (after all expenses and mortgage) when houses are around $200k and managing that on my own and still only getting $100 or less. Would like to hear how ya'll are doing this at higher price points for houses. thanks!

[Steve R.]

@Corey Dulimba

In my case i have a really good tenant who is paying above market rate in Leander since i rented out my new built home to him. He has bEen staying put for threeyears now and going to extend lease for couple more years for the same amount.

I am getting around 2100$ as rent and PITI comes to around 1620. Considering 5% vacancy (a bit optimistic, can put 8%) and 100$ mgmt fees i cash flow around 250$. Since its a new built home i haven't put anything for maintenance but i will most likely sell it in few years time once apple campus comes up and people started moving in.

[Corey Dulimba]

thanks for the add'l information @Steve R.

[Vik J.]

@Steve R. - I'm curious - why would you want to sell versus renting at a higher price (more cash flow, more appreciation) when the Apple campus comes up?

[Steve R.]

@Vikram Jayaram

I believe that there would be a pretty decent hike in appreciation till the apple campus comed up and probably few more years after that and prices would likely flatten out as the overall market stabilizes up north. I am planning to sell and invest in higher cash flow areas like San Antonio at that point in time (hoping that it would still cash flow better than Austin).

[Prasad Katta]

Mine was a 285K SFR in Austin,lender required 25% down,cash flowing about $400 a month,granted didn't factor in vacancy and capex since it has got almost new roof,HVAC,paint,light & other fixtures,new water softener tank,etc.