Young Austin Professional Looking for First Property

[Sarah Davis]

Howdy BP crew, 

I’m a young mid-20s civil engineer and have been stuck in analysis paralysis with regards to buying my first property. I currently rent ($1140/month) & work around the Sunset Valley area in southwest Austin with a $75k income. 

Please poke holes in my plan (or give me the nudge to JUST DO IT already). A couple close friends of mine bought homes and I’m concerned I’m getting FOMO or being rash.

The Plan:

While my income still allows it, I would like to take advantage of various DPA and MCC programs available to those who make less than certain Austin MFI. These programs offer forgivable 2nd mortgage or grants for various percentages of your loan amount 3-5%, typically with a higher interest rate (set by the program administrator) than what I would get through a traditional lending company. The MCC is a dollar for dollar tax credit for 20% of the interest (can be recaptured).

My goal is to purchase a 3BD/2B+ SFH <360k (purchase price limit for the programs above), ~1250 sqft in south Austin, likely 78748, and house hack.

Assumptions:

- Purchase Price: <360k

- DP: 3.5%

- PI = $1512

- Taxes = $465/month ($5580/year, I looked up actual tax values for comps in this price range. Appraisals for taxing purposes are typically lower than actual market values in Austin. How does a recent sale of the property affect this?)

- Insurance = $120/month ($1440/year)

- PMI: $174/month (0.06%)

- HOA: $50/month

Total: 2,321/month

with MCC : 2,131/month

I plan to bring on 2 roommates, or 1 roommate and Airbnb single room to offset this by $1300/month or $650/month/room. 

Bringing my total liability to $831 plus ~$250/maintenance, so generally, around my current rent, which I am okay with.

Possible exit strategies: 
Realistic long-term rental in this area I think could rent for $1800-$2100 and potentially an STR for $2500-$3000/month. I also don't think I would have a problem selling in the future in the Austin market. 

Specific Questions: 

- Am I being too specific in my area? Would this be a realistic play for further south closer to buda/kyle or in the onion creek area?

- It's not technically cash flowing, but I need a place to live and I think this is the best investment opportunity at the moment. Are there other options I'm not seeing? 

&& if this is a good strategy (ish) wish me luck in waiting for my property. :)

Thank you all in advance!

[Victor Steffen]

Few things. 

1) Love everything about this and wish everyone would use the DPA programs while they exist. Your down payment is covered. You just need to fund the roughly 2% in closing costs. I've had clients only need to bring $750 to the closing table after their earnest money and option fee. Incredible product. That being said-

2) Hard part is going to be getting something under contract without the ability to (confidently) waive the appraisal contingency. This means you need to find the deal off market or work with someone who still has pocket listings. Try FSBOs, or driving around all the streets in your target markets and see if there's a for sale sign. You'll be surprised how often you find them. I've found most owners don't know that the appraisal waiver is something they should be looking for. 

3) I'm all for being conservative, but your gross income is too low. Bump that room rent rate up to 850 minimum.

4) Yes, you're being too specific in your area. If the goal here is to build wealth and put FOMO to rest then you shouldn't limit yourself to a single zip code especially given your other constraints (purchase price cap, appraisal, low inventory, high competition). Austin is a dope city, tons of places i'm sure you will love.

In all- your head is in the right place. Lots of people out there very bullish on Austin. The market forces you're competing against right now will be wind in your sails once you take a deal down. Best of luck!