Investing in Austin area

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Investing in Austin area

Paras Newbe
New to Real Estate · Sammamish, WA · Member since 2020 · 15 posts · 7 votes

Hello, I am from Seattle but the market here is too high and it looks like Austin might be an area to invest based on projected economic growth. My goal is to build up some portfolio that can start start generating some cash flow and to build up some equity.

I have couple of questions about Austin and about real estate investing in general. I have read a book from Brandon Turner and have some general input from other real estate friends. But still, my knowledge is very very basic.

1. Based on reading other posts, I realized that cash flow is not that easy if i want to buy single family house. For few people, amount of mortgage and rent they get is the same. Considering economic growth, it is ok to take this hit for now and cash flow will begin to generate after 2 - 3 years? Is this type of thinking ok?

2. Since this is going to be the first property, and it being in Austin make me little nervous. Is this a advisable? how can I find a property management company in the area that  has good track record?

3. What areas in Austin I should be looking at for single family houses?

4. I want to start with above questions for now. But please let me know if I should be thinking differently. If I should be considering other areas / states?

Thank you.


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    Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    6y

    @Paras Newbe love living and investing here in Austin!

    1. I personally won't break even or take negative cashflow when investing and it's hard for me to recommend that to others. 

    2. I always get recommendations from people I know and trust. We have some great managers here in Austin too.

    3. I'd look outside of the actual city of Austin. The smaller cities on the edge that people will still consider Austin work better like Round Rock, Pflugerville, Georgetown, etc.

    4. Personally I'm investing in Austin because I'm confident about the future here. While there may be other areas that cashflow better now, that's really only part of the equation for me. If it cashflows but doesn't appreciate at all and then I have a place that doesn't cashflow as well but appreciates at over 5% a year I'm going to make more money. After the sale I can then 1031 that into a larger asset or assets that cashflow better.

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    • Ryan KellyBusiness Member
      Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
      6y

      @Paras Newbe These are broad questions and too many to answer with one post. I would focus first on continuing your education. You should read David Greene’s book on long-distance real estate investing and then start networking with Realtors and property managers in Austin. You can find opportunities in various locations around the Austin area, but the type of property you buy and where you buy will all depend on your goals.

      [email protected]512-674-5478
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    • Tim Hendricks
      Real Estate Broker · Austin, TX · Member since 2020 · 28 posts · 25 votes
      6y

      @Paras Newbe I may be biased somewhat, living and working here, but I think Austin is still a great place to invest. It's got a strong track record of employment and population growth, but is still less expensive than other major metros that have large & and growing knowledge economy. It being the state capital and home to a major university help, too.

      1) as long as your investment horizon is medium to long term, yes, it is. If you are thinking short term (<3 years) you should really not be considering any rental property investment (transaction costs make entering and exiting properties in a quick manner prohibitive unless you are buying/flipping distressed assets). You should be able to generate positive cash flow, given the current low interest rates, after PITI. Once all non-recurring expenses are accounted for, you'll be closer to breakeven. But a decent size chunk of your monthly payment is principal reduction on your loan. That's a forced savings account, essentially, and impacts cash flow but not profit.

      2) Read about various management companies here on BP, talk to your network, get some recos. Most Austin property managers are very used to dealing with out of state investors like your self - we get lots of clients from California & Washington.

      3) For SF homes, you are probably best off looking in a 15-25 mi radius outside of the city core. Homes will be priced between $200-$250K, and should rent for $1500-$1800/mo. Buda/Kyle, Round Rock, Cedar Park and Leander are all good areas. If you are optimizing primarily for appreciation vs. cash flow, you can push a but closer in to the city center, but your price points will push to $300 and up, and the GRM/cap rate will suffer.

      4) Other things to consider - are you only making 1 investment? That would dictate what kind of investment you should think about. If you are buying 3-4 homes, I would diversify the geos as well as the role in the portfolio - ie pick up a couple of higher cash on cash returns, and then 1-2 that are more appreciation-focused. Also, talk to a lender to get pre-approved. The market here is so hot that most homes will be listed Thur/Fri and under contract with multiple offers by Sunday night / Monday morning. You need to be ready to pull the trigger quickly when the right deal crosses your desk.

      Best of luck!

      Tim

      2Reply
    • Jordan MoorheadBusiness Member
      Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
      6y

      @Paras Newbe love living and investing here in Austin!

      1. I personally won't break even or take negative cashflow when investing and it's hard for me to recommend that to others. 

      2. I always get recommendations from people I know and trust. We have some great managers here in Austin too.

      3. I'd look outside of the actual city of Austin. The smaller cities on the edge that people will still consider Austin work better like Round Rock, Pflugerville, Georgetown, etc.

      4. Personally I'm investing in Austin because I'm confident about the future here. While there may be other areas that cashflow better now, that's really only part of the equation for me. If it cashflows but doesn't appreciate at all and then I have a place that doesn't cashflow as well but appreciates at over 5% a year I'm going to make more money. After the sale I can then 1031 that into a larger asset or assets that cashflow better.

      [email protected]512-888-9122
      The Moorhead Team5140 Reviews
      WebsiteView Page
      3Reply
    • V Krishna
      Austin, TX · Member since 2020 · 9 posts · 0 votes
      6y

      @Tim Hendricks 👌🏼

      0Reply
    • Paras Newbe
      OP
      New to Real Estate · Sammamish, WA · Member since 2020 · 15 posts · 7 votes
      6y

      @Ryan Kelly : Thank you very much for the suggestion. I will have a look at that book. Looks like a good advice for distance investing.

      @Tim Hendricks and @Jordan Moorhead, Thank you for providing your perspective. Couple of points based on your combine inputs.

      1. Currently myself is debating with myself about point number 1 specifically (negative cash flow for few years). It looks like the only way to generate instant positive cash-flow is to go into fixer upper business. Is that so? I am not sure if I am going to go in that business based on the my current lifestyle (Kids, Job, Seattle etc). What I am looking for is simply buy and rent. Being remote, I though buying a new construction can give me some peace in terms of maintenance calls and all. but I will be scarifying cash-flow by doing that. Buying new construction puts me in mortgage same as rent fundamental. In fact I may be actually paying from my pocket (property management + vacancy + may be some maintenance).  According to Brandon this (negative cash-flow) should not be done. Is this a hard core rule everyone or majority follows?

      Does buying duplex or fourplex increases my possibility of cash-flow (but less appreciation). my main goal is the cash flow. if not now, after 5 - 6 years.

      2. In some other threads,I read that, there is no much inventory for duplex or fourplex. is that so in Austin?

      3. @Tim Hendricks, I am planning to buy 4 - 5 but gradually. I want to start with one and get the feel for it first. I like your suggestion of concept diversification (cash flow vs appreciation)

      Thank you. Looking for some more perspective. 

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    • Michael Tyler
      Rental Property Investor · CA · Member since 2019 · 65 posts · 53 votes
      6y

      @Paras Newbe The reason Bigger Pockets pushes no negative cashflow is to keep people safely buffered from financial hardship. If you have a rock solid job with income just begging to be parked somewhere, then negative cashflow is not a dealbreaker. Paying your own income into an investment property's mortgage every month is really not so different than a recurring savings goal placed into a 401k or an IRA.

      If paying into the investment property’s mortgage each month is even remotely difficult, then you should avoid negative cashflow. And personally I would only go this route in a market that is known for strong appreciation (Austin is great for this).

      Yes a multifamily property is easier to cashflow. Yes they’re harder to find. Duplex owners like us have kind of a running joke about the amount of direct mail we get begging us to sell. 

      But on the MFH topic, you might consider looking an hour south at San Antonio. A lot easier to find cash flow there.  

      1Reply
    • Paras Newbe
      OP
      New to Real Estate · Sammamish, WA · Member since 2020 · 15 posts · 7 votes
      6y

      Thank you @Michael Tyler for the info. You suggested San Antonio for duplex and fourplex. I assume i should not bet too high on appreciation of the property but cash on cash return. Am I right? San Antonio economy is not growing as fast as Austin.

      I guess I will start another thread (after looking at few existing) for San Antonio. But Clash flow is what I am looking for right now. Please let me know if i should be looking at somewhere else too.

      Thank you. 

      0Reply
    • Paras Newbe
      OP
      New to Real Estate · Sammamish, WA · Member since 2020 · 15 posts · 7 votes
      6y

      https://www.biggerpockets.com/... I created for San Antonio area.

      0Reply
    • Tim Hendricks
      Real Estate Broker · Austin, TX · Member since 2020 · 28 posts · 25 votes
      6y

      @Paras Newbe SA will have better cash flow, but at the expense of appreciation potential. The majority of the investable housing stock will be older, so you'll need to prepare yourself for greater repair & maintenance expenses.

      You can get positive cash flow in the Austin metro. A typical recent deal I helped a client with was a $200K 1500sqft home in Kyle. Rented it at $1500/mo. His PITI, at 20% down, was ~$1250/mo. That $250 leaves a decent sized, but not huge, buffer for management, vacancy, leasing and repairs. Within that $1250, there's another ~$250 that is principal paydown, so there's really a $500/mo buffer ($250 cash flow + $250 principal) between your costs and income.

      Accepting the potential of a small negative cash flow is a personal decision, and I'm sure you will find fervent believers in each camp here. My personal take:

      1) I have a strong personal income stream that can take the occasional need to subsidize my investments

      2) My goal is to focus on getting a large cash flow stream for when I want to stop or slow down working. $100-$200/mo is irrelevant to my lifestyle now (I'm very fortunate to be able to say this, and realize for many others that may not be the case). As such, I usually purchase properties with 15-20y mortgages vs. a traditional 30. That used to save you 50-65bps on your rate (not so much any more), so it was a net positive for my profit but definitely impacted cash flow. But having a paid off, income producing, & appreciation asset is my end goal.

      3) The diversification that I mentioned in an earlier post. As your mix of properties grows, each one will be able to provide a buffer against each other. And if you stagger lease timing as well as property age/location, there's a low likelihood you will ever have an issue that will require you to open your personal pocketbook. When I had to drop $4K on a new HVAC system when we only had 2 rental properties, I had to dig deep to fund it. Now, with 20+, I can absorb a $4k expense each month with free cash flow. If you target 5 home purchases, and each one generates $250/mo in post PITI cash flow, you will have $1250/mo to absorb all of the below the line expenses - management, leasing, vacancy, repairs - and if managed correctly, you can *usually* internally fund all of those expenses, if not on a monthly basis, at least when viewed annually.

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    • Jordan MoorheadBusiness Member
      Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
      6y

      @Paras Newbe

      1. I would never recommend buying with negative cashflow but to each their own. I buy and fix up but have great contractors and don't do any work myself.

      2. There's not a ton but there are still plenty of opportunities if you're creative!

      3. Definitely recommend getting started with one and moving from there.

      [email protected]512-888-9122
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