Advice to invest in Austin, TX Townhouse

[Bill Mason]

Hi All, new to BP. I was hoping for some advice on questions below, thanks in advance!

Context:

-brother is moving to Austin to work at a company in east riverside area. His preference is to be close to work. I figured if I buy an investment property there, he can rent a room and be the "property manager" and rent the other room(s) out.

-my budget is $250k.

-I prefer newer homes / town homes because I frequently travel internationally and thus don't want to deal with frequent repairs.

-brother doesn't want to be more than 10 miles from his office.

-all the above led me to a new construction townhouse in 78747, 2 bed / 2 bath for ~$240k. I will put 20-20% down.

-the community is gated, close access to I-35, and will have at least 90 units.

-the zip code has appreciated considerably over last few years (5-13% YoY).

-HOA fees are $160/month which covers everything exterior of the home (landscaping, insurance, etc).

Goals

-I completely understand that it won't cash flow, but my brother is pretty much a 2-4 year guaranteed renter of 1 room.

-I want to rent the other room out.

-I hope to make profit off of the appreciation, holding for 6-8 years. The appreciation is pure speculation based on past performance.

Questions:

-should I stay away from investing in a town home due the common risks (smaller buyer pool, potential HOA issues, large competition etc)? What are people's thoughts on appreciation of townhouse vs SFH in south / east Austin?

-is it relatively easy to find a professional to rent a single room in that zip code (south austin)? If so, what are the best ways?

[Bill Mason]

any advice?

[Greg H.]

I would not do this deal for the following reasons:

-Austin has had a tremendous run and while I do not see a huge downturn, I do not see how the run can continue at this level

-Huge number of rental units coming on line that will bring down occupancy levels and rents will follow

-Your $160 per month HOA fee WILL jump once the complex is sold out. This is a typical builder ploy to keep the fee low by subsidizing the HOA.

[Charlie Vess]

I agree with Greg H. Austins’ growth has also been on an excellerated run. Now having family involved is always a great incentive. But situations do occur whereby if the Austin market adjusts, his company may relocate him. This takes me to investments; if I’m going in on a deal already knowing that I’m not making money then it’s a non-starter.

Best!
Charlie

[Dave G.]

Most people on BP curse me for this, but I am as much an appreciation investor as cash-flow, if not more. And to not get burned when investing with an emphasis on appreciation, you need to understand your market down to a gnats-*** level of detail and watch it like a hawk. 

You need to pay attention to new construction, resale stats, employment stats, company movement in & out, crime, local politics, state laws (biz friendly?) and look at all the macroeconomic factors external to your market, but still have an indirect influence on it. 

In short, you need to ask yourself how will the appreciation that has occurred over the recent years be sustained, and what driving forces will happen going forward to continue the price trends of demand > supply?? If you can't answer these questions confidently, you're investing blind without a cane.

[Bill Mason]

All - thanks a lot for the honest advice. I’m glad you’ve given me these perspectives. Clear to me now the risks with these investment are too high and I’m going in much more “blind” than I thought.

[Bill Mason]

@Dave G I completely agree with you at looking at the driving factors in close detail. I have done that already, and in short I came to following high level findings.

Positive impact on appreciation:
-area was historically undesirable due to association with “East Austin” demographic stereotype, but that his changed rapidly in last 10 years due to proximity to downtown, universities, corporations moving in, redevelopment of parks/recreations etc.
-the median income YoY is rising rapidly.
-the crime in the pocket where the townhomes are located is relatively low, since this Pocket was close to onion creek park and some nice quiet neighborhoods exist.

Some negative factors:
-all that’s been mentioned about risks with townhome HOA’s
-having 90+ units mostly the same can slow down appreciation dramatically. Lot of competition of the same kind of unit when selling.
-there is an investor cap by the builder, and I fully expect the HOA to find ways to enforce this.
-there are several apartment complexes nearby.
-schools aren’t the greatest, nowhere near levels of a typical bedroom community.

[Joe Scaparra]

I agree with the above mainly because your investing in a cookie cutter property at what appears to be a mature real estate cycle.  Being negative right off the bat is not my idea of an investment, especially here in Texas where it is not to hard to find a positive cash flow situation.  

However, I do have a suggestion. It goes contrary to your desire to buy a new property for maintenance reasons. Might you consider a duplex. It won't be as nice as your townhome proposal, but you should cash flow positive day one by putting down 20-25%. You won't have HOA or condo association fees to worry about. You will have your brother on site, find him a good handyman to be your go to guy to fix things and you just might have a winning combination. Good Luck.

[Matt Millard]

Joe Scaparra where do you consistently find cash flow in major Texas cities in today’s market & these property taxes?

[Bill Mason]

Joe Scaparra thanks for the insight. Agree with above but more specifically, what areas of Austin are you finding decent duplexes in and at what price ranges?

[Joe Scaparra]

Bought one last October Braker and Renell for 255k.  2 bedroom 1 bath. That is on the north side of Austin.  Off of Stassney to the south you can find them probably a little cheaper but may need to be vigilant looking.

[Joe Scaparra]

@Matt Millard My brother lives in Flower Mound and owns two duplexes in Lewisville.  Yeah they are harder to find but they can be found.  Network and keep looking.