Killeen Fourplexes - The Best Multi-Families in Central Texas

I've responded and shared my thoughts on Fort Hood area multi-families so many times in the forums, that I figure it would make sense to write an article here explaining what I think about the market and fourplexes specifically.

Why are Fort Hood fourplexes the best deals in Central Texas? As of this writing, I am looking at the CTXMLS (Killeen, Temple, Williamson County, New Braunfels, Victoria, San Marcos) and there are a whopping 19 fourplexes active for sale (versus 3936 SFH in the same market area). All but 3 of those active fourplexes are in the Fort Hood area (Killeen, Copperas Cove and Gatesville).  More so, compared to the fourplexes that pop up in areas like Austin, Fort Hood fourplexes actually cash flow. Using the 50% rule, you can generally expect an approximate 6-7% cap rate on a quality MLS listed fourplex. I recently listed two fourplexes in the Georgetown area, and there were 10 total MLS fourplex sales in all of Williamson County in the entire previous year. There were no comps for our appraisal, and no choices for investors eager to acquire multi-families. Fort Hood has fourplexes!

But "quality" is the operative word. Of the 16 fourplexes in our market currently, there are only about five I would be keen on owning personally if I had the resources or opportunity.

What do I look for in a fourplex?

3 Bedroom Units. The most prominent configuration in the Fort Hood area is 3/2/2/3 bedroom units - two 2 bedroom units and two 3 bedroom units. There is an abundance of housing available with 3 bedrooms, including full 3/2/2 SFH rentals starting in the $700-$800s in our market, so our renters are spoiled for space. When I rented out my own fourplex myself, I would get calls from tenants whose first question was "how many bedrooms?". After replying "two", many said "thanks" and hung up.  This is not a hard and fast rule, but only 2 bedroom unit buildings sell for $10-$15k less than comparable buildings with two 3 bedroom options. It makes sense, as the rent is $100/mo difference for the extra bedroom!

Townhome Style. This is also not a hard and fast rule, but generally applicable. The ideal buildings are "townhome style", in which all four units enter at the floor level and have an upstairs and downstairs. The other style is "apartment style" in which two units are downstairs, and two units are upstairs. I do not know why one is more favorable as there would seem to be some pros to having rental units that are entirely on the ground floor. It is likely to do with the fact that the townhome style is more prevalent during the newer construction in our area, and therefore tend to be the newer, nicer buildings.

$550/mo Rent for 2 Bedroom Units and $650/mo Rent for 3 Bedroom Units. This is not a rule I would break. These are typical rents at the time of this writing for these size fourplex units - sometimes $25-$50 higher at most. This is also about the minimum rent threshold at which you will still get quality property managers to sign onto your team. The only exception is maybe if you are willing to get your hands dirty and have some in-house and local property management.

A typical Fort Hood fourplex deal is $200-$210,000 acquisition cost for $2400/mo gross rents. Using the 50% rule, that is approximately a 6.9% cap rate. A building with all 2 bedroom units I would want to pay $195,000 and $2200/mo gross - about 6.7% cap rate. Typically, these buildings will have been built in the early to mid-2000s, and might be located in any of the major local cities - Killeen, Copperas Cove or Harker Heights.

Having been built in the early 2000s, most of these buildings are approximately 15 years old, and you can expect a reasonable amount of deferred maintenance costs up front. Generally, these things are limited to cosmetic items like flooring and paint, though that can still add up to $10,000+ for four units. Remember to budget for some cosmetic items. Hopefully, if the building is fully rented, you will only have to pay for those upgrades in piecemeal as each tenant moves out, and not upfront. It is a buyer-friendly market, so sellers generally expect to make major repairs (or concessions for repairs) like roofs (there was a hailstorm in 2014), and closing cost concessions. 

Even though Harker Heights is a higher price point area in our market ($190,000 SFH median sales price vs. $120,000 median for Killeen and Copperas Cove), that does not quite carry over into the multi-family market for some reason. Partly, it is because most multi-families in the area are older, smaller, or more awkward (the line of duplexes along Indian Trail must make driving in and out of your driveway a nightmare). Just keep in mind that Harker Heights does not seem to confer a major advantage on multi-family occupancy rates or prices.

Doing better than a 6-7% cap rate will be nearly impossible on the MLS. Most fourplexes don't go multiple offers, but they still get a lot of attention on the MLS, and Realtors take their cut and make sure their sellers get retail pricing. I have run into a rare off-market deal or wholesale, but I would not count on finding at all. I've personally done some direct mail trying to find foruplex seller leads and have come up empty so far. 

The fourplex market in Killeen is interesting. While Killeen survived the Great Recession without too much disruption, the fourplex market was a different story. Many of the owners were out-of-state Californians who were caught in firesales. The fourplex market crashed, bottoming out in 2011 during which an incredible 4 out of 5 fourplexes sold were foreclosures. Since then, the market has rebounded significantly, nearing the pre-Recession sales prices. Because of the crash, there have been no fourplexes built since 2008, though duplex builders are still going strong.

There. I've written just about everything I know about Fort Hood fourplexes. Message me if you have questions or would like to explore Fort Hood multi-families further!