Better option for new investor BRRRR Austin or House Hack Houston

16 Replies

HI everyone! Thanks for taking the time to read my post and any advice would be much appreciated!

My wife and I live in Round Rock, TX a suburb of Austin but I work in Houston during the week, currently I'm using Airbnb for my accommodations. This is costing us about $500 a month plus gas and food for a total of ~$1100. We LOVE the Austin area and don't want to make the move to Houston as this job is temporary (1 more year).

My gut tells me to buy the more affordable property with conventional financing in Houston and rent out the other 2 bedrooms and live for close to or maybe even free while I Airbnb my bedroom when I'm not there, hopefully bringing in some cash flow. I'm just not sure the appreciation is there to make it worth while long term.

BUT..... My goal is to use the BRRRR strategy to acquire a minimum of 2 properties a year over the next 5 years and be able to quit working for someone else. The Austin / San Antonio / Waco area is where we want to be and we are more comfortable investing in our own backyard. Using this method we would need to use hard money financing and be able to find a deal in a VERY competitive market work, which has been extremely challenging.

Am I over analyzing this and trying to make something work close to home when I should just go for what I can get done now while getting my feet wet in real estate at the same time?

@Cole Burley , I wouldn't worry about appreciation as much as cash flow. The way I see rentals is that my goal is cash flow with any appreciation being icing on the cake. House hacking in Houston would also contribute to minimizing the cash flow OUT of your pocket for Air BnB's etc right now. I'm not sure what loans are available for second homes or if you'd qualify for FHA etc. being that it's a part time home. I'd ask some lenders. You might find you can do a low down payment loan. That would be awesome and then you could spend some money to furnish the whole thing and make some money on it. Or live for free while you are there and build equity in a property.

Everyone I talk to is struggling finding rentals anywhere near Austin but I can't speak from personal experience.  

That's just one perspective. You might start with this and then go south from Austin to find an affordable rental to try to BRRRR closer to God's Country...I mean, San Antonio.

Just kidding.  Best of luck with your decision.

It seems like the option in Houston may make the most sense for your situation. If you can get a place that by renting rooms/or Airbnb’s can eliminate your lodging costs in Houston and pay the mortgage I would think that would be a win. 

I'm not entirely sure on the BRRRR strategy in Austin, but in San Antonio those deals are getting hard to find unless you source them yourself. It's difficult to find properties here that will work both for the refi side and the rental (at a monthly price that makes sense).

@Cole Burley

You can also just rent a 3-5 bedroom and then Airbnb the rest of the rooms.

You will get amazing cash flow with almost no liability or money in, and you will also be house hacking with someone else's house.

But You will not get any RE benefit except cash flow, income on Airbnb is taxed as self employed :(

@Cole Burley do you mean buy a house hack in Houston and not live in it full time? If you have a lender that knows your plan is only temporary and will agree to it then do that! If not and you represent that you'll be there full time that's mortgage fraud and carries pretty serious consequences. Owner occupied mortgages almost always have a clause that says you can't use them for short term rentals also. If you buy a place with an owner occupied loan you're required to live in it for a minimum of a year full time. Why couldn't you do that in Austin?

@Will Pritchett @Aaron Bihl

Thanks for taking the time! I was thinking the house hack is definitely the better option for my current situation as well, almost just needes someone else to say it...lol. Not to mention I am having a heck of a time finding something to BRRRR here in Austin where the numbers come remotely close to working, with out having the time or experience driving for dollars, etc.. I've actually considered the I-35 corridor between Austin and San Antonio as a much better option for future investment. What are y'alls thoughts on the San Marcos and New Braunfels Areas?

@Jordan Moorhead

Thank you for the input! Yes, I'm considering buying a home in Houston and then renting out the remaining rooms to long term tenants (6-12 month Lease) and possibly Airbnb my room when I return to Austin on the weekend. You bring up a great point though and I will definitely clarify my intentions with my lender to avoid any trouble down the road. 

House hacking our current residence wouldn't work as we have young children and my wife is not comfortable with the idea whats so ever......so yea I haven't brought the subject up again...lol 

Originally posted by @Will Pritchett:

@Cole Burley, I wouldn't worry about appreciation as much as cash flow. The way I see rentals is that my goal is cash flow with any appreciation being icing on the cake. House hacking in Houston would also contribute to minimizing the cash flow OUT of your pocket for Air BnB's etc right now. I'm not sure what loans are available for second homes or if you'd qualify for FHA etc. being that it's a part time home. I'd ask some lenders. You might find you can do a low down payment loan. That would be awesome and then you could spend some money to furnish the whole thing and make some money on it. Or live for free while you are there and build equity in a property.

Everyone I talk to is struggling finding rentals anywhere near Austin but I can't speak from personal experience.  

That's just one perspective. You might start with this and then go south from Austin to find an affordable rental to try to BRRRR closer to God's Country...I mean, San Antonio.

Just kidding.  Best of luck with your decision.


 

I consider cash flow the icing on the cake. I have a property that I have made a couple hundred thousand on and next year will be the first year that I project noticeable cash flow.

The return on my typical RE has 1) appreciation by far the best percentage of return 2) equity pay down 3) cash flow. Even on my RE that the cash flow exceeds the equity pay down, cash flow does not exceed the appreciation. This is true even for my RE that was purchased near market highs (example 2004 purchase at $741K that fell in value to ~$620K and now is worth ~$1M) and even my STR RE (duplex) that has rent of ~$15k/month (purchased at $375K and now worth ~$1.2M).

I would think that in Austin the percentage return on buy n hold residential RE from the profit sources would be similar to my area with appreciation having produced a far larger percentage of the return than cash flow or equity pay down.

Most of the Midwest is different. The ROI is defined by the cash flow. Historical appreciation does not historically exceed inflation. This does not compare with Austin.

Originally posted by @Cole Burley :

@Dan Tran

That's a great point! Never considered that as an option. Thanks for the input!

Are there any REI meet up groups in the Houston area you attend or would suggest attending?

https://events.r20.constantcon...

There is this event of jet lending on Wednesday,  its very popular in Houston. 

 

@Cole Burley . I would say house hacking would be the best strategy for a new investor. Less risk, low down payment option, and you get to learn while you live rent free, easy to keep an eye on your investment property. A lot of benefits come with house hacking.

There's a great event in Houston called the "Investment Real Estate Roundtable". Next one will be 10/16, 9am at Down House in the heights. The same company is actually booting one up in Austin as well.

 I wouldn't touch Houston. Too many floods....  I wouldn't be able to sleep at night.