How to approach 1st property purchase (Austin, TX)

20 Replies

Hey BiggerPockets,

I recently received pre-qual letters from two lenders and am now aiming to purchase my first property prior to June 2020.  My plan is to househack a single-family home (Austin, TX).  The area has been getting more and more expensive the past few years so looking into new builds about ~20-30 mins outside of downtown.  Being 26 I understand sometimes you may need to bite the bullet on location for the first property.  Although Austin is developing farther out so fortunately could really benefit in the long-term.

For those of you whose first property was a single-family househack, what would you do differently or what would you pay more attention to if you could do it again?  Or for those who elected to go a different investment strategy their first go-around, I'd value additional perspective as well.  Also any questions you'd be asking yourself would be a big help too.

Additional context:

- buy and hold w/conventional 5% loan;

- refinance w/in ~24-months > move and repeat process

Thanks in advance!

Austin

@Austin Adams First of all, congratulations on starting your investing journey. House hacking is an amazing strategy at a young age.

I would look at rental comps in the neighborhood and check out Craigslist and. I’ll KW at per room rates to compare. This can help give you a better analysis of your returns.

What communities are you targeting? Feel free to reach out if you want to connect and get more data on the different Austin markets.

@Austin Adams , you have the right idea thinking house hacking but the WRONG property type.  My advice, don't say house or condo when thinking of house hacking in Austin.  The name of the game is to MAXIMIZE cashflow!  Your 26, which means young, probably single, no kids.  If I am right then you are the perfect candidate to look for a duplex.  Soooooooo many advantages over a house.  Get a duplex, rent out  the other side and if you're really motivated rent out a room on your side. Live for free or for no more than $500-600 a month.   Begin building wealth and then you will really get excited about real estate.  Cheers.

@Joe Scaparra

I agree with Joe, I’d even say to go as far as a quad Plex. House hacking a multi family is a great way to get started and if I was in your position that’s exactly what I would take on as my first project.

Consider also looking closer to the north side of the city if the right prices can be found. Apple is building their billion dollar campus up there, and tech jobs raise rents. The value of our duplex up there in a go-nowhere neighborhood is kind of blowing our minds when we look back a few years. 

@Austin Adams I would agree with @Joe Scaparra and @Scott MacDonald in keeping the possibility of small multifamily for a househack on the table.  It's a solid option that allows you to potentially get in with a low down payment and have immediate rental income as well.  There are some nice burgeoning areas of Austin with relatively affordable prices that are worth considering.  Either way, you have the right mindset going in, good luck!

@Bryan Noth , @Joe Scaparra , and @Scott MacDonald I am also really interested in a multifamily for a househack--either a duplex or fourplex. However, you mentioned that the Austin market itself is possibly too hot to invest in Austin proper. While I completely understand that sacrifices must be made, especially if you are new to real estate investment, do you absolutely think that investing in Austin is not worth it? I currently live in South Austin and would prefer to minimize my commute if at all possible. But am I wasting my time trying to find a good deal close to downtown? 

Originally posted by @Beth Lemmons :

@Bryan Noth , @Joe Scaparra , and @Scott MacDonald I am also really interested in a multifamily for a househack--either a duplex or fourplex. However, you mentioned that the Austin market itself is possibly too hot to invest in Austin proper. While I completely understand that sacrifices must be made, especially if you are new to real estate investment, do you absolutely think that investing in Austin is not worth it? I currently live in South Austin and would prefer to minimize my commute if at all possible. But am I wasting my time trying to find a good deal close to downtown? 

 Hi Beth, I don’t remember saying the Austin market was too hot. It’s harder to find deals where the numbers are right. It’s much easier to get into a hot market when you plan on living there as you can afford to pay a little more. I invest in Austin for investments only so I’ve a strict criteria on what I’m looking for such as cash flow and little to zero in the deal but even that is possible in Austin if you look hard enough. 

@Beth Lemmons , I echo @Scott MacDonald comments as well.  Within 10 miles of the state capital is California pricing.  That said, opportunity still exist for a house hacker to make it work.  Being an owner occupant puts you at an advantage over a pure investor.  The combination of allocating what you were losing by renting and then moving in one side makes the opportunity becomes more desirable and profitable compared to a pure investor.  It is getting harder to cash flow positive, especially within 10 miles of the capital. Pure investors are having to look on the outskirts of Austin to make the numbers work. Now that being said, you still could make good investments without positive cash flow.......they do it every day in California, but you incur higher risk to do so.  In Texas, we have been spoiled as it has been easy to cash flow positive.  It still is easy to do, just not so much in Austin proper.  Cheers.

I'd like to echo the comment about looking for at the very least, and ADU option for your property. I have found a nice pocket off of St. John's that is still on the cheaper side for Austin but having A TON of renovated properties so if you are looking at holding for 24 months, should see a nice up swing!
The Apple campus is another great hot spot to look into but the point that keeps being reiterated, for a reason, is have multiple doors!

In Austin, if you are going to do any renovations, plan accordingly for the time the City will take to approve things. Easily can add an extra 2 months when you run your numbers.

@Beth Lemmons The Austin market is absolutely growing, and parts are growing at an expedited rate which may be regarded as 'hot'.  If you look at year over year price appreciation there are zip codes and contained local areas where the values have just soared.  South Congress, Zilker, Bouldin, Downtown, Travis Heights, Westlake to name a few are not going to cashflow without quite a significant downpayment.  Even with the large down payment taxes will likely eat the remaining income.  

I would close the radius that @Joe Scaparra mentioned of 10 miles from the Capital being California or premium pricing to about 4 miles, and even within that radius there are pockets of exception. ABIA is 7 miles from the Capital for reference. A quick MLS search for MF and SF under $300k shows just under 100 properties available today within 7 miles of the Capital. Within 10 miles, that jumps to over 700 results. I think this exemplifies why the Austin market has so much potential. You do not have to go to the farthest reaches of the city to find 'deal' properties. If you are purchasing a turnkey SFR with 20% down and expect cashflow after all expenses then you may need to venture 15+ miles from downtown. But there are absolutely options closer in right now, especially if you know local price points relative to surrounding areas. If you cannot tell, I believe heavily in the Austin market potential!

@AP Horvath cap rate is going to have quite a degree of variance depending on multiple factors, 3 primary variables being:

  • Asset class type (A, B, C, D)
  • Property condition (turnkey vs value add)
  • Location (especially with property taxes here)

Again, it varies on the factors above and if you are calculating your cap rate via purchase price model or projected price model. You can run calculations to gather estimates from MLS or Zillow to get more specific insight on the particular type of asset you are curious about. Many seem to hover around the 5-7% range, but that is a broad generalization. Plug a few in on the BP calculators and develop some data for your specific propriety criteria.

@Austin Adams I recommend taking your time to explore the different areas and communities and refine your criteria before you pull the trigger. This way you can keep conducting analysis to see how they shape out. You want to KNOW when you have your deal versus HOPING you have one.

@Austin Adams It's hard to ignore the ROI on an ADU but it may cost more to build than the value it adds to your property. We're hoping to build one this year in spite of that. Warning though- if you're ever thinking about moving, some areas won't allow two separate leases on one property which could limit legal cashflow.

@Austin Adams Austin, it's great that you have the mobility and youth to pursue this strategy. This is how I got started here in Austin years ago. I bought a single family home and turned it into a rental. It worked great, but if there was one thing I'd change it would be that I would have started with a duplex or a fourplex if at all possible. Aim for that if you can. Buy location, good schools, and in the path of progress. In Austin, I'd look to get near something like Project Catalyst on the east side. This area is going to explode. Learn how the city is growing and plant yourself in the middle of it. 

buy based on location, do a 10-15 year note, refi in 3-5 years with great equity to a longer term note then rent it out

or

save your money while renting and put a larger dn pmt into a house purchase

or

endless possibilities..... depends on your income, credit, commute, lifestyle, etc...

There are not many good deals in Austin to house hack right now

My wife and I purchased and "hacked" our South Austin duplex long before we heard the term. When we were ready, we thought, to move into a larger duplex, we found ourselves priced out of our own neighborhood. We opted for a new build single family a bit farther east. Are definitely enjoying the cash flow from the duplex now, but buying another at current prices is challenging. If we were starting today, that FHA down payment we started with in '12 would be much much higher.

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