Is the 2% rule possible in the Austin SFH market?

Question

Has anyone that invests in the Austin real estate market found properties that meet the 2% rule? What other methods have successful investors used to determine the worthiness of a SFH investment property in Austin.

Thanks!

Raquel Barela · Answer

Jason Grote
Actually my methods are pretty simple.  I always invest in desirable areas or areas that are overlooked and have great potential (think East Austin - close to downtown and underdeveloped.  Especially 5-7 years ago).

My goals are appreciation and cash flow.  I've owned properties in Tarrytown, Rollingwood, Westlake, East & South Austin and downtown.  These locations are usually easier to rent out and easier to sell when I choose to sell.

I'm always researching property prices in areas that I'm interested to insure I know a good deal when I see one.  And by always, I mean even when I don't plan on buying a property.  By doing so, I always know the market value of properties in a certain location and I can act quickly when I see a deal (given that I have the cash to do so).

If possible, I try to buy properties in the "off season" (November through February) although I've bought properties at other times as well.  I've found that sellers are usually more motivated during the "off season".  One of my best deals was on a house in Westlake that I made an offer on over the Christmas holiday (in 2004).

The Austin market is pretty tight and the city continues to grow, so I may have to change my methods and strategy eventually.  However, this has worked for me and of course I'm always interested in learning what has worked for others.  By the way, none of my properties would have ever followed the 2% rule but they still turned out to be good investments. :-)

Dennis Rodriguez · Answer

@Ronnie Sparrow it is always good to read success stories in the Houston area. I'm just getting started and my plan is to follow what you are doing. Buy and hold. If you ever know of a local meetup (other than the local REIAs) please let me know.

Happy Investing!!!

Dennis

Ronnie Sparrow · Answer

Hello Sharon thanks for the response.  The rental market is excellent in Houston.  All my rentals  have been leased off the MLS which I firmly believe  by going throughout the MLS with a realtor you are able to get top of the market rent rates.  My last two deals I acquired via my own marketing  so there was no middleman just me and the seller.  This is the way to go!  So because of this my cashflow on my last two deals are $492 and $565.  My first property was a gift from my mother, thank you mom.  This is what got me started.  The other two were Foreclosures off the MLS via a realtor.  I used hard money on the two Foreclosures and private money on my last two deals..  So believe it or  not my last two deals I used ZERO of my own money.   I am getting better and better at this.

Raquel Barela · Answer

Jason Grote
I have considered it, but my full time job helps with many aspects of investing (cash down, financing, etc...).  One of my goals is to generate enough passive income that full time REI is an option.

Ali Boone · Answer

I agree @Gunnar Teltow. I don't flip anyway but even if I did, long-distance would be too risky for me. That's why I go the sissy route and just buy perfect condition houses :) Lol.

Jeff Clawson · Answer

You aren't going to find 2% in Austin. You can find  a 2% property in one of the small rural towns outside of Austin, such as Taylor, Granger, up to Belton and Temple, Waco, etc.

1% is a good rule of thumb for Austin.

Gunnar Teltow · Answer

@Ali Boone: so true.

I just got started and my original plan was to try both a flip and a SFR in Austin to see which strategy I liked best. I toured a couple of quads in Austin that barely broke 1.4% and were basically slums. I'm working St. Louis instead and have a $33k rehabbed SFR under contract that will rent for $750.

As for flipping in Austin, I have a couple of people (including my broker) who I'm looking for potential deals with but even that seems to be hard to find in Austin. I don't mind doing out-of-state SFR (I have a good team in STL) but I wouldn't want to do a long distance flip even as just the money partner.

Jason Grote · Answer

@Ronnie Sparrow Thanks for listening to the podcast, glad you liked it.  What you call Driving for Dollars, we used to call "The Dirty Thirty" because we would try to get 30 letters out per week.  We have no magic way of tracking, but we have many great areas to drive that by the time we get back around to one we have already hit, it's time to hit em' again.  Plus, a repeat letter can oftentimes increase your chances of a response.

Great to hear your success story thus far.  Hope the increase continues for you!

Ali Boone · Answer

There are few quality markets that you will hit the 2% rule on these days. Especially not Austin. You'll be good to get positive cash flow there! It exists, but prices tend to be a little higher there so between that and high TX property taxes, you definitely won't see the higher returns. BUT, that doesn't mean it's not still a great place to invest.

I wrote a couple articles that might help?

http://www.biggerpockets.com/renewsblog/2013/04/14/the-2-percent-rule/

http://www.biggerpockets.com/renewsblog/2013/03/30/battle-of-the-cap-rates/

Sharon Tzib · Answer

Hey @Ronnie Sparrow are you achieving that kind of cash flow w/ financing or cash; and if leveraged, what % down do you normally have to make to get that kind of cash flow, if you don't mind sharing.

I'm moving to Houston next year to restart my REI career, which is why I'm asking. Thanks!

Is the 2% rule possible in the Austin SFH market?

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