Sell home or turn into rental in Austin, TX area?

Question

My husband and I are ready to get into real estate investing, we are also new empty nesters, want to downsize, and have a good deal of equity in our home. We live in Cedar Park, TX (Austin Area), our home is 3800 sq ft and we have about $420K+ equity currently in the house. We have talked about selling the house and using the profit to begin buying rental properties. Now we are also considering keeping the house and turning it into our first rental property. Looking for sound advice. If we turn it into a rental, how can we still utilize the equity in our home to not only buy our next primary residence but also buy at least one more rental property.

Damaso Bautista · Answer

@Heather Meyer

My wife and I have this conversation all the time. From those conversation I have come up with the following questions to ponder.

1. What does your housing situation look like in a new place?

In my opinion, unless you and your husband are willing to really scale back and live in a location that is way below your means, then selling to buy a place that costs the same as your leaving does nothing for you but put you back in the place where you already are. In this case the way to capture the most money from your situation is to sell and then buy a small low cost home. Then you have a large pot of money to start investing. This is always a sticking point because there aren't many people (my wife included) who see the value in that.

2. What if we stay put what options do we have?

Get a cash out refinance and use that money to start investing. In this scenario you get to have your cake and eat it too. You give nothing up on the lifestyle (family home) and you still have money to invest.

3. If we sell in our neighborhood are we ever planning on coming back.

Right now in my case if I was to sell my properties in Los Angeles, there is no way I could afford to come back if I wanted to. This is something you need to think about. Which goes back to question 1. If you are ready to really downscale, then selling in my opinion is the best thing.

I know these answers are not very technical but they come from real life experience.

Good luck and I look forward to others opinions on the situation.

Victor Steffen · Answer

@Heather Meyer

100% Keep it. 3800 feet in Cedar park will command a premium . Curious how many beds? If you’re in a HOA and there are not any restrictions against unrelated occupants then You could be sitting on an awesome rent by the room house. Worse case scenario you lease it to a single family for 2500/month and have them handle all maintenance and utilities (minus larger capital items of course). Best case you pull $750 per bedroom in this 5-6 bedroom house. Both seem like pretty okay options.

Refinance, pull out ~300k. Put 20% down on your next primary (350k purchase price.. remember we’re downsizing ;) and 25-30% down on the investment property (similar purchase price though closer to town than cedar park). 300k cash cusion gives you the flexibility to be aggressive and put in the types of offers that are getting accepted in the Austin/ Leander/ cedar park areas.

I’m a fan of using debt in growth markets and low interest rate environments. Should be able to retain the current house, plus land a smaller primary, plus an investment property.

Last caveat- no idea if you’re targeting cash flow or appreciation or if you even want to stay in central TX or invest out of state. Maybe a little clarity on those items can help inform future commenters.

Good luck!

Jon Q. · Answer

Never sell in Austin.

Hold it, and cash out refi... if you need the cash. If you sell, you will regret it.

Jordan Moorhead · Answer

@Heather Meyer ask your bank about a line of credit against the property

Heather Meyer · Answer

Victor, your response is much appreciated. We have a 5 bedroom/4.5 bath home. We would want to rent to a single family, we would not be interested in renting by the room (not a good fit for our neighborhood). Comps in the area are showing rent at $3800, I am wondering if that is realistic. We are unsure right now about our next primary residence but yes, downsizing for sure. Whether we stay in this area or not, we do want to purchase a reasonably priced rental property in the Leander/Liberty Hill/Georgetown area. We are thinking of a 3 bedroom house and at that point "rent by the room".

Joe Steele · Answer

You could consider a HELOC with the equity, I've done that to finance BRRRR deals in the past.

Sell home or turn into rental in Austin, TX area?

Sell home or turn into rental in Austin, TX area?

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