Getting Started & Optimizing for Cash Flow
Hi all,
I own a house in Austin TX but the local market has very low cap rates.
I'm looking to buy my first multifamily home. I want to optimize for cash flow vs appreciation but would like to be able to drive to see the deals so ideally it'd be in texas. Ideally I'd like to start with a fourplex in B/C type of neighborhood and do some value adds. Budget is ~$500k. I'm looking for ~15% cash on cash. Any suggestions for markets in Texas that have good cash flow? How is San Antonio? Or how about college towns like San Marcos and College Station?
Hey @Martin Alonso!
With the Market right now and everyone moving to Texas it is very hard to find positive Cashflow in almost any market. With that being said it is definitely possible. Specifically in the College Station market we have good deals come by every now and then and we do have a more amount of multifamily than usual. I would definitely look into College Station.
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Real Estate Agent Texas (#721430)
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@Martin Alonso - college station if youre serious about getting into student housing. Ive sometimes found high cap rates but a lot of additional management so reluctant to move forward in college towns. Try Killeen as well - have a friend in san diego (where I am) who has done well there in multifamily and has steady military tenants.
@Martin Alonso If you rent a property furnished for 30 day minimums on Airbnb, your CoC return will increase by ~20% and your cap rate increase by 2x-3x. It's still possible to make it cash flow in Austin, you just need to be creative.
- Conner Olsen with The Moorhead Team
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Getting high cap rates in Texas are hard. Even in little old Centerville which is about 2 hours outside of Round rock there is an apartment building selling in low 7's cap rate. If you go to areas where there is little demand then you will find higher cap rates because that is what is necessary to move inventory. I imagine in Detroit Michigan the cap rates are very high..its just a guess though.
I recommend you consider Houston, TX!
I personally have rentals here in Houston, the cash-on-cash return and appreciation are steady.
You should select a market that will meet your investment goals.
You need a team of local professionals like property managers, contractors, agents etc.
A local Investor-Agent can help shorten your learning curve and save you a lot of headaches as they tend to understand the market better.
All the best!
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Real Estate Agent Texas (#736740)
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- Podcast Guest on Show #469
Hey all thanks for your responses!
@David Schmiediche @Jordan Sand what's the best way to find deals in college station, is it good to use loopnet.com or zillow? Jordan do you think a property manager will be able to deal with the students effectively?
@Conner Olsen Kudos to you that's pretty insane. Fourplexes and up are usually pretty expensive in Austin but would love to hear more. Will DM you.
@Aaron Gordy true, I do think there's a happy middle between the appreciation and the cash flow play while still finding a good area. https://www.frbsf.org/economic... check this out. Even in 2011 cap rates in austin were ~4.5% which is very low compared with the other cities
@Wale Lawal I was originally looking at houston but found out that 1/3 of properties flood. How have you been managing the floodings?
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#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
- Investor
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I'd shift your search to Killeen Texas. Just an hour north of Austin this city has the largest military base on earth and will be more and more desirable as Austin grows unaffordable for the average person. This is where I invest, happy to talk more about it
Quote from @Martin Alonso:15% Cash on cash is very difficult in any major growing market. If cash flow is that important you will likely need to shop smaller markets (population of 40k or less), but of course, your risk will increase in those less stable markets. Your other option is to look at assets that are better known for cash flow, like RV parks, self-storage, or mobile home parks. Even these assets are selling at 7-9 Caps.
I'm looking for ~15% cash on cash. Any suggestions for markets in Texas that have good cash flow? How is San Antonio? Or how about college towns like San Marcos and College Station?
Quote from @Martin Alonso:
Hey all thanks for your responses!
@David Schmiediche @Jordan Sand what's the best way to find deals in college station, is it good to use loopnet.com or zillow? Jordan do you think a property manager will be able to deal with the students effectively?@Conner Olsen Kudos to you that's pretty insane. Fourplexes and up are usually pretty expensive in Austin but would love to hear more. Will DM you.
@Aaron Gordy true, I do think there's a happy middle between the appreciation and the cash flow play while still finding a good area. https://www.frbsf.org/economic... check this out. Even in 2011 cap rates in austin were ~4.5% which is very low compared with the other cities
@Wale Lawal I was originally looking at houston but found out that 1/3 of properties flood. How have you been managing the floodings?
I simply avoid buying any property in a flood zone both for myself and for my clients. I don't agree that 1/3 of Houston properties flood.
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Real Estate Agent Texas (#736740)
- (832) 776-9582
- https://tinyurl.com/f4ce9n8j
- [email protected]
- Podcast Guest on Show #469
@Martin Alonso San Marcos and College Station are both great and so is San Antonio! That being said I think you're going to have a hell of a time finding 15% cash on cash unless you're looking in the worst parts of San Antonio
Quote from @Jordan Moorhead:I agree 100% with Jordan. Finding 15% isn’t really possible in any of those areas. I think you will also be pretty hard pressed to find a 4 unit for $500K unless it needs a lot of work or is in an area you don’t want to buy in.
@Martin Alonso San Marcos and College Station are both great and so is San Antonio! That being said I think you're going to have a hell of a time finding 15% cash on cash unless you're looking in the worst parts of San Antonio
@Martin Alonso - Yes get a PM who works primarily with college students. Quality will be subpar from my experience but students have a lot of repairs and the multiple tenants on a lease makes it more difficult.
@Eliott Elias I have talked with a few other investors and the majority like it. Some locals mentioned crime rates but overall positive feedback.
@Gregory Schwartz are those inherently more risky or capital intensive? Or do less people want to do them? What's the source of the higher cap rate?
@Jordan Moorhead @Loren Polito When I started I figured it would be a lot of hustle and maybe close to impossible but just trying to get a concrete number I can measure against. I am ok buying in C type neighborhoods to fix something up but definitely not going to start with a D type of neighborhood. I'll need to be a bit more risky in this aspect but could also pay off if the neighborhood improves over time.
@Jordan Sand If I end up buying rentals in college towns I'll then need to make sure I buffer up those estimates for costs of running it. Otherwise there could be some bias that doesn't do justice to the true cost of running rentals in college towns.
I just watched a bigger pockets video for the highest cash flows video and found this data useful: https://www.biggerpockets.com/... . Definitely for the biggest cities rent to price is the highest in San Antonio and Houston. Of course this metric alone doesn't give the full picture but it's good to think about.
@Martin Alonso my experience still remains the same. I would start looking and see where you can find 15% CoC. I think you're going to find that it's in the worst areas, with no growth and appreciation. Alternatively like @Conner Olsen mentioned, maybe you get less that that but with a more creative rental strategy in places that have more possibility of appreciation.
@Martin Alonso
Are other asset classes more risky? I would say that the increased cap rate is indicative of a perceived increase in risk the same way that Class A assets are perceived to be less risky than class D and a subsequent lower cap rate. But all that risk can be mitigated through market research, experienced partners, or just good old finding a good deal.
Gonna be honest here - I think you need more realistic goals
15% CoC return on a fourplex near Austin under 500k - not really going to exist