Killeen, TX. Would You Invest here?

32 Replies

@Joe Funari thanks for your input! I have been doing research on the area and I believe it would be a great place to invest in more "affordable" real estate (compared to the rest of central Texas). I wanted to start this thread to get more opinions on SFR vs. Multifamily in the area and hopefully hear more from investors about their experiences around Killeen!

killeen is a good market to buy income properties (i own 127 units here) as long you do your due diligence prior to closing and make sure that the property will be cash flowing

60 percent of the properties here are being offered for prices way above the appraised value and debt service will be too high to make cash flow.

BE SUPER CAREFUL FROM BALLOONS because they will likley destroy you.

However there are some good deals as well that you will need to find.

@Idan Zur thanks for the info! What percentage of your 127 units are SFR, Duplex, Multi's? Which investments have turned out the best for you thus far in Killeen? Also, in terms of entering the Killeen market, what type of financing would you suggest for an investor just starting out?

I would use some caution investing in Killeen.  Normally I am a go for it type of guy, but here is my reasoning.  

1.  Killeen economy is heavily dependent on Ft. Hood.  Ft Hood is a very large Army post that has the capability to operate with a large fluctuation of soldiers.  I think in the last year or two I read an article that the post commander was opening up base housing to civilian for rent.  It was due to the fact the post had a lot of unused housing.  Because FT Hood is so large and valuable to the Army, I don't see it ever closing but the force level continues to shift up and down as our defense budget fluctuates. This can cause a strain on housing, with either too much development or too little but always changing.  Killeen might be in an overbuilt situation.

2. As a 20 year vet from the USAF, I qualify for a VA loan, as does any solider in Killeen. A VA loan qualifies you to buy a home with no money down, even closing cost is wrapped into the loan. Young soldiers are lured into buying homes like this in Killeen even though they will rotate out in 3 years or less. What this produces is an over abundance of rentals as most have a hard time selling and recouping their money after having to pay the realtor fees. This phenomenon will keep homes from appreciating and there will always be a competitive pricing rental market for the renter. It is a little crazy to understand as it is totally different than the Austin market. I've been to Killeen to see several duplexes several years ago and the property as compared to Austin is a steal, but for the above two reasons I passed.

Now having said this, If you feel confident that you can stay rented, you should easily find the 1% rule in Killeen.  Cash Flow is dependent on staying rented.  In Austin that is the least of your worries, in Killeen it might be your biggest.  Good Luck. 

@Idan Zur  Sounds like your benefiting from owner financing since your talking about balloon payments.  Makes sense to buy from distressed sellers, especially if you can't get conventional financing. 

I am benefiting from owner financing but most of the COMMERCIAL conventional mortgages have balloons also.

However my huge concern for new investors is about the owenr financing balloon.

There is a lot of over confidence and nahivity by buyers unfortunately and a lot of predetory owner financing 

There will be a big amount of "causalties" 

Under this inflated conditions

I'm a Realtor in the Killeen area. I mostly agree with what @Joe Scaparra said.  But would like to add some more thoughts about the area.

The post rentals opening up to soldiers - I don't know the entire reasoning behind it other than indeed there WAS a lot of vacancy on post due, I assume, to superior off post options for Soldiers. Opening up that housing presumably adds rental inventory, essentially, but that effect is already priced in.

There are a LOT of rentals, but there are a LOT of renters. 2/3 of the area's inhabitants are renters, the inverse of the national ratio. Also, frankly, a lot of those rentals are not well taken care of, either because of sub par landlords or property managers. If you take decent care of your area rental, vacancy should not be a major concern. I would budget 8% vacancy but I've been under 5% in my time owning both a SFR and fourplex.

It is a military town, and that is the primary economy, followed by healthcare, schools and call centers. But it is a lot larger town than I think some people realize. Killeen is the largest town between Dallas and Austin - larger than Waco, Round Rock, Georgetown, Pflugerville, Cedar Park...  And that is not including the on post population, Harker Heights or Copperas Cove.  There has been some significant infrastructure improvements in Killeen - specifically the expansion and designation of Hwy 190 as I-14. Anecdotally, I have seen a surge in commercial/retail investment in the last 12 months.

As for being overbuilt, that is possible. Killeen has seen a huge surge in population since 2001, growing from 80,000 to nearly 140,000 now. However that population growth hasn't put a lot of pressure on prices which have kept up approximately with the rate of inflation. I do think that is due to the builders in the area, which are very active (the average home sold in the area in the last year was built after 2000). 

So, it is it's own market. I always recommend diversifying, but there are folks having good success with rentals in our area. If you have a little capital but not a lot of time, I might look at fourplexes/duplexes where you can get a 6-7% cap rate. If you have more time and are more involved, you can look at SFR foreclosures and target a very slightly higher cap rate (and higher rent bracket). If you are a full time investor, BRRRR, wholetailing and traditional buy and hold can work in our area, and I know folks who do all three. (Some flipping, but very little).

Taylor, 90 plus percent of my units are apts and the rest  are 2 fourplexes.

I dont think that sfr are cashlowing unless you buy them really cheap and they are in good condition (very rare)

Fourplexes are better but its cashlowing much less And it still takes about 3 months to close.

Let me know when u are in killeen and ill let you buy me lunch and ill explain 

@Brian Adams   @Joe Scaparra   All very good info. I have a number of colleagues with properties in this area and they have had great success. It will be interesting to see how the area will progress over the next 5-10 years. My primary residence is in Austin so I am thinking that investing in a place like Killeen may be a decent way to diversify in the near future.          @Idan Zur If I make it up to Killeen soon I will be sure to shoot you a message and we can meet up! 

sure.

Here is an example so you guys will understand what i mean and this is a common scnerio that i see:

Investor buy an apt complex owner financed for a 1m$ With 900k debt and five years balloon

(Sometimes the investors get a balloon for three years!!! May god help them !!)

He didnt bring an appraiser because it is owner financed but its actually worth 800k.

(I have access to appraiser info and The old apartments in killeen dont worth more then 20k a unit but buyers cant belive the value is so low and they overpay)

Then about five years after , before the balloon expries - the refinance bank's appriaser find that the value is only 900k including all the renovations and additonal profit the investor created . 

It means that the bank will only be able to refinance about 65 percent of 900k which is about 600k only! (When the debt is 900k!!)

If the seller is a predetor like majorety ARE!!!- the investor will lose all of his investment !

Again, i see this scnerio a lot !

@Taylor Patterson

My thoughts on residential multifamily investing in Killeen are somewhere between @Joe Scaparra and @Brian Adams . As I think you know, I have a fouplex there that is doing pretty well. I purchased for under $150k and am grossing $2,300/mo. in rent. All my other properties are in the immediate Austin area. I wanted to get something outside of Austin to have a little diversification and am continuing to look beyond Austin. The multifamily numbers in the Killeen area in general are much better than anything you can currently find in the Austin area. However, for the number of properties that I have, I'm not currently comfortable owning anything more than one multifamily property in Killeen.

@Taylor Patterson Have you looked at other markets within a 1 hour drive of austin? If you are looking for similar price points, San Antonio is a very diverse market. San Marcos and New Braunfels are smaller cities, but still lots of growth. 

I am working with a few builders for investors in New Braunfels so let me know if you have any questions. Currently working with Value Builders on Creekside Crossing and another project and Jimmy Jacobs Old Mill Crossing

@Jasen Miller Thanks for the feedback. 

Are most people making profit on the properties in Killeen paying cash or leveraging? When I run several opportunities through my calculators, I get paltry profits. Perhaps I am doing something wrong?

@Daniel Erdman

Where are you getting your property leads?

If just looking at local foreclosures or multi-families, I wouldn't expect much better than a 6-8% cap rate - probably closer to the 6% side.

If getting off market leads through direct mail, auction, etc., then you can do much better.

Maybe someone else can jump on and give their experiences. Most of mine is working with buyers with multi-families and foreclosures with that 6-8 range.

Originally posted by @Daniel Erdman :

@Jasen Miller Thanks for the feedback. 

Are most people making profit on the properties in Killeen paying cash or leveraging? When I run several opportunities through my calculators, I get paltry profits. Perhaps I am doing something wrong?

Leveraging. They are buying and doing a moderate rehab with hard money, putting a renter in, then refinancing it later on. They are able to pull all their down payment back out, make $200/month after expenses including PITI. I would keep looking for properties that need a little work.

Does anyone know what range are the cap rates for class C (or may I say C-) multifamily properties ranging from 15-30 units?  I am analyzing a deal in Killeen and don't know if I should use an 8 cap or a 9 cap for the As-Is, not proforma.  I've talked to brokers and they've given me ranges going from 7.5% to 8.25% but for larger MF complexes (50+ units).

If anyone can point me in the right direction would be great.