What is your ideal Buy & Hold deal in Austin, Texas?

19 Replies

Hi - I'm a new investor and I’m trying to figure out what a good, hypothetical, Buy & Hold deal is in Austin to get cashflow. I'm struggling to see what I could realistically buy that's profitable (even if I hustled and found a low-priced, off-market deal).

I'm looking at Single-Family Homes, 3 bed, 2 bath. I'm estimating:
$1600 - $1800 for rent
180K - 220K all-in (which would include some combination of the purchase price + the rehab)
20% Down Payment, 3.5% interest over 30 years

Expenses:

2.2% Property Taxes
$100-$140 monthly Building & Hazard Insurance
5% Vacancy
5% Maintenance/Repairs
10% Capital Expenditures
(Would love to account for a 10% property mgmt expense but that makes it even more unprofitable)

Key Question: 
What is your ideal Buy & Hold deal in Austin (realistically) and how are you flexing your numbers? 

Is there something I'm not accounting for (e.g. are you renting by the room to get more rent income, are there better price-to-rent ratios than what I've listed)? Are you primarily buying for appreciation, and foregoing cashflow as much as you can afford it because it's hard to come by? Is flipping or other RE strategies more common in Austin than Buy & Hold because cashflow is hard to find?

I've looked at a few Austin investor BP profiles with Buy & Hold investments listed, and I always have the same question - how is it getting cashflow?

Would appreciate any thoughts or insight.

@Jonathan Rivette congrats on doing your research. I think your numbers are about right. 

My tax rate has been 2.3% to 2.4% in Cedar Park / Leander and I am getting loans at 75% LTV, not 80%.

Example numbers from my deals: 

Purchase $185k, 0 rehab, rent $1525, ARV ~$190k - Cedar Park

Purchase $183k, $20k rehab, rent $1600, ARV ~$230k - Cedar Park

Purchase $175k, $5k rehab, rent $1650, ARV ~$210k - Leander

I am buying in the suburbs to make the deals at least break even or slightly cash flow positive, and holding for appreciation. I find that self managing single family homes at this price point is pretty easy as long as you properly screen to get good stable tenants. After a few deals I am now buying off market from wholesalers so I am picking up some equity at time of purchase. This typically requires using cash or hard money to close in 1-2 weeks. I have found that Hard Money lenders will lend up to 70% of ARV which can be 85-90% of the purchase price if you find a good enough deal, so your cash to close can be ~$30k instead of the normal ~$50 to buy one of these the normal way.

If you have never done any deals I would recommend you start with househacking a 2-4 unit property or a house and renting the bedrooms. I would also recommend joining the Facebook group "Investor Underground" where wholesalers post tons of off market deals every day. You can start connecting with both wholesalers and hard money lenders, though I'm not sure they would work with you until you have done at least 1-2 deals. 

@Jonathan Rivette , that’s the million dollar question. Sounds like you have a firm grip on running the numbers. This question gets asked semi-regularly in different ways and the answers above are spot on. Read this thread if you’ve not already done so: 

https://www.biggerpockets.com/...


Best of luck!

Updated 5 months ago

I’d also add that flips can be lucrative in an expensive market like Austin but unless you have extensive experience in this rehab and flipping or have built a strong team (including reliable GCs and subs), you shouldn’t adjust your investment strategy to dabble in this yet.

@Jonathan Rivette your post title asks about an ideal buy and hold for investors in Austin.  This looks strikingly different from person to person.  Some try and squeeze cashflow, some force appreciation, some buy for appreciation.  

If your focus is purely on the cashflow, using a standard model it is tight in the Austin area. You can force cashflow with a larger downpayment, but we are not fooling anyone, your COC return drops as a result. You can lower your Capex and maintenance budget with upfront rehab or replacements, but again, you just spend now instead of later.

The most effective model I have used is setting a cash reserve aside for the property. Put $5k aside for upcoming budget items to offset expenses down the road and I can comfortably run Capex at 7%, maintenance at 5%. Vacancy is typically closer to 4%, and with good tenant placement and depending on the type of asset purchase, could average at 2%. PM should be lower than 10% for the area.

I also think it is powerful to recall when you mention buy and hold to not forget the second component, holding.  Run your calculations with lower end growth projections for Austin.  Years 3-5 that property usually shines, even with conservative numbers.  When it comes to investment purchases in Austin, I do not buy for year one, I buy for the years to come.