Austin Vs Suburbs (RR, Leander, Cedar park, Pfuglerville)

21 Replies | Austin, Texas

I am new to BP and looking to buy my first investment property in Austin. Currently I have 1 investment property in San Diego and few in Pontiac Michigan. 

I am confused between main Austin Vs suburbs like Round Rock, leander, Cedar park etc. I was looking at some condo's near south congress like http://www.coopervillas.com or https://www.grangewestgate.com/ or https://www.settlersoco.com/ Vs buying a SFR in one of these suburbs.

From a Rent to Price perspective there is not much difference between the two. Are there other pros and cons that I should look into? 

@Aditya Namjoshi it depends on the hoa fees associated with the condo's.  The core of the city is appreciating close to 9% annually. The suburbs are varied depending upon location but not even remotely close to the core appreciation rates. I am all about the core of the city if I can make it cash flow. I have 3 houses in the core of the city with partners. One is cash flowing nicely. The one in 78704 won't unless we add value, which we are, through an adu/granny flat. The other one is an short term rental which we are about to sell. The core of the city prices are so high that its hard to cash flow. I am buying a house in hutto but that will be probably be a flip. Those three condos communities are in good locations. I hope that you are getting a good deal on them!  

i would never buy in the city, especially a condo unless you have an ulterior motive or are buying your cash flow through down payment. If you run the numbers the high taxes/hoa dues do not work for rentals 95% of the time when compared to rents. 

I like the outlying areas. Specifically CP, Leander, N Austin, etc... Better deals, less taxes, less hoa fees, higher demand due to affordability.

Msg me for more details. I can show you a few properties that fit my investment criteria that would work for you.

Danny Webber, MBA, Broker

I'm just now getting into the Austin market myself, as a new real estate investor. My impression having spent a couple of weekends viewing properties (and many hours on Zillow): the closer you get to downtown, the worse the cash flow. The price-to-rent ratios get better as you go further from downtown. In the north, Round Rock, Georgetown, and Leander seem to have the best cash flows in the area. To the south, Kyle and Buda might be worth considering.

I'm told that the Austin area has been appreciating at about 7% per year for the past 5 years. If that continues, then that can make up for a lousy cash flow.

@Aditya Namjoshi Welcome to BP! The Austin area is a great option for investment properties, while Austin itself can be a bit steep. Yes, the area overall appreciates 7-10%/year, but SFR entry prices in Austin are near $400k vs high-100s in many of suburbs. As others have pointed out, taxes will be higher in Austin, and you should consider that Austin is beginning to become very heavy-handed with landlord and homeowner rules and regulations (carbon monoxide detectors, mandatory screens!?, etc)

Personally, I prefer SFRs to condos because they align themselves better with families of renters, and families with small children are more likely to renew rather than move each year (which decreases turnover expenses)

I regularly find long term buy and hold SFRs for myself and my clients in Georgetown, Liberty Hill, Round Rock, etc.  This is a great time to purchase and get a tenant in over the summer before school starts if that's a route you want to go!

Just to add to the conversation...I live in Austin and have 2 SFR in round rock that we've had a for a little while. So my question is this...even in Hutto the houses are in the low 200's while rents only support about 1100-1700 (if you're lucky on the 1700) a month and the market appears to be pretty saturated with available rental homes. So when you all say you can cash flow, does that mean you're getting there by making a large down payment so your payment is low? This strategy seems to bank on appreciation, right? Thanks for helping me clarify. I'm always on the look out for another property but can't seem to make them make sense (for us anyways) so I"m curious as to what others are doing.

Cash flow is such a generic term..... could be $100 a month or $400. Most purchases around Austin will not cash flow more than $300 or so even with 20-25% down if investors are being honest. 

Searching for rentals is so much more than just cash flow, 1% rule, assumed appreciation, etc....

It's got to fit your investment plan...

At the current market prices, you'll be quite lucky to find a property that will cash flow with 20% down payment, after all expenses (not just PITI). In the areas that prices are still reasonable (outside of city core), the rental saturation is higher in an environment of raising property taxes - in other words, rents stagnate or go lower while taxes continue higher, making the economics even weaker. Appreciation is yet to be fulfilled promise and has no bearing on cash flow.

I agree with @Costin I. here. The only way to find true cash flow is via value add rehabs that you find off-market. Last I checked the, least expensive single family dwelling for sale I viewed was listed for $200k (north-west suburbs) and the market rent for such a place varied between 1200 and 1400. Definitely not a smart cash flow play. 

Agree with Costin and Larry.
Difficult (doesn’t mean impossible) market to find cash flow properties in. Round Rock seems to have a little more potential from the limited searching around I’ve done.
I opted to purchase a home and live in it as primary residence for a few years to pay down the mortgage until we’re in a positive cash flow position on it, then rent it out.
About our only option with limited cash funds (and patience) in a market like Leander.

I agree with @Costin I. When you factor in PITI + CapEx + management fees vs. current rents, my clients are having to bring around 35% (down payment + closing cost) to the table to break even or realize slight cash flow in the metro area. If you plan to self-manage, awesome, you're still looking at 25-30% down to break even. So, if your goal is to break even or have some slight cash flow while your property appreciates at 7+%/annually just expect to bring 35%+ to the table. It's a fine strategy if you have deep pockets and are playing the appreciation game.

My houses are in far north Austin area. First house was a foreclosure, needed some fixing ($15K) and then, because it's an older home, some unexpected repairs. It's cash flowing now but at first it was a break-even. Second house also needed fixing but is not as old, so it has cash flowed from day one. All that said, I could probably make as much investing in the stock market with less work, but the appreciation on the houses has been really good, so I'm happy. I don't see Austin slowing down anytime soon. 

Originally posted by @Danny Webber :

Cash flow is such a generic term..... could be $100 a month or $400. Most purchases around Austin will not cash flow more than $300 or so even with 20-25% down if investors are being honest. 

Searching for rentals is so much more than just cash flow, 1% rule, assumed appreciation, etc....

It's got to fit your investment plan...

 
I agree. The discussion has to be a rent-to-price ratio. Then a condo kicks is down due to HOA dues... and even rental restrictions, etc.

Originally posted by @Costin I. :

At the current market prices, you'll be quite lucky to find a property that will cash flow with 20% down payment, after all expenses (not just PITI). In the areas that prices are still reasonable (outside of city core), the rental saturation is higher in an environment of raising property taxes - in other words, rents stagnate or go lower while taxes continue higher, making the economics even weaker. Appreciation is yet to be fulfilled promise and has no bearing on cash flow.

I think 30%+ is more the conversation to make possible cash flow attainable.

I agree with a lot o the comments. Central is an appreciation ride and those condos are probably in the same category. I'd be careful of overloading inventory. It's not like the 'burbs in those areas BUT there's still significant projects coming up. Overall, I'd say it's a safe purchase if you can do something like like in it and short-term rental it because I'm not sure how much you're trying to put down to cash flow surf or even if you're going to catch an appreciation wave S of 290/71/Ben White. The more definite appreciation wave would be N of that highway in 78704 as I see that you're looking at new developments in that nearby area.

Hi,

I am researching Austin market assuming Amazon HQ2 end up in Austin.

If that happen... which area has higher chance of getting HQ2 and what suburbs will get benefits more..?

Interesting article...

https://www.bizjournals.com/austin/news/2018/09/06...

What are top suburbs where investment make sense..? Few of names coming out in research are...

  • Round Rock
  • Georgetown
  • Cedar Park
  • Pflugerville
  • Liberty Hill

@Aditya Namjoshi if there's no difference in the numbers I'd look closer to downtown. The rents around downtown Austin tend to be a lot higher than the suburbs in all the research I've done. The suburbs you mentioned are about 30 minutes out without bad traffic.

If Amazon HQ2 comes to Austin, it will be a bad move to place it in downtown or close (for lack of space, bad traffic, etc.) . It will be either south of the river, closer to Buda or further north, Domain area, thus close to RR, Cedar Park, Pflugerville. So, it's all a gamble choosing one because of HQ2. My 2¢.