Interested in buying a rental property in Austin.
Member since 2019 · 1 post · 4 votes
I would like to buy a rental property in Austin, TX. The range am looking for is around $225-$275K. What are the best options I have in terms of websites and resources? I am a newbie in this area and would like to know more about the real estate market in Austin.
You didn't say if you're local or not. Of course, realtor.com, austinhomesearch.com and similar sites have all current listing inventory. But if you live out of area your best resource would be a real estate agent. You need somebody in Austin to be your eyes to describe condition of properties and neighborhoods, provide comparable sales and rental analysis.
More importantly, you should put your thinking cap on and strategize a bit. What are you after exactly? Austin in general has become an "equity" town rather than a "cash flow" town. I.e., you'll probably do a lot better buying as close to Downtown or Domain where appreciation is a big driver, than if you were to buy on the outskirts where your cashflow will be better.
There are always trade offs, of course. If you're buying central you'll likely have to deal with 40-50 years old house (old plumbing, electrical, outdated floorplan, lower ceilings, 1-car or no garage, etc) that will generate higher repair bills during your ownership and higher property taxes. On the outskirts, you can get a 10-15 years old home in a good condition with a decent floor plan that may not need any major cash infusions for a while, and your taxes will be lower.
Within your target price range, you should be able to find plenty of homes in both categories. With 20% down conventional financing at that price point, whether they'll break even (or even come close to breaking even) after expenses is a big question. Make sure to run your income and expense spreadsheets and keep in mind the difference between old and newer homes in terms of maintenance / repairs.
You didn't say if you're local or not. Of course, realtor.com, austinhomesearch.com and similar sites have all current listing inventory. But if you live out of area your best resource would be a real estate agent. You need somebody in Austin to be your eyes to describe condition of properties and neighborhoods, provide comparable sales and rental analysis.
More importantly, you should put your thinking cap on and strategize a bit. What are you after exactly? Austin in general has become an "equity" town rather than a "cash flow" town. I.e., you'll probably do a lot better buying as close to Downtown or Domain where appreciation is a big driver, than if you were to buy on the outskirts where your cashflow will be better.
There are always trade offs, of course. If you're buying central you'll likely have to deal with 40-50 years old house (old plumbing, electrical, outdated floorplan, lower ceilings, 1-car or no garage, etc) that will generate higher repair bills during your ownership and higher property taxes. On the outskirts, you can get a 10-15 years old home in a good condition with a decent floor plan that may not need any major cash infusions for a while, and your taxes will be lower.
Within your target price range, you should be able to find plenty of homes in both categories. With 20% down conventional financing at that price point, whether they'll break even (or even come close to breaking even) after expenses is a big question. Make sure to run your income and expense spreadsheets and keep in mind the difference between old and newer homes in terms of maintenance / repairs.
Hi @Ahamed Nafeez!
Welcome to BP!
If you're local or you would be willing to travel, there are some wonderful meetups organized by some really smart individuals in this area who aren't all on BiggerPockets:
You'll be able to get some great information here and meet some people who have 40+ years of experience in the Austin Real Estate market.
Let me know if you end up attending - I'd love to meet in person!
Welcome to this market. I invest on the north side of “Austin”—mostly Williamson County and we love it here. Let me know if we can help at all.
Hi! I am also new to the BP forums.
@Alex G. @Jeremy VanDelinder Do you have thoughts on appreciation of new construction build for rentals?
As an example, I looked at a new 3/2 development in Pflugerville. Rents are at running approximately $1850 per month. Discounted prices ~254,720 plus 4k in closing costs. The current rent rate with other fees runs cash flow negative at current mortgage rates. The price of similar units in 5 years when the subdivision is complete are averaging 315-320k. Even with the negative cash flow, if they are sold at year 5 (assuming minimal CapEx on a new construction property), I could still profit 40-50k.
Are you defining this as a 'equity' play? Any thoughts on this type of plan in Austin?
Thanks again, I really appreciate your input.
OK, let me clarify a bit. I never buy anything with negative cash flow--I just don't think its a wise strategy. By 'equity play' I simply mean that the cash flow in this market may not be as much as some other markets but that the overall ROR will even it out because of appreciation.
So, I would not do that deal, but I can't tell you what is right for you.
Appreciation tends to be fairly stagnant on new builds until the neighborhood is completed and then it trends with the rest of the market. I'm looking at a new build deal that would be a guaranteed 5% cash-on-cash return (I say 'guaranteed' because its a lease-back to the builder). That's considerably lower than I would do. The only reason I was even considering it was for the long-term play.
@Paresh Mehta I'd want to see multiple appreciation drivers. For instance, in many parts of Austin there is demand but no land to build. Unlike that, Pflugerville may have large parcels of land that are still undeveloped or now being developed for residential housing. These could create competition to new construction in your targeted subdivision.
I'd also want to see a popularity driver. I.e, people like to live near Downtown (examples: SoCo, SoLa, East Manor, East 7th) because of the coffee shops, restaurants, etc. Same is true for Domain, but many pockets around Domain are cheaper than DT locations.
Does the subdivision you chose offer these perks to residents? Are there, perhaps, better located new or existing subdivisions that would be able to offer nearby parks, shopping, restaurants, access to a lake, etc.? These would be more desirable over long term.
By the way, they are planning another Domain in Cedar Park. If you're into new or newer construction I'd look near that area. My guess is houses near CP Domain would do a lot better than comparable homes in the general area over 10 years time.
Lastly, I'd look to hedge my bets and try to buy existing home at a discount (with existing equity), rather than new construction. With new construction you have no negotiation leverage. On the other hand, some recently built homes will be in foreclosure (or have motivated sellers for other reasons) and can be had at a discount. Even a modest 10%-15% discount will reduce your risk and increase ROI, as well as improve your cash flow numbers.
@Jeremy VanDelinder Thanks for the response and clarification. I had run the numbers in as many ways as possible and couldn’t make it work. After reading this post, I wanted to be sure I wasn’t missing something.
@Alex G.Thanks for the information. The subdivision doen't have many of the perks you describe. I'll keep looking and see if I can find some places that have a lower risk with a better ROI/CF.