Investing in South/South East Austin (zip code 78747)
Member since 2020 · 4 posts · 1 vote
I am considering one of the new homes in the Vistas at Austin as an investment property. There are 500+ new homes planned in the area, as well as apartments and commercial development at goodnight ranch across the road. This could lead to an oversupply of rental homes keeping the rents down, but I am told there is tremendous demand. Furthermore, the proximity to downtown (~15 min) and proposed Tesla gigafactory (~20 min) seem enticing.
Looking to buy a new SFH ~1800sqft for ~$300K. Worth it?
@Ridham Shah Hold Up! If you had said I am buying there because my wife likes it and we are going to live there, that is one thing and it then becomes an emotional decision. BUT, I think I saw you said you are buying there as an INVESTMENT DECISION! If I got that right, you are not using investment logic or analysis in doing so. Hello..........wake up!!!!
In the current Austin market, buying anywhere all property values are expecting to increase. The question is what is the BEST type property for investment. If you grab a panel of SEASONED investors and asked them if a projected NEW SUBDIVISION of SFHs is the best investment decision to make in this current environment, I think all or most would say definitely NOT!
Until the subdivision is built out you will always find yourself in competition with the builders. Builders who can offer a lot more to clients than you. Cash flow a new property will spell NEGATIVE CASH FLOW. Usually with new builds come higher tax rates. What rents do you anticipate? $1600? 2000? Hell a modest duplex in Austin should fetch you $2400. It is always easier to find two $1200 renters than one $2000 renters especially if the market goes soft. I am not a fan of NEW SFHs as an investment for most investors. But hey, each to their own. Cheers!
What about it?
I just bought a new build in Pioneer Hills and will be closing on one in Vistas with a business partner, I'd love to get on the phone and chat with you if you'd like. I also have several clients under contract for those Vistas, Lamar floor-plan.
@Ridham Shah Austin has strong demand in most areas, though check on hyperlocal vacancy rates to be sure, SouthEast Austin tends to run between 4-8%. I am always wary of ground movement on the SouthEast side, look at some older homes out there and check for foundation issues.
New construction can be a valid play, but as you mentioned the influx of new builds and new potential places to rent becomes your own competition. In an established neighborhood you typically have renovated homes over time that rent for more, usually bringing rents up. In large scale new construction you are competing with brand new homes from the builder and they can cut prices and offer incentives that most existing homeowners simply cannot afford to do. It is not a deal killer, but could limit your exit strategy for the next several years. Also there is a heavy concentration of apartment complexes along the Slaughter Ln corridor that have kept heavy pressure on rent increases there.
Lastly, I would suggest looking into what attracts people to the area and what future attractions will help the area grow. You are correct that Tesla is putting in their new factory about 17 miles NorthEast of Vistas. But I would more look to the current large land ownership by Texas Disposal Systems Landfill just 3 miles SouthEast of the Vistas development.
@Ridham Shah Hold Up! If you had said I am buying there because my wife likes it and we are going to live there, that is one thing and it then becomes an emotional decision. BUT, I think I saw you said you are buying there as an INVESTMENT DECISION! If I got that right, you are not using investment logic or analysis in doing so. Hello..........wake up!!!!
In the current Austin market, buying anywhere all property values are expecting to increase. The question is what is the BEST type property for investment. If you grab a panel of SEASONED investors and asked them if a projected NEW SUBDIVISION of SFHs is the best investment decision to make in this current environment, I think all or most would say definitely NOT!
Until the subdivision is built out you will always find yourself in competition with the builders. Builders who can offer a lot more to clients than you. Cash flow a new property will spell NEGATIVE CASH FLOW. Usually with new builds come higher tax rates. What rents do you anticipate? $1600? 2000? Hell a modest duplex in Austin should fetch you $2400. It is always easier to find two $1200 renters than one $2000 renters especially if the market goes soft. I am not a fan of NEW SFHs as an investment for most investors. But hey, each to their own. Cheers!
You would get a panel full of emotional pontificators who were sure their own analysis was golden and everyone else's was shite.
i moved into a new build community 1 year ago. Those who got here a year before me are now moving out at the rate of 1 or 2 per week with impressive appreciation at resale or with nice cash flow rentals.
Southeast Austin is a great bet between Goodnight Ranch, the long past due need for a new high school, Easton Park, Tesla, and Velocity Mixed Use.
All the best to you.
@Matt Stricklen, key word SEASONED! Yeah we all might have a different spin on what type of investments and locations are best, but that is not what I stated. Asked a specific question to SEASONED INVESTORS concerning NEW BUILD SFH, NEW SUBDIVISION in the AUSTIN MSA and none or very few (absolutes leave little wiggle room) would say that would be my first choice! Now if the investors were doing the building then you would get a different answer. There is a lot tear downs and rebuilds by investors all around Austin and they are doing quite well, but that is not what I was addressing.
I'm sorry to tell you but I am a SEASONED investor, and I run around with a few SEASONED investors and none of them are buying NEW BUILDS in NEW SUBDIVISIONS. Seasoned investors by nature eliminate emotions as part of their analysis's, so your first sentence obviously not referring to seasoned investors. In and around that new subdivision the few rentals are hoping to get $1 per sq ft in rental income. Most duplexes in the Austin MSA is pushing 1.5 to $2 per sq ft.
And to your last point, All Boats float when the tide comes in. So a few made some money in Austin over the last two years, image that? I would have never guessed. My post was meant to give the OP pause on his thinking if he is truly making an investment decision. This leads to a classic error from first time buyers/investors. I come across it all the time when I am asked by someone getting ready to move out of their SFH and are thinking of renting it out vs selling it. One little question answers their question..........would you buy this home your moving out of as a pure investment, if not, sell your home take the profits and go buy a better investment property. Trying to save this man that step!! That is all, carry on!
Thanks to everyone who responded with their perspectives. The way I am thinking about the investment is as follows:
Total cost of ownership ~ $1850/month (mortgage+interest+HOA+property tax+1 month unoccupancy + 70% property mgmt fees)
Expected rent: $1800/month. New home so little to no maintenance costs in first 2-3 yrs
Even if rents & property prices remain flat (low probability), the increase in equity itself makes this a viable investment. Based on my calculations, I am looking at ~7% return (equity increase) on investment (downpayment).
What am I missing?
see other threads but new homes are rarely good for investors for multiple reasons
@Ridham Shah here are the rough numbers I come up with:
300k purchase @ 20% down (60k) Mortgage 240k @ 3.65% $1100 P&I
Taxes @ 2.1% (low) $6300/yr or $525/mo
Home INS $150/mo
HOA $50/mo
PM @ 7%(low) 1800 X 11 months = $19800 X 7% = 1386/12months = $115/mo
Maintenance 0% (new build, good luck with that but hey will give it to you for a few years).
Vacancy (1 month -1800: Total income 11mo X 1800 = $19800/12months = $1650 monthly income
Total Cost = P&I 1100 + tax 525 + Ins 150 + HOA 50 + PM 115 + Maintenance 0 (really?) Total Cost $1890/mo
Monthly Income - Monthly Cost = Net Cash Flow 1650 - (1890) = -240/month or -2880 per year negative cash flow.
Add back in roughly 380 principal buy down each month X 12 months = 4560 /yr
Cash on Cash Return -2880 / 60000 (Down payment, will leave out closing cost) = -4.8%
Total return = cash on cash + principal buy down + appreciation (you put whatever number makes you feel good)
-2880 + 4560 = 1700 / 60000 = 2.8% return plus your appreciation. Realize you won't realize appreciation until you sell and there is closing cost associated to selling. So as someone mention earlier money was being made after 2 years you will realize 6% realtor fees, closing cost, and possible higher vacancy due to selling.
Now I went through this math to emphasize that most SEASONED INVESTORS in TEXAS don't consider a negative 4.8% cash on cash return a good investment. Can you make money......possibly but does that make it good? My checking account makes me under 1% is that good? YOUR IN TEXAS, YOU CAN DO BETTER THAN THIS!
Now let me apologize for my emotions, I don't know you and I am sure you mean well. Understand I didn't go through this iteration for my benefit. I am neither a realtor nor a mortgage lender so I have no alternative conflict of interest and I don't have a training program that I can sell you. Just someone who likes to share what little knowledge I have.
If all you're after is what appreciation the market will give you then you're out the cash on cash return. You can do this just about anywhere, but people are flocking to invest in Texas real estate to do better than this. Good luck, if my numbers are wrong feel free to point out any material errors. Cheers.
@Ridham Shah That equity appreciation will be eaten up a little by seller expenses on the back end so you should keep that in mind if its a short term play. I concur with most folks here in that new homes purchases are speculation. How do you know that its a good investment? What are the provable numbers? But as @Joe Scaparra said when the tide is high all boats will rise. I also like what warren buffet said once the tide goes out you find out who is swimming naked.
Thanks @Joe Scaparra for your detailed analysis, and everyone for their perspectives. Being an out of state investor, I am looking to invest in Austin real-estate for the long run (~5-10 yrs) with the expectation that rent, equity and property price appreciation will provide a positive return. My hypothesis is that Austin real estate has greater upside (% wise) compared to several other parts of the US due to continued tech boom and migration of ppl from CA. Granted older/distressed homes might provide a better ROI but I assume it is a challenge to identify and fix such a property.
Hi Ridham and I do get your drift. If our government stays out of our way then I think your analysis of the Austin real estate market is correct. I also understand your concerns about maintenance of new vs older properties and I do think you have some correct concerns. Out of state investing has it's own challenges. If you do buy new you should try your own property management. I think it will be easier dealing with new as you will have less maintenance issues. When you have turnover you can hire a real estate agent to find you a tenant. They will do all the paperwork and schedule the showings, they usually charge a half months rent to one full months rent, but then let you handle the tenant from that point forward. Secondly, if you can find a all around handyman would could do most of your repairs, then you should have no problem managing long distance and it should make your numbers look better. I think finding the handyman is easier than a GOOD property manager. Good Luck.
@Joe Scaparra - Thank you for the breakdown and the numbers. i am a new investor looking for cash flowing properties in Austin but cant seem to find any. How do you go about finding the resale properties like the one you mention that will cash flow in this market?
I am looking for properties in the same area, but see the prices have gone up atleast 100k in the past one year from what Ridham mentioned.
I am looking for properties in the same area, but see the prices have gone up atleast 100k in the past one year from what Ridham mentioned.
Yeah, the housing prices have gone up quite a bit over the past year, as with many parts of the country as people look for larger homes to suit their WFH needs. I have heard that builders are not selling new homes to investors. I suspect there are opportunities for cash flow positive investments in older homes all over Austin.
I'm in a similar neighborhood about 2 miles away. 2 of those 300s in my hood sold for $440 this week.
@Matt Stricklen how is the rental
Market there in those neighborhoods? What does a 2000 sq ft home rent for?
@Matt Stricklen how is the rental
Market there in those neighborhoods? What does a 2000 sq ft home rent for?