I am a new multifamily investor in Austin and its suburbs real estate market. I am monitoring the market for few months and analyzing the properties. My strategy is to buy and hold and focusing more on appreciation. However, it's very hard to find the properties which even barely have positive cash flow (including maintenance, cap ex and vacancy). Is that only me who is in this boat? Now, I am having second thoughts to invest in areas like Killeen, San Antonio.
As an experienced investor/realtor, what would you recommend me? Thank you
When you look for appreciation, that is what you get, negative cash flow. For now.
Over time, rents will go up, but so will taxes. In Texas our houses are appraised every year that we own them, so the chance that our over 2% taxes will go up is pretty high. Hopefully rents will outpace taxes.
Multi-family in Austin is a tight market and has been for several years now. There’s a number of factors at play including the popularity of the product, scarcity of inventory, rapid appreciation, and flooding of the Austin MSA with both small and large investors alike. So you’re not that far off in your assessment.
I can feel the pain, I lived in Austin fro 4 years and the appreciation I saw in that time was tremendous but finding a good cash-flowing deal there was pretty tough.
I specialize in the San Antonio market now and am finding that although it's INCREDIBLY competitive in the small multi-family space, you can still find good cash-flowing multis in areas that are experiencing solid enough appreciation to make it worth while. Buying off appreciation is still somewhat speculative especially if you're buying outside of your local market but luckily San Antonio is just up the road.
I'd be glad to help and share experiences with you if you'd like to explore San Antonio a little further.
@Tamilaruvi Manisekaran there is positive cash flow in Austin multi-family. 20-25% down, with 5% Capex, 5% Vacancy, 5% maintenance and 7% property management. Harder to do with single family but there are some of those as well. As for San Antonio and Killeen, you just won't see the consistent appreciation there IMO.
im also interested in this market as well. it does seem that it makes more sense for me to look at San Antonio and Killeen for a cash flow perspective.
@Tamilaruvi Manisekaran I would personally stay away from Killeen unless you know that market extremely well. Flooded with rentals, mostly C class and below, and always new construction watering down the market. San Antonio is a much better play if you want to be in a larger metro with potential. Austin is a race car when it comes to appreciation, so you want to find a deal that can deliver at least a small amount of cash flow above fixed expenses, then hang on for the ride. Duplexes offer better opportunities if you can compete and get them at the right price.
yes, i am checking the price of fourplex in the past 3 months in Austin as well. it just overprice with number of bid keep pushing it higher.
Ok, I am starting to have second thoughts on my staunch must cash flow position. This weekend, I went driving with an investor from NYC, showing her around Austin, Pflugerville, Round Rock and Georgetown. What I confirmed that this market is ON FIRE not only in terms of price of property but also rental prices. I have 14 units in the MSA and ALL 14 are way below market in terms of rent.
Crazy but what I am confirming is that if you have a simple 2 bedroom 1 bath duplex 800 sq ft or more you should be in the neighborhood of $1300 to $1400. Mine are at $1100. In the past, I would pass on duplexes not cash flowing or just breaking even. But if your really determine to get in this market or expand, I think you will be fine if you're just breaking even. There is NO LET UP in this Austin market. The only thing that stops this momentum is if the NATION goes into a deep dive. If that happens it doesn't matter where you invest. If that were to happen, I still think Austin's market would be one of the first to recover.
Listen to this, it blows me away. In the southeast corner of Georgetown there is a small community (two streets) of new luxury duplexes under development. About 22 lots, none complete, a few slabs waiting to be poured and the others in various phases of completion. BUT NOT A ONE COMPLETE. Asking price $395k. Called the realtor marketing the development and ALL OF THEM ARE SOLD! THIS IS CRAZY! https://www.realtor.com/reales...
You're right. Gone are the days where someone would just sell you their cashflowing property simply because they were moving on to bigger and better things, so the lazy investor could just buy something and sit on it. Now you will need to do at least a bare minimum amount of work to create cashflow, but frankly it's not that hard. Find a place with below-market rents or has been on the market for a long time, price it appropriately, slap on some new flooring, paint, countertops, and fixtures, and get rents where they should be. Voila! Very little time, money, and effort to force cashflow.
Of course there are many other ways to do this, but that's one of the easiest methods IMO.
@Jacob Pereira Agree completely. Most duplexes in the market are 30-40+ years old, outdated, and under rented. That’s why they look bad on paper to many investors hoping they are turn key. Lots of options to improve equity and rents quickly.
@Tamilaruvi Manisekaran find something you can rehab and add value to, that's how I've found cashflow
Thank you everyone for sharing your insights.
@Joe Scaparra I still couldn't believe that all the new lots in Georgetown were sold already. That's makes me realize more, how competitive the Austin market is.
@Jacob Pereira @Ryan Kelly Thank you for adding an another dimension to my search.
@Jordan Moorhead Rehab - That's where I am hesitant about it. Since I am in full time job, I will not be able to spend time on rehab. Saying that, are you referring rehab as complete fixer upper? Do I have to actively involve in the project? Or, is it more like you have contractors/turn key and they do everything for you including planning, design, flipping etc..
@Tamilaruvi Manisekaran I work with a contractor to figure out what needs to be done and then check in weekly. I don't do any of the work myself
Agree with Jordan. I usually walk potential properties with my PM and GC, come up with a plan to add value and force appreciation, and work on a scope of work that will get my COCROI where I would like it to be.
I've been buying properties for 55+ years and never purchased properties with a negative cashflow. Although, I've was wrong starting in the mid 1975 when real estate in California was $49,000 for homes in nice neighborhoods and they were increasing $10,000 every month. Almost every property had a negative cash flow and I did not know that within a few years these properties were selling for $180,000 People were doing turn-around escrows like crazy. But, I don't see much room for appreciation in today's market and I may be 100% wrong. Regardless, of whether I am wrong or right you always have to consider the risk. Are you willing to take the risk by thinking properties will appreciate. If you are wrong you lose money. Or, would you rather hold onto your money and wait for a sure-thing.
About 15 years ago, I purchased 10 homes in Boise and Meridian Idaho and was hoping they would appreciate at least 4% every years. I made a small amount of money, but never came close to my hopes.
With current real estate prices so high, I would not buy any property, but I've been wrong many times and there were many properties I did not buy and they turned into goldmines.
Again, with today's high prices I will not invest unless I find a sure-thing. I made millions of dollars by holding onto my money for several years at a time and waited until a sure-thing comes along where I know I will make the return I want. My business model is to make 50% to 100% on my money in one year and that is done by buying the right property at the right price.
@Tamilaruvi Manisekaran talk to Matt at TRE. He is really plugged in
I just saw a duplex in San Antonio for $69K that will surely cash flow. That's incredible. Only an hour and a half away. Why not buy there? Obviously, if your area doesn't work, find one nearby that does.
If your looking for some of the best rent to value cash flow as well as COC returns with renters lined up down the street and around the block and where investors get the biggest bang for their buck Austin and Texas are no longer those places but Detroit sure is. The closest thing I can compare it to is the gold rush and I'm not kidding. Or think Florida 5-7 years ago. I keep saying this but its so true, there are literally rehabs taking place on every other street and sometimes 3 and 4. The time to get in is now, with the right and trusted group that is. Which literally is probably the key to ones success here in Detroit or most big cities for that matter. So with all that being said I strongly recommend investors link up with the right and trusted group who have a trusted track record as well as longstanding relationships who really know the ins and outs and all that good stuff so that you limit the risk greatly and secure your cash flow and returns without a hitch as Detroit still remains a very unorthodox market that is filled with many pitfalls. And you will need cash because it is a cash buyers market here for the most part. At least all the off-market deals are for cash buyers only. The rental homes are paid off within three to five years and from there you cash flow for the next 20 free and clear! So the cash trade off isn't so bad when you put it all into perspective and are thinking longterm cash flowing goals.
@Tom O. I know the duplex in San Antonio you are talking about. It will definitely cash flow on paper, but it is also in a D class area. Make sure you are ready for it and the major repair expenses.
@Tamilaruvi Manisekaran , how are you financing the deal? If cash flow is important to you, you may need to put more money down. Yes, you are sacrificing a bit of leverage and lowering your COC percentage, but if that's what it takes then thats how you could get there. You'll have to give in a bit somewhere... either you buy further out from the city, buy something that needs work, or put more money down.
People saying to invest in Killeen... I've managed some properties up there. Its a nightmare. Criminal activity, twice the normal number of scammers, homeless people breaking into vacant units. When you see a duplex for $75k... there is a reason.
What type of loan do you typically use? If you are a long term holder, a program like HUD is worth your while. You can lock in a rate at around 2%, freeing up tons of cash flow as you wait for the appreciation to kick in.
@Tamilaruvi Manisekaran - I have been scratching my head on this topic for the last 2 years and made some decision and did some investment. Like others said, there is no simple rule... if you like we can chat live on this topic via a phone call. I am just an investor, not an agents or attorney.