Evaluating rentals criterias in Austin area
Hi there, I'm new to Austin SFH investments so not very familiar with the right values to put for projections. I'm mainly looking for long-term appreciation (5-10 years hold) and OK with some negative cashflow in order to get long term appreciation. Can the more experienced members help checkout if some of my preset and rent/appreciation assumptions are reasonable?
Make ready needs to be higher. I haven’t gotten away with make ready being less than 1500 because of painting alone! Also interest rates seem too low, but I’ve not needed to take a loan for my investment properties so I can’t tell you. Only one of my properties has a loan and it’s in the 4.25 range I think. I can’t remember. And that was with 30% down. Management fee needs to be 10%. Selling cost 6%. Last but not least, don’t know where you will find a property for 300k right now that will yield 2k rent.
Ok, correction on the interest rates and yours is fine. I obviously bought before interests went down but it makes no sense for me to refi right now. I have lender that’s telling me 3.125%. Not bad!
Thanks for the suggestions!
@Tony Lin Also a Texas-focused investor based in the Bay Area, CA.
I purchased a single family house in Hutto (~20 miles north of central Austin) in Feb-2020 (pre-covid). Your maintenance/capex may be a little light unless it's a newer house. I conservatively estimate 10% of monthly rent for monthly maintenance. Your insurance may be a bit high at $225. I pay closer to $80/mo. for my 3/2 house in Hutto.
8% appreciation annualized over 5+ years is ambitious even though the most recent trend may be 10%+. I personally pencil in 4-5% annually to be conservative.
I will say that it was possible to cash flow positively (after PITI and vacancy/maintenance/mgmt reserve) in the northern Austin suburbs as of 2019/early-2020 with 25% down. I understand it is more difficult these days as prices have appreciated by ~10%+
Originally posted by @Calvin Sam:@Tony Lin Also a Texas-focused investor based in the Bay Area, CA.
I purchased a single family house in Hutto (~20 miles north of central Austin) in Feb-2020 (pre-covid). Your maintenance/capex may be a little light unless it's a newer house. I conservatively estimate 10% of monthly rent for monthly maintenance. Your insurance may be a bit high at $225. I pay closer to $80/mo. for my 3/2 house in Hutto.
8% appreciation annualized over 5+ years is ambitious even though the most recent trend may be 10%+. I personally pencil in 4-5% annually to be conservative.
I will say that it was possible to cash flow positively (after PITI and vacancy/maintenance/mgmt reserve) in the northern Austin suburbs as of 2019/early-2020 with 25% down. I understand it is more difficult these days as prices have appreciated by ~10%+
Thanks Calvin. Would love to chat and get some of your experience. I love the fact that you underwrite conservatively.
My target are homes that are less than 10 years. Me being remote I don't want to have to fuss with too much maintenance work. This example is from the north Round Rock area. I'm not very familiar with the insurance so went very conservative. Would others chime in maybe .6% insurance would be more appropriate for a new 2200 sq ft home ($1800/yr 150/month)?
I may change the spreadsheet to have an appreciation estimate on a annual basis instead of 8% across. I think that better reflects the high initial appreciation with lower plateau in future years. Thanks for pointing it out.
Hi Tony, I have a few properties in RR and Austin, so would love to share from my experience, your calculation is a bit off, as of now there are only 27 single-family homes in all RR, and only 1 of them is below 300K. For 2,000$ you will need to spend more than 300K (320-340~). Interest rates look a bit high- I can connect you with my lender, she gives me the best numbers. Selling costs are 6%. If you want to talk feel free to shoot me a message and we can chat. I'm a real estate agent so I can assist you to search if you need help.
@Tony Lin can you clarify if the two data points in the second (blue) column are monthly estimates?
- HOA of $250
- Insurance of $225
@Nina Hayden also makes a good point on the make ready cost, those are typically higher. Property Management can vary, some have lower monthly costs but higher placement fees.
Lastly, $2k rent on a $300k purchase price could be tight on margins for the Austin MSA. It will be highly area dependent but I would estimate $1700-$1800 based on market snapshots for lease CMAs
Originally posted by @Bryan Noth:@Tony Lin can you clarify if the two data points in the second (blue) column are monthly estimates?
- HOA of $250
- Insurance of $225
The HOA is actually higher at ~$300. I was just making a sample project to run numbers with. Insurance was just an estimate and may be off.
Originally posted by @Bryan Noth:@Nina Hayden also makes a good point on the make ready cost, those are typically higher. Property Management can vary, some have lower monthly costs but higher placement fees.
Lastly, $2k rent on a $300k purchase price could be tight on margins for the Austin MSA. It will be highly area dependent but I would estimate $1700-$1800 based on market snapshots for lease CMAs
Looks like I'm in the right place :). I'll bump the make ready cost to ~$1k. Hopefully each moveout won't require a repaint but just touchups.
Zillow was estimating $1950 rent. Is there a better resource for rent projections? On the multifamily I run neighboring property comps, but on SFH it would be a lot more work to research rent comps.
Obviously I expect the agent will take a lot of guesswork out of this. I just want to have a ballpark template to quickly evaluate if a deal is worth taking a second look.
Thanks!
@Tony Lin rent projection data for the Austin area is pretty simple for a Realtor with MLS access to create for you and is probably the most accurate snapshot you can get. On your own it involves comparing multiple data sources (Zillow, Rentometer, etc) to compile a useable data set.
And I estimate insurance at $100 per month for my rentals. It varies, but should put you in the ballpark. @Calvin Sam is getting even lower!
Is this a condo? I don't know of any HOA in an established neighborhood that is that high. Most are around $30-50 a month
@Tony Lin You can get a better idea of rents in your area using a tool like rentometer.com. Even that is just a ballpark though. You should be making contacts with a property manager now. They are the ones that can give the best advice on what to expect for rent.
My manager charges 8%. Generally the lower the rate, the more extraneous fees will be present. They have to make their income somehow.
This is an aside but seeing as you’re from CA, be aware that TX is weird about financing from out of state. There are state regulations stemming back to the 80s that can make financing, especially refis, more difficult than other places. My advice is to definitely favor local banks and lenders because they will be more familiar with what to expect.
This example is in Siena Round Rock. SFH not a condo.
@Michael Tyler My plan is to buy it with all cash, then do a delayed financing after the deal is closed. Local bank would definitely be a consideration.
Should be $75 quarterly for Siena
Thank you guys, I completely screwed up on the HOA calculating it monthly instead of a yearly Due. It's been fixed now.
I buy in Austin so big difference when people mention Hutto or even Round Rock. I try to stay close and not a nose bleed of a drive due to traffic!
which place in austin(round rock , cedarpark , hutto , plugerville, leander) in the order of ranking are good for investment properties with out negative cash flow.