Rental Property Investor · Austin, TX · Member since 2013 · 87 posts · 31 votes
I currently live in Austin but really want to turn my current property into a rental and move into my next primary residency. The challenge is that I am hearing homes are selling for $50-100k over asking. Considering how it was already near impossible to cashflow in Austin prior to this recent (and relative) boom, I fail to see how buying a home in Austin is wise. I don't love the idea of buying purely on speculative appreciation and, to me, it would make better sense to live where I am now (or rent it out and move into an apt) and invest my cash into secondary markets with strong appreciation but less "intensity" compared to Austin.
What am I missing? Where in central Texas are you investing? Austin or other projects without the massive premium?
Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
5y
A few things I'd like to mention:
1. As I tell all my clients, asking price is just a suggestion; yes there are houses that are going 50-100k over asking, but that's simply a function of the listing being mispriced, whether intentionally or due to poor valuation skills. There are also properties that are going for 50k under asking (source: I was the buyer's rep on one of these a few months ago), because the owner or agent shot for the moon and eventually gave up and accepted an offer that was more in line with reality.
2. There are many exceptions to this that really deserve their own post, but generally if it doesn't make sense to buy in a place, it also doesn't make sense to hold in a place, unless the transaction costs make up the difference in value between the two. In other words, if buying a house in Austin is a bad investment, why would you keep your house? I know you bought it for less than you can get it now, but it's worth what it's worth now, not what it was before. Let's say your house is worth 500k and you don't think buying a 500k house is a good investment for you, why hold onto it? Again, a lot more to unpack than can be discussed in this response, but hopefully this at least gets you thinking about it.
3. Cashflow in this town is still possible, it's just that now you either have to wait for appreciation to catch up, or you have to provide value. Some of my clients can still do something as simple as replacing flooring and paint and then have a cashflowing property on their hands. You can also buy multifamily, rent by the room, subdivide, etc, to make your criteria work.
All that said, yes, Austin is challenging right now if you don't want to speculate on future appreciation. Many of my clients are looking at the suburbs, especially Round Rock, Cedar Park, Pflugerville, and San Marcos. Whatever you decide to do, good luck!
Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
5y
A few things I'd like to mention:
1. As I tell all my clients, asking price is just a suggestion; yes there are houses that are going 50-100k over asking, but that's simply a function of the listing being mispriced, whether intentionally or due to poor valuation skills. There are also properties that are going for 50k under asking (source: I was the buyer's rep on one of these a few months ago), because the owner or agent shot for the moon and eventually gave up and accepted an offer that was more in line with reality.
2. There are many exceptions to this that really deserve their own post, but generally if it doesn't make sense to buy in a place, it also doesn't make sense to hold in a place, unless the transaction costs make up the difference in value between the two. In other words, if buying a house in Austin is a bad investment, why would you keep your house? I know you bought it for less than you can get it now, but it's worth what it's worth now, not what it was before. Let's say your house is worth 500k and you don't think buying a 500k house is a good investment for you, why hold onto it? Again, a lot more to unpack than can be discussed in this response, but hopefully this at least gets you thinking about it.
3. Cashflow in this town is still possible, it's just that now you either have to wait for appreciation to catch up, or you have to provide value. Some of my clients can still do something as simple as replacing flooring and paint and then have a cashflowing property on their hands. You can also buy multifamily, rent by the room, subdivide, etc, to make your criteria work.
All that said, yes, Austin is challenging right now if you don't want to speculate on future appreciation. Many of my clients are looking at the suburbs, especially Round Rock, Cedar Park, Pflugerville, and San Marcos. Whatever you decide to do, good luck!
Rental Property Investor · Austin, TX · Member since 2013 · 87 posts · 31 votes
5y
@Jordan Moorhead where are you finding homes with ADUs? Just curious because idk how to identify those properties? Also, ADUs in Austin? It would be awesome to rent out the ADU on AirBNB but Austin is not friendly to that. Maybe Round Rock or Cedar Park?
@Jacob Pereira When I bought my property, I paid the asking price and the property will cash flow (albeit barely). It seems foolish to sell now. On the other hand, buying a property now means I have to pay significantly higher than what many of these homes were worth 1 year ago. Rent simply hasn't caught up.
I am still comparing the numbers but it just seems that the only way to make money by buying in Austin is through market appreciation, which is speculative. I'd rather find rehab projects where I can add my own appreciation.
Rental Property Investor · Austin, TX · Member since 2020 · 43 posts · 41 votes
5y
@Jim Piety I think renting your current home a d buying a new one to live in is a very good idea. I don’t see the market going down for a long long time. It’s a good way to have a rental and get yourself a new home that will appreciate. Plus you get to keep your current interest rate on your home now, which would be less than you probably would buying it as an investment property.
Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
5y
@Jim Piety I think the BEST way to have a good cash flowing rental in Austin currently is to convert your current home to a rental. You bought that property at a lower price with a good primary home loan, so the rental numbers will look a lot better than buying something on or off market currently. Then, just go buy another home you want to live in, that could also be a second rental in the future if you wish.
Investor · San Antonio, TX · Member since 2015 · 82 posts · 15 votes
5y
@Jim Piety man I would buy a home in Leander and sit on it awhile and let the value grow over the next 5-10 years. That’s where values are going to increase the most I was there the last three years.
Homeowner · Leander, TX · Member since 2020 · 53 posts · 25 votes
5y
We are doing the same thing in Leander and it seems to be working for us. We do have a good landlord friend that is mentoring us during the process. His mentorship, along with these forums, has been a godsend. I recommend you find an experienced landlord (or trusted realtor) that can help with tenant screening. To start the process we did recast our primary mortgage lowering our payments about 50%. That gave us the ability to easily cashflow the property.
There are some great master-planned communities in the NW Austin Suburbs if you can still find anything to buy. We bought to live in the house and didn't think of it as an investment. Prices have since skyrocketed. This year we built a 2800 sf house, about 3 miles from Leander Station, for $314,000 and it's already selling for the mid 400s.
I do believe there will be some infrastructure improvements over the years in that area. I like the Ronald Regan corridor and hope we can get a 3rd house there. Maybe within a year or two.
Homeowner · Leander, TX · Member since 2020 · 53 posts · 25 votes
5y
One other thing...I don't know how investors feel about this area, but from a pure livability standpoint, I love these neighborhoods. If the commute doesn't matter, these are great places to live.
Rancho Sienna, Palmera Ridge, Santa Rita Ranch, Morningstar, Bar W Ranch, Bluffview, Larkspur
Yeah, we're looking at Leander. We love the Palmera Ridge & Travisso but those areas are damn near impossible to get into. We're getting ready to rent our primary house out as well.
You can include DeerBrooke and Savannah Ranch neighborhood in that list. Have middle school and high school within walkable distance and very close to Leander metro. I would put these 2 neighborhoods right up at the top of the list.
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