Positive cash flow on single family homes in Austin TX possible?

30 Replies

As above, austin is a growing market and I want to buy a rental property. The houses though are highly priced. Does anyone have any insights on how to go about this?

Possibly higher downpayment or swallow a slight negative. No way to get around cash flow in both coasts and many cities in TX these days.  Keep in mind home prices are quite high.

@Nazakat Hossain

I wouldn't say that housing in Austin is highly priced as just a blanket statement. The median 3/2 SFR in the City of Austin sold for roughly $325,000 over the past 12 months. The median 3/2 SFR in the greater metro area went for around $232,000 over the same period. That's still very affordable compared to other US housing markets (see below)--hence why so many people and business are moving here. However, the affordability of Austin area housing for actual residents making median incomes is a different issue. In that sense, yes, it could make sense to say that Austin housing is highly priced (i.e., the median home is priced out of reach for median income earners).

Austin area real estate is also priced too high in general to achieve cash flow given our comparatively high property tax and current rent numbers. A median 3/2 SFR rents for $1,750/mo. in the City of Austin over the past 12 months, but as I said, that same median home would sell would sell around $325,000.

Cash flow is not much better in the immediate suburbs, though the cost of entry is lower. For example, median 3/2 SFRs in Round Rock or Cedar Park rent for around for around $1,595/mo and sell for $237,000 and $257,000 respectively.

I hope this is helpful!

Take it from a different direction. Buy land with sewere/water. Put a used double-wide. Renovate it if needed. Maybe a pole-barn house? Those are becoming popular. Another idea is a steel building on slab--never worry about fire or flooding if done right. I have two lots in Nashville and looking to do the Mobile Home thing. You can always sell the MH and build a reg. house in the future. Just some idea out of the box.

@David Ivy

What does "current rent numbers" refer to? The dollar amount the median income earners are spending on rent?

Thanks for the in depth info. Couple of questions - how does an investor than make money in the austin area? Since cash flow will be negative for the most part, it is just a buy and hold game and wait on appreciation? How have you seen it being done in during this past quarter?

It is very tough to cash flow with a traditional 20-25% down payment in the metro area. Rents just do not support the purchase price/PITI.

I would look outside the metro area 20-30 minutes and look at duplexes+ in those areas. 

The other option is to try to find some rehab projects you RT Refi into a decent note or;

buy a property and then owner finance it out at 8-12% interest. That will cover the note and cash flow. I see it done all the time here. 

For some reason I have my reservations about a duplex as my first purchase, if someone wants to contest this please! do! 

My areas of concern are

-high maintenance 

-higher than average vacancy

Originally posted by @Nazakat Hossain:

For some reason I have my reservations about a duplex as my first purchase, if someone wants to contest this please! do! 

My areas of concern are

-high maintenance 

-higher than average vacancy

 I'll respond to your concerns in this post but first, my thoughts on your original question. 

Home prices have risen. And in many big cities in the US, income hasn't kept up for the majority. This creates renters. Use that to your advantage. As other probably mentioned, buy a house under market, that needs work, maybe an off market seller - you'd have to do the work here. Fix the house and rent it. You'd have equity, you'd have a solid property, and you'd have renters. My advice is to not refinance and cash out unless you have a plan and your rents cover the new loan - or unless you can tolerate paying out of pocket each month for the foreseeable future, which is a strategy you should not write off. Buy under market and fix. Know that you'll have a lot of competition with that. You could also look outside of the higher priced areas of Austin, look in Montopolis. 

Now your SFR vs Multi Fam concerns

High Maint - not really. in the case of a duplex, you will have two homes instead of one, but if you negotiate and buy right, don't expect to deal with issues every month, and in both units. Know that you will have two rental incomes to help with those costs instead of one. 

Higher than Average Vacancy - IF there is an average, then your SFR will experience it also. And when your SFR is vacant, you are 100% vacant, no rental income. Chances that your duplex will be vacant 100% will be rare and unusual. Also, there are only a handful of reasons someone will move if they love the place and how it's managed. Some things like, your tenants are buying a home of their own, job relocation, drastic change in the area - obnoxious building, crime, skyrocketing rents, or they need to down or up-size. These things don't change whether they are renting a duplex of SFH.

In the end, buy what you can afford and make it work. 

@Eric Carr  

Thank you for your response. Many things to consider here. I need to start meeting people that have the same goal and want to work together. I will definitely need some guidance if I am to do an actual flip. 

With that being said. I would still like to hear from someone who has actually invested in the Austin area (starting out) and came out on top of things.  

Originally posted by @Nazakat Hossain:

@Eric Carr 

Thank you for your response. Many things to consider here. I need to start meeting people that have the same goal and want to work together. I will definitely need some guidance if I am to do an actual flip. 

With that being said. I would still like to hear from someone who has actually invested in the Austin area (starting out) and came out on top of things.  

 I own multi family in Austin! 

I would find an big old dumpy house in a central neighborhood. Buy for the land, tear down and build condos/townhomes. I've heard people succeed with this approach.

Another idea is to look at areas like Rundberg - tough neighborhoods on the upswing. Property values are lower there, but it should be good bet over time.

Originally posted by @Nazakat Hossain:

For some reason I have my reservations about a duplex as my first purchase, if someone wants to contest this please! do! 

My areas of concern are

-high maintenance 

-higher than average vacancy

You need to focus on the numbers.

@Nate Reed  

That is where the contest comes in. Invest in a tough neighborhood now which would probably (maybe i'm wrong) be negative cash flow and hold out till it gets better? Do you think that is a good strategy for someones first deal? 

Originally posted by @Nazakat Hossain:

For some reason I have my reservations about a duplex as my first purchase, if someone wants to contest this please! do! 

My areas of concern are

-high maintenance 

-higher than average vacancy

I owned some duplexes in Austin from 2006 to 2016 or 2017. Can't remember when the sales closed. I rarely ever had any vacancies longer than a few weeks or a month. Cash flow was good having purchased at 2006 prices, but values had just risen so much over the years that the return on equity no longer made sense so I cashed out and folded the money into my fix & flips.

Originally posted by @Nazakat Hossain:

@Nate Reed 

That is where the contest comes in. Invest in a tough neighborhood now which would probably (maybe i'm wrong) be negative cash flow and hold out till it gets better? Do you think that is a good strategy for someones first deal? 

No, I would imagine the cash flow would be higher in the lower income areas. Most Austin SFH's are so expensive you'd need a big down payment (>50%) to make it cash flow. The returns are better in areas where you can find single family homes for less than $300k ("working class" neighborhoods). Not "no-go" areas, maybe more crime than average but still relatively safe.

If you feel uncomfortable as a noob you might consider finding a property manager who knows how to manage properties in such an area.

Investing in suburbs like Round Rock or Pflugerville would be safer for someone's first deal, but it's the gentrifying neighborhoods where the hipsters are moving in that offer the best appreciation potential - I think.

I bought a residence in such an area, just east of downtown a few years ago. I hated living in that neighborhood, but I exited with a nice gain, which provided seed capital for other investments.

It is a great feeling to buy in a neighborhood that is growing and multiplies your capital. If you don't have much capital, then cash flow doesn't do much for you. Go for cash flow, of course, but if you buy in the right location, appreciation will follow. If you make mistakes as a newbie, or problems come up, appreciation will help offset them.

@Nazakat Hossain I'm in the midst of relocating to Austin as we just closed on our home there and I'm finding out the same for rentals. I found that there are a few areas in Austin, Cedar Park, Round Rock that will cashflow positive but maybe a 6% if that after all expenses. What I'm learning from that market Is you need to go Multi-Family to get anywhere near a 9-10 Cap. Or a little further out. San Marcos might be a decent area with the university right there for a multi family

@Junior Soares

Thanks for bringing in some first hand experience. Did you buy in Austin or renting for now? Do you have something in the Austin area or looking to get into it?

@Nate Reed Are any areas of Round Rock good or there are those that it is better not to purchase in? I wonder if you could map the most attractive areas. I just moved to Austin and looking for investments.

Originally posted by @Kate J. :

@Nate Reed Are any areas of Round Rock good or there are those that it is better not to purchase in? I wonder if you could map the most attractive areas. I just moved to Austin and looking for investments.

Round Rock is a solid area to find quality SFH's. I recommend finding a realtor to help find good locations.

Just don't expect to make a lot in cash flow in SFH's in the Austin metro area.

@Nate Reed

I've put in the number over a 100 times now with different combinations and for the most part cash flow is minimal. The only thing that will get an investor through is appreciation. For SFH that is. I'm pretty sure duplex's and multiplexs have better cash flow.