Investing without cashflow - Austin MTR
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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votesI don't think its bad - the correction has hurt some values here in Austin last year, but I have no doubt we will see a roaring back of appreciation soon - I think still smart to invest here
Harpoon Capital514 Reviews
60 Replies
- Member since 2023 · 4 posts · 3 votes2y
Hi Gil, I don’t think you’re rationalizing a bad investment strategy at all. There will obviously be different perspectives on this, but your reasoning and strategy makes sense to me. I also think your projected MTR rent is conservative. I think you could potentially make more with the right connections for leads and maybe if you combine MTRs with STRs to fill in gaps in occupancy. I’m starting to get involved with MTRs, also in Austin. I’m using a little bit of a different strategy to start off due to my specific situation, but definitely in the MTR space.
- Investor · Richmond, VA · Member since 2023 · 459 posts · 474 votes2yMost of the experts that I respect say that a deal should cash flow from day 1. This is about risk mitigation. My own criteria is a minimum monthly cash flow after debt service of $300 on a typical B class SFH.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes2y
Extended stay hotel rooms can be built or purchased for under $200k per room and generate $3,500 per month in revenue. I'd want and expect more than $3,500 for a stand alone home.
- 2yAxel MeierhoeferPro MemberRental Property Investor · Escondido, CA · Member since 2017 · 679 posts · 550 votes
@Gil Segev I don't think you are rationalizing a bad strategy.
What is missing is specificity.
Your $420K is for what? How big or small is the property? That also drives how much furnishings cost. The quality of furnishings and other little amenities that make life nicer (especially for MTR) have impact on your rent income.
To see if your deal is a good idea, I would suggest to show the price, down payment, financing terms, size, and if you can, historic data on MTR in that area (Assuming STR adn MTR is even allowed) and the property tax situation. In TX the latter is a huge issue and has kept me from investing there.
Assuming your prediction of increasing values is true, that will also increase your property taxes.
You also did not mention if you plan to manage the property yourself and anything about your experience with getting MTR and STR clients.
To help you with reflections and suggestions on your post, it would be great if you were to provide more details. On first glance it appears to me that you have not gotten all the relevant data together to make an informed decision.
- Austin · Member since 2018 · 108 posts · 47 votes2yI was educated by the same experts. $300 cashflow from a B property in this market is extremely challenging and could require buying a large off market rehab project with a new contractor which I've had bad experiences in the past.
Quote from @Glen Wiley:
Most of the experts that I respect say that a deal should cash flow from day 1. This is about risk mitigation. My own criteria is a minimum monthly cash flow after debt service of $300 on a typical B class SFH.
This is one of the reasons I'm having such a hard time changing my mental model around investing a lot of money and effort in a non casahflowing asset. - Austin · Member since 2018 · 108 posts · 47 votes2y
Quote from @Mike Dymski:
Extended stay hotel rooms can be built or purchased for under $200k per room and generate $3,500 per month in revenue. I'd want and expect more than $3,500 for a stand alone home.
Do you have an example to share? I've honestly never heard of this strategy but willing to learn. - 2yRobin SimonBusiness MemberLender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
I don't think its bad - the correction has hurt some values here in Austin last year, but I have no doubt we will see a roaring back of appreciation soon - I think still smart to invest here
Harpoon Capital514 Reviews - Austin · Member since 2018 · 108 posts · 47 votes2yThat's fair. I am looking at several 3/2 ~1400sqf properties requiring minimal rehab that are listed between 420-450k. In this market I am hoping to close under asking but don't know for sure yet.
Quote from @Axel Meierhoefer:
@Gil Segev I don't think you are rationalizing a bad strategy.
What is missing is specificity.
My numbers:
PP: 420k, 25% down (105k), 6.5% interest rate already pre-approved
PITI + HOA: $3100
MTR managed by a 3rd party: 8% / $300
CapEx: 8% / $300
Vacancy: 5% / $175
Rent range provided by trusted 3rd party: 3.5-3.8k
At the lower range of income and higher range of expenses I will end up $300 in the red, unless I manage buy lower. I could try taking up managing MTR myself but this company has relationships with renters and insurance companies that I assume bring higher rents than I can get myself with Furnished Finder. I could add STR to cover some of the vacancy cost but honestly I'm not ready to this this on as a job rather than semi-passive investment.
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes2y
It really depends on your comfort / risk level.
Other than the "recent" talk, "traditional" RE investing is to buy a property and make sure the rent covers your costs. Long term in vesting in RE is about the appreciation, not the cash flow. Espcially since rents have skyrocketed the past 5-7 years. Look at the prior 15 years, they didn't move that much...
I find it funny... the same principals can be applied to real estate the stock market, but they are applied differently. For example, oh, long term RE always goes up. Yeah... a graph over a long period of time for the stock market or the real estate market looks the same.... But, depending on when you get in an out is what matters (especially since those "sale" graphs tend to be for periods longer than one's investing timeline).
In your case, I generally wouldn't be going after a property that was ($300)/mo. MAYBE if it was in great condition where you could take off some of that capex.
There really isn't a perfect crystal ball. You don't "see it," but plenty of people still lose money investing in real estate.
Hope this helps. Happy to chat. Good luck.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Gil Segev:
After several less-than-stellar experiences with OOS investing, I've decided to try to invest close to home in Austin. LTR cashflow in today's market and interest rates is extremely difficult so I am looking at MTR which my conservative numbers show will roughly break even. We say we're not supposed to time the market but I do believe the Austin market will appreciate in the coming years due to recent price drops, reductions in interest rates and influx of tech jobs.
Am I just rationalizing a bad investment strategy here? Is banking on appreciation, refi (if and when rates drop) or potential rent increases wrong?PP: ~420k, furnishing: 15k, no rehab, projected MTR rent: ~3.5k
I would say wait the plan until 2025 especially in Austin, no need to rush as flood of rentable property is coming, need to check rent index monthly. For now, hoarding cash is way better.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Gil Segev:
@Carlos Ptriawan it's hard to say what 2024 holds but my expectation is that interest rates going down will revive the market.
Ya but that's nationwide.
There's specific issue related to Austin which is oversupply of SF and MF unit; combined with reduction of migratio.
Check Resiclub analytics, your market has the more anticipated inventory supply side. - 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
In Austin, buy deeper or go to a better area and bet on the real appreciation there. $420k I assume is on outskirts--East Austin maybe?
People are entertaining buying deeper. FWIW, I have yet to strike here but have a few offers out there since Xmas and have had more back & forth than I expect. Means I'm probably doing it wrong, but it's telling.
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Gil Segev:
@V.G Jason Austin was still very high on the list of fastest growing cities 2023 so I don't think demand is going away anytime soon.
You're not going to find a bigger fan of Austin than myself. Been here since early 2010s.
I am very bullish Austin, just I am bearish 2024. Which is why I am saying you can work this a bit harder & why I am getting in, in 2024. I could be entirely wrong though.
- Member since 2020 · 351 posts · 329 votes2yYou are missing maintence and your vacancy is likely low. MTRs are likely higher than LTR and you are on the low end for LTRs. Bumping those to 300/mo (which might still be low). For an all cash purchase you would clear 1200/mo. This a 3.5% return from rent (less when you account for furniture, closing costs and lending fees) You are banking on appreciation being at least 3% to break even on financing and probably 5% to get a return which beats the S&P500. In order to get to 18%IRR you probably need to average 7-8% appreciation. If you think you will average 5-8% appreciation over the next 5 years it might be worth doing, but it seems like there is little margin for error.
Quote from @Gil Segev:
That's fair. I am looking at several 3/2 ~1400sqf properties requiring minimal rehab that are listed between 420-450k. In this market I am hoping to close under asking but don't know for sure yet.Quote from @Axel Meierhoefer:
@Gil Segev I don't think you are rationalizing a bad strategy.
What is missing is specificity.
My numbers:
PP: 420k, 25% down (105k), 6.5% interest rate already pre-approved
PITI + HOA: $3100
MTR managed by a 3rd party: 8% / $300
CapEx: 8% / $300
Vacancy: 5% / $175
Rent range provided by trusted 3rd party: 3.5-3.8k
At the lower range of income and higher range of expenses I will end up $300 in the red, unless I manage buy lower. I could try taking up managing MTR myself but this company has relationships with renters and insurance companies that I assume bring higher rents than I can get myself with Furnished Finder. I could add STR to cover some of the vacancy cost but honestly I'm not ready to this this on as a job rather than semi-passive investment.
- Member since 2023 · 17 posts · 3 votes2y
I own a property in Austin ( just east of downtown). It use to cashflow but with taxes and the market rent rates now I break-even. Holding for an equity exit strategy still though. I don't think that is a bad strategy, it's great to have it all... cashflow, appriciation but sometimes appreciation alone can be better than both in the long run, imo
- Austin · Member since 2018 · 108 posts · 47 votes2y
Here are some updated numbers from a property I saw today:
4/2, 1600sqf
PP: 520k, 25% down, 6.5% interest
MTR: $4000
PITI: $3500
Rehab: 0, property just finished a high end rehab
CapEx: 2%, all major systems are new: roof, water heater, HVAC, electrical
MTR PM: $330 (8%)
Utilities: $300
Vacancy: $200 (5%)
Overall sightly underwater. Last year's comps were 25% higher so there's definitely room for appreciation.
- Austin · Member since 2018 · 108 posts · 47 votes2yI see what you're saying now. I reviewed the numbers with my real estate agent today and we saw a 25% drop in closing prices vs. the 2022 peak in the area I was looking at. There's no way for me to know whether prices will drop further in 2024 but I see no reason why they shouldn't get back up to at least what they were in the next 5 years so waiting for the market to drop seems fruitless to me at this point. If the market does drop, I'll just buy more :)
Quote from @V.G Jason:
Quote from @Gil Segev:
@V.G Jason Austin was still very high on the list of fastest growing cities 2023 so I don't think demand is going away anytime soon.
You're not going to find a bigger fan of Austin than myself. Been here since early 2010s.
I am very bullish Austin, just I am bearish 2024. Which is why I am saying you can work this a bit harder & why I am getting in, in 2024. I could be entirely wrong though.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Gil Segev:
I see what you're saying now. I reviewed the numbers with my real estate agent today and we saw a 25% drop in closing prices vs. the 2022 peak in the area I was looking at. There's no way for me to know whether prices will drop further in 2024 but I see no reason why they shouldn't get back up to at least what they were in the next 5 years so waiting for the market to drop seems fruitless to me at this point. If the market does drop, I'll just buy more :)Quote from @V.G Jason:
Quote from @Gil Segev:
@V.G Jason Austin was still very high on the list of fastest growing cities 2023 so I don't think demand is going away anytime soon.
You're not going to find a bigger fan of Austin than myself. Been here since early 2010s.
I am very bullish Austin, just I am bearish 2024. Which is why I am saying you can work this a bit harder & why I am getting in, in 2024. I could be entirely wrong though.
haha I like the spirit ;-)
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Gil Segev:
I see what you're saying now. I reviewed the numbers with my real estate agent today and we saw a 25% drop in closing prices vs. the 2022 peak in the area I was looking at. There's no way for me to know whether prices will drop further in 2024 but I see no reason why they shouldn't get back up to at least what they were in the next 5 years so waiting for the market to drop seems fruitless to me at this point. If the market does drop, I'll just buy more :)Quote from @V.G Jason:
Quote from @Gil Segev:
@V.G Jason Austin was still very high on the list of fastest growing cities 2023 so I don't think demand is going away anytime soon.
You're not going to find a bigger fan of Austin than myself. Been here since early 2010s.
I am very bullish Austin, just I am bearish 2024. Which is why I am saying you can work this a bit harder & why I am getting in, in 2024. I could be entirely wrong though.
I am not recommending you wait for the market to drop. I'm recommending you buy deeper. I am buying as we speak-- I am not "waiting". The initial entry price is paramount in this.
As for the $520k house, reserve wise forget it with the %s. Just put aside 50% of capex stuff and about 6-8 months of lease time/vacancy from the get. Add a month per 15-18 months to that, and add 10-15% every 3 years to capex. The whole little 2-5% is just a way for people to scrounge or cook up ways to make it look different. You also need to allocate money to furnish the place, no?
Your focus is spot on, you'll get a house. Just don't force the shoe to fit, you will definitely grab one with how active you're going at this and that's all it takes.
- 2yAxel MeierhoeferPro MemberRental Property Investor · Escondido, CA · Member since 2017 · 679 posts · 550 votes
Quote from @Gil Segev
Here are some updated numbers from a property I saw today:
4/2, 1600sqf
PP: 520k, 25% down, 6.5% interest
MTR: $4000
PITI: $3500
Rehab: 0, property just finished a high end rehab
CapEx: 2%, all major systems are new: roof, water heater, HVAC, electrical
MTR PM: $330 (8%)
Utilities: $300
Vacancy: $200 (5%)
Overall sightly underwater. Last year's comps were 25% higher so there's definitely room for appreciation.
Thanks for sharing the numbers. Here are a few things to consider, in my opinion:
1. Your investment makes relatively small cash flow and depending on how the numbers work out in reality might have negative cash flow.
2. You said you are willing to work with w third party PM for good reasons.
3. I believe your occupancy will fluctuate more and a 95% rate is too optimistic, if you ask me.
4. You are indicating that you are willing to put $105K - $130K into the deal.
5. I don't see the furnishing numbers anymore but I would assume $20K at least.
6. If it were me and I am willing to commit this amount of money I would apply (biased, I know) my OOSTK strategy. It stands for Out-of-State-Turnkey strategy. For $125k - $150K you can buy two properties with $300/month positive cash flow each, making $600/month on the same money, have them managed as LTR and no hope required about market movements.
If we are all here on BP are correct and interest rates will come down in the next 18-24 months, you could refi those two properties and increase cash flow even further.
I even have a way to get you up to three properties for the down payment you are willing to make if you are willing to reduce cash flow a little (still remaining positive)
In my opinion the ratio of rent to purchase price is not good enough in Austin to make it work, even as MTR and with 95% occupancy
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @V.G Jason:
Quote from @Gil Segev:
I see what you're saying now. I reviewed the numbers with my real estate agent today and we saw a 25% drop in closing prices vs. the 2022 peak in the area I was looking at. There's no way for me to know whether prices will drop further in 2024 but I see no reason why they shouldn't get back up to at least what they were in the next 5 years so waiting for the market to drop seems fruitless to me at this point. If the market does drop, I'll just buy more :)Quote from @V.G Jason:
Quote from @Gil Segev:
@V.G Jason Austin was still very high on the list of fastest growing cities 2023 so I don't think demand is going away anytime soon.
You're not going to find a bigger fan of Austin than myself. Been here since early 2010s.
I am very bullish Austin, just I am bearish 2024. Which is why I am saying you can work this a bit harder & why I am getting in, in 2024. I could be entirely wrong though.
I am not recommending you wait for the market to drop. I'm recommending you buy deeper. I am buying as we speak-- I am not "waiting". The initial entry price is paramount in this.
As for the $520k house, reserve wise forget it with the %s. Just put aside 50% of capex stuff and about 6-8 months of lease time/vacancy from the get. Add a month per 15-18 months to that, and add 10-15% every 3 years to capex. The whole little 2-5% is just a way for people to scrounge or cook up ways to make it look different. You also need to allocate money to furnish the place, no?
yea you should get more discount in this market as inventory is adding up
- Member since 2019 · 7k+ posts · 4k+ votes2y
But Jason, do you know why the TX is the only state that has increased inventory 'state-wide' while there're massive migration into this state ? is that because there're just too many development in the last 5 years or so ?? this unique phenomenon is extremely niche. Or is it because the land is vast and considered cheap ??? I can only ask this question to fellow investor only though, if I ask to realtor they would be mad at me lol
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