Does anyone here invest in MF in Kileen Texas?

Question

I currently live in Austin and am looking outside the city for MF investment properties (4 to 8 doors). I've found some seemingly great deals in the Kileen area (of which I am not too familiar with) and they seem a little too good to be true (rent being ~2% of cost). But then again, maybe I am just used to Austin area prices. If you invest - or explored investing in - the Kileen area, I'd like your input. What are the vacancy rates in the area? What are the typical rental rates for B-class properties? Also, what are typical cap rates?

Brian Adams · Answer

All the posts on here so far are spot on. I own a fourplex myself and have worked with quite a few multi-family buyers like @Andrew Watson .

I wrote an article here on BP about fourplexes. It is three months old and the numbers have changed a little bit, but not much.

https://www.biggerpockets.com/blogs/10185/66309-ki...

There are about 20 4-units on the market right now. Realistically, only 5-6 are properties that I would personally be interested in owning under any circumstances, so you definitely want to be selective. There were a bunch that just came on today that would be great, although I think they're a little overpriced at the moment.

Andrew W. · Answer

I'm in the process of buying a fourplex there. I agree with everything said so far on this thread. It's definitely a cash flow market, not appreciation.

My advice would be to find a property manager that you like (I like Gold Medal so far) and see what areas they recommend.

I'm using Brian Adams as my Realtor, he wrote a great article about this topic: https://www.biggerpockets.com/blogs/10185/66309-killeen-fourplexes-the-best-multi-families-in-central-texas

Brian Adams · Answer

@David Sray - there is a lot versus the rest of the central Texas market, absolutely, but I believe that is a factor of there literally just being more 2-4 unit multi-families in our area, and our area is naturally higher in turnover than some markets. That said, inventory is actually down. A year ago there were reliably 40 active fourplexes at any given time. Now that is 20.

The area as a whole does not appreciate significantly, although 2017 was a good year with every city in the area having a median price go up of at least 5% versus 2016. Fourplexes, however, are unique in that they were unusually badly hurt by the 2008 recession (80% of fourplex sales in 2011 were foreclosures), and has rebounded since. So fourplexes have appreciated quite a bit versus the dregs of 2010-2011.  That said, don't let that take away from your general point, which is accurate: don't invest in the Fort Hood area for appreciation.

Account Closed · Answer

I have looked at a number of properties up there and my biggest concern is a question you asked that did not get answered, the vacancy rates. That whole area seems to be saturated with vacant/available rentals, both multi unit and SFH. For me, I would be conservative on both vacancy rate and what rent you can expect, given the amount of choices renters have. Just my 2c

Brian Adams · Answer

Hey Account Closed !

I hope my message didn't sound like any nerves had been hit. I certainly try to be dispassionate. Just informational! And I honestly don't know how the Census does their vacancy numbers. Just tossing around both ideas and information.

Concerns about being a military town are not unfounded. I own two properties in Lawton near Fort Sill. Having them assessed for possible sale now, and the market there is flat-lined at best - even fallen off a little since I bought 7-8 years ago.

Regarding multis under the numbers I recommend targeting, they are definitely not Bs, so I would tread carefully. Some I would easily classify as Ds, in fact. I know at least two guys who bought a few years ago hoping to manage these D-C class fourplexes themselves and are both now trying to sell because they're sick of all the work and tenant drama. The numbers definitely aren't as good on paper at the $200-$215k prices decent fourplexes are going at now, but I would rather not own one at all rather than settle for some of the lower classes of properties, and recommend the same to would-be buyers. I would only recommend considering the others one if you have local, experienced, and in-house property management for your portfolio.

Brian Adams · Answer

Account Closed

The Fort Hood troop reduction actually happened well after 2012 in 2015, and didn't actually take full effect until 2017.

http://www.statesman.com/news/local-military/fort-...

http://kdhnews.com/news/local/study-no-major-impac...

2017 ironically has had some of the best real estate numbers since the Recession, with every city in the area's median price growing by at least 5% YoY.

I've been curious about the Census vacancy rate. I don't see a methodology of how it is calculated. Is it just vacant homes, or vacant homes actively advertising for lease? It is possible it is counting inventory that owners are not even trying to rent. That would somewhat explain the numbers in 2012 when many multi-families and single families were foreclosed on and therefore vacant, plus only approximately 35% of listed homes were selling, meaning there was vacant inventory just sitting with a For Sale sign in the yard. But I don't know the answer on that one.

The troop reduction concerns and trends you reference should be put in context that the area has continued to grow throughout those years in population and, especially, builder activity, which has continued nearly unabated, adding more and more inventory for both buyers and ultimately renters.

Plus, I don't understand, if vacancy really were that bad then in 2012, surely rents would have dipped as landlords competed for renters?

Anyway, anyone looking at Fort Hood - yes, turnover is going to be higher. I'd recommend a vacancy assumption of 8%. Rents haven't appreciated in forever (although home values themselves are mostly keeping up with inflation), and the area had a good 2017. I think it's worth considering for buy-and-hold types and know a couple investors who agree and have a lot of exposure to the area in SFH rentals.

Account Closed · Answer

@Brian Adams My apologies if I hit a nerve - As I mentioned my "research" was quick and dirty - I was just shooting from the hip! Honestly, I don't know a much about the area to make a fully educated comment on it. With that being said, I gladly defer to you as you are the subject matter expert on Killeen!

You are correct about the troop downsizing - I believe I read that it was announced in 2012 but didn't happen for some years afterwards. Also, I agree that the unusually high vacancy rates provided by the government are suspect and also could be attributed to the state of the economy at the time.

IMHO, 8% vacancy rate seems manageable and I suspect that could be reduce by half (on paper at least) with long term 2-yr leases to B level or higher tenants. I guess it really comes down to where you buy. The units you recommended and discussed with me via PM are in great condition but are tight on cash flow as a managed property. But, you are right about the area being good - it really is. The units I originally looked at were priced around 27% less than your recommendations  and, on paper at least, would cash flow very nicely. Then again, the tenants would likely be C to B (at BEST), the units are older which indicates a medium term need for more CapEx Improvements, and your concerns of not being able to find a reputable property manager to manage such a property are concerning to me. Lots of food for though - thanks Brian!

Account Closed · Answer

@Tyler M. I did some quick and dirty research on Google and an older (below) Bigger Pockets discussion from Nov 2017 came up. Also, looks like according to the Government, the 2015 vacancy rates in Killeen were 8.76%, actually down 4.46% (also below). This is also concerning to me because data on the same page suggests a trend from a high Vacancy Rate of 18.76% back in 2012 to where it is now, which I believe is very representative of the reliance on military (remember the military was downsized back in 2012).

https://www.biggerpockets.com/forums/52/topics/505937-vacancy-rates-in-killeen-tx

http://www.deptofnumbers.com/rent/texas/killeen/

David Sray · Answer

Thanks for that write-up, @Brian Adams. I'm glad I caught it looking at this thread - I have been teasing picking up something in the Killeen area for awhile now, but just haven't seen something I felt comfortable pulling the trigger on. Probably just too cautious... I think one of the main things that's stopped me is there's just seems to be a lot available up there and appreciation seems generally unlikely.

I gonna keep looking around there, though.

Does anyone here invest in MF in Kileen Texas?

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