How to approach 1st property purchase (Austin, TX)

Question

Hey BiggerPockets,

I recently received pre-qual letters from two lenders and am now aiming to purchase my first property prior to June 2020.  My plan is to househack a single-family home (Austin, TX).  The area has been getting more and more expensive the past few years so looking into new builds about ~20-30 mins outside of downtown.  Being 26 I understand sometimes you may need to bite the bullet on location for the first property.  Although Austin is developing farther out so fortunately could really benefit in the long-term.

For those of you whose first property was a single-family househack, what would you do differently or what would you pay more attention to if you could do it again?  Or for those who elected to go a different investment strategy their first go-around, I'd value additional perspective as well.  Also any questions you'd be asking yourself would be a big help too.

Additional context:

- buy and hold w/conventional 5% loan;

- refinance w/in ~24-months > move and repeat process

Thanks in advance!

Austin

Joe Scaparra · Answer

@Austin Adams, you have the right idea thinking house hacking but the WRONG property type.  My advice, don't say house or condo when thinking of house hacking in Austin.  The name of the game is to MAXIMIZE cashflow!  Your 26, which means young, probably single, no kids.  If I am right then you are the perfect candidate to look for a duplex.  Soooooooo many advantages over a house.  Get a duplex, rent out  the other side and if you're really motivated rent out a room on your side. Live for free or for no more than $500-600 a month.   Begin building wealth and then you will really get excited about real estate.  Cheers.

Mike Krieg · Answer

@Austin Adams Austin, it's great that you have the mobility and youth to pursue this strategy. This is how I got started here in Austin years ago. I bought a single family home and turned it into a rental. It worked great, but if there was one thing I'd change it would be that I would have started with a duplex or a fourplex if at all possible. Aim for that if you can. Buy location, good schools, and in the path of progress. In Austin, I'd look to get near something like Project Catalyst on the east side. This area is going to explode. Learn how the city is growing and plant yourself in the middle of it.

Bryan Noth · Answer

@Beth Lemmons The Austin market is absolutely growing, and parts are growing at an expedited rate which may be regarded as 'hot'.  If you look at year over year price appreciation there are zip codes and contained local areas where the values have just soared.  South Congress, Zilker, Bouldin, Downtown, Travis Heights, Westlake to name a few are not going to cashflow without quite a significant downpayment.  Even with the large down payment taxes will likely eat the remaining income.

I would close the radius that @Joe Scaparra mentioned of 10 miles from the Capital being California or premium pricing to about 4 miles, and even within that radius there are pockets of exception.  ABIA is 7 miles from the Capital for reference.  A quick MLS search for MF and SF under $300k shows just under 100 properties available today within 7 miles of the Capital.  Within 10 miles, that jumps to over 700 results.  I think this exemplifies why the Austin market has so much potential.  You do not have to go to the farthest reaches of the city to find 'deal' properties.  If you are purchasing a turnkey SFR with 20% down and expect cashflow after all expenses then you may need to venture 15+ miles from downtown.  But there are absolutely options closer in right now, especially if you know local price points relative to surrounding areas.  If you cannot tell, I believe heavily in the Austin market potential!

Aaron Signer · Answer

I'd like to echo the comment about looking for at the very least, and ADU option for your property. I have found a nice pocket off of St. John's that is still on the cheaper side for Austin but having A TON of renovated properties so if you are looking at holding for 24 months, should see a nice up swing!The Apple campus is another great hot spot to look into but the point that keeps being reiterated, for a reason, is have multiple doors!

In Austin, if you are going to do any renovations, plan accordingly for the time the City will take to approve things. Easily can add an extra 2 months when you run your numbers.

Joe Scaparra · Answer

@Beth Lemmons, I echo @Scott MacDonald comments as well.  Within 10 miles of the state capital is California pricing.  That said, opportunity still exist for a house hacker to make it work.  Being an owner occupant puts you at an advantage over a pure investor.  The combination of allocating what you were losing by renting and then moving in one side makes the opportunity becomes more desirable and profitable compared to a pure investor.  It is getting harder to cash flow positive, especially within 10 miles of the capital. Pure investors are having to look on the outskirts of Austin to make the numbers work. Now that being said, you still could make good investments without positive cash flow.......they do it every day in California, but you incur higher risk to do so.  In Texas, we have been spoiled as it has been easy to cash flow positive.  It still is easy to do, just not so much in Austin proper.  Cheers.

Scott MacDonald · Answer

Hi Beth, I don’t remember saying the Austin market was too hot. It’s harder to find deals where the numbers are right. It’s much easier to get into a hot market when you plan on living there as you can afford to pay a little more. I invest in Austin for investments only so I’ve a strict criteria on what I’m looking for such as cash flow and little to zero in the deal but even that is possible in Austin if you look hard enough.

Jordan Moorhead · Answer

@Austin Adams I’d look for a 2-4 unit personally. At least a SFH w/adu. That’s what I have in east Austin that I’ll be moving into come April.

Michael Tyler · Answer

Consider also looking closer to the north side of the city if the right prices can be found. Apple is building their billion dollar campus up there, and tech jobs raise rents. The value of our duplex up there in a go-nowhere neighborhood is kind of blowing our minds when we look back a few years.

Scott MacDonald · Answer

@Joe Scaparra

I agree with Joe, I’d even say to go as far as a quad Plex. House hacking a multi family is a great way to get started and if I was in your position that’s exactly what I would take on as my first project.

Ryan Kelly · Answer

@Austin Adams I recommend taking your time to explore the different areas and communities and refine your criteria before you pull the trigger. This way you can keep conducting analysis to see how they shape out. You want to KNOW when you have your deal versus HOPING you have one.

How to approach 1st property purchase (Austin, TX)

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