From your first door, to your final property, having an investment house is a great way to build wealth, perhaps the greatest way imaginable. Stocks go up and down. Currencies are at the mercy of various governments. Gold comes in and out of vogue. People always need a place to live. I don’t know of a single person who has not benefitted from owning land, long term.
Investment properties are different than your primary residence. I believe it is important that you take care of yourself, and your family first, before investing in a rental property, but there are some exceptions. This includes house hacking, or living in the A unit of a Duplex. Investment homes are just that – a place that can generate monthly cash flow or long term equity, and ideally, both.
In the Austin market, it is becoming increasingly difficult to find homes that cash flow at the old standard of 20% down. I attribute this to several different factors, including the popularity of the city, the current shortage of inventory, and the number of people with disposable income who want to dabble in real estate by getting their first rental home.
In the past it was fairly easy to find homes that would cash flow at 20% down. Just as a point of reference, I define cash flow as the amount of net positive money I get from a rental house, after all expenses are paid. Basically this means that the rent covers the mortgage, plus taxes, insurance, and all expenses, and there is a little left over each month that I get to pocket.
However, since Austin has been in a deep seller’s market, meaning there are more people looking for homes than there are for sale, properties often sell quickly, and for over asking price. When this happens, the homes no longer become profitable for cash flow, and we either have to move on to a new area, or bring more money for a down payment.
Of course, in addition to the down payment we need to consider the amount of rent the property can generate. This can vary widely in Central Texas, but an acceptable average is around $1 per square foot. Of course there are areas where it is less, and some where it is more, but the dollar/ft2 method holds up as a great average.
My years of experience in Austin have shown me that most people who rent homes do so with the intention of staying for 1-2 years while they decide if they are going to stay in Central Texas, or not. They use this time to research other areas and neighborhoods, and then when the lease ends they move into a home they are buying.Renters also look for other factors in a house. While being in a good school district might be important for a buyer, a renter may prefer to have a fully fenced yard for a dog, or a dishwasher, or indoor laundry – things which are commonly unavailable in apartments in many cases.
Whatever the situation, I can quickly and easily provide rental comps for the property you are interested in. Typically I search for similar style properties (ie 3-bed, or condo), that have leased in the last 365 days, within .25 miles.
In addition to providing rental comps, I can also give you a market analysis showing what homes near the property of interest sell for, as well as what the local market is doing. Some times this is by neighborhood name, or zip code, as these differences can have a large impact on house prices.