Rental Property Investing In Austin Texas
Austin is second-ranked, with a positive outlook for all property sectors in general, specifically for multifamily and single-family housing. The local economy is strong with no shortage of available investment capital. Austin’s high quality of life and a strong economy have the city once again leading the pack when it comes to population growth. New data from the U.S. Census Bureau shows Austin is fifth in the nation for the population increase in the past decade, with an increase of 177,079 people between April 1, 2010, and July 1, 2019.
The decade ending 2018 saw a 32.7% increase in population, and growth was 2.5% for the year ending July 2018. The Austin housing market has gained a lot of steam, with home values almost doubling since 2010. The Austin real estate market isnt as big as Dallas, San Antonio, or Houston. Austin is only the fourth largest city in the state.
However, the Austin housing market is sizable it is the eleventh largest city in the U.S. as of this writing, and it is the center of a large metro area. Austin has come up as another tech hub in the last 5 to 6 years. There are tons of high-paying tech jobs moved to Austin in the last couple of years. As Austin is a young city by many standards, Millennials will be the largest buying force in Austin in 2022, and this trend should continue in the coming years.
Should You Fix Up The Properties Yourself
A lot of people feel the need to fix up their rentals but dont want to buy real estate because they are not handy. I fixed up a house completely on my own in 2006. It was the worst mistake I ever made! It helped teach me that my time is better-used managing, planning, and looking at the big picture, not fixing things up.
If you are a contractor, maybe it makes sense to fix up the properties yourself. Otherwise, dont worry about having to be handy. It takes some time and experience to find good contractors and people to work in your houses, but you do not have to do it yourself. Hire those repairs out, and if you buy the right properties, you should be able to afford it and have less on your plate.
Do You Have To Manage Rentals Yourself
A lot of people think landlords are constantly unclogging toilets in the middle of the night. The truth is I have never unclogged a toilet in one of my rentals. I have never done any manual labor in one of my rentals. I have always had contractors, plumbers, or other professionals do that work. I did manage my rentals until I had seven .
It was not difficult to manage the properties, but it did take time. After I had seven rentals, we realized that I was better off using my time to do other things besides finding tenants, collect rent, and oversee the properties. When I hired a property manager, it was awesome. I had someone to take all the calls, rent the properties, and unclog those toiletsor at least call someone else and tell them to unclog the toilet. I have not been some of my rentals for years!
You do not have to manage the properties yourself, and for many people, you should not manage them yourself. You need to be tough and strict with tenants to make sure they are paying rent and to make sure you are not buying into sob stories. I was not tough when I managed my rentals, and I think I made more money with a property manager because they were tough and collected more money and as chose better tenants.
A lot of people get burned out with rentals because they manage them themselves. A good rental should make money even with property management costs.
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What Loan Options Are Available To Rental Property Owners And How Should They Be Evaluated
According to Pinnegar, there are a range of loan options available for rental properties. He mentioned three: loans backed by banks, loans from the government or even private money.
For potential real estate investors, and even those already involved in the industry, its important to speak with a loan broker to find the best loan fit, said Pinnegar. Often, loan brokers can give potential investors the broadest range of options and evaluate the pros and cons specific to financial situations, market conditions and a host of other variables.
Pinnegar also recommends speaking with an established real estate broker who is experienced with the type of rental properties youre interested in. This is because transactions differ widely based on property size and agents have different specialties as an example, a transaction for a 1-4 unit property is more akin to a single-family home purchase and would require a different kind of agent than 5+ unit properties, which lean more towards a commercial loan, Pinnegar explained.
A knowledgeable agent can also connect you with a trusted loan broker, particularly for multi-family properties, as these transactions tend to be complicated and brokers rely on proven relationships with colleagues who can close deals and bring in commission.
How Much Down Payment Do You Need To Buy Investment Property
Lenders typically have stricter guidelines when it comes to rental properties. Though you can buy a primary home with as little as 3% down, most borrowers need to put down 15% to 20% to buy a rental property. Rental property mortgages have a higher rate of default because borrowers in financial trouble tend to focus on their primary home’s mortgage first.
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Beginners Guide To Real Estate Investing
Basically, when investing in real estate, your goal is to put money today and allow it to increase so that you have more money in the future. The profit, or return, you make on your real estate investments must be enough to cover the risk you take, taxes you pay, and the costs of owning the real estate investment such as utilities, regular maintenance, and insurance.
To win in real estate investing, you buy properties, avoid bankruptcy, and generate rent so that you can buy even more properties. However, keep in mind that simple doesnt mean easy. If you make a mistake, consequences can range from minor inconveniences to major disasters. You could even find yourself broke or worse.
Best Books On Rental Property Investing For Beginners
Becoming a real estate investor can be a lucrative and exciting venture. However, the business can also be extremely complicated and risky â especially if youâre a beginner. To help you take the first steps here are several great books that will provide invaluable information.
Books are one of the best resources when it comes to learning about real estate investing. And especially if you are a beginner investor, youâll want to absorb all the information possible and learn every method, tip, and trick in the real estate world.
As real estate investing is a complex and ever-changing industry, your continuous learning of the real estate landscape works to your advantage and through books, you can learn from other investorâs experiences, successes, and most importantly, their mistakes.
There are countless real estate investing books out there, but to save you the effort of reading a 300+ page book to find it wasnât helpful at all, here are seven great real estate investing books that are perfect for beginner investors and will help you start your investment venture.
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What Sort Of Rental Property Should You Buy
A key part of deciding whether to invest in rental property is determining how much money you have to spendand whether youll pay in cash or take out a mortgage.
If you use financing, lenders will want to know your , how much money you have for a down payment, your debt-to-income ratio and if youll use equity in a current home you own to seed your investment.
So long as buying a rental property makes sense for your financial situation, it can be a unique opportunity to grow your wealth, Dolan notes. Most middle class Americans are not going to be able to walk into a bank and say, I want to borrow half a million dollars to invest in the market, he says. You can leverage somebody elses money to make that investment .
As you compare the pros and cons of various real estate investments, be sure to make a reasonable estimate of the amount of rent youll be able to charge so you can put together a realistic cash flow plan, Walsh recommends.
The money coming in each month needs to cover expenses, including mortgage payments, insurance and unexpected costs, so do the math, says Walsh.
Identifying your goals and objectives may also help you decide which property to buy. Do you plan to use the home occasionally and rent it out the rest of the year? Or are you looking for a property thats solely an investment to generate passive income that could eventually become your sole source of income? Begin with the end in mind, Halverson advises.
Legal Matters And Taxes
Purchasing an investment property is different than buying a house you are going to live in with your family. This is true in both practical and legal terms, as its somewhat trickier to comply with all the legislatures, from the national to the municipal level.
Youll get better with fees and tax rates over the years but in the beginning, hire property lawyers to help you out. These professionals wont just become your close business partners but your mentors for intricate legislation regarding investment property.
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What Are The Four Primary Forms Of Real Estate
Despite the broad range of categories encapsulated by real estate, there are four primary forms of investment:
Should I Invest In A Multi
In some areas, there could be advantages to investing in multi-unit properties like duplexes and triplexes over single-family homes. In other cases, the opposite is true. Lets go over a few examples.
Scenario 1: In one particular town, you may have found a great duplex with two one-bedroom, one-bath apartments for $125,000. In the same town, theres a two-bedroom, two-bath, single-family home with similar square footage selling for the same price. Both were built in the same year, and while the duplex will make $700 for each unit so a total of $1,400 the single-family will rent for $1,500. The single-family makes sense, right?
Not exactly. In this particular town, the vacancy rate is fairly high. If one unit of your duplex is vacant for 2 months out of the year, youd still collect 92% out of your maximum possible rent. But if your single-family home is vacant for 2 months, youd be losing more money. There are ways to keep your vacancy rates low, and the demand for single-family homes may be higher in certain areas, but sometimes, its simply the luck of the draw. Other times, you get lucky with great long-term tenants!
Scenario 2: In another instance in the same town, a different duplex has connected utilities. In the county, theres an ordinance stating that utilities arent allowed to be estimated and charged to tenants if two units share a meter. The total for the connected meters for water and heat per month is $350 which comes straight out of your profits.
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Why Invest In Real Estate
Real estate can enhance the risk-and-return profile of an investors portfolio, offering competitive risk-adjusted returns. In general, the real estate market is one of low volatility, especially compared to equities and bonds.
Real estate is also attractive when compared with more-traditional sources of income return. This asset class typically trades at a yield premium to U.S. Treasuries and is especially attractive in an environment where Treasury rates are low.
Invest With A Property Investment Company
The final tip for those asking how to invest in rental property as a beginner is to do so with an investment company.
While the answer to the questions should I invest in a rental property as a beginner? and can I invest in rental property as a beginner? is yes, the process can be tricky.
Not only do you need to ensure your rental property is a good investment, but youll also need to complete a bunch of legal paperwork which can be off-putting for a beginner property investor.
Thankfully, you can instead use the services of a property investment company like RWinvest. Not only will investment companies find you an ideal investment property for your goals and budget, but the majority of the paperwork will be handled for you.
You can learn more about property investment companies and the benefits of investing by clicking the link and reading the free guide.
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What Are Some Alternatives To Owning Rental Properties
When working with clients on retirement planning, Dolan says he breathes a sigh of relief whenever he sees rental income because it provides a steady source of cash flow after theyve stopped working.
That said, owning rental properties isnt for everyone. Perhaps youre turned off by the idea of becoming a landlord or dealing with upkeep of the property. Or maybe it comes down to dollars, and you dont have enough money to buy property. No matter the reason, there are alternatives.
For example, you may choose to go in on an investment with someone else. Before doing so, however, make sure you have a solid agreement worked out and consult with an attorney, Halverson advises. It sounds like a great idea and it can be, but be overly cautious about preparing on the front-end for all the possibilities that could happen, he cautions.
A less risky strategy is to make a micro-investment in real estate using a number of platforms like Fundrise or CrowdStreet. The advantage is you pool money with many other micro-investors to buy propertyand remove much of the hassle . You also need far less money to invest.
Another option for people without much money: Invest in real estate in the stock market by buying shares of companies in the housing industry, investing in funds that have exposure to the real estate market or buying REITs . This strategy will offer exposure to a wider swath of properties in various locations, which can help spread out risks.
What Every Real Estate Investor Needs To Know About Cash Flowand 36 Other Key Financial Measures By Frank Gallinelli
Frank Gallinelli gives an extensive overview of how to manage your finances by crunching the numbers.
What Every Real Estate Investor Needs to Know About Cash FlowâAnd 36 Other Key Financial Measures provides you with specific formulas and shows you how to gain insights from analysis and data.
The book will touch on topics like discounted cash flow, capitalization rate, profitability index, net operating income, and net present value, to name a few.
Gallinelli will also cover general concepts in real estate investing and use case studies to show you examples of how these ideas work in the real world.
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How Do You Calculate The Roi On A Rental Property
The calculation for the return on investment of a rental property is similar to the cap rate. One difference is that the ROI is a more accurate measurement that includes more costs, such as the borrowing costs associated with a rental property mortgage. The cap rate assumes that you bought the house with cash to give you an overall sense of the rental’s profitability, while the ROI is a more personal measure of how much you will earn.
Investing In Rental Property For Beginners
Disclaimer: This post may contain affiliate links. Please read my disclosure for more information.
If you talk to any real estate investor, theyll probably tell you that theyve made mistakes through the years. Mistakes are inevitable theyre going to happen. However, your chances of making a mistake in real estate investing are quite a bit higher when youre a beginner.
Rental properties are an excellent place for beginner investors to start as long as they know the SUPER critical things to do first. So lets take a look at these top 10 tips for investing in rental property for beginners.
Does becoming a landlord make you cringe?
Theres an easier way to invest in rental property and collect on the returns.
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How Neighborhoods Impact Rental Potential
Selecting a neighborhood to focus your search efforts on could be the most important step you take on your way to becoming a landlord. Did you know that neighborhoods are actually broken down into three classes by property investors searching for homes? Heres a look at how it works:
Class A refers to highly safe neighborhoods that attract low turnover, low vacancy rates, and high-quality tenants. Homes located in this type of neighborhood tend to be larger. They also tend to offer features like garages, central air, swimming pools, and more.
Class B refers to neighborhoods that attract mild turnover, mild vacancy rates, and mid-quality tenants. Homes here may be in need of style updates and general upgrades. You will typically be purchasing homes from people who have lived in them for 30 or 40 years.
Class C refers to neighborhoods that attract high turnover, high vacancy rates, and high crime. You are often looking at a full rehab project or a house fix and flip when you invest in rental properties in one of these neighborhoods. That can cover things like a new roof, new windows, plumbing updates, and electrical work.
The amount that you can charge in rent is obviously impacted by the class of neighborhood you choose. In addition, overhead costs could be higher in places where turnover and vacancy rates are high. That means youre potentially getting hit in the wallet on two fronts when investing in Class C.