At Texas Urban Realty and Texas Urban Property Management, one of our most common scenarios is a client who wants to invest approximately $100,000 in Austin real estate and/or the surrounding areas. Many clients wonder if $100,000 is enough of an investment to accomplish their performance goals, especially those who live in more expensive markets that normally would not cash flow*. In fact, many investors are able to make this work successfully, in terms of monthly cash flow and in overall appreciation!
*Cash flow means income from the property (rent) minus all expenses, such as mortgage, interest, property tax, homeowners insurance, homeowners’ association fees, property management fees, etc. If income is more than expenses, you have positive cash flow.
Let’s take a look at how a $100,000 investment in Austin real estate might work for you.
Obtain Pre-approval
Since we are a full-service company, I can verify your ability to secure a mortgage (if needed) and determine how much you can afford. We then submit a pre-approval letter with your offer/s so that buyers will know you are able to secure the necessary loan to complete the purchase.
Here is approximately what you are aiming for with a $100,000 investment:
$350K home
$87,500 down payment (25% down)
+$12,500 for make-ready (new paint, flooring, fixtures)
=$100,000 investment upfront
Finding a Property
Next, we search for properties from both the MLS and from wholesalers. I’m also a part of several brokers’ forums and have connections to off-market properties.
Each round of potential properties is run through a cash flow calculator. We look at monthly costs, such as insurance and management fees, and then compare that to potential monthly income to determine potential cash flow. In terms of income, we look at these factors:
· How much are rents for comparable properties?
· How much could rent be with an investment in make-ready?
· What is the expected appreciation for this area/home? How does this weigh against cash flow – whether positive, negative, or neutral?
· When all these factors are combined, what profit looks likely?
Running these numbers will rule out many potential properties, but, ultimately, we will find those that fit your criteria. Depending on your circumstances, you may require both cash flow and appreciation, or it may be that a neutral or negative cash flow is acceptable, while the investment grows primarily from appreciation.
Property Value Growth Rates
The Austin-area median home price increased over 64% from 2010 to 2019. This historical data means that if you, for example, bought a $250,000 investment property in 2010, the property would be valued at $410,000 in 2019 based on this level of appreciation.
Making an Offer
Once we’ve found a property or more, it’s time to make an offer. The Austin market is competitive, especially at the price point used in this illustration, so it often takes a few tries to secure a contract. Buyers can expect they’ll need to make an offer within a day of the property going live and most likely offer over asking price. As Texas Urban Realty's owner and broker, I can use my expertise to suggest the best offer price, and I have an excellent success rate in securing contracts.
An Offer is Accepted
Once an offer is accepted, we will have an inspection to be sure there are no unexpected large repairs needed. Texas provides for what is called an option period, which gives you the right to pull out of the deal based on the findings of the inspection. Assuming you move forward with the deal, we’ll perform the necessary steps on your mortgage so that you are ready to close.
Make-Ready Phase
After closing is the make-ready phase. New flooring, paint, and updated fixtures are standard investments for most properties. Many of these properties are good investments precisely because they haven’t been upgraded aesthetically, which means a small upfront investment can translate to a significant increase in monthly rental income.
With the way my companies are structured – with both real estate services and property management – we are able to utilize our team of professionals for any needed upgrades. Our goal is to keep this process as streamlined and simple as possible, and I will provide an up-front timeline of the make-ready process and can help you secure affordable bids from three separate crews.
Leasing
Once the property is show-ready, we list the property for lease in the MLS and market it until a renter is found. If hired for this portion, we manage the application process, the contract, and other details. We also manage the process of procuring the rental income and pass along your portion at predetermined intervals. If/when repairs arise, we again utilize our team of professionals to ensure they are competed correctly. When the lease expires, we handle renewals, change of renters, or the listing of the property for sale. Should it be necessary, we handle evictions, and it’s easier to evict renters in Texas than some other states. There is no rent control in Texas.
What Can You Expect from Your Investment?
· Plan to keep your property for at least five to seven years.
· Even if cash flow is relatively flat or negative to start, historically monthly rent grows over time, as does the actual value of the home.
· If you thoroughly address repairs and updates upfront, there will be fewer costs down the line. It’s more initial investment but less management and expense in the future.
Making Your Money Work for You
The above scenario is for an approximately $100,000 investment. Double that, for example, and you can purchase two properties – or upgrade your price range to a higher-end home, which is an excellent choice if you are considering moving here in a few years and want to purchase a home at today’s prices and/or interest rates.
Contact me today to learn more! 512.293.2700 or christine@txurbanrealty.com.
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