Austin Real Estate Investing – Is a Rental Property Right For You?
Get answers to the most common questions about investing in Austin real estate from experienced local agents who’ve helped dozens of investors acquire profitable rental properties across Austin and Surrounding communities.
Frequently Asked Questions About Austin Real Estate Investing
What does Crossland Real Estate do as agents for investor buyers?
We help financially qualified individuals identify and acquire residential homes as Austin investment properties. With decades of experience, our team has guided numerous Austin real estate investors in acquiring profitable rental properties across Austin and surrounding communities like Buda, Kyle, and San Marcos.
What does Crossland Real Estate NOT do?
We do not help buyers find flips, fixers, foreclosures or creative financing opportunities. We do not sell duplexes, 4-plexes or apartments, just good quality “rent ready” single family homes in desirable Austin metro areas for long-term investment.
Is real estate investing risky?
Yes. Real estate investing is extremely risky. You might lose money. You should only invest in real estate with extra, leftover money that you’re willing to put at risk. This means you should already be maxed out with any employer matched 401Ks, have no debt attached to depreciating assets (such as cars, furniture, credit card debt, etc), and have no outstanding balances on credit cards.
So, I should get my “Financial House” in order first?
Absolutely. Your ‘financial house’ should be in order with all other investment, retirement and debt categories before you invest in a ‘rental house’. If you have credit card debt, car payments and haven’t started saving for retirement through employer matched tax advantaged payroll deductions, that’s a better investment to start with.
What mistakes do first-time Austin real estate investors make?
Two main mistakes – first, falling into “analysis paralysis” with spreadsheets and calculators. We’ve never used a spreadsheet to tell us if a property will be a good buy. Yes, you want to know how the numbers work, and I cover that below, but the spreadsheet doesn’t make the decision for you. We never used them when buying all of the personal investment properties we’ve purchased over the past 30+ years. You want to focus on things beyond the spreadsheet.
Second, falling in love with the idea of being a real estate investor to such a degree that you ignore red flags and realities that tell you it might not be the right house, the right area, or even the right thing to be doing at all.
Do you focus on and recommend certain areas in and around Austin?
Yes. We generally help buyers find homes in South Austin, Southwest Austin, and Northwest Austin as well as Hays County communities south/SW of Austin such as Buda, Kyle, San Marcos, Dripping Springs and Wimberley TX.
Why those particular Austin areas?
Homes in these Austin metro areas, in our opinion, offer the best combination of location, affordability, appreciation potential, school districts and the median value housing stock that attracts quality renters in Austin.
How is the Austin rental market compared to other Texas cities?
The cash flow is better in San Antonio, parts of DFW, and probably Houston as well. Your long term buy and hold Austin rental property depends on appreciation potential more than it did 20-30 years ago. Austin has become an appreciation bet more than a cash flow buy.
We can talk about that more on an initial consult, but Austin is a more expensive market than perhaps any other Texas city for real estate investing.
What price ranges do you recommend Austin area real estate investors stay within?
$400K to $600K, in general. Or, roughly, 25% above and below the median Austin home value of $500K. This price range typically offers the best combination of cash flow potential, long-term appreciation, and quality tenants in the Austin market.
Do you recommend a certain size and age of home?
Yes. We recommend homes that are 3 to 4 bedroom, 2 to 3 bath, 2-garage minimum, between 1,400-2,200 square feet in size, built 1980s and newer. There can be exceptions, but we start with those parameters and adjust as needed once we get to know more about your specific Austin investment goals.
Do you have other criteria investors should observe?
Yes. When possible, it’s best to have a 1-story home that has an additional flex room, such as a 2nd living area, formal dining, 4th bedroom or office. If it is a 2 story home, it’s best to have the master bedroom downstairs. Also, we help you avoid homes with “misfit attributes” or functional obsolescence.
How much cash on hand should I have before investing?
About $125,000 to $174,000 USD. This will provide funds for a 25% down payment plus remaining reserves equal to 6 months rent. If you don’t have that amount of available funds for down payment and operating reserves, you should reconsider investing in Austin real estate.
What are some basic financial assumptions about investing in Austin real estate?
It will generally take 3.5 to 5 month’s rent to cover annual property taxes and insurance for the typical Austin rental home.
- Austin property taxes average 1.8% to almost 3% of assessed market value, depending on the location in the Austin metro area
- Assume 10% of gross annual rent will go toward repairs and maintenance
- Assume 10% of gross annual rent toward vacancy/leasing
- Assume 10% of gross annual rent toward management fees if you will be using a property manager
The historic average appreciation rate in Texas is 4.5% over time, so that’s the rate we assume over a decade or more, even if the market at time of purchase is “hot”, as it was between 2012-2023, or “flat” or falling, as it was in the late 1980s, early 2000s, 2008 to 2012, and has been following the 2022 covid spike in Austin.
Austin homes generally lease for 0.4% to 0.6% of the market sales price per month. So, for example, a median value $500,000 Austin home at 0.5% of market value would have a monthly lease value of $2,500/mo.
More expensive homes have lower ratios. Cheaper homes below median value generally have higher ratios, but they are cheaper for a reason. Be careful. You want to be able to attract quality tenants in Austin.
Of course all of these numbers are averages and guesses. Two identical homes in the same neighborhood will perform differently over a 10 year period. Cash flow, or monthly “break even” cash flow amount will depend on how much down payment you invest.
What are the tax benefits of investing in Austin real estate?
In addition to potential Austin real estate appreciation, real estate offers tax benefits like depreciation, mortgage interest deductions, and the ability to offset rental losses against other income (depending on your tax bracket). Even if a property shows negative cash flow on paper, it might be a net gain after tax benefits and long-term equity buildup. It’s wise to review the full picture with your accountant to see how it compares to other investments like stocks.
What’s the typical timeline from closing the purchase to first tenant?
As short as a week, or sometimes 30 to 60 days or more depending on the prep work required to make it ready. This is why we prioritize “rent ready” Austin homes over rehab properties. Remodeling a home immediately after purchase can be costly and time consuming, adding more risk and uncertainty.
That said, “cosmetic” fixer uppers with “good bones” are sometimes a great bargain. If it just needs some freshening up, that’s often something quick and easy, or that your Austin property manager will handle for you as part of their normal onboarding process and property prep.
Should I invest in Austin real estate now or wait?
It sounds cliche, but “timing” the Austin market is in fact pretty hard. With a 10 to 15+ year time horizon, we don’t think the type of market you buy into matters as much as buyers think.
When we think of the properties that had been grand slam winners versus duds, versus “as expected”, the state of the market at time of purchase never seems to have been the determining factor.
The super power of an Austin investor is that, at least for most we’ve worked with, is that you are unburdened by the emotional hand wringing that owner-occupants go through, which causes them to rule out perfectly good candidate properties for frivolous reasons, thus narrowing their opportunities.
As an investor, your can have a top 5 list of candidate homes and start making aggressive offers and move through them quickly if the first few sellers are stubborn. So a current “soft” Austin market such as we are in right now, offers good buying opportunities for focused investor buyers willing to capitalize on it.
Can you help me decide if investing is a good idea for me?
No. That’s not what we do, other than to say we think it’s a good idea for many, but not for most. We help financially qualified individuals identify and acquire residential investment properties, but we are not professional financial advisors or accountants.
The above should get you started on considering the basic parameters we think a prudent investor should consider. We’re here to help once you’ve determined that Austin real estate investing is a good idea for you and your financial goals.
Can you introduce me to a good Austin Property Manager or Property Management Company?
Absolutely. Steve Crossland has professionally managed his own, and investor-owned residential rental properties in Austin TX for over 30 years. He will introduce you to a trusted Austin property manager to handle your investment property turnkey for you.
Can you give examples of listings you think make good candidate properties for investment in Austin?
Sure. Feel free to reach out and request a search portal setup. Then we can send you regular updates of Austin investment property listings that fit your criteria, including Sold listings and the prices they sold for.