Home Buying in Leander>Question Details

Uma.alwarsamy, Home Buyer in Leander, TX

I want to know what would be the risks involved in buying a home as a investment?

Asked by Uma.alwarsamy, Leander, TX Wed Jun 8, 2011

Hello,
Currently i m in California,I am planning to buy a single family home in Austin as a investment and renting it out for now.My budget is 150k and i am ready pay 20% down payment.
1)I hoping i can rent it out for a decent price from that i can cover my mortgage payments.
2)In the future i may relocate to Austin Or even i may return back to home country and i ll plan to continue my mortgage from there.
I want to know what would be the risk involved here?

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Answers

9
Risk 1: you could lose money on your investment if you don’t buy it right. In other words, know what you’re buying and what the market is for your product.

Risk 2: the property could devalue in the event the economy and/or real estate market continues as downward slide. This is a very real possibility even though many in my industry think it’s impossible. Tell that to the many Austin area investors who are now in bankruptcy and/or foreclosure because they too were told it couldn’t happen.

Risk 3: you could end up with negative cash flow, although I don’t see this as too likely for the foreseeable future unless you overpay for the property. Be prepared and have some cash reserves available.

Risk 4: self-managing a rental from across the country can often be difficult. If you choose to hire a management company to assist you, you will have to pay them a portion of the monthly gross rents. This will obviously affect your bottom line. There are some good and many very bad management companies. Hire a bad one and watch your investment become an anchor around your neck.

Risk 5: litigation. A small monthly profit will be easily wiped out by litigation or even the potential for litigation involving a client. Know and follow the Texas Property Code to the letter. You’ll sleep better at night because of it. If you purchase the rental in your name, you could very well have your personal assets at risk in the event of a lawsuit by a tenant.

Risk 6: a bad tenant can destroy your property and walk away with little or no recourse on your part. It’s happened to me on more than one occasion. If this would cause you sleepless nights, becoming a landlord may not be your thing. Every landlord I know has had one or more bad tenants, so if an agent tells you they will help you find a great tenant, don’t believe them. It’s a crap shoot at best.

Risk 7: tenant files bankruptcy. Some tenants know the law better than some legal professionals and the tenants know how to use it against you. You could end up not getting rent for a number of months as the bankruptcy proceedings run their course.
Web Reference: http://www.phgbrokers.com
1 vote Thank Flag Link Wed Jun 8, 2011
By the way, Austin is not a really a depressed market. Austin learned it's lesson in the Dot.com bust, and did not go crazy with the real estate bubble. It has held a pretty steady course. So there are not the wholesale fire sales of property here that you might find in some other markets.
There are some short sale and foreclosure properties that are a good deal, of course, but you would ned to know the market here to be able to tell if a particular propoerty was a bargain or one that has an incurable fault, like being in a nonconforming area.
0 votes Thank Flag Link Tue Nov 15, 2011
The only risk is that the tenant will not pay their rent and you have to foot the expenses. You should consult an agent in Austin, TX (let me know if you want one of my recommendations) and ask the the following questions:
What are the current vacancy rates for single family homes?
What are the avg rents for single family homes?
How long does it take to rent out single family homes vs. downtown condos?
What are the typical landscaping cost?
Do they handle many inquiries from renters looking for a single family home?
How fast are evictions for nonpayment handled in Austin, TX?

Good luck to you!
Marco Gomez
NYS Associate Broker
Keller Williams Landmark II
Marco.gomez@gmail.com
0 votes Thank Flag Link Tue Nov 15, 2011
One more note: In Austin city limits, Students are a "Protected Class", and you cannot discriminate against them in housiing,
0 votes Thank Flag Link Fri Nov 11, 2011
At 150K, you will be hard pressed to have a positve cash flow, unless you are lucky enough to have a long term tenant, With so many students, there is a lot of mobility in the market at that price range.
Frequent vacancies drive up the make ready and repair costs, as well as the leasing agent's fees.

The market here in Austin did not bubble, so it did not crash, it has been pretty steady. Note also, Texas does not have State Income Taxes, but depends on property tax. Homesteads get good exemptions, but investors pay the full amount. You might do better to live in Austin and save the cost of California state income tax while getting the Homestead exemption.
Invest in real estate in one of the foreclosure disaster areas with depressed prices and loiw property tax..
0 votes Thank Flag Link Fri Nov 11, 2011
The risks can be many if you make mistakes!

Here's what you should consider.

First, you'll probably need to put down more than just 20% if this is an investment property.

Secondly, you should do a thorough analysis of what you'll need to spend to buy a good rental property. After you've done that and determine if the projected rental income will exceed the mortgage payment and deferred maintenance, you'll be in a position to make an informed decision. One other cost you'll need to consider, if you're not going to manage the property yourself, is the cost of a property manager.

In the end, if your costs exceed the projected rental revenue, you shouldn't buy. If the opposite is true, you may want to consider buying, but only if the local market has stabilized and is on the verge of recovering.
Web Reference: http://www.golftobeach.com
0 votes Thank Flag Link Wed Jun 8, 2011
As long as you are a reputable landlord, it is not necessary to establish an LLC. Liability insurance for 1-4 SFR is specifically designed to defend you against any legitimate claims of bodily injury or property damage to others due to your negligance. Personal lines policies typically go upto $500,000 while commercial insurance policies typically offer $1Million/$2Million liability limits.

To help keep you in the clear, since you are half way accross the country, it would be a good idea to hire a reputable property management company. We work closely with OneProp, one of the largest in the country. They have an office in Austin. Here is their link http://www.onepropaustin.com/ .

I would be happy to work with you on your insurance needs. Investment property insurance is our niche and I work with first time investors every day.


Good Luck.

Sean Kimbrough
CNR Insurance
Web Reference: http://www.cnrbrokerage.com
0 votes Thank Flag Link Wed Jun 8, 2011
I would form an LLC renting company to do so. It will reduce your liability!
0 votes Thank Flag Link Wed Jun 8, 2011
The biggest risk, in my opinion, is having to rely on others to manage the property for you and hoping it's being done properly. If anything were to happen, you can't exactly go over to the house and make repairs or maintain it yourself. I'm sure there are reputable management companies you can use.
0 votes Thank Flag Link Wed Jun 8, 2011
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