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 itâ€™s impossible. Tell that to the many Austin area investors who are now in bankruptcy and/or foreclosure because they too were told it couldnâ€™t happen.
Risk 3: you could end up with negative cash flow, although I donâ€™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. Youâ€™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. Itâ€™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, donâ€™t believe them. Itâ€™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.
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.
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!
NYS Associate Broker
Keller Williams Landmark II
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..
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.
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.