Austin's median rent has increased by 38% from 2010, according to the City of Austin Comprehensive Housing Market Analysis 2020. For investors looking into buying a rental property, these are inviting numbers.
But the Austin real estate market is highly competitive. We stated in a previous article that Austin homes were on the market for an average of 22 days.
And with the same piece stating that the median sale price increased by more than 30%, there's never been a better time to purchase a rental property.
Before pouring capital into your new real estate investing opportunities, there are five real estate numbers to check before buying a rental property.
These include:
Asking Price and Other Costs
The first number is the asking price for the property. With the current real market being badly biased towards the seller, buyers need to offer above this price.
Then there are the usual deductible closing costs that the buyer will owe to the IRS, which include:
- Abstract frees
- Charges for installing utility services
- Legal Fees
- Recording Frees
- Surveys
- Transfer taxes
- Title Insurance
And the final is the amounts the seller owes that you agree to pay.
You, as the investor, will need to produce a larger down payment of anywhere between 20% - 40% as an investor. Also, the down payment can not be funded from gift funds.
After this has been worked out, you'll need to turn your attention to monthly repayments.
Monthly Repayments
There are several monthly expenses you will need to jot down. If you cannot manage the property, you will need to contract a professional third party to assist. Property management expenses will come with a monthly fee. These fees can vary depending on the property and requirements.
Insurance, repairs, homeowner associations, utilities, and property taxes all form part of gross expenses that will cut into your rental income.
Gross Rental Yield
You will need to work out your gross rental yield to calculate some influential figures. To work this out, you will need to divide the annual rent collected, then subtract the total cost of expenses incurred. The answer will be the gross rental yield. If you're interested in percentages, you can multiply by 100.
Cash flow needs to be positive, otherwise, you could default on mortgages and loans.
Price to Income Ratio
The price-to-income ratio requires comparing the median household price in an area to the median household income.
Currently, according to City-Data:
The median household price is (in 2019) $378,300, and the income was $75,413.
Divide the price by income, and you'll get a ratio of around 5.01 for Austin, which is high.
Price to Rent Ratio
To work out this ratio, you'll need to compare median home prices and median rents.
Turning to City-Data, the median household price is $378,300, while the median rent (or median gross rent) was per month $1,334 or $16.008 annually.
Currently, or in 2019, the ratio was 23.63. When under 15, buyers should act, while those over 20 and those without the capital should rent.
This might be overwhelming for some, but if that's the case we can help you!
Get HomeRiver Group to Help Buying a Rental Property
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Let's get you started on your journey to purchasing a rental property today!
