Real Estate Blog

Cap rate, cap rate, cap rate. There is so much focus on cap rates that investors are missing solid opportunities for no other reason than that they aren't familiar with Austin. Let's just put it in plain and simple language. If you are looking for a high cap rate, you are NOT going to be satisfied with the location of the property or the tenant base. Write that down on a sticky note and put it somewhere so that you have to keep reading it.

A mediocre market is a stagnant market with low appreciation. Demand drives appreciation. Stagnant markets have no demand. There is no real reason for the rents to increase except to meet the cost of operation or to adjust for inflation.

The only properties I recommend and personally buy, have to meet that "good area" criteria-history of demand/appreciation and strong tenant base.  Are there areas in and around Austin that are mediocre?  Absolutely!  But . . . and this is a big "but" . . . most of Austin is NOT a mediocre market. 

- It's growing.

- It's one of the lowest unemployment rates in the country for the past 4 years.

- It's the number one retirement city for Baby Boomers.

- It's been one of the top 5 metro areas in the country for investing for several years.

 But it's not mediocre.

Investors are all over this city buying at 6% to 8% caps and loving it.  What completes the decision is how good a buy they made on the acquisition and what they can project out when they sell.  These investors are looking at long-term growth and appreciation.  If the property can take care of itself during their holding period -- spin off some cash flow -- all the better. 

I'm from Los Angeles.  During the Seventies, I worked for Dr. Jerry Buss. The major thing he taught me? You make money when you buy and reap the profits when you sell.  If you cannot handle the holding of these assets, then you should look elsewhere for investments.  

I learned to target the most desirable places to live, where land is scarce, and with the best tenant base possible. Every one of my investors who purchased properties in target areas with less cash-flow and stronger tenants have been happier with the performance of these properties than the ones who insisted on buying based on higher paper-based cash flow.

Yes, a local owner who self-manages could handle these mediocre investments, but can't expect much appreciation from it. 

If you are looking for a solid property with a strong tenant base, you can expect a 6% to 8% cap.  Rents are on the rise, which will help increase this cap rate over time. And you do need to buy now while rates are still low. Don't wait.

Even though we just heard that the FED is going to keep the rates at the present levels for the next two years, there is nothing keeping the pricing low. This is a simple supply and demand equation at work.

If you are an investor who is in a position to put in some capital upgrading, there are opportunities for the long-term buy-and-hold investors to pick up properties in the class A and class B areas. Vintage 1980's rental units in high demand areas have below-market rents and have not seen a new fixture in 25 years. Add in your improvements, increase your rents, and you will increase your return.

The properties I put on my website under the "Monte's Picks" sections are just such properties. I would be happy to have an online meeting with you to discuss different areas and availability.  Just let me know when.