There are multiple ways to make money in real estate – two examples being 1) price appreciation, and 2) cash flow.
Price appreciation is the buy low, sell high philosophy, and in hot markets gains can be realized relatively quickly. Multiple factors are involved in this strategy – location, re-development, population growth, road expansions, etc., and it can be a speculative investment. For a home that is a personal residence, this can be a great way to generate a return on an investment. For a rental property, in some situations the prices are higher than the rents, making carrying costs high and the final sales price the sole source of the potential return. While a risky strategy, many have generated gains using this approach. At times significant gain can be achieved in a relatively short period of time, but there is also a risk of substantial loss if the market shifts, and minimal returns in flat market. Factors outside of the investors control have a greater impact on the return on investment.
Investing with a cash flow strategy is all about leasing property out for more than the carrying costs – the money left over at the end of the day. This is a more fundamental approach to investing and is less subject to wild fluctuations in the market. Investors with this philosophy may hold for the long-term, or even a lifetime with the right economics, and so the final sale price may be less of a consideration. This is often a get-rich slow approach with a longer time horizon. Factors within the investor’s control have a greater impact.
In the best case scenario, an investor will have strong cash flow and also experience significant price appreciation. We have seen the Ft. Hood / Killeen market as a good candidate for cash flow investors, due to the relatively low cost of housing and the high number of renters due to the presence of the largest U.S. army base. With the frequent moves of army life a consideration, even highly qualified buyers are often better served renting than owning due to transaction costs of buying and selling. And with BAH pay (housing allowance) for military in addition to wages, this is a market ripe for investors looking to serve this large pool of renters.
With Austin being rated as one of the cities with the strongest economics, and just a great city to live in that is drawing many folks to move into town, the city has already experienced significant price appreciation over the last couple of years. And with continued development especially near downtown and the surrounding areas, many are betting on prices to rise as well.
So there are plenty of opportunities for both types of investors here in Central Texas. Our most recent investment is at 1410 Farhills Drive in Killeen. It’s a VA foreclosure close to Ft. Hood. As we update this property and get it ready for leasing, we’ll keep you updated on our experience.