Buying a 1.5M house in Austin. Should I pull it?

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newyorker
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Buying a 1.5M house in Austin. Should I pull it?

Post by newyorker »

I live outside of Texas and I heard Austin R/E is hot right now.

With around 700k in Liquid (550k in VOO) and income of 500k post tax.

Should I pull it? If I can get finance, I should be able to put 300k and buy a house and rent it out.

What do you guys think about investing in Texas? How is it vs. just DCA into VOO? I know VOO is a safer bet but upside is less...
jello_nailer
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by jello_nailer »

You may want to check on the all-in annual property taxes, city, county, school, MUD, etc. Could be $40-$50K a year. Kind of eats into that rental income.
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David Jay
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by David Jay »

How confident are you that there is a rental market for 1.5 million dollar homes in Austin? Do you want to be an absentee landlord?

There is really no comparison between VOO and being a landlord. VOO is a passive investment, an out-of-state rental property is a part-time job.
Last edited by David Jay on Sun Apr 11, 2021 9:32 pm, edited 2 times in total.
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tigermilk
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by tigermilk »

To me, as a Texas resident, real estate is a poor investment. Depending on location the property tax rate can be anywhere from a little over 2% to a bit over 3.5%. That is a real drain hot market or not. Plus, if purchasing as an "investment" there are the realtor fees.

How big is the pool of renters for such a property? Seems very risky.
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geerhardusvos
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by geerhardusvos »

newyorker wrote: Sun Apr 11, 2021 9:11 pm I live outside of Texas and I heard Austin R/E is hot right now.

With around 700k in Liquid (550k in VOO) and income of 500k post tax.

Should I pull it? If I can get finance, I should be able to put 300k and buy a house and rent it out.

What do you guys think about investing in Texas? How is it vs. just DCA into VOO? I know VOO is a safer bet but upside is less...
Investing? You are consuming. Buying a house, especially at this price point in Texas, is not an investment. It’s a big ol’ consumption item. With the size of your current portfolio, you have quite a bit of investing to do before I would consider buying a house at this price point. When trying to make money, utility markets and homes are good for renting out, not luxury.

When considering house buying: Check this out for starters
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Tingting1013
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by Tingting1013 »

geerhardusvos wrote: Sun Apr 11, 2021 9:24 pm
newyorker wrote: Sun Apr 11, 2021 9:11 pm I live outside of Texas and I heard Austin R/E is hot right now.

With around 700k in Liquid (550k in VOO) and income of 500k post tax.

Should I pull it? If I can get finance, I should be able to put 300k and buy a house and rent it out.

What do you guys think about investing in Texas? How is it vs. just DCA into VOO? I know VOO is a safer bet but upside is less...
Investing? You are consuming. Buying a house, especially at this price point in Texas, is not an investment. It’s a big ol’ consumption item. With the size of your current portfolio, you have quite a bit of investing to do before I would consider buying a house at this price point. When trying to make money, utility markets and homes are good for renting out, not luxury.

When considering house buying: Check this out for starters
OP is not buying for himself, he’s going to rent it out.

Also, your rules of thumb are unlikely to be relevant for OP who is pulling down $800k income pre tax.
babystep
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by babystep »

newyorker wrote: Sun Apr 11, 2021 9:11 pm I live outside of Texas and I heard Austin R/E is hot right now.

With around 700k in Liquid (550k in VOO) and income of 500k post tax.

Should I pull it? If I can get finance, I should be able to put 300k and buy a house and rent it out.

What do you guys think about investing in Texas? How is it vs. just DCA into VOO? I know VOO is a safer bet but upside is less...
Location? Schools good? How far from big-tech offices?

I am sure you know that Property tax rate is 2+ percent.

What rent do you expect? Likely cash-flow negative?
txhill
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by txhill »

I live in Texas. Housing market for sellers is, like everywhere else, hot. Rental market--I'm not so sure, but I suppose RE is usually a safe investment over time. That said, if you're deciding between VOO and being a landlord, you really need to calculate how much you value your own time. Being a landlord takes a huge amount of time compared to dropping everything into an index fund and forgetting about it for a decade. If finding tenants & drawing up contracts & finding people to fix the thing seem like fun projects to you, then go for it, but otherwise you'll be better off finding something better to do with your money and time.
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geerhardusvos
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by geerhardusvos »

Tingting1013 wrote: Sun Apr 11, 2021 9:28 pm
geerhardusvos wrote: Sun Apr 11, 2021 9:24 pm
newyorker wrote: Sun Apr 11, 2021 9:11 pm I live outside of Texas and I heard Austin R/E is hot right now.

With around 700k in Liquid (550k in VOO) and income of 500k post tax.

Should I pull it? If I can get finance, I should be able to put 300k and buy a house and rent it out.

What do you guys think about investing in Texas? How is it vs. just DCA into VOO? I know VOO is a safer bet but upside is less...
Investing? You are consuming. Buying a house, especially at this price point in Texas, is not an investment. It’s a big ol’ consumption item. With the size of your current portfolio, you have quite a bit of investing to do before I would consider buying a house at this price point. When trying to make money, utility markets and homes are good for renting out, not luxury.

When considering house buying: Check this out for starters
OP is not buying for himself, he’s going to rent it out.

Also, your rules of thumb are unlikely to be relevant for OP who is pulling down $800k income pre tax.
I know... did you even read my full comment?

Rules of thumb are often helpful to real estate investors. Also, someone with an $800,000 pretax income and only half a million invested in their portfolio is abyssal.
VTSAX and chill
tvubpwcisla
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by tvubpwcisla »

Being house poor is a horrible feeling. If you feel like you will always be able to afford a 1.5 million dollar home no matter what happens to you in life then go for it. As for me and my house, middle of the road (or even a little less) is just fine.

:sharebeer
Tingting1013
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by Tingting1013 »

geerhardusvos wrote: Sun Apr 11, 2021 9:51 pm
Tingting1013 wrote: Sun Apr 11, 2021 9:28 pm
geerhardusvos wrote: Sun Apr 11, 2021 9:24 pm
newyorker wrote: Sun Apr 11, 2021 9:11 pm I live outside of Texas and I heard Austin R/E is hot right now.

With around 700k in Liquid (550k in VOO) and income of 500k post tax.

Should I pull it? If I can get finance, I should be able to put 300k and buy a house and rent it out.

What do you guys think about investing in Texas? How is it vs. just DCA into VOO? I know VOO is a safer bet but upside is less...
Investing? You are consuming. Buying a house, especially at this price point in Texas, is not an investment. It’s a big ol’ consumption item. With the size of your current portfolio, you have quite a bit of investing to do before I would consider buying a house at this price point. When trying to make money, utility markets and homes are good for renting out, not luxury.

When considering house buying: Check this out for starters
OP is not buying for himself, he’s going to rent it out.

Also, your rules of thumb are unlikely to be relevant for OP who is pulling down $800k income pre tax.
I know... did you even read my full comment?

Rules of thumb are often helpful to real estate investors. Also, someone with an $800,000 pretax income and only half a million invested in their portfolio is abyssal.
He has $700k liquid. For all we know he has a few $M more stashed away in retirement accounts.
Marseille07
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by Marseille07 »

Tingting1013 wrote: Sun Apr 11, 2021 9:58 pm
geerhardusvos wrote: Sun Apr 11, 2021 9:51 pm
Tingting1013 wrote: Sun Apr 11, 2021 9:28 pm
geerhardusvos wrote: Sun Apr 11, 2021 9:24 pm
newyorker wrote: Sun Apr 11, 2021 9:11 pm I live outside of Texas and I heard Austin R/E is hot right now.

With around 700k in Liquid (550k in VOO) and income of 500k post tax.

Should I pull it? If I can get finance, I should be able to put 300k and buy a house and rent it out.

What do you guys think about investing in Texas? How is it vs. just DCA into VOO? I know VOO is a safer bet but upside is less...
Investing? You are consuming. Buying a house, especially at this price point in Texas, is not an investment. It’s a big ol’ consumption item. With the size of your current portfolio, you have quite a bit of investing to do before I would consider buying a house at this price point. When trying to make money, utility markets and homes are good for renting out, not luxury.

When considering house buying: Check this out for starters
OP is not buying for himself, he’s going to rent it out.

Also, your rules of thumb are unlikely to be relevant for OP who is pulling down $800k income pre tax.
I know... did you even read my full comment?

Rules of thumb are often helpful to real estate investors. Also, someone with an $800,000 pretax income and only half a million invested in their portfolio is abyssal.
He has $700k liquid. For all we know he has a few $M more stashed away in retirement accounts.
The OP's portfolio is very unique: viewtopic.php?p=5938638#p5938638
Topic Author
newyorker
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by newyorker »

babystep wrote: Sun Apr 11, 2021 9:41 pm
newyorker wrote: Sun Apr 11, 2021 9:11 pm I live outside of Texas and I heard Austin R/E is hot right now.

With around 700k in Liquid (550k in VOO) and income of 500k post tax.

Should I pull it? If I can get finance, I should be able to put 300k and buy a house and rent it out.

What do you guys think about investing in Texas? How is it vs. just DCA into VOO? I know VOO is a safer bet but upside is less...
Location? Schools good? How far from big-tech offices?

I am sure you know that Property tax rate is 2+ percent.

What rent do you expect? Likely cash-flow negative?

Im thinking west lake hills... most likely cash flow negative. The rent will probably cover interest and maintenance/tax
Topic Author
newyorker
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by newyorker »

Tingting1013 wrote: Sun Apr 11, 2021 9:58 pm
geerhardusvos wrote: Sun Apr 11, 2021 9:51 pm
Tingting1013 wrote: Sun Apr 11, 2021 9:28 pm
geerhardusvos wrote: Sun Apr 11, 2021 9:24 pm
newyorker wrote: Sun Apr 11, 2021 9:11 pm I live outside of Texas and I heard Austin R/E is hot right now.

With around 700k in Liquid (550k in VOO) and income of 500k post tax.

Should I pull it? If I can get finance, I should be able to put 300k and buy a house and rent it out.

What do you guys think about investing in Texas? How is it vs. just DCA into VOO? I know VOO is a safer bet but upside is less...
Investing? You are consuming. Buying a house, especially at this price point in Texas, is not an investment. It’s a big ol’ consumption item. With the size of your current portfolio, you have quite a bit of investing to do before I would consider buying a house at this price point. When trying to make money, utility markets and homes are good for renting out, not luxury.

When considering house buying: Check this out for starters
OP is not buying for himself, he’s going to rent it out.

Also, your rules of thumb are unlikely to be relevant for OP who is pulling down $800k income pre tax.
I know... did you even read my full comment?

Rules of thumb are often helpful to real estate investors. Also, someone with an $800,000 pretax income and only half a million invested in their portfolio is abyssal.
He has $700k liquid. For all we know he has a few $M more stashed away in retirement accounts.
Lol I wish! Im just 33 y/o
NativeTxn
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by NativeTxn »

newyorker wrote: Sun Apr 11, 2021 10:06 pm
babystep wrote: Sun Apr 11, 2021 9:41 pm
newyorker wrote: Sun Apr 11, 2021 9:11 pm I live outside of Texas and I heard Austin R/E is hot right now.

With around 700k in Liquid (550k in VOO) and income of 500k post tax.

Should I pull it? If I can get finance, I should be able to put 300k and buy a house and rent it out.

What do you guys think about investing in Texas? How is it vs. just DCA into VOO? I know VOO is a safer bet but upside is less...
Location? Schools good? How far from big-tech offices?

I am sure you know that Property tax rate is 2+ percent.

What rent do you expect? Likely cash-flow negative?

Im thinking west lake hills... most likely cash flow negative. The rent will probably cover interest and maintenance/tax
I live in the Dallas area where the RE market is ridiculous right now too, but not 100% sure of how the Austin market is. But regardless of all of that, why would you want to put that much into a house that is cash flow negative? Sure, it may appreciate over the coming years, but there's certainly no guarantee of that, and I wouldn't want to bet that the appreciation is going to make up for the negative cash flow.

Also, the pool of renters for a house of that nature is going to be quite a bit lower than smaller houses, so that could be an issue if you have a renter leave.

All of that being said, it would likely help if you laid out the general terms of the deal. If we're talking $100 a month negative cash flow, while I still wouldn't take any deal that is cash flow negative and rely on appreciate to make money long-term, it would at least be a different conversation than if it's a $1,000 a month negative cash flow.

Have you considered buying 3-6 smaller houses in the area to spread some of the risk?
ohboy!
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by ohboy! »

That salary and are asking about buying a 1.5m rental house? This makes no sense to me. Is your job farming on BSC?
aristotelian
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by aristotelian »

Why not buy five $300k properties and diversify a little?
hoofaman
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by hoofaman »

For a place to live, maybe. For an investment? I wouldn’t, seems like the worst time possible, I’d feel safer buying meme stocks
Slacker
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by Slacker »

What has your market research told you so far about your potential tenants?

I'd be more likely to look at small apartment complexes at that price point.

Also, I'm not a buyer of real estate right now with bidding wars and low inventory making me question if most real estate markets will keep these prices 6-12 months from now.
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newyorker
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by newyorker »

Slacker wrote: Mon Apr 12, 2021 7:00 am What has your market research told you so far about your potential tenants?

I'd be more likely to look at small apartment complexes at that price point.

Also, I'm not a buyer of real estate right now with bidding wars and low inventory making me question if most real estate markets will keep these prices 6-12 months from now.
At this point, I am literally buying on speculation of the value appreciation. I have about 1.4M exposure to RE but i feel like im missing out. Maybe I am being irrational and just putting money into S&P is the best way?
Colorado Guy
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by Colorado Guy »

Deleted, NewYorker post just above made my comment moot.
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newyorker
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by newyorker »

Colorado Guy wrote: Mon Apr 12, 2021 8:57 am Deleted, NewYorker post just above made my comment moot.


Now I am curious 😭
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geerhardusvos
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by geerhardusvos »

newyorker wrote: Mon Apr 12, 2021 8:46 am
Slacker wrote: Mon Apr 12, 2021 7:00 am What has your market research told you so far about your potential tenants?

I'd be more likely to look at small apartment complexes at that price point.

Also, I'm not a buyer of real estate right now with bidding wars and low inventory making me question if most real estate markets will keep these prices 6-12 months from now.
At this point, I am literally buying on speculation of the value appreciation. I have about 1.4M exposure to RE but i feel like im missing out. Maybe I am being irrational and just putting money into S&P is the best way?
You are speculating on a very expensive consumption item. The costs associated with upkeeping a nice beautiful house and property should make you cringe alone. Let alone taxes, dealing with being a landlord remotely, etc. You’re signing up for a nightmare. Put it all in VTI and move on.
VTSAX and chill
humblecoder
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by humblecoder »

newyorker wrote: Mon Apr 12, 2021 8:46 am
Slacker wrote: Mon Apr 12, 2021 7:00 am What has your market research told you so far about your potential tenants?

I'd be more likely to look at small apartment complexes at that price point.

Also, I'm not a buyer of real estate right now with bidding wars and low inventory making me question if most real estate markets will keep these prices 6-12 months from now.
At this point, I am literally buying on speculation of the value appreciation. I have about 1.4M exposure to RE but i feel like im missing out. Maybe I am being irrational and just putting money into S&P is the best way?
Honestly, buying a house on speculation at this point in the market is not smart. To make money, real money, you need to BUY LOW and SELL HIGH. The housing market is hot because of limited supply right now. There is a good article in the Economist which explains why but it is partially because of mortgage forbearance. Once this expires, the expectation is that there will be more inventory which will cause the housing market to cool a bit.

Then on the demand side, you have historically low interest rates, people looking to uproot because of COVID, etc.

My point is that the housing market is hot for reasons which may be temporary and once these conditions are resolved, you might find that your $1.5M investment is worth less.

Or maybe housing pricing will keep going up. Who knows? But you already say you have $1.4M of real estate exposure, so why double down right now?

If it were me, I'd stick my money in Total Market Index.
Money_Badger
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by Money_Badger »

aristotelian wrote: Mon Apr 12, 2021 6:36 am Why not buy five $300k properties and diversify a little?
Sounds like 5 times the work ...
txhill
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by txhill »

newyorker wrote: Mon Apr 12, 2021 8:46 am
Slacker wrote: Mon Apr 12, 2021 7:00 am What has your market research told you so far about your potential tenants?

I'd be more likely to look at small apartment complexes at that price point.

Also, I'm not a buyer of real estate right now with bidding wars and low inventory making me question if most real estate markets will keep these prices 6-12 months from now.
At this point, I am literally buying on speculation of the value appreciation. I have about 1.4M exposure to RE but i feel like im missing out. Maybe I am being irrational and just putting money into S&P is the best way?
I don't know real estate well enough to comment on the specific property you're interested in, but it sounds like your basic premise is FOMO. FOMO by itself isn't a great reason for buying something. You should have other reasons too. At your age, I'd suggest stuffing it all in the S&P 500 or something similar until you have done more research and identified something you truly believe is worth buying.
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by aristotelian »

Money_Badger wrote: Mon Apr 12, 2021 9:09 am
aristotelian wrote: Mon Apr 12, 2021 6:36 am Why not buy five $300k properties and diversify a little?
Sounds like 5 times the work ...
I'm guessing OP is going to use a management company since he is not in Texas. So maybe not aside from the initial paperwork.
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newyorker
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by newyorker »

Is consensus on VFIAX then chill?

I guess buying 1.5M on whim or on fear of missing out is not smart...
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newyorker
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by newyorker »

aristotelian wrote: Mon Apr 12, 2021 9:26 am
Money_Badger wrote: Mon Apr 12, 2021 9:09 am
aristotelian wrote: Mon Apr 12, 2021 6:36 am Why not buy five $300k properties and diversify a little?
Sounds like 5 times the work ...
I'm guessing OP is going to use a management company since he is not in Texas. So maybe not aside from the initial paperwork.
That would be warranted...
txhill
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by txhill »

newyorker wrote: Mon Apr 12, 2021 9:28 am Is consensus on VFIAX then chill?

I guess buying 1.5M on whim or on fear of missing out is not smart...
Obviously I'm not giving financial advice, but VFIAX (or VTSAX) is pretty much always the right choice. You might encounter good investment opportunities along the way, but you'll instantly know them when you see them--you'll have a strong understanding of what they are, where they fit in the market, and where they might be headed. Usually it will be something you encounter in your work or daily life. I think those are the only sorts of investments worth diving into, because you may actually have an edge on the market. And if you're wrong, you won't regret it in the way you would regret losing on a FOMO investment. Other than those opportunities (and it's possible you may never see one), index investing probably will serve you well.
danaht
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by danaht »

My neighbor's full time job is a self employed person who buys local houses and rents them out. It can be a good paying job if you are good at it. I think I heard some advice from Dave Ramsey's show that you should only do this with local houses - not from a remote state. Also, the real estate taxes in TX are one of the highest in the nation - so that is also going to drive your rent prices higher (perhaps to a point where finding renters might be difficult) So if you don't live around Austin - you are probably better off not buying it.
Money_Badger
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by Money_Badger »

newyorker wrote: Mon Apr 12, 2021 9:30 am
aristotelian wrote: Mon Apr 12, 2021 9:26 am
Money_Badger wrote: Mon Apr 12, 2021 9:09 am
aristotelian wrote: Mon Apr 12, 2021 6:36 am Why not buy five $300k properties and diversify a little?
Sounds like 5 times the work ...
I'm guessing OP is going to use a management company since he is not in Texas. So maybe not aside from the initial paperwork.
That would be warranted...
Management Fees, taxes, upkeep, missing rental when not occupied = giant headache

JMO :)
Marseille07
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by Marseille07 »

newyorker wrote: Mon Apr 12, 2021 9:28 am Is consensus on VFIAX then chill?

I guess buying 1.5M on whim or on fear of missing out is not smart...
There's no consensus, and you can't compare VFIAX to a 1.5M house in Austin anyway. Apples to oranges.
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retired@50
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by retired@50 »

newyorker wrote: Mon Apr 12, 2021 9:28 am Is consensus on VFIAX then chill?

I guess buying 1.5M on whim or on fear of missing out is not smart...
You've already missed out. The time to buy would have been several years ago. Performance chasing houses is as bad as performance chasing hot mutual funds.

If you really want to be a landlord, start small(er) so you can get to know the business a bit better. This will also minimize the magnitude of any potential mistakes you make. Don't expect to be good at this on your first go. Picking good rental housing can be as challenging as picking good stocks.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by H-Town »

newyorker wrote: Mon Apr 12, 2021 9:28 am Is consensus on VFIAX then chill?

I guess buying 1.5M on whim or on fear of missing out is not smart...
You're young and will learn some valuable lessons along the way. But $1.5M sounds like a very expensive lesson.

Continue to buy index fund until you save at least 15x your salaries. If you're pulling 500k per year now, you should accumulate $7.5 million in index funds first. Then you can consider putting new money into real estates.
Time is the ultimate currency.
mikejuss
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by mikejuss »

Why would you want to buy in a hot real-estate market? You'll be paying top dollar, and thus it will take longer to recuperate your investment. Am I missing something?

P. S.: Do other Bogleheads--as well as the OP--consider money invested in the market "liquid"? I thought the term was reserved for money in high-yield savings accounts or CDs.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
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retired@50
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by retired@50 »

mikejuss wrote: Mon Apr 12, 2021 10:36 am
P. S.: Do other Bogleheads--as well as the OP--consider money invested in the market "liquid"? I thought the term was reserved for money in high-yield savings accounts or CDs.
It's liquid in the sense that you can turn it into cash within a day or two. The question is, how much cash exactly?

So, high yield savings accounts are liquid and stable, while stock index funds are merely liquid.

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texascrane
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by texascrane »

mikejuss wrote: Mon Apr 12, 2021 10:36 am Why would you want to buy in a hot real-estate market? You'll be paying top dollar, and thus it will take longer to recuperate your investment. Am I missing something?

P. S.: Do other Bogleheads--as well as the OP--consider money invested in the market "liquid"? I thought the term was reserved for money in high-yield savings accounts or CDs.
Liquid just means you can convert it to cash quickly and without impacting its value. Stocks are liquid assuming they’re not locked in a tax advantaged account. Real estate is not.
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by mikejuss »

texascrane wrote: Mon Apr 12, 2021 10:43 am
mikejuss wrote: Mon Apr 12, 2021 10:36 am Why would you want to buy in a hot real-estate market? You'll be paying top dollar, and thus it will take longer to recuperate your investment. Am I missing something?

P. S.: Do other Bogleheads--as well as the OP--consider money invested in the market "liquid"? I thought the term was reserved for money in high-yield savings accounts or CDs.
Liquid just means you can convert it to cash quickly and without impacting its value. Stocks are liquid assuming they’re not locked in a tax advantaged account. Real estate is not.
Huh--I sort of understand what you're saying, but the value of stocks and real estate can fluctuate wildly. Is the essence of something being liquid that it can be converted into cash quickly? Sure, that's true of stocks, but it's also conceivable that someone can sell his house in a day or two (at least in this market). This seems like a pretty thin distinction; a more useful distinction--to my mind, at least--might be drawn along the lines of asset stability--a high-yield savings account being pretty stable and stocks/real estate being relatively unstable.
Last edited by mikejuss on Mon Apr 12, 2021 11:00 am, edited 3 times in total.
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HomerJ
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by HomerJ »

newyorker wrote: Mon Apr 12, 2021 9:28 am I guess buying 1.5M on whim or on fear of missing out is not smart...
What are you missing out on?

Getting rich? You're already rich.
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by The 19th hole »

newyorker wrote: Mon Apr 12, 2021 9:28 am Is consensus on VFIAX then chill?

I guess buying 1.5M on whim or on fear of missing out is not smart...
This. :thumbsup
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by qwerty123 »

NativeTxn wrote: Mon Apr 12, 2021 12:00 am
newyorker wrote: Sun Apr 11, 2021 10:06 pm
babystep wrote: Sun Apr 11, 2021 9:41 pm
newyorker wrote: Sun Apr 11, 2021 9:11 pm I live outside of Texas and I heard Austin R/E is hot right now.

With around 700k in Liquid (550k in VOO) and income of 500k post tax.

Should I pull it? If I can get finance, I should be able to put 300k and buy a house and rent it out.

What do you guys think about investing in Texas? How is it vs. just DCA into VOO? I know VOO is a safer bet but upside is less...
Location? Schools good? How far from big-tech offices?

I am sure you know that Property tax rate is 2+ percent.

What rent do you expect? Likely cash-flow negative?

Im thinking west lake hills... most likely cash flow negative. The rent will probably cover interest and maintenance/tax
I live in the Dallas area where the RE market is ridiculous right now too, but not 100% sure of how the Austin market is. But regardless of all of that, why would you want to put that much into a house that is cash flow negative? Sure, it may appreciate over the coming years, but there's certainly no guarantee of that, and I wouldn't want to bet that the appreciation is going to make up for the negative cash flow.

Also, the pool of renters for a house of that nature is going to be quite a bit lower than smaller houses, so that could be an issue if you have a renter leave.

All of that being said, it would likely help if you laid out the general terms of the deal. If we're talking $100 a month negative cash flow, while I still wouldn't take any deal that is cash flow negative and rely on appreciate to make money long-term, it would at least be a different conversation than if it's a $1,000 a month negative cash flow.

Have you considered buying 3-6 smaller houses in the area to spread some of the risk?
Echoing this, typically higher end homes are less good rental options. If you truly want to buy some rental property (and I honestly am not convinced you are ready), there is typically a "type" of house that is best suited for it that you want to target.
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by Dottie57 »

One of the areas I built my retirement nut on was to keep my housing costs low - below the median price. Lower utilities, property taxes and less space to store things. More $ for 401k. And savings.

I too believe renting a 1.5m. House would have far smaller pool f renters.
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by muddgirl »

If I was going to buy an investment rental in TX, I would buy in San Antonio, not in Austin. My numbers are a little out of date but 10 years ago, due to UTSA & Joint Base San Antonio, rental vacancy was low even for SFH and rents were high compared to mortgage rates.

Edit: San Antonio is a big city so you would need to look at neighborhood vacancy rates, not the city-wide rate. If I was going to invest I would look at townhomes in the NW part of the city.
Last edited by muddgirl on Mon Apr 12, 2021 12:52 pm, edited 2 times in total.
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by mikejuss »

geerhardusvos wrote: Sun Apr 11, 2021 9:51 pmRules of thumb are often helpful to real estate investors. Also, someone with an $800,000 pretax income and only half a million invested in their portfolio is abyssal.
OP, can you speak to why your retirement accounts seem to be low relative to your income?
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by nolesrule »

mikejuss wrote: Mon Apr 12, 2021 10:51 am
Huh--I sort of understand what you're saying, but the value of stocks and real estate can fluctuate wildly. Is the essence of something being liquid that it can be converted into cash quickly? Sure, that's true of stocks, but it's also conceivable that someone can sell his house in a day or two (at least in this market). This seems like a pretty thin distinction; a more useful distinction--to my mind, at least--might be drawn along the lines of asset stability--a high-yield savings account being pretty stable and stocks/real estate being relatively unstable.
There's a difference between having a house under contract in a day or two vs. having the money in your account in a day or two. Perhaps it's theoretically possible with a cash buyer, although it usually takes longer than that to manage all the typical steps required for closing even in the case of a cash buyer.

The distinction regarding asset stability is called volatility. It is a separate characteristic from liquidity.
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by geerhardusvos »

mikejuss wrote: Mon Apr 12, 2021 11:44 am
geerhardusvos wrote: Sun Apr 11, 2021 9:51 pmRules of thumb are often helpful to real estate investors. Also, someone with an $800,000 pretax income and only half a million invested in their portfolio is abyssal.
OP, can you speak to why your retirement accounts seem to be low relative to your income?
OP is probably younger and probably came into this higher income recently. Time to focus on investing!
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by mikejuss »

nolesrule wrote: Mon Apr 12, 2021 11:45 am
mikejuss wrote: Mon Apr 12, 2021 10:51 am
Huh--I sort of understand what you're saying, but the value of stocks and real estate can fluctuate wildly. Is the essence of something being liquid that it can be converted into cash quickly? Sure, that's true of stocks, but it's also conceivable that someone can sell his house in a day or two (at least in this market). This seems like a pretty thin distinction; a more useful distinction--to my mind, at least--might be drawn along the lines of asset stability--a high-yield savings account being pretty stable and stocks/real estate being relatively unstable.
There's a difference between having a house under contract in a day or two vs. having the money in your account in a day or two. Perhaps it's theoretically possible with a cash buyer, although it usually takes longer than that to manage all the typical steps required for closing even in the case of a cash buyer.

The distinction regarding asset stability is called volatility. It is a separate characteristic from liquidity.
Fair enough. I guess I'm realizing that for me volatility is a more important metric than liquidity.
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by newyorker »

geerhardusvos wrote: Mon Apr 12, 2021 11:54 am
mikejuss wrote: Mon Apr 12, 2021 11:44 am
geerhardusvos wrote: Sun Apr 11, 2021 9:51 pmRules of thumb are often helpful to real estate investors. Also, someone with an $800,000 pretax income and only half a million invested in their portfolio is abyssal.
OP, can you speak to why your retirement accounts seem to be low relative to your income?
OP is probably younger and probably came into this higher income recently. Time to focus on investing!
Should I do as your quote says? Vfiax and chill?
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Re: Buying a 1.5M house in Austin. Should I pull it?

Post by mikejuss »

newyorker wrote: Mon Apr 12, 2021 8:08 pmShould I do as your quote says? Vfiax and chill?
Yeah, dude.
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