Austin 5-bed at $860,000 renting for $4,711: does the net yield work?

[SimpleWall]

I’m looking at a 5-bed coastal home in Austin priced at $860,000, with expected rent of $4,711/month. That gives a headline gross yield of roughly 6.6%.

My base case assumes vacancy, management, routine maintenance and a reserve for one larger repair. I’m not counting on appreciation. The building appears sound, but the building reserves could materially alter the numbers.

Which local expense am I most likely underestimating—property tax, insurance, turnover or something else? What net yield would justify the risk for you?

 

[RealHorizon]

The 6.6% gross figure is right, but the gap between gross and net could be substantial. I’d want the actual property-tax amount and a current insurance quote before discussing an acceptable yield. Also, by “building reserves,” do you mean an association’s reserves or your own capital-expenditure allowance? Those are different risks. Are you evaluating this without debt, or is financing part of the return calculation?

 

[lina_brooks]

I wouldn’t start by choosing a target net yield. First calculate unlevered cash flow using property tax, insurance, management, realistic vacancy and maintenance; then layer financing on separately. A 5-bed may also create more turnover and make-ready expense than the monthly rent alone suggests. Leaving appreciation out is sensible, but at $4,711 rent there may not be much room for optimistic assumptions.

 

[EsmeAsh]

One detail needs clearing up: Austin isn’t coastal, so is “coastal home” describing the property’s style, or is the location wording wrong? That matters before making any insurance assumptions.

I’d obtain the current tax bill, an insurance quote, and any association financials or reserve information. Then run three cases: expected occupancy, a longer vacancy with turnover work, and a major repair combined with higher financing cost. If the deal only works in the first case, the 6.6% headline yield is doing too much of the selling.