MARKET OF THE MONTH: If you are wondering what the best real estate markets are to invest in over this upcoming year—then you are in the right place! In this edition of Market of the Month, we will be presenting data showing that the best real estate investments right now are in Austin, Texas.
Let’s start by talking about why, as a real estate investor, you need to consider the Austin housing market.
Why Should I Invest in the Austin Housing Market?
If you’ve been in the real estate business for any length of time, chances are you have heard someone use the phrase “a hot real estate market” when describing the best location for investing. For a while now, Austin, Texas, has been deemed one of the hottest housing markets in the country!
Here is a chart depicting the median price in Austin housing sales:
As shown in the chart above, the median home price in Austin sits at $562,500 as of August 2021. This data represents a nearly 24% year-over-year (YoY) growth rate, which is particularly notable given that even in 2020, Austin saw strong YoY Growth.
Here is another bar graph illustrating the YoY growth:
Given these figures, Austin, TX is clearly an elite appreciation market. In just the last five years, the median sales price in Austin has gone up 66%!
This city, in particular, has become one of the most desirable locations for investors over the past year for several reasons:
- Growing technology companies
- Low Austin home prices
- Population increase in Austin in 2020
- Post-pandemic increased housing demand
In the aftermath of the pandemic, one of the curious economic side-effects was the explosion of the real estate market. Since Austin home prices are lower, this city is one of the hottest options for investors looking to capitalize on the booming real estate market.
So, what are the current trends for this city in the real estate market?
Austin Real Estate Market Trends
Even though the pandemic has caused economic uncertainty, Austin came out on top in the real estate market. Part of this is due to the mass-exodus of renters and buyers from San Francisco moving into Austin.
In late 2020, the Austin population actually jumped over 3%, which is rare for large metro areas. It follows, then, that with a population increase, there is more demand for housing, which is excellent news for real estate investors!
Additionally, Over the last several months, the median rent price in Austin, TX has started to accelerate. As we can see in the chart below, rents remained relatively flat between 2019 and the beginning of 2021. But, in just the last several months, rents have climbed more than 10%.
In relative terms, rent is now up about 9% YoY, as evidenced in this table below:
So, taking this data and translating it into the real estate market, what does this mean for the buyer, investor, and seller?
What Buyers, Investors, and Sellers Need to Consider When Investing in the Austin Housing Market
This data means that cash flow investments are hard to find in Austin, TX. Even though rent is up drastically over the last several months, it has not kept pace with property price appreciation.
Below is a heat map that shows the average Rent to Price ratio (RTP) within the city of Austin, TX by ZIP code. RTP is a great proxy for cash flow. As a reminder, an RTP of above .6 has the potential to cash flow, and anything near 1% is considered very strong cash flow. As you can see, there are no ZIP codes within this city that offer strong cash flow prospects.
Wait a minute! If cash flow investments are hard to find, then shouldn’t investors stay away from Austin, TX?
Is hard-to-find cash flow bad for an investor?
Not necessarily! Just because Austin, TX, doesn’t offer strong cash flow prospects as measured by RTP, this does not mean that real estate investors should ignore this housing market!
Instead, note that Austin is an excellent appreciation market and can actually offer cash flow to investors interested in several different types of investment strategies:
- Short term rental property investing
- Rent by the room situations
- Other creative investing strategies
So, what are some aspects of purchasing real estate in the Austin market that homebuyers should consider?
What buyers should consider
Here is a list of several key facts homebuyers should know about buying a home in Austin:
- High-Quality Education—Most of the schools in Austin boast of a 10 out of 10 rating on net quality education scores, making this area more desirable for families.
- Jobs are High in Demand—Skilled labor is in high demand due to the increase in tech companies, so there are no job shortages right now.
- Activities—Austin sports an active community with many outlets for recreation for people of all ages. Some activities include hiking trails, lakes for water sports, biking routes, boating, parks, and picnic areas.
So, let’s look at some aspects investors should think about.
What investors should consider
- Strong Job Market—Big tech companies that have moved to Austin during the pandemic or are in the course of moving there have greatly increased the value of real estate.
- Amenities—The diversity and plethora of dining, entertainment, educational, and retail opportunities make Austin, TX a great destination for families, singles, and couples to settle down.
- Increase in Skilled Laborers—The increase of laborers means higher demand for rental properties as well as quicker Austin housing sales!
- Low Foreclosure Rates—For perspective, while the national average of foreclosure rates is 1.1%, Austin foreclosure rates average around 0.4%. This alone is a good sign that the Austin market is stable and a safe investment to make.
What sellers should consider
- Increased Value in Austin Home prices—Since Austin, Texas is such a hot market right now, with an increase in demand, this is wonderful news for a seller because it means you have a greater potential to get over your asking price!
- Competition in Austin Housing Sales—With the increase of demand, competition not only drives your value up but also means you have a better opportunity to sell your house fast.
Questions that Investors in the Austin Real Estate Market Need to Ask Themselves
Here is a key list of several questions you need to answer for yourself before you dive into the investment process of Austin real estate:
- What is the potential property like?
- Is this potential investment area a good rental market?
- Is there an HOA?
- Am I staying true to my budget?
- Am I properly vetting my prospective rental tenants?
- Do I have an exit strategy?
You need to do your due diligence before jumping into an investment, no matter where you are investing. By doing some digging and comparing properties in the area of Austin you are looking to invest in, you are setting yourself up for a successful investment.
One of the major pros of investing in Austin is that the rental occupancy rates are high. While occupancy rates have generally been high in this city, they have become even higher in recent months. This means you don’t have to worry about loss of income due to vacancies.
With lower vacancy rates, your investment property creates a positive cash flow. Besides having a secure investment, you have a greater opportunity to pick and choose who your tenants are due to the competitive rental market.
Additionally, the competitive market means landlords can raise rental rates of tenants.
One of the best investments in the Austin market is a multifamily property. Chances are, each unit will be continually rented due to the high occupancy rates of this city, and you can charge higher rents due to the market competition.
The Bottom Line
So, should you, as a real estate investor, consider the Austin real estate market right now? In short, absolutely. Why? Because as the data has shown, the Austin real estate market is one of the best real estate markets in the country. The market trend for Austin real estate projects a continued increase of buyers and renters in the coming months and years, which means the time to invest is NOW!
If you’re a real estate investor who currently invests in Austin, TX, or you’re interested in the possibility of investing in this city, let us know what you think about this data and the market in the comments below. We are happy to answer any questions and we’d especially love to hear from investors on the ground in Austin about their experiences below in the comments!