Is Austin 78745 a good investment?

Question

We're looking at buying a 3/2 in the 78745 zip code, but the numbers are really tight.  Are other people investing in that area?  If not, is there a good area in Austin to invest?

David Ivy · Answer

@Anthony Heidenreich

I assume you're talking about cash flow being tight when putting 20% down. As @Danny Webber said, numbers on all SFR properties are tight in the immediate Austin metro area. I also second Danny's warning about "buying cash flow" with a large down payment.

Why are the numbers tight? That has a complicated answer. But in short, homes in 78745 are desirably well-located for access to Central Austin. You can also still find many decent homes in that area selling below the median for Austin. Moreover, much of 78745 is already developed to its current highest and best use with limited opportunities to significantly increase affordable housing supply. So, you have a combination of good location, "affordability," and limited supply. This all leads to a chart like the one below showing the median sales price of SFR properties in 78745:

If you ignore this when evaluating an opportunity in 78745, you're only seeing a portion of the whole picture. You will understandingly say, "I just don't get it. The rental numbers don't work on these properties." That's similar to something like, "I just don't get it. You can invest in Ford and get a predictable 7% dividend yield, but Tesla stock doesn't offer any cash flow." People don't invest in Tesla for cash flow; they have another objective. SFR properties 78745 area are currently growth/appreciation investments. People who buy them--who know what they're doing--know this and are taking a calculated risk on the continuing growth story of Austin and 78745.

SFR rents in 78745 have show growth over the the same time period as sales prices, but in a much more muted fashion. In fact, SFR rents there have been flat since 2016:

If cash flow is your primary goal, you need to look at other markets. I hope this helps!

Scott White · Answer

I live in 78745 and it's a great area. Super easy access to downtown and both of the north/south arterial highways. I can be at Barton Springs in about 15 minutes.

Now, 78745 is also a large-ish ZIP and things get a bit dicier when you get south of William Cannon and east of the railroad track that divides the ZIP vertically. I'm on the local NextDoor email list and almost all reported crime in the area happens in those places. That being said, they're almost all car break-ins and Amazon porch pirates with a few burglaries thrown in for additional fun. Certainly not a warzone by any stretch.

As far as the future goes ... well, 78704 is full; east Austin inside the 183 loop is full; so folks are turning their eyes south. I'd be surprised if in a few years it's not 100% gentrified.

Anthony Heidenreich · Answer

Thanks for all of the great feedback.  The warning on buying cash flow makes sense, since it would decrease your ROI.

Our target is to put 20% down and break even on the rent, while planning on appreciation to make the investment worthwhile.

Good advice about watching the more south neighborhoods for crime issues.

Rui Nakata · Answer

@David Ivy , thank you for your detailed explanation! Can you explain why buying cash flow with a higher down payment is bad? (I'm new to real estate investing)

Rui Nakata · Answer

@Scott White yes!! that's exactly what I've been seeing. I just witnessed an arrest last weekend in a neighborhood south of William Cannon a few doors down from a house we were checking out. We're banking on the south side to become more like the east side in 10 years or so. Plus, the east side is still pretty sketchy in some areas.

Hannah Shadrick · Answer

I think you're right @Scott White. I do love the south side of the river / lake since I bike everywhere. It's super close to downtown, hard to ignore the proximity even if it's not pretty yet :-)

Hannah Shadrick · Answer

@Jordan Moorhead @David Ivy How did y'all go about identifying homes with ADU's? I'm finding there's no single way of talking about them (as this article states: https://accessorydwellings.org/2012/06/04/beware-of-the-many-synonyms-for-adus). Would love any insights you guys have on finding those properties.

Ernest Fernandez · Answer

@Anthony Heidenreich if you ever consider investing in San Antonio, shoot me a DM!

Jordan Moorhead · Answer

@Hannah Shadrick @david ivy helped me buy one in east Austin for $260k that will be a great Airbnb with the ADU

Hannah Shadrick · Answer

@David Ivy My partner and I are considering doing a live-in flip paired with house-hacking via an AirBnb rental (assuming we can find a home with a rentable ADU!). We're first-time homebuyers. We're okay not cash flowing at this point. Do you have any parts of Austin you'd look at for our situation? We're living in Rosedale and loving it, but obviously everything in our neighborhood is $600k+.

Is Austin 78745 a good investment?

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