Where is the Austin market headed?
Round Rock, TX · Member since 2017 · 6 posts · 1 vote
Where is the Austin market headed?
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Dan BurstainBusiness Member
Real Estate Agent · Austin, TX · Member since 2014 · 361 posts · 331 votesEvery economist studying Austin and putting out reports says Buy Now! Prices will be going up. Yes, in 5 years we may dip back a year or two's worth of appreciation but the bounce right back higher. Either way, I don't believe prices will be this low again, especially with interest rates slowly climbing. And for those people who say never buy under the 1% rule, you lost out on a lot of money here in Austin. We are gaining 140 people a day, office space availability is the only thing limiting us at this point. 2.1 months of inventory and it is much less than that for homes under $250K. Now is the time to buy.
33 Replies
- 9yDan BurstainBusiness MemberReal Estate Agent · Austin, TX · Member since 2014 · 361 posts · 331 votes
Every economist studying Austin and putting out reports says Buy Now! Prices will be going up. Yes, in 5 years we may dip back a year or two's worth of appreciation but the bounce right back higher. Either way, I don't believe prices will be this low again, especially with interest rates slowly climbing. And for those people who say never buy under the 1% rule, you lost out on a lot of money here in Austin. We are gaining 140 people a day, office space availability is the only thing limiting us at this point. 2.1 months of inventory and it is much less than that for homes under $250K. Now is the time to buy.
- Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes9y
@Shil Shirol, @Dan Burstain's advice is solid. Interest rates are low, and so is housing supply. If you're worried about the 1% rule (and it's not a great metric, imo) it sounds like current rents are artificially low and can be raised whenever leases expire.
If you're worried about making the price affordable for a disabled tenant, I commend you. Look into the details; often long-term disabled people are in programs that help subsidize rent such as housing vouchers or disability, which will cushion the blow for him/her.
- Round Rock, TX · Member since 2017 · 6 posts · 1 vote9ythanks for the prompt responses guys! the disabled tenant has been living there for 20 years but not sure if he's on any assistance program like sec 8. if I evict him, I'll have to remodel the entire unit as it's never been renovated. what is the down side of him being on an assistance program?
- Round Rock, TX · Member since 2017 · 6 posts · 1 vote9y@Dan Burstain , @Jacob Pereira I'm also worried about the supply rising, especially in places like cedar Park and Leander as there is a tonne of construction activity from what I've heard. also salaries in Austin have not kept pace with the price growth at all. this house is in the 78758 zip code which is a roughish neighborhood and the disabled persons unit is not in the best shape. would you suggest renovating the unit and raising rents? it's about $100 below market is my guess
- Austin, TX · Member since 2015 · 22 posts · 17 votes9y
@Shil Shirol Shil - how much are you paying for the 78758 duplex? Make sure you don't overpay for condition. Buying with a long term disabled person is not a negative. Just account for the fact that your building was either built in the 70's or 80's and likely has a lot of deferred maintenance. Are you a handy person who can make repairs?
As for Austin in general, I sold my investments in 2014 and 2015 and I regret it. The market had another 30-40% appreciation in it since then and has only now begun to slow a bit. Next time I'm in the same position I'll hold on longer.
However, I'm not sure there's much runway left. Prices are too high for most median incomes, and the tech-heavy economy is subject to job losses when the technology industry takes a cyclical bow.
If you find a quality property at a reasonable price, I think you're safe, but I wouldn't be loading up on long term holds in the market at this time.
- Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes9y
@Shil Shirol, I know parts of 78758 can be rough (cough...East Rundberg), but The Domain is also in '58, so that doesn't say a lot. I actually own a duplex in that zipcode too. Perhaps they're near each other?
As far as rising supply, I wouldn't worry too much about it. You're right that there's still land out in Cedar Park and Leander, but your duplex won't really be competing with them. There's not a ton of available land in 78758 for large developments anymore.
I generally do suggest renovating and raising rents, but there's too little info to go on here. Just calculate your ROI and go from there. If after you factor in depreciation on your renovations you still get an ROI of above, say, 10% you should probably go for it.
Also, where are you from (your British spelling of ton gave it away that you're not from here originally)?
- Round Rock, TX · Member since 2017 · 6 posts · 1 vote9y@Robert Grunnah thanks for your balanced and honest pov. I'm paying low to mid 200s (~140/sqft) for the duplex. it's near Lamar and braker ln, West of Lamar
- Round Rock, TX · Member since 2017 · 6 posts · 1 vote9y@Jacob Pereira yes I grew up in India, but have loved in Texas for 10+ years
- Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes9y
@Shil Shirol, we're neighbors! Mine's off Payton Gin, near the High School.
- Broker/Investor · Georgetown, TX · Member since 2011 · 249 posts · 146 votes9y
@Shil Shirol It's nice that the Austin market is currently in an expansion mode, but it won't last forever and can retreat almost instantaneously. Don't over-leverage your investments and make sure they cash-flow. With this strategy the direction of the market is irrelevant.
- Austin, TX · Member since 2017 · 30 posts · 13 votes9y
Hi @shirl Shirol....Our firm has seen a lot of great duplex opportunities in 78758, although, you would need to put in a good amount of work cosmetically. I think the best play when it comes to a duplex is to buy a distressed property that needs some updating. Once updated, the duplex will rent for its maximum market rate, ultimately maximizing your profit and getting closer to the 1% rule.
- Broker/Investor · Georgetown, TX · Member since 2011 · 249 posts · 146 votes9y
I agree with most of what @Tyler Wilson shared above, with a few reservations. (I'm in no way trying to create an argument with him.) Distressed property is something I absolutely love. Updating old or ugly duplexes to maximize rents is awesome. The problem is MF zoning is limited to generally smaller and older areas that have multiple owners with different plans on how best to operate the investment. This means the entire area can look run down limiting any increase in NOI because you won't be able to attract tenants willing to pay more.
If you purchase new (or newer) units the initial ROI may be lower, but over 3-5 years you will see a higher return due to reduced capex expenses, higher rents and fewer management issues.
- Austin, TX · Member since 2017 · 30 posts · 13 votes9y
@jarrod weaver That's a great point. My strategy works best for an investor who is willing to purchase the duplex in cash, update cosmetically and then refinance into a conventional loan. This ultimately increases the equity in the property, cash flow and puts the investor in a better position to find tenants!
- Investor - buy and hold. · Cedar Park, TEXAS (TX) · Member since 2015 · 95 posts · 7 votes9y
but property tax on both Williamson and Travis counties are killing the C.F. it's shrinking significantly every year. In some cases since interest rates were record low, monthly P&I+ Insurance payment is same if not close to it. Yes, appreciation may be there, but C.F, not for long.
- Real Estate Broker · Austin, TX · Member since 2012 · 1k+ posts · 1k+ votes9y
@Robert Grunnah Wow you are in NY. That is awesome. I am happy for you! For those of you that don't know Robert built up a successful business in Austin and was The Man for many years. I bought several of his duplexes over the years on the behalf of clients. Good experiences overall! I thought that you were still here.
More than anyone, I am quite surprised that you sold properties here. I figured that you were buying and would keep on buying and holding till you owned the city, haha! Very surprised that you aren't actively holding properties in this city.
Yes, I have also sold properties in this city that I regret selling. I go back and look at a flip and think OMG, I could have sold it for several hundred thousand later, if I just held onto it. Dang. I actually had bought a house in 78704 for 100k I that flipped a year later for $160k. That house is now about 10 years later worth around $400k. Crud!
If the tech center or any other industry has a downturn in the economy that causes prices to depreciate a bit, I am buying as much as I can however I can. I will be looking for the trophy properties then instead of value add opportunities currently. Lets hope...hahaha!
Best of luck in your new ventures!
Aaron
- Austin, TX · Member since 2015 · 22 posts · 17 votes9y
@Aaron Gordy Heya Aaron - thank you for the kind words.. I should point out that even though I live in New York, my brokerage firm Castle Hill Investments is still the most active duplex and fourplex broker in Austin. It's run by agent Adrienne Laosa, who does a fabulous job.
I also own and operate SellYourHouse.biz which flips SFRs and duplexes in Austin, Round Rock (and Dallas). We flipped about 35 properties last year and have 12 that we're either buying, renovating, or have for sale currently. I'm focusing on the flip business right now because frankly, I cannot begin to understand small residential property values in Austin right now. How anyone gets those to cash flow at those prices doesn't make sense. Flipping allows me to get in and out quickly, and even though I'm taxed at regular income (vs. the far more favorable long term cap gains + depreciation benefits) it still "feels" safer right now.
I will be a hold buyer again when values decline and there are bona fide value plays. People always forget this, but Austin has always been a fairly boom and bust market, and that's not going to change now. Baseline valuations are and will remain higher, but there will still be dramatic swings and values to be had the next time real estate falls out of favor for whatever reason.
P.S. I paid ~ $200k each for 14 of the duplexes in the 1400 block of Cinnamon Path (in 78704) in 2008. I sold them in 2012 or so, but had I held on to them to today, I would have seen at least a $4M profit. So I feel ya. The lesson I learned is that though it's never a bad thing to take a profit, the real wealth is built over time with patient money, by investors who live frugally and don't need to cash in their investments to fund stupid things like nightclubs. It also helps to buy during a major recession with a lot of foreclosures AND it helps to buy in an area that is likely to see a massive run-up in values in coming years. But you can't force either of these factors, unfortunately. We'll just have to wait patiently for the next opportunity and then seize it.
- Investor · Leander, TX · Member since 2016 · 299 posts · 402 votes9y
I live in Leander.
Cedar Park is maxing out but Leander still has plenty of room to expand as growth and construction continues north toward Liberty Hill.
I pass construction all the time as they continue to build high end homes and luxury apartments, no starter homes, as they are just not financially feasible to developers.
The prices are really changing the demographics to the schools as the younger kids that would be found in new families are decreasing as those families can't afford the homes. The rents are too expensive too $1,500 to $1,700 average. But investors have to go high on the rents to cover the property taxes.
We bought our house in 2008 for $144,900 with property taxes at $3,150 a year. The house is now worth $220,000 with $5,000 property taxes. I owe $49,000.
Everybody is moving north.
- Real Estate Broker · Austin, TX · Member since 2012 · 1k+ posts · 1k+ votes9y
@Robert Grunnah lets hope for lower corporate tax. If that is the case then I am in the flipping business like a madman again. The taxes kill it for me.
I have learned that same lesson too. The real wealth is build over time with patient money and living smart. My heroes in real estate tend to be folks from another era like Harry Helmsley and Trammell Crow. They set the bar, imo
Cinnamon Path! You sold those properties. I would have only sold those gems if they were on fire. Haha. Investing in nightclubs is a surefire way to destruction, I think. Unless it happens to be studio 54.
If you ever come across a property/deal with too many hairs on it for your liking then please by all means let me know. Its the problem properties that make the real estate game very interesting! Situations that I have stepped into that make life interesting are meth-ed hoarders, crack heads, gangs, porn production, prostitution ring, rats, raccoons, bad remodeling, half finished construction jobs, fire (but not brimstone), flood, heirs that were in prison...good grief..just a whole bunch of trouble.
If in NYC, what areas do you like? I had been checking out Greenspoint for a bit. Astoria was looking pretty good too. Curious...
- Real Estate Coach · Round Rock, TX · Member since 2015 · 431 posts · 235 votes9y
Enjoying this thread. I'm newer to the game than most of you (on property #6 right now), but your analysis and back-and-forth discussion is insightful.
- Austin, TX · Member since 2015 · 22 posts · 17 votes9y
@Aaron Gordy I actually realized pretty soon after moving to Brooklyn that investing in the City itself would not be feasible. Starter apartments in Manhattan are $1.2M for a 1 bedroom right now, so that's kind of ridiculous unless you're a very wealthy person.
I found a really cool area in the Hudson Valley about 55 miles North of the City - these cities are called Newburgh and Beacon. Prices are far more affordable than in the City (think a single family for $250k-$350k), and as an investor, I could pick up distressed 1880's buildings for next to nothing - $30k. The catch is they're completely gutted and need everything. I don't know if Bigger Pockets (I'm brand new here) allows you to post links, so I'll just say Google this: "44 Carson Ave Newburgh" to see the Zillow listing for one of my remodels up here. I'll make far far less profit on that project than I will on a flip in Texas, but it's a whole different animal and more satisfying in a different way, since we're helping to change a blighted and economically depressed area.
Anyway - yeah - let's all stay in touch. I've realized at this point in my career that real estate isn't a zero sum game, and there are opportunities for all of us to collaborate and take part in a bigger overall game.
- New Paltz, NY · Member since 2016 · 12 posts · 1 vote9y
@Robert Grunnah you have seen the differences between Newburgh and Beacon first hand, right? I am not saying Newburgh is hopeless, I am propositioning opening an advertising agency there right now that utilizes urban renewal as a community responsibility action, but those are two wildly different markets. I would love to talk about either as I am researching one from the residential side and the other from a commercial outlook. Good luck.
- Austin, TX · Member since 2015 · 22 posts · 17 votes9y
@Mike Mcgregor Indeed, I bought a house in the Town of Newburgh (admittedly not the City) but live there during the week, and between both the City and the town of Newburgh, the energy of change and progress is palpable.
You should open an advertising agency here! .. Feel free to reach out any time and we can grab lunch. I was just as SUNY New Paltz last week at a presentation from Riverkeeper and Zephyr Teachout.
- Investor · Leander, TX · Member since 2016 · 299 posts · 402 votes9y
Austin declared one of the hottest rental markets in the nation right now
By Arden Ward 3/21/17
Austin is in high demand, and that's not going to change anytime soon. Austin as one of the most desirable rental markets in the U.S. for 2017, making it a sound choice for local and remote real estate investors.
In fact, Austin is No. 9 in ranking for highest demand markets, which means it boasts some of the strongest supply and demand fundamentals in the nation.
"An influx of millennial job-seekers drawn to the low cost of living compared to coastal markets, combined with growth in Internet and technology sector jobs, make Austin one of the most desirable metros for renters"
And, a bonus for investors (but not good news for those striving to own a home), a limited number of Austin renters will graduate to homeownership. "Austin has a large population of educated millennials, so it’s unlikely that homeownership levels are going to go up significantly in this market, considering the all-time high levels of student loan debt"
Those investing in the Capital City are targeting properties desired by young families in the technology and Internet space. Approximately 36,000 new positions to be added in Austin in 2017, with the professional and business services sector, led by high-tech and internet-based companies, fueling the growth.
Here's what Austin renters can expect this year:
Single-family rental vacancy in Austin is expected to drop to 3.9 percent.
Rents are expected to grow to $1,735 per month, up 2 percent from 2016.
Austin’s year-over-year employment growth is projected at 3.6 percent, much higher than the national growth of 1.7 percent.
- Real Estate Broker · Austin, TX · Member since 2012 · 1k+ posts · 1k+ votes9y
@Account Closed Yes, Manhattan is very expensive. I read that Manhattan prices decreased by 3% anyways.
I will check out the address. That project sounds fun! Yes, lets stay in touch! I totally agree that real estate is not a zero sum game.
- Broker/Investor · Georgetown, TX · Member since 2011 · 249 posts · 146 votes9y
Currently Texas is ranked 4th among states for the highest tax rate. As @Sal Zafar mentioned above, Williamson and Travis counties are bad, but it's the entire state - not merely these two counties.
@Account Closed mentions that rents are expected to grow, but my experience has been that rents in SFR's are lagging current purchase ARV and CAD assessment increases. I assume this to be a market dynamic caused by the MASSIVE growth in local apartment construction.
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