Does home owning even make sense in Austin?

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Does home owning even make sense in Austin?

Shawn Jaffee
Austin, TX · Member since 2018 · 13 posts · 4 votes

I’m currently renting my residence and am splitting rent ($1450) with my girlfriend. As much as I hate to give my money to a land lord and miss out on any equity build up through loan pay down or appreciation, there are a few benefits.

No maintenance costs, I get to live in a decent location (78746) and have a much shorter commute to work and central Austin.

With the ridiculous pricing in the Austin market, house hacking is almost obsolete. If going the SFH route, I'd have to drop a whopping 25% down on a property around 200-230K just to keep my payments as low as they are now.

And to top it off I’d have to sacrifice location and move much further north or south.

As the title suggests, does home owning even make sense in the Austin Market? Or am I better off investing my money in properties further out that can actually produce CF and continue renting my primary residence?

Thanks!

Shawn

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Aaron K.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
8y

You can look at this as a math problem or how you want to live the choice is yours, but keep in mind that your rent will go up over time where a mortgage payment will not.

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  • Aaron K.
    Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
    8y

    You can look at this as a math problem or how you want to live the choice is yours, but keep in mind that your rent will go up over time where a mortgage payment will not.

    6Reply
  • Andrew W.
    Investor · Austin, TX · Member since 2017 · 70 posts · 76 votes
    8y

    Shawn, I agree that when you look at Renting vs buying a SFH in central Austin, the math for renting is better. You can always invest in suburban Austin or other markets.

    You may also want to consider buying a duplex. I used to pay ~1650 rent for an 1100 square feet apartment. Now I own and live in a duplex and after the tenant pays rent I pay about $1300. My unit has 1400 square feet, a yard, and a 1 car garage.  

    Doing this with a 3 or 4 unit property would have even better numbers, but more work managing tenants. 

    Example numbers above are for Northwest Austin (Arboretum/Lakeline area) 

    1Reply
  • Andrew Allen
    Investor · Austin, TX · Member since 2017 · 91 posts · 106 votes
    8y

    I'd say the biggest factor you need to consider is how long you expect to live there. If you move every few years, yeah, just rent. If you're going to stay in one place for 10+ years you're going to feel like a dumbass in 10 years after paying all that rent and having nothing to show for it.

    4Reply
  • Beau Fannon
    Real Estate Agent · Austin, TX · Member since 2017 · 229 posts · 259 votes
    8y

    It depends on how you frame your perspective.  The way you frame it is from a short-term point of view.  In that view, the next 10 years show that renting is better. 

    But if you frame it from a long-term point of view, buying is almost always better than renting. 

    Do you want to be that person who rents the same place for 20 years, gets a new owner, and gets kicked to the curb without the ability to play in  that future real estate market that will have continued to appreciate? What other tangible investment can you make today that will have value in 20 years? 

    1Reply
  • Peter Jeon
    Real Estate Investor · Austin, TX · Member since 2016 · 5 posts · 7 votes
    8y

    Yes, imo some (maybe most? haha) places in Austin are almost not worth it to purchase it unless you think of the purchase like a luxury product. 78756, for example, is very expensive and the price to rent ratio doesn’t make sense. Of course, there is the appreciation of the land/property, but then you are playing appreciation roulette.

    For a $230k house with 25% down, 4.75% interest rate, 30 yr mortgage is going to run you around $1373 per month. This is including taxes & insurance. Not including maintenance. For the first 60 months of the loan, you are gaining about $200-$300 in principle, rest going to taxes, interest, etc.

    You are probably living in a nicer part of town, so you probably cannot find a house $230k in the neighborhood you are living in. There are properties out there where the rents are pretty low because the landlords do not know the market and you could do some small renovations and bump up the rent by $100/mo or so, but you gotta keep looking. I think a duplex would be a good fit for you since you can have one side pay for your most of your mortgage while living with your gf on the other side and possibly charging your gf rent as well? That is your call haha. However, those run around $330k - $420k for one within central/north area in Austin.

    A great thing about duplexes is that you can do a 5% down if it is owner-occupied and the banks include 75% of the rent on the other side toward your income when the banks calculate your rent/debt ratio if it is rented with an official lease.

    If I was in your shoes, I would try to save some cash and try to go for the duplex or a house where you can turn it into a duplex.

    I have 2 units that cash flow pretty well and I have 1 that is more of an appreciation play. If that appreciation play property goes bad, I can always have the cash flow property pay for it. Also, like you I am renting while renting out properties since I like my commute to be 5-10 min.

    Hope this helped!

    5Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    8y

    @Shawn Jaffee why not get into househacking and buy a duplex or a single family with an adu?

    That way you'll get those benefits and possibly even reduce your payment.

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  • Shawn Jaffee
    OP
    Austin, TX · Member since 2018 · 13 posts · 4 votes
    8y

    Thanks everyone for the responses!

    For more context, I should have mentioned that I don’t know what my long term outlook would be. I definitely agree with  @Andrew Allen and @Beau Fannon that I would be kicking myself if I’m still sitting here paying rent at the same place over 10 years. But I’m thinking a little more short-term (closer to 5 years)

    As for house hacking, that is what I wanted to do originally. FHA into a duplex with 3.5% down, rent out the other side and have that cover most of the monthly payment. Eventually with the plan of moving out and renting the other half.

    In the current market, having the other unit cover most my living expenses hasn't seemed very realistic. But I do agree with everyone that it would be a good way to at least bring my payments down.

    The only issue I have is that I wouldn’t want to house hack a duplex long term. Especially if I don’t think it’ll cash flow for me in the future.

    But if I can finally find something where the numbers work, it'll be a different story.

    1Reply
  • Allison Stewart
    Rental Property Investor · Austin, TX · Member since 2018 · 76 posts · 46 votes
    8y

    House hacking as you describe is super doable in Austin! My husband and I are doing it currently in our first duplex and looking to buy our second that we will also house hack. Happy to go over some numbers with you if you want to PM me. We pay very little to live in our house (MUCH less than your rent) and are building a significant amount of equity (the home we own has doubled in value over the last 5 years). When we move out of our current duplex, it will cash flow quite nicely (right now around $800 a month cash flow after expenses). 

    3Reply
  • Shawn Jaffee
    OP
    Austin, TX · Member since 2018 · 13 posts · 4 votes
    8y

    @Lexi Teifke My only issue is that I don't know how long term I'd be in the property. I never know when I'll need to get up and relocate. But as of now intend on staying in the Austin area for a long time.

    That unknown factor is the only thing that makes the long term play kind of murky.

    I know Austin is a big appreciation market, but in a hypothetical where lets say I move after 5 years instead of 15 or 20, I wonder whether appreciation alone would be enough to cover all my selling costs and etc.

    0Reply
  • Michael Solomon
    Austin, TX · Member since 2018 · 21 posts · 6 votes
    8y

    Shawn, I'm in a similar boat debating whether to rent or house hack.

    First things first. For the FHA loan. Are you able to cover both downpayment and closing costs, having the seller pay a portion, or are you using downpayment assistance? This would raise your interest rate if needing assistance therefore driving up the mortgage.

    Second, depending on your purchase price and interest rate the best I've seen from running numbers is getting a little less than half(40-45%) the mortgage from tenant rent. (This is from using downpayment assistance)

    Also you will need reserves to cover anything that could happen. You could force appreciation to make your numbers better as well. 

    How far out are you willing to go to get the numbers you want?

    Hope this helps some. 

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y

    It only makes sense if you want to be a millionaire.  Between 80 and 90% of US millionaires made their money in real estate.  (Sources vary on where, but they all generally put it in that range)

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  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    8y
    Allison Stewart that’s awesome! I’ve analyzed quite a few that work and not found it as hard as everyone says to find a deal. I have one under contract in east Austin right now that should cashflow around $500 after the rehab.
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  • Allison Stewart
    Rental Property Investor · Austin, TX · Member since 2018 · 76 posts · 46 votes
    8y

    @Shawn Jaffee, if you have to leave Austin, then rent out the unit you occupy and use a good property manager and keep collecting your cash every month. We aren’t necessarily planning on being here forever. But property management is always an option.

    And like I said before, my current property has appreciated 100% in the last 5 years. We don’t need count on that happening again (we like cash flow) but that’s the way it’s currently going in our neighborhood. We also forced appreciation with a reno on both sides of our duplex (and we have one of the highest rents in neighborhood, consequently). 

    You just have to pick the right neighborhood. 

    4Reply
  • Shawn Jaffee
    OP
    Austin, TX · Member since 2018 · 13 posts · 4 votes
    8y

    @Michael Solomon If going with an FHA and putting the minimum down, I'll have more than enough to cover the down payment, covering closing if need be, and decent reserves left over.

    But your numbers are in tune with what I’m seeing typically. When running numbers I see around 40% of my payment being covered. This is including mortgage, taxes and insurance.

    But those numbers obviously won’t work if I rent out my half eventually. I will still have vacancy, repairs, cap ex, PM, etc. to consider

    Definitely do have the option of moving further away, though it would be a bit of sacrifice dealing with the Austin traffic

    0Reply
  • Shawn Jaffee
    OP
    Austin, TX · Member since 2018 · 13 posts · 4 votes
    8y

    @Jordan Moorhead Are you primarily finding your deals off market? Or are you able to find success using avenues such as MLS?

    0Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    8y
    Shawn Jaffee everything I’ve bought is on the MLS. I know it doesn’t sound as sexy but it’s gotten he job done.
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  • Marian Smith
    Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
    8y
    Long term buying is better because you leverage and it is an inflation hedge. But renting has advantages and plenty of smart people choose to rent for various reasons. Flexibility is a huge one. Austin has got to be at about the top of the cycle, but it could plateau for years. It may not make sense to buy right now but it makes very good sense to get yourself positioned to buy...save up, keep up your credit and keep an eye on the market, neighborhoods, particular properties....maybe even get autofeed email info from redfin for your zipcode.(
    1Reply
  • Shawn Jaffee
    OP
    Austin, TX · Member since 2018 · 13 posts · 4 votes
    8y

    @Marian Smith That's exactly what I'm doing. Learning, saving, searching, and getting auto emails from MLS. And that is one thing I thought about plenty, whether it makes sense for me to dive in towards the top of the cycle. But I also know the risky business of timing the market. I guess I just need to be patient and wait for the right opportunity

    0Reply
  • Shawn Jaffee
    OP
    Austin, TX · Member since 2018 · 13 posts · 4 votes
    8y

    @Jordan Moorhead I hear ya. I haven't had as much success with MLS so far. I'll just have to give it more time and possibly explore other ways of finding deals as well

    1Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    8y

    @Shawn Jaffee how long have you been looking and how many have you made offers on?

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  • Shawn Jaffee
    OP
    Austin, TX · Member since 2018 · 13 posts · 4 votes
    8y

    @Jordan Moorhead I've been looking for about 4-5 months. A big part of my problem is that I haven't made any offers yet. 

    One reason for that is that It seems I'd have to ask close to 40% off the listing price in most cases to even get close to any potential cash flow. Definitely doesn't hurt to try, but I also don't want to tick off my agent by making her submit a bunch of low ball's in such a competitive market!

    0Reply
  • Michael Solomon
    Austin, TX · Member since 2018 · 21 posts · 6 votes
    8y

    @Shawn jaffee just go ahead and try and submit one.  The worst they can do is reject it, the best being they counter. That means there's room to play. 

    0Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    8y

    @Shawn Jaffee what areas are you looking in? I'm seeing plenty of places under $400k down there that can work. Have you though about getting a STR license and doing airbnb?

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  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    8y

    You need to get in properties regularly and submit offers. It took me 6 months and 7 offers to get my first duplex. @Shawn Jaffee

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  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    8y

    In most cases it is not the mathematical comparison of life time mortgage payment vs rent. One does better being a tenant if he knows where to park his savings wisely. 


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