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Posted over 1 year ago

A Tale of Two Rental Markets: Metro Detroit vs Austin Round Rock, TX

A beautiful three-bedroom home along Auburn St., DetroitSource: Zillow listing

The US ranks for having the best real estate investment opportunities, where 86% of real estate investors said they’d maintain or increase their portfolios in the country.

But with 50 states and roughly 20,000 cities, where should you invest in rental properties?

To answer that question, we’ve created this series to compare US housing markets—known as goldmines—for rental investors. We have 25 years of experience as a property management company, and we’re drawing on our knowledge (and extensive research) to give you side-by-side market comparisons.

These articles will help you decide between popular real estate markets, providing the necessary information to make sound decisions. We’ll provide key factors like:

  • - The expected returns from rental properties
  • - The types of tenants to expect
  • - The kind of management required

Lots of local and out-of-state investors want excellent rental returns and affordable properties, but they also want them in good cities. Our Tale of Two Markets series breaks down two popular choices and compares them for people deciding where to invest.

We’re comparing Metro Detroit and Austin-Round Rock, TX, for this installment. We might be biased toward our home market (Metro Detroit), but we’ve stayed as objective as possible.

Let’s go through each metropolitan area in detail.

Overview of Metro Detroit

Metro Detroit has a unique property market—properties closer to the City of Detroit (its main city) can be less expensive. At the same time, those further out can cost more. That's the opposite in places like New York City or Los Angeles, as you can see below:

Income status heat map across Metro DetroitSource: ProximityOne: Patterns of Economic Prosperity by Neighborhood

Since the Great Recession in 2008, the City of Detroit has been bouncing back. Most residents only moved to the greater Metropolitan Detroit area and are returning to the main city, resulting in property values and rents increasing faster than nearby suburbs.

Our ongoing Deep Dive series details this more, where we analyze the investment potential of every city and neighborhood in the area. Check those out for a more granular view of the real estate sector!

If you’re not familiar with the area at all, here are some quick facts to get you up to speed:

Quick facts about Metro Detroit

And here’s a map that shows the 72 cities in Metro Detroit:

Map showing Metro Detroit citiesSource: Georgetown Public Policy Review

For a closer look, here’s a list of all the Metro Detroit cities with hyperlinks to the Deep Dives we’ve published for each. The ones highlighted in green are “Ring Cities,” where you’ll find affordable homes (Detroit-famous “cheap” properties) without many of the risks often associated with Detroit investing:

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Want a closer look?

Here’s a detailed map list of all the neighborhoods in the City of Detroit.

Map showing Detroit neighborhoodsSource: Loveland’s Detroit Neighborhoods Map

In this list of Detroit neighborhoods, we’ve hyperlinked each hood we’ve covered in a published Deep Dive to give you the area’s exact investment potential.

List of Detroit neighborhoods, including hyperlinked Deep Dive articles

Now, Detroit housing stock has a unique hyper-supply situation. The distributed stock had a population of around two million in the late 1950s, but the population has since halved, and thousands of homes are now vacant. Some regions, however, retained their population, so property values and rent amounts stayed relatively high.

What does this mean for you?

The City of Detroit is a great place to find investment opportunities, as long as you do your due diligence.

Investors shouldn’t invest in a zip code without visiting the area first. Evaluate the area and its surroundings, as property classes vary from block to block. We’ve seen too many investors purchase what they think is a class A or B, only to find out that it’s a C or D upon closer evaluation.

You can also lessen your risk by investing in Ring Cities to take advantage of high cash flow opportunities sans the common Detroit market risks.

Overview of Austin-Round Rock, TX

Round Rock city is located in Williamson County, Texas—a small part of Travis County. It’s part of the Greater Austin metropolitan area, with a 2020 population of 119,468.

Round Rock got its name because it straddles the Balcones Escarpment (a fault line where the ground is flat with black, fertile soils) and the hilly west side of the Escarpment. It’s roughly 20 miles from downtown Austin and shares a border with the capitol via Texas State Highway 45.

Map showing Round Rock, TXSource: Google

Round Rock comprises 90 neighborhoods and subdivisions. In the past decades, Round Rock was named the seventh-best small American city to live in and was listed as the second-fastest growing city in the nation. Today the city has one of the best school districts in Texas (Round Rock Independent School District), where 23 out of 42 schools have been either exemplary or recognized.

List of Round Rock neighborhoods and subdivisionsSource: Round Rock, Texas subareas


Comparing the Real Estate Scenes in Metro Detroit vs Round Rock, TX

According to Redfin, Round Rock’s median sales price decreased by 3.7% year over year, landing at $438,700 as of the writing of this guide. The financial viability is “somewhat competitive” based on Redfin’s Compete Score, where homes sell for 2% below list price, and nearly half (48.9%) of homes experience price drops.

But what factors contribute to the financial viability of rental investments? We’ll compare the two areas' rent amounts, house values, and appreciation rates. Later, we’ll also go through the quality of tenants, property conditions, and quality of life between Metro Detroit and Round Rock.

Here’s a snapshot of all the rental properties listed on Zillow for Metro Detroit and Round Rock:

Zillow rental listings in Metro Detroit and Round RockSource: Zillow

We’ll discuss the differences and similarities between the two areas, focusing on the properties currently listed on Zillow and their rent-to-price ratios.

House Value and Appreciation

House Value. Based on Zillow data, the median home price in Metro Detroit is $238,879. This number shows a 7.9% increase over the past year. It is forecasted to rise by 0.7% in the next year:

House value graph of Metro Detroit homesSource: Zillow

In Round Rock, homes are generally valued at $501,944—indicating an increase of 4.7% over the past year. Unfortunately, there is no forecast available on Zillow as of the writing of this article.

House value graph of Round Rock homesSource: Zillow

Looking at the current Zillow listings, we see that the majority of available homes in Metro Detroit are in the City of Detroit or the Ring Cities. These are the areas where you’ll find the famous below-$100k Detroit properties. The lots are usually smaller, resulting in higher housing and listing density.

Homes for sale in Metro DetroitSource: Zillow

In terms of appreciation, Ring Cities surrounding the City of Detroit tend to have higher appreciation rates compared to those within the city. Still, the area is exceptionally diverse where you’ll find many sweet spot opportunities scattered everywhere to purchase affordable homes around developing neighborhoods.

Property appreciation heat map in Metro DetroitSource: NeighborhoodScout

Then, taking a look at Round Rock, Zillow listings and the appreciation rate heat map both show that—although with several exceptions—property prices tend to increase the closer you get to the state’s capitol, Austin (which is the lower left side of Round Rock):

Round Rock, TX, in relation to Austin, TXSource: Zillow

Similarly, the heat map from NeighborhoodScout shows that areas on the left have higher appreciation rates than the right. Here’s the visualization:

Property appreciation heat map in Round RockSource: NeighborhoodScout

Appreciation. In terms of appreciation rates, Bestplaces provided the following data:

  • - Metro Detroit home appreciation in the past decade is 216.0% (up by 31.3% YOY).
  • - Round Rock home appreciation in the past decade is 134.5% (up by 41.7% YOY).

Metro Detroit has had significantly higher appreciation rates in the last ten years, although Round Rock shows a faster appreciation rate year-over-year. Either way, both areas can generate equity gains.

In a comparison of Metro Detroit’s and Round Rock’s appreciation data to the national rate, we find that home values are forecasted to continue appreciating significantly over the next decade. American home prices grew by nearly 49% in the past decade, whereas single-family home prices increased by 18.7% from 2021 to 2022—the highest growth in the last 31 years.

At this rate, Renofi predicts that the nation will hit an average home price of $382,000 by 2030.

Average Rent

Looking at Bestplaces data, Round Rock has higher average rents across all home sizes compared to Metro Detroit. Still, both areas have lower rent compared to their respective greater areas:

Rent averages by property size in Metro Detroit vs. Round RockSource: Bestplaces

Latest Zillow listings also reflect the supposed average rent amounts:

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Rent-to-Price Ratio

Using the rent-to-price ratio helps in identifying if a property will yield cashflow. You’ll want to meet the industry minimum standard of 1% to shortlist properties to only the good ones.

Here’s the formula:

Monthly Rent / (Purchase Price + Rehab) > 1%

For Metro Detroit and Round Rock, where you’ll find plenty of properties varying extensively from each other, the rent-to-price ratio is a quick formula to estimate your ROI.

Side-By-Side Chart

Let’s put the data into action.

Here are Zillow properties in Metro Detroit and Round Rock. We selected these properties because they reflect most of the homes you’ll find in their respective areas. From these alone, you can compare the two areas in terms of rent amount and house values, so you know the investment potential:

Contain 800x800Listing in Metro Detroit and Round RockSource: Zillow

The above property in Metro Detroit surpasses the minimum rent-to-price ratio, while the one in Round Rock falls short significantly. Moreover, Metro Detroit has better appreciation rates and a positive forecast for home values, while Round Rock is more expensive and is developing at a slower pace.

Quality of Tenants, Properties, and Living

Experienced rental investors know the importance of prioritizing quality tenants, properties, and neighborhood living, as these factors determine:

  • - Stability of your rental income
  • - Maintenance of your properties and assets
  • - Necessary renovations and rehabilitations
  • - Type of tenants you’ll attract
  • - Property management required

So, let’s evaluate the quality of tenants, properties, and living for Metro Detroit and Round Rock.

Tenant Quality

Tenant quality is based on the local residents’ average income and educational attainment because these two factors determine their financial ability to afford and take care of a home. The more capable they are of keeping up with rent and maintenance, the better it’ll be to rent your property to them.

Average Income

Metro Detroit residents have a higher average income, although with a higher unemployment rate and lower future job growth. In contrast, Round Rock locals have better employment rates and an impressive future job growth forecast.

Income and employment statistics for tenant pool stability

Educational Attainment

In general, there are more high school graduates and degree holders in Round Rock than in Metro Detroit. Still, both areas have many well-educated locals that can get well-paying jobs to afford quality rental properties.

Comparison of educational attainment in Metro Detroit vs Round RockSource: Bestplaces

Property Condition

Next, let’s check the general property condition in Metro Detroit and Round Rock. You’ll want to know what to expect in terms of maintenance, so you can plan renovations and updates wisely.

Property Age

While the median age of houses in Metro Detroit is 51 years old, Round Rock properties are an average of 19 years old—basically brand new in the real estate industry. This difference means the property conditions in Metro Detroit will need more renovations than those in Round Rock.

Comparison of property ages in Metro Detroit vs. Round RockSource: Bestplaces

Home Ownership and Rental

There are more renters than homeowners in Metro Detroit, which means you’ll have a larger tenant pool to choose renters from. In contrast, there are more homeowners than renters in Round Rock, so properties might generally be better maintained.

Comparison of homeownership and rental in Metro Detroit vs Round RockSource: NeighborhoodScout

Quality of Life

Nobody wants to live in a neighborhood where there are zero job opportunities and high crime rates. Instead, people will want to live where there’s a good quality of life. Moreover, the better the neighborhood is, the more quality tenants you’ll attract—from whom you can charge higher rent.

Local Economy

Both Metro Detroit’s and Round Rock’s economies were greatly affected by the pandemic. Still, the following chart shows great promise (especially for Metro Detroit), where both areas are bouncing back with economic growth:

Index showing how each US state is recovering post-pandemicSource: Detroit Regional Chamber

Both Metro Detroit and Round Rock have strong economies despite the unpredictable year of 2020. They boast of excellent opportunities for rental investors, remaining attractive to residents seeking greener pastures for years to come.

Safety and Crime

Crime rates in Metro Detroit are significantly higher than in Round Rock, no matter how you approach the data. Still, Metro Detroit is widely diverse where you can find perfectly safe neighborhoods within a stone’s throw away from one that’s deemed “dangerous.”

Comparison of crime rates in Metro Detroit vs Round RockSource: Bestplaces

Diversity

Knowing the racial diversity in an area is part of knowing the tenant demographic. The more you familiarize yourself with the people, the more you can anticipate property management needs without being caught off guard by the tenant pool.

So, here’s a comparison of the racial diversity between Metro Detroit and Round Rock:

Comparison of racial diversity in Metro Detroit vs Round Rock

More than race, however, is the personality of the tenant pool. As a rental investor, you’d want to prioritize a tenant base that is reliable and responsible enough to follow your lease agreement—like paying rent and maintaining the property.

With how different the potential renters are in Metro Detroit versus Round Rock, conduct a self-evaluation on what kind of tenants you want as a rental investor before choosing between the two locations.

Liveability

Both Metro Detroit and Round Rock are attracting residents with their up-and-coming neighborhoods, opening opportunities for rental investments to thrive. In terms of livability, the life one can expect in Metro Detroit vs. Round Rock can be summarized into the following pros and cons:

Comparison of livability in Metro Detroit vs Round Rock

In our opinion, the pros of living in Metro Detroit outweigh Round Rock. If you ask us, having a vibrant arts scene, deep-rooted culture, a communal spirit for sports, and ideal living costs certainly check the boxes for livability! But the final evaluation ultimately depends on your priorities as an investor and what you think future residents will find more attractive.

Metro Detroit and Round Rock are both several unique cities. Meticulously evaluate your investment factors—you can’t get away with copying and pasting what you know about one Detroit neighborhood to the rest of the city.

Ideally, get the guidance of a local property management expert before you purchase anything. Carefully consider the characteristics of each subarea, evaluate the tenant demographics for each, common property conditions, and financial viability.

Conclusion

Ultimately, you must thoroughly evaluate the investment opportunities within Metro Detroit and Round Rock, Texas. These two markets have cities and neighborhoods with widely varying pros and cons—highly dependent on your investment goals.

Here is a recap of the comparative data in this report:

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Deciding between which market to invest in can be challenging. Though we’re biased, we believe that Metro Detroit has more potential wealth to gain than Round Rock. We’ve seen how the city has emerged from the ashes since 2011, and the trend indicates that there is nowhere to go but up for Metro Detroit.

Disclaimer: Money is still the root of every investment. We encourage you to focus on the financial viability of every property you decide to buy. Find a good balance of cash flow and appreciation so you generate the most returns immediately and in the long run.

Do you want more of these reports comparing markets for growth?

Our Tale of Two Rental Markets series isn’t stopping here. Should you have a particular real estate market you’d like us to compare against Metro Detroit, leave a comment below!

Until then, at Logical Property Management for two decades' worth of experience and knowledge, allowing you to invest and gain wealth from Detroit properties today.



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