Investment Properties in Austin: Five Things to Consider Before You Invest
Austin seems to be the “it” city. Its strong job market, natural beauty, and laid-back lifestyle continue to entice people from all over the country to move here in record numbers.
I meet lots of people new to the area who tell me they want to get to know the city before they buy a home. That means they want a rental. As an investor or soon-to-be investor, this common strategy among the flood of newcomers should be music to your ears.
For investors with properties in Austin, the city’s popularity is obviously driving your accumulation of wealth. And while investing in Austin’s hot real estate appears to be a no-brainer, someone new to the real estate investment game should consider a few key factors before diving head first into snapping up rental houses.
1. Housing Bubble or Great Market?
I know what you’re thinking. Is Austin in a bubble? If there’s one question I hear over and over from investors, this is the one. I understand the concern. We’ve seen what happens when bubbles burst. None of us have a crystal ball, so there’s no way to say with 100 percent certainty if the market will continue on its current trajectory. But I have no expectations it will change anytime soon.
Pending any national economic crisis, and perhaps despite one, Austin’s housing market will continue to be strong for buy and hold investors. Even if you look back to the housing crisis in 2008, overall housing prices in the Austin area only decreased by 2 percent.
Plus, if you have a long-term buy and hold strategy, you can ride out a down market cycle and time the sale of the property to work in your favor. Bottom line: the shorter your projected holding period, the greater the risk. Plan on holding for 10 to 15 or more years and you’ve given yourself plenty of flexibility to ride out a dip in the market.
2. Population Growth Equals Housing Demand
Austin is among the nation’s fastest growing large metro areas. Its population growth is expected to continue for the next 14 years. According to a report from the state demographer’s office, an average birth, migration and death rate results in a population increase from 1.7 million in 2010 to 2.7 million in 2030.
Now if we are looking at the high-end scenario, the population could grow by 81.7 percent by 2030, an increase to 3.2 million. That’s nearly double the population of 2010 who need housing. By 2050, the Austin Metropolitan Statistical Area including Bastrop, Hays, Williamson, Caldwell and Travis counties is projected to reach 5.2 million people.
That’s a lot of folks who want to try the area before they put down roots. As more people move to Austin, the housing inventory has become more scarce. The supply simply can’t keep up with the demand.
3. Scarce Supply Equals Cashflow
In a market where the median (1/2 less and ½ more) days on market is 12 days, getting a deeply discounted bargain on stale listing is not likely to happen. If it’s a particularly great property, you will likely pay full price, or compete in a multiple offer situation. But chances are, you can also charge a premium to lease the property.
The closer you can get to downtown Austin when buying an investment property, normally the better the appreciation. I like to tell investors to imagine a pond and dropping a rock in the middle of that pond. The ripples are strongest at the center, weaken and regain strength on the outer edges. Downtown Austin is where you dropped the rock, and the ripples represent appreciation potential.
5. Have a Plan
Even in the best of times, you should have a clear plan of where, when, what and for how long you plan to invest in real estate. When it comes to strategy on what to buy, some investors prefer buying a brand new home and rent it out. Others want to find a fixer-upper and invest money renovating it. I’ve seen success using either scenario. The key is to find a house with what I refer to as “good bones” and what will people pay to live there? Also look at who you want to live in your properties. Condo rentals attract a different crowd than single-family homes.
Decide what your goals are. The good news is the Austin housing market is an A-list investment.