Round Rock vs Leander - Where to Buy?

Question

Hi All,

We are looking to buy our first home in Austin Metropolitan Area. We have 2 places in mind - Round Rock and Leander. Our budget is approx. $500k and can go as high as $600k with incentives. Our desire is 4-bed, 3-bath with a yard.

• Which area is better? From our current research, it seems Leander can offer huge newly built single family homes in that price but Roundrock West only offers old homes. Newly built homes in Roundrock west go over $650k for a 4 bed 3-bath. Is there a reason why Round Rock West is priced so high compared to Round Rock East and Leander?
• Roundrock west seems to have a great school district. Is it worth to compromise for big and fancy home to get in a better school district from an investment point of view or Leander might get better over years. Leander ISD seems to be highly rated but looking through Zillow, the schools in lot of areas don’t rate that well. Should another site be considered to check school ratings?
• Is Round rock East worth considering given the soil quality in that area?
• Which one is better from a long term perspective in terms of appreciation?
• Which area is better from an ease to rent standpoint if we decide to move out in a few years?

Costin I. · Answer

1. Are you buying a residence or investment property? The subjective criteria for a residence don't translate properly into a good investment property.

2. New homes aren't necessarily better than older homes, depending on builder, quality and price. A solid inspection is required for brand new homes and you'll be surprised by some of the findings.

3. RR West is pretty much land locked - not much new development there. Same as with Cedar Park, those prices will only go up because of that. Leander has plenty of empty space to expand and build, that's why so many new houses, lower price points and likely lower appreciation.RR East has more open spaces, and can annex more, thus likely lower prices. Plus a clay soil problem, making the foundation issue a question of when, not if. But foundations need to be maintained all over TX, so you need to learn to do that anyway and anywhere.

4. School ratings are a very important criteria in property location selection. Between an older/smaller/pricer house in an excellent schools area and another newer/bigger/cheaper one in mediocre/lousy schools, the former will always beat the later. Schools quality affect many other factors - criminality, shopping, vacancy, etc.But, beware, school ratings change - new master-planned divisions might start with new schools with low or no ratings, evolve into excellent schools as the nice houses get occupied by young professionals, and devolve in rating as the kids grow up and go to college (a 15-20years cycle IMO) and a new generation might move into the now old and soon obsolete houses.

5. IMO, A-class or above properties do NOT make good rentals, because a. they likely require high rent, b. they are too nice to place anyone in (or require serious vetting), thus requiring the “perfect” tenant, which is hard to find, hard to qualify, and more important, hard to keep.

• Why? Because someone with those qualifications will be a. very demanding as a tenant b. in a temporary situation (either corporate placement, or someone gathering their down payment and/or figuring out things, areas, schools, etc. before c. moving into their own residence. Thus creating frequent vacancies, with the associated expensive make-ready operations.A-class might make good investments due to high appreciation (but counting on that is closer to speculation than investment), but they will be lousy cashflow rentals, even when paid off.
• Nice properties attract nice tenants (at least in theory, or at least nicer tenants). You should tailor your expectations in line with the property class rental you are offering and the tenant pool it’s likely to attract. What we desire as the ideal tenant might be different from what is a good tenant for the type of property you have and might be different from how it’s expressed in your rental criteria and what flexibility you are willing to accept.More than that, a property of a different class than its neighborhood will have trouble attracting matching tenants - a reason not to over-remodel a property above its neighborhood class/comparables. [FYI - We tested this with one of our rentals, made too nice for the surrounding neighborhood, and while having no problem attracting visitors due to excellent photos and marketing, many declined to apply after seeing the neighbors and street, and a couple even didn’t stop by - the property was showing as an A- class in marketing and in person while being in a C+ blue-collar neighborhood. Thank God for good schools that saved our behinds in this case].

So, back to the first question - are you looking for a residence or for a investment rental?  A $600k 4-bed, 3-bath is a fancy residence around here and a mediocre investment property.