Is Austin 78745 a good investment?

[Anthony Heidenreich]

We're looking at buying a 3/2 in the 78745 zip code, but the numbers are really tight.  Are other people investing in that area?  If not, is there a good area in Austin to invest?

[David Ivy]

@Anthony Heidenreich

I assume you're talking about cash flow being tight when putting 20% down. As @Danny Webber said, numbers on all SFR properties are tight in the immediate Austin metro area. I also second Danny's warning about "buying cash flow" with a large down payment.

Why are the numbers tight? That has a complicated answer. But in short, homes in 78745 are desirably well-located for access to Central Austin. You can also still find many decent homes in that area selling below the median for Austin. Moreover, much of 78745 is already developed to its current highest and best use with limited opportunities to significantly increase affordable housing supply. So, you have a combination of good location, "affordability," and limited supply. This all leads to a chart like the one below showing the median sales price of SFR properties in 78745:

If you ignore this when evaluating an opportunity in 78745, you're only seeing a portion of the whole picture. You will understandingly say, "I just don't get it. The rental numbers don't work on these properties." That's similar to something like, "I just don't get it. You can invest in Ford and get a predictable 7% dividend yield, but Tesla stock doesn't offer any cash flow." People don't invest in Tesla for cash flow; they have another objective. SFR properties 78745 area are currently growth/appreciation investments. People who buy them--who know what they're doing--know this and are taking a calculated risk on the continuing growth story of Austin and 78745.

SFR rents in 78745 have show growth over the the same time period as sales prices, but in a much more muted fashion. In fact, SFR rents there have been flat since 2016:

If cash flow is your primary goal, you need to look at other markets. I hope this helps!