I'm a first time investor that fell in love with Austin, ironically, by getting quarantined there for 1/2 of 2020. I was well aware of the growth over the past 10 years, but when Joe Rogan + the entire LA comedy scene, Oracle, Tesla, etc., came on board, I understood that it was a rocketship that I wanted to be be on. Frankly, it strikes me as the most significant migration I've witnessed in my adult life, reminiscent of the Bay Area and even NYC in the the 2.5 decades prior (before I had an income to participate in them :) )

In particular, I think that the migration of both business and culture will result in a very sticky mix that may even exceed projected population growth numbers, which are already on track to double over the next 20 years.

Capital

Originally, I was going to invest alone, but I've since joined forces with 2 friends.

Together, we're prepared to deploy ~$300k and have discussed raising silent money if the deal(s) justify it.

We would certainly prefer to see cashflow, but are fine breaking even for 1-2 years in exchange for what we expect to be obscene growth - 30-40% over the next few years by most accounts. None of us need the money back too soon and are looking for the highest growth, lowest risk move with our cash. We're looking for a primarily financial deal and want to avoid heavy renovation projects as much as possible. That said, I'm learning that being willing to do any work may be a competitive edge over some investors, so light touch ups may still be on the table.

Potential Theses

I once met a REIT billionaire who told me "the #1 thing I look for is is limited supply and for demand to keep going up." He pointed to things like the Magnificent Mile in Chicago, Abbot Kinney in Venice, CA, Bedford Ave, Brooklyn, etc.

My first investment thesis was this idea squared.

1. If ATX as a whole is limited supply and demand continues to go up city-wide - then we can amplify this effect exponentially by taking the *most* limited areas where demand will keep going up. Therefore, we should only look within ~2 block radius of E 6th St, South Congress and any other "hot spots." Don't veer into adjacent neighborhoods and give up this supply constraint.

Thesis #2 was intro'd to me via YouTube

2. ATX is already inflated, so less upside (?). Instead, look for markets that are seeing 2nd-order effects of the ATX boom (e.g. Kyle, Georgetown, San Marcos, Jarrell, etc.) to take advantage of their earlier stage of inflation, while remaining exposed to the same upside as new, high-paid ATX migrants search for better deals outside of town.

A 3rd, hybrid thesis would be something like

3. The 80/20 of austin's upside and the scarcity is the word "Austin" on the address. Look at every neighborhood, even the ones you've never heard of, as great options (assuming low crime). Don't worry about buying the "scarecest" part of the city, as long as you're buying the city itself.

Questions

-Is my general outlook on ATX valid, or am I drowning in confirmation bias? Are there easier markets where potentially returns are just as attractive?
-Which thesis sounds like it'll produce higher ROI?
-Is my first thesis valid and only bound by coming up with the correct amount of cash, or does my "compounded scarcity" logic not standup to reality?
-What super-hot areas should I know about that aren't SoCo, S 1st & E 6th? I only know about these areas because they're where I lived. I'm sure there are others that I'm oblivious to.
-The secondary markets (Thesis #2) have 70%+ home ownership and generally have less of a culture of renting. I've heard great things about some almost-rural surrounding towns, but as a city boy, I don't imagine there's a lot of house renting in <50k population towns without universities or military. Am I way off? Will we be exposed to higher vacancy risk, or can we assume that the population & median income growth will take care of us in this regard?
-Are there other super strong theses/approaches we should be looking for to take advantage of this market?
-Do we have an edge by being willing to deploy more capital than the competition who seem primarily interested in 180-320k properties? Does this give us access to a higher level of deals, or are the aforementioned investors correct in their assessment and we have no edge swinging a bigger bat?
-Should we be looking to acquire a stable of SFHs or multi-fam? We were hoping to see some economies of scale with 3-4-5plexes, but a) there appears to be 0 inventory on the market b) inventory is especially non-existent in the areas we're looking at. Should we consider other property types altogether?
-Where else can we achieve an "edge" in this ultra competitive market? Seems like access to deals makes or breaks you in ATX. Are there any particularly effective strategies besides "let the agents know you're looking and keep an eye on zillow" that you think would work well in this market?

If you've gotten this far, huge, huge, huge thanks in advance. I've mentored a lot of people in areas of business that I actually understand and have produced results in. This isn't one of them. I appreciate any time you spend sharing your hard-earned wisdom with me.

Austin, Texas

7 Votes