Austin Market Data - Need Feedback!

[Dave Meyer]

Hey Everyone, 

We're testing out some new live market data at BiggerPockets, and our first post uses Austin as an example. If you have a minute I'd really appreciate if you could take a look at this post and tell us what you think. 

https://www.biggerpockets.com/...

What market data is important to you? 

Is this a tool you would use frequently? 

What is good about it?  What is it missing?

Please share your thoughts! 

[Sam Smith]

Hi Dave, 

I like the article overall! I lived in Austin for several years and analyzed a bunch of properties there, but ended up deciding to invest out of state for cash flow when the pandemic hit and put things up in the air. As I analyzed the area, I used a few metrics that you might want to consider.

1. I analyzed the projected geographic growth of the city. For Austin in particular, the city is growing in every directions, but more south than anything else and will probably end up creating a metroplex with San Antonio like we have with Dallas & Forth Worth. You probably went with the Austin-Round Rock metropolitan statistical area to choose which zip codes to display, but as you build out this and future city models I think it would be worth considering surrounding zip codes as well. For Austin in particular, it's worth including Dripping Springs to the west of town, Bastrop to the East, and as far south as New Braunfels. New Braunfels is expecially enticing since it sits between Austin and San Antonio. If you live in that town you can commute to either city, which means you can work in either one. As a landlord, this more than doubles you number of renters. Plus, the cost of housing along what we call the "I-35 corridor" between Austin and San Antonio 

2. You mentioned that if a landlord gets creative and rents by the room then properties can cash flow. This is not what I found to be the case. After taxes, insurance, vacancies, annual repairs, and putting aside additional cash for long-term capital expenditures like a roof or a hot water heater, you're left with breakeven. So, Austin is a market where you are betting on appreciation.

3. You should probably have a section on risk for these cities. I know it's fun to talk about the positives of investing. We love it, that why we do it. But these type of statistical analyses are just as helpful in identifying areas to avoid, or at least reconsider. Sure, Austin might appreciate another 66% in another 5 years in which case you are fine wherever you buy. However, you should also mention that in Austin it's pretty much a necessity to pay $40-$100k in cash when you buy, even for a primary residence with a 5% down payment. Banks won't loan the full amount to cover the sales price, so buyers need to be prepared to come up with the difference. Is this the best use of your money? If you have to come up with 5x the amount of cash for an investment with little or no cash flow, you better be assured that the market will continue to appreciate at 5x the average. Otherwise, you're better off buying a place with a city with steady growth where you can put in as little cash as possible. That is, if you are comfortable with debt.

4. Another risk you could visualize is macro trends. For Austin, remote work is a big risk factor. A lot of tech companies my friends and I worked for were comfortable with some hybrid work before the pandemic, and that's only accelerated. If the future is going in to work once or twice a week, or even once or twice a month, then the Austin real estate market is in a pickle. People can live in the suburbs of San Antonio, Dallas, Houston, or any other town within the Texas triangle and bite the bullet for their long commutes (which would still be shorter than a lot of commutes in the Northeast). Shoot, if it's only once or twice a month, they could fly in from another city anywhere else in the country, get an airbnb for a few days, and then fly back home. I had a boss that used to do this and it really wasn't too hard for them to manage.

5. You mentioned short term rentals in Austin. If this is an ongoing format you might want to include the costs of short term rental licenses and average cleaning fees in the cities you analyze. I had a neighbor who rented out her place on airbnb in Austin and it was too much of a hassle for her to keep up with the fees and cleaning. She switched to long-term rentals and then eventually sold to invest in an area with more cash flow.

I don't want to go on too long in my response so if you have any questions just let me know and I'd be happy to give more input.

Thanks and good job!

Sam