In December, the City of Austin approved Phase 1 of The HOME Initiative delivering a preliminary set of short but significant changes to the land development code. Aiming to address growing affordability concerns, this initiative marks a leap towards progressive development in Austin. Additionally, this groundbreaking initiative will have significant implications for the Austin real estate market; investors and developers alike who take advantage of these new opportunities quickly will be well positioned for successful ventures.
What is Phase 1 of Austin’s HOME Initiative?
The HOME Initiative, Home Options for Middle-Income Empowerment, aims to address the pressing issue of housing affordability in Austin. With the passing of Phase 1, several changes have been introduced to the building code that are set to shape the city's architectural landscape. These modifications to the building code were approved in December, and the City started accepting plans incorporating elements of the HOME Initiative this month. The changes approved in Phase 1 are applicable for single family Austin lots zoned SF1, SF2, and SF3. Notable changes approved in Phase 1 of the HOME Initiative include:
New Opportunities for Austin Developers and Investors
The passing of Phase 1 has opened up a myriad of opportunities for those seeking to invest in Austin's real estate market. One of the most significant advantages is the new ability to build three dwelling units on one lot. As anyone who has invested in Austin knows, land costs are one of the most substantial costs in any Austin area development project. However, developers now can maximize their investment by building denser projects. Economies of scale and lower relative acquisition costs will make developing single family lots more lucrative.
Back in 2015, Austin modified the Accessory Dwelling Unit (ADU) regulations easing the ability to build two units on one lot. Savvy developers who took advantage of this were then able to procure lots in which they could either remodel an existing structure and build a new ADU, or build two new structures on one lot. Oftentimes, developers would legally create a “condo regime” thus enabling the sale of each structure independently.
With the passing of Phase 1 of the HOME Initiative, the same opportunity exists- but now, you can build three dwelling units on one lot. Furthermore, the somewhat arbitrary 1,100 square foot maximum size for an ADU is now removed. With the home initiative, total development size is more holistically accounted for based on lot size and site conditions. Developments will have to be built in accordance with floor to area (FAR) ratio requirements and impervious coverage rules, as well as take into account existing setbacks and tree regulations among other building code requirements. The initiative does have some maximums for the square footage of each dwelling unit, but these maximums are substantially larger than what was allowed with the ADU ordinance. Furthermore, the initiative actually encourages the creation of three units on one lot by increasing the FAR for three unit developments.
Implications for Austin Real Estate Investors
Investors eyeing the rental market in Austin will find the effects of The HOME Initiative appealing too. The potential for increased density as well as larger homes on one lot presents a more attractive rental mix with the potential for higher gross rents than is currently attainable. For a while, long-term rentals have not made great economic sense from a cash flow perspective in the Austin market. However, properties developed under the Home Initiative guidelines have a much higher likelihood of delivering an attractive return to investors.
The passing of Phase 1 of The HOME Initiative has set the stage for a transformative period in Austin's real estate market. While the focus of the initiative is in increasing affordability; the initiative will also enhance the city's livability and create exciting opportunities for investors and developers. As Austin continues to evolve, those who seize the potential presented by The HOME Initiative stand to benefit from both financial returns and the satisfaction of contributing to a more sustainable city.
A Year of Adjustment in Austin's Housing Market
The year 2023 marked a significant shift in the Austin real estate market. According to the comprehensive Annual Market Report by the Austin Board of REALTORS®, we witnessed notable changes in both pricing and sales volume that reflect a broader trend in the housing market. Interestingly, the majority of these stats fail to show the full picture. In 2023, many sales involved seller concessions that effectively lowered the sales price, yet these metrics are not accounted for in median sales price figures.
Key Market Changes in the Austin-Round Rock MSA
A critical figure to highlight is the 10.2% decrease in the median home price, which settled at $450,000 in 2023. This adjustment in pricing is significant, considering the rapid price increases in previous years. Alongside this, the sales volume experienced a modest decline of 3%, culminating in a total of 30,353 sales across the MSA. These figures indicate a cooling market, aligning with broader economic trends and changes in buyer behavior.
Inside the City Limits: A Closer Look at Austin Proper
Focusing on Austin proper, the trends showed a more pronounced shift. The total sales for 2023 saw a near 15% decline, amounting to 8,554 total sales. This reduction in sales volume was more significant than in the wider MSA, suggesting a unique set of factors at play within the city limits. Moreover, the median sales price in Austin proper also witnessed an 8.2% decrease, bringing it to $540,000 for residential homes. This decrease is noteworthy, considering the city's previously consistent track record of rising property values.
Understanding the 2023 Market Dynamics
Several factors contributed to these market changes in 2023. Rising interest rates, economic uncertainties, and a shift in buyer priorities played a role in this cooling phase. Additionally, the market seems to be correcting itself after the unprecedented growth spurred by the pandemic years. These adjustments are essential for the long-term health and sustainability of the real estate market in Austin.
What Does This Mean for Buyers and Sellers?
For potential buyers, the current market presents the most favorable conditions we have seen in recent years. The softened prices and decreased competition offer a window of opportunity, especially for first-time buyers who were previously priced out of the market. However, it’s unclear how long this window will last. Anecdotally, it feels like the market is heating up and mortgage application rates have been increasing over the past few months- an indicator of buyer confidence returning.
Sellers, on the other hand, face a more challenging environment. If you bought your home in the past two years, it’s unlikely that you will be able to sell for a profit today. If you purchased prior to 2019, conditions are much more favorable. If you are considering selling, you may want to consider alternative options. However, if you do determine you need to sell, the need for strategic pricing and effective marketing is more critical than ever to attract discerning buyers in a market that has shifted from its previous seller-friendly dynamics.
Looking Ahead: The Future of Austin's Real Estate Market
As we move forward, the Austin real estate market is expected to stabilize, reflecting more traditional market dynamics. Population growth has always driven Austin’s real estate market, and Austin remains an attractive place to live due to its vibrant culture, thriving economy, and quality of life. Within the city limits, Austin’s recent passing of the first phase of the Home Initiative should bring great opportunities for investors to capitalize on developing multi-unit properties and buyers to benefit from lower entry-cost housing. As always, Austin continues to be a dynamic and desirable location, and its real estate market remains a key indicator of its overall economic health and resilience. We foresee 2023 to be a blip on the charts in the long term - with Austin home prices continuing to appreciate in order to keep up with buyer demand.
Have you noticed all the cranes taking over the Austin skyline lately? It's no surprise that Austin has been experiencing significant growth in recent years, and while construction cranes dotting the skyline are nothing new, the sheer volume of cranes today is overwhelming. This begs the question, what are all of the cranes building? There are a diverse array of residential and commercial projects breaking ground in downtown Austin. Here’s a summary of a few of the biggest projects sprouting up on the Austin skyline.
98 Red River St.
The Waterline is a massive 74 floor building going up along the banks of Town Lake. Ultimately, it will feature apartments, retail space, a 251 room hotel, and ground floor restaurants. It’s set to be the tallest building in all of Texas.
2) The Travis
80 Red River St.
This development will ultimately consist of two towers in the Rainey Street District. The first tower will have 50 floors containing 423 apartments, and it appears some type of ground-level retail space. The second tower, slated for completion in 2025 will be even taller with 60 floors housing 220 condos and a 200 room hotel.
3) The Modern Austin Residences
610 Davis St.
Standing at 56 stories, this modern condo building will feature 300 units with an array of floor plans from 1 to 5 bedrooms priced from the $600s to $15M. The estimated completion date is projected for late 2024 or early 2025. One unique feature of The Modern is that it will also include 20 affordable housing units.
4) Zilker Point
218 S. Lamar Blvd.
This 96 foot-tall tower just south of the river will have 195,000 square feet of office space as well as 14,000 square feet of ground-floor retail space. Slated for completion in August of 2024, Zilker Point will ultimately feature an expansive rooftop garden with incredible views of downtown Austin, a fitness center, bike storage, and a rotating art gallery.
5) Symphony Square
1104 Sabine St.
The Symphony Square development includes a 32-story apartment tower, The Waller, as well as a 7-story tower of office space. The development should be completed any day now, and the residential units as well as the office spaces will include floor to ceiling windows providing stunning views of Waterloo Park, the Capitol, and the UT campus. The development will also offer an extensive array of amenities including a rooftop deck and lounge, a two-story, indoor-outdoor fitness center with lap pool and yoga room, an indoor-outdoor pet lounge, and a resort-style pool. The residential building also offers reservable private offices and a coworking area with a coffee shop.
The Austin real estate market is always in flux, and January 2023 is no exception. In this post, we'll take a look at the current state of the market, analyze home prices, and discuss the forecast for the Austin housing market in the coming months. Whether you're thinking of buying or selling a home, it's important to stay informed about the local real estate market.
Home Prices in Austin
The median home price in Austin has been rising year over year in the greater Austin area, and 2022 was no exception. Last year, the median sales price in the Austin-Round Rock MSA rose 11.4% to $503,000. In the city of Austin, we saw a 10.3% year over year increase to $590,000. However, this does not show the true picture. We are definitely shifting towards a buyer’s market. Prices are softening, and we are seeing sellers contributing towards buyer’s closing costs quite frequently. This strategy is not reported in the stats, but effectively lowers the price of a home.
Real Estate Market Forecast for Austin
The Austin housing market has been relatively stable over the past few years, and that is expected to continue in the near future. However, rising interest rates are already significantly affecting the number of buyers in the Austin market. When interest rates rise, buyers lose purchasing power. The buyers that could afford a $500,000 home in 2021 now may only be able to afford a $350,000 home, and other buyers are simply pushed out of the market. That being said, Austin is uniquely positioned as a job-magnet with more and more companies relocating here every day. These companies bring jobs, and those people need places to live. The influx of new Austinites will likely support housing demand, thus curbing the Austin real estate market from a drastic decline in home prices.
Final Thoughts on the austin market
Overall, the Austin real estate market is showing signs of stability after a wild past few years. The market is shifting in favor of buyers so if you are looking to move or invest, it’s a great time. Conversely, if you don’t have to sell, I would hold off on listing your Austin property at this time. Real estate is hyper-local and incredibly time-sensitive. It's important to stay informed about the local real estate market so that you can make informed decisions. Contact us if you have questions about your unique situation!
As interest rates continue to rise, the housing market is certainly cooling off compared to last year. While these high interest rates are turning off many buyers, it’s actually an ideal time to purchase real estate. There’s more inventory available now than there has been at any point in the last decade, prices are dropping, and buyers now have the upper hand when it comes to negotiating any contract terms. However, if you don’t have ample cash on hand you may still be concerned about the affordability of purchasing a home. While the novice buyer is intimidated by the current market, you can actually take advantage of this incredible buyer’s market with a variety of creative purchasing strategies.
Every lender is shouting from the mountains right now about buydowns. The ability to buy down your interest rate is nothing new, you could always pay extra money upfront to buy down your interest rate. However, now that sellers are getting desperate, it’s more and more common to negotiate for the seller to incur the expense of lowering the interest rate. This seller expense comes in the form of a monetary concession to the buyer. You can use this concession to purchase a standard rate buydown for the life of the loan or what lenders call a 2-1 buydown. A 2-1 buydown allows the borrower to reduce the interest rate by two whole points for the first year of the loan and one point for the second year of the loan. In year three, the interest rate returns to the original rate. You can even couple this strategy with a standard buydown. For example, if your quoted interest rate is 7%, you could buy it down to 6.5% and then do a 2-1 buydown. In this scenario your interest rate would be 4.5% for the first year, 5.5% for the second year and 6.5% for the third year and each subsequent year. Lenders are even offering 3-2-1 buydowns now that allow you to lower the interest rate for the first three years of the loan. Depending on how long you want to live in the home, and how you foresee interest rates trending in the future you can choose the best option for you. It is worth noting that these 2-1 and 3-2-1 buydowns can only be used on primary and second home loans. Investment purchases are ineligible.
If a seller owns their property outright, they can offer seller financing to prospective buyers. The seller dictates their qualifications for the buyer. They may require a certain credit score or want to see your bank statements, but ultimately the seller determines if they want to loan to you or not. In this scenario, everything from the interest rate to the length of the loan is negotiated between the buyer and the seller. This is a great opportunity to purchase a home with a much lower interest rate, and it’s also great for individuals who are self-employed or may not look as good on paper to a traditional lender. Savvy sellers are offering seller financing up front, but if you find a property where you know the seller doesn’t have a loan or their balance is relatively low, you can suggest seller financing too. Ultimately, the buyers and sellers goals will dictate the terms and conditions of the loan. You can expect to discuss the down payment, interest rate, length of the loan, first payment date, whether taxes and insurance will be escrowed or not, and penalties when negotiating seller financing terms.
Even if the seller does not own their home outright, they may still be able to offer a form of seller financing. A wrap-around loan involves two home loans, the original loan between the seller and the bank and a new loan between the seller and the buyer. Imagine a seller purchased their home 4 years ago for $450,000 at an interest rate of 3%. They agree to sell their home for $600,000 and offer an interest rate of 5%. The seller will receive an initial payout at the time of closing in the form of the buyer's down payment and then will make money on the spread between the two loans each month. The exact terms of this arrangement will be spelled out in a promissory note, and the buyer and seller may choose to use a servicing company to simplify the relationship moving forward. Each month the buyer makes a payment to the servicing company. The servicing company pays the seller’s mortgage and then disburses the remaining funds to the seller. Wrap-around loans can be risky, but they can also be incredibly advantageous to both buyers and sellers. If you’re considering purchasing a home which involves a wrap-around loan, it’s prudent to hire an experienced real estate attorney to review the contract terms and legal documents.
While it is rare to see in residential home loans, there are some loans that are assumable. This means that you can assume the sellers current loan terms. If a seller financed their home in the past few years, this means you may be able to assume a loan with an interest rate in the low 3s! Sellers with an assumable loan should be clearly advertising this unique selling feature so keep an eye out for it in listing remarks. If you find a property you want to purchase with an assumable loan you most likely will still need to qualify with the original lender, but if you do you could get a loan with an interest rate that’s half of the current rate. When you assume the loan, it’s likely that there will be a substantial difference between the remaining loan amount and the purchase price. This means you will have to bring a higher down payment to the table or consider a second loan for the difference. A second loan would need to be approved by the original lender. Sure, there’s lots of technicalities when it comes to the feasibility of a loan assumption, but they offer a great opportunity too. You can get an incredibly low interest rate, and you’ll likely pay less in fees. While many banks charge loan assumption fees, they’re generally lower than an origination fee.
Now is a great time to purchase real estate if you are creative with your financing strategy. It’s important to have an experienced professional to guide you through these various options, and help you identify the best ones for your unique situation. If you need an experienced REALTOR in Austin, Texas, contact us today.
The Austin real estate market looks a lot different than it did just a few months ago. Where buyer’s once had to offer over asking price, free seller leasebacks, and stipulations to name their first born child after the seller just to purchase a home we are now seeing something very drastic. Sellers are, more times than not, getting one offer rather than twenty-six, offering monetary concessions to the buyer, and even accepting offers lower than their asking price. This does not imply the greater Austin real estate market is imploding; rather, the market is simply shifting.
This shift is predominantly due to two main factors - rising interest rates and increased supply. Earlier this year, mortgage rates were around 3.5%. Now, they are around 6%, and I wouldn’t expect them to go down in the near future. Let’s break that down a little. Imagine you are buying a $600,000 house with 20% down.
Interest Rate: 3.5%
Monthly Payment (before taxes and insurance): $2,155.41
Interest Rate: 6%
Monthly Payment (before taxes and insurance):$2,877.84
That 2.5% rise in interest rates, resulted in an increase of $722.43 to a buyer’s monthly payment. As you can see from this example, rising interest rates made home ownership become less affordable on an on-going basis, and less attainable since fewer people could qualify for loans based on a lower debt to income ratio (DTI). Consequently the Austin real estate market, and frankly the entire U.S. market lost buyers.
Simple economic theories tell us that if demand decreases, prices should too. However, many sellers were stuck in the mindset of earlier this year, expecting their home to sell fast and for top dollar. Unfortunately, it didn’t and they haven’t adjusted the price or made serious changes so it’s still sitting on the market. Now, Jack and Diane down the street have listed their house, and there’s a for sale sign in Jimmy’s yard too. This is happening at scale throughout the Austin metro. We are seeing way more available inventory in the market than we have seen in years.
Last month, we had 9,045 active homes for sale in the Austin-Round Rock MSA. In March of 2022, that figure was 1,731. I honestly had to go back and check my work after pulling these stats because it’s that much of a shocker! Inventory has been steadily rising right in line with ever growing interest rates. However, in the grand scheme of things the Austin home inventory isn’t that high. When a market has six months of supply that is generally referred to as a balanced market in real estate. Anything above six months is a buyer’s market and below is a seller’s market. In the Austin-Round Rock MSA we currently have 2.9 months of inventory.
While we may not technically be in a buyer’s market, it’s sure feeling like one. I’ve been negotiating crazy terms for my buyer clients, and I no longer have to rush to show a home the minute it hits the market out of fear it will be gone tomorrow. If you can stomach the short term pain of these interest rates or you can afford to pay cash for a home, it’s not a bad time to purchase real estate in Austin. Prices are dropping, and it’s a ripe time to get a good deal.
If you’re considering selling your airbnb investment property, there are quite a few things you should consider. Listing your Austin area vacation rental for sale is far more complex than listing your personal home for sale, and is entirely different than listing a long term rental for sale too. You’re going to need to think about your market seasonality, existing bookings, furnishings and much more. Here are five things to consider before selling your Austin area vacation rental investment property.
1. Timing the Sale
The most popular days for buyers to tour properties for sale and the most frequently occupied days for an airbnb both fall on the weekends! Naturally, this creates a bit of a predicament. If you want to sell your active short term rental you’ll want to ensure prospective buyers can actually get into the home to see it! As you can imagine, most airbnb guests would not welcome this inconvenience. Thus, you should likely block off your calendar for a few weeks following the date you list the vacation rental for sale. I can already hear your anxiety, “Block the calendar!”, she says, “We can’t do that, we will lose bookings and revenue!” Yes, you may. However, if your calendar is fully booked and you list your home for sale, you will sacrifice revenue on the sale.
See, the thing is, when your home just sits on the market, buyers start to worry. They don’t consider the fact that the only time for a prospective buyer to see your home was during turnover last Tuesday. All they see is that your home has been on the market for 20+ days, and that will cost you far more than a few lost bookings. The best thing to do when considering the timing of your airbnb sale is to compare the seasonality of the sales market with the seasonality for your short term rental. March is a great time to list your Austin property for sale, BUT this is SXSW season in the short-term game and obviously not the time to block off the calendar! Identify a month where sacrificing a few stays won’t kill you, and median sales prices are historically high.
2. What Will Convey with Your Airbnb Sale
When listing your Austin area vacation rental you are selling real estate, but you are also selling a whole lot more! You’re selling all the furnishings, the business, and the property itself. Do you know what all is even in the house anymore? Do you have a detailed inventory list? Do you have personal items you don’t want to convey? You need to get a full grasp on all of these things before you list the vacation home for sale. What about your short term rental listing? Do you plan to transfer this to a new owner? Can you transfer this to a new owner? Will you give a new owner all of your previously earned reviews, maid connections, contractor relationships? These are all questions you will want to ask yourself.
3. Rental History and Performance
If you’re selling your vacation rental, you will most likely be advertising your property to savvy investors who will want to know what kind of ROI they can expect from your home. Thus, you have to know your numbers! Do you have a detailed profit and loss statement you can provide? If you don’t, can you make one? You need to make it as easy as possible for an investor to see the income potential in your property. Did you block the calendar for 2 months so Aunt Nancy could stay there last May? You’ll want to make note of that fact, and show what revenue you could have brought in if Aunt Nancy wasn’t such a freeloader. Did you not know about variable pricing until two months ago? Make note of that too. Show investors how with a few tweaks, your property could be a profit house!
4. Marketing Your STR Effectively
While in no way is simply listing your property on the MLS an effective marketing strategy for any real estate sale, it’s particularly ineffective when you are marketing the sale of an airbnb. Your STR should be listed on the MLS, but it also needs to be marketed to those most likely to buy it- investors searching for a vacation rental investment opportunity. There are plenty of platforms out there for just that! These should be utilized, and networking with other local Austin airbnb owners and managers is also a great way to get the word out about your airbnb for sale. Effective marketing for a vacation rental home includes advertising the property, the airbnb listing, the furnishings, and the revenue! When you get the word out about all of these features to the right people in the right way, your vacation rental will sell quickly!
5. Choosing the Right Person to Sell Your Vacation Rental
Given that selling a vacation rental property is drastically different from selling a regular home, you need an experienced real estate agent who understands the process for selling your Austin airbnb. A thorough, knowledgeable real estate agent in the STR space will ask you about many of the points above during your very first interaction. They will know where and how to market your vacation rental, and they will have the technical experience to make sure all the details are appropriately addressed contractually.
If you’re considering selling your vacation rental in the greater Austin area, the E-Rae Realty team has the skills and experience to assist you with your sale.
In case you missed it, all of the counties in the greater Austin area have now released appraised values for 2022, and they’re high- like super, super high. For many homeowners the appraised value is more than double last year’s appraised value. Williamson County estimates a 40% bump in value, Hays County jumped 44.5%, and Travis County saw a whopping 56% increase in value. One of my personal properties doubled in appraised value, and these rising appraised values have significant consequences for homeowners.
Let’s say your property was valued at $300,000 last year and your property tax rate is 2.21. Your property taxes would be $6,630 total or $552.50/month. If your appraised value climbs to $600,000 your property taxes are now $1,105/month. That means you will have to pay an additional $552.50/month! Now, if you have any exemptions on your property, this brutal scenario may not be so bad. If a home is a primary residence, you can have a homestead exemption that protects you in two ways. First, your appraised value can only be increased by 10%, and you will benefit from a $25,000 exemption on your property tax valuation for school district taxing entities, and other taxing units may also offer a separate exemption of up to 20% of the total value.
This year, a new law went into effect that allows homeowners to file their homestead exemption immediately upon closing on a new primary residence. However, the exemption will not kick in until the following year. Furthermore, the 10% annual cap on increasing your appraised value will not go into effect until you have owner-occupied the home for a full tax year. For example, let’s say you bought a new home yesterday. You can file for a homestead exemption right away. However, you will not benefit from the 10% cap until 2024, after you’ve owner occupied the home for a full tax year starting Jan 1, 2023.
Furthermore, in previous years, most counties would reduce your homes appraised value to the sales price of the home if you purchased the property in the past year. This was an easy protest where you would simply provide a copy of the settlement statement, and they would automatically reduce your appraised value to the sales price. Unfortunately, that is no longer the case. They are doing a time adjustment for the appreciation that occurred from the closing date to the end of year, I heard this was around 1% per year, but I have not been able to confirm with a reputable source.
If you haven’t checked your mail in a while, go ahead and make yourself a stiff drink, before you take a look at your appraised value. You can find links to all the county appraisal district sites below.
In the past, you were able to fight your appraised value by providing relevant recent sales as comparables to illustrate your home's appraised value was not accurate. These days it’s unlikely you will find too many comps to support a reduced value. However, you can still protest your valuation, and illustrate any factors that reduce your homes desirability on the open market and thus the appraised value. Feel free to reach out for comps if you want to tackle this yourself or you can contact a company to do so on your behalf, 5 Stone and Texas Protax are a couple I’d recommend.
If you’re planning to purchase a home in the near future in the greater Austin area, it’s more important than ever to pay attention to a property’s tax rate. Tax rates vary significantly throughout the Austin metro area, and even if appraised values continue to rise, a lower tax rate will mitigate the burn.
In recent years, Austin has continuously ranked as one of the top places to invest in real estate. When assessing a market’s potential, analysts look at an area’s job growth, average days on market, historical rental rates, and median household income growth along with other factors.
Why invest in Austin?
Between May of 2020 and May of 2021, Austin experienced 8.45% year-over-year job growth. Tesla, Samsung and Apple all made the headlines in the last year with announcements for expansions/moves in the Austin market. Those companies alone may account for 20k+ new jobs in the Austin area, but there are tons of smaller companies moving to the area too; those small companies relocating to Austin in large numbers will have significant effects on the city’s population.
More high paying jobs lead to more well-qualified buyers, and when demand increases without a significant change in supply, housing prices rise. In February of 2022, the latest official stats available for the Austin- Round Rock MSA, median sales price was up 27% percent year-over-year. We haven’t had close to a balanced market in years. Our absorption rate (essentially how quickly the housing stock would dry up if no new listings came to market) was about two weeks in February, and I’m pretty sure it’s even less now. According to ApartmentLists.com, Austin rents are up 24.8% compared to last year; from 2018 to 2019, the median household income for the Austin-Round Rock MSA rose 5.4%. Austin literally checks all the boxes analysts look for when evaluating a market area.
How can you make the most money investing in Austin?
There are various strategies when it comes to investing in any real estate market. Ultimately, you need to decide if you are looking to see the green now or you are ok with delayed gratification. If you’re looking for a property that cash flows well, you may sacrifice long term appreciation potential. If a home has strong potential for significant appreciation you may not get short term cash flow. You also need to consider how much effort you’re willing to put into the property. There’s a lot more opportunity for strong cash flow if you’re willing to get your hands dirty. If you want turnkey, strong cash flow is unlikely.
If you want the holy grail of real estate investing, short term cash flow and long term appreciation, here are my tips to make the most green in the ATX real estate scene.
MAKE IT MULTI-FAMILY
There are 44 active multi-family properties for sale in the Austin MLS. One of these is in Whitney, TX north of Waco and a handful of others are similarly nowhere near where anyone considers Austin. This means it’s slim pickings if you want an existing multi-unit property. There are many “single-family” homes that have a second home on the lot that are listed in the MLS as single-family homes. Some of these options may have an entire auxiliary dwelling unit on the property. Others may have a guest house without a kitchen or a detached office. Is there a way to turn this structure into a habitable dwelling unit? Consider converting an existing property into a multi-unit property. Look for properties with detached garages that could be rehabbed to livable dwelling units. If it already has plumbing and electrical it will be even easier. Look at homes with large lots where you could build an accessory dwelling unit or park a tiny home on the lot. Lastly, look for homes where the floor plan naturally lends itself to a conversion which would result in two+ attached separate dwelling units. A game room on the side of the home with an attached bath and an exterior door could work or you may be able to separate two levels so that each floor is a separate unit. More units = more rental income.
CONSIDER A FURNISHED RENTAL
If you can utilize a property as a short term rental you will oftentimes be able to get the biggest bang for your buck in the Austin market. It will need to be furnished and managed, but cash flow will be significantly greater than that of a long term rental. While short term rental feasibility depends on various municipal regulations, anything longer than 30 days is usually not subject to such regulation. These “mid-term” rentals of furnished properties can be quite lucrative. They usually will not bring in as much as a true STR, but they will deliver more monthly rental revenue than a traditional long-term rental. With the growing population in the Austin area, more and more people are looking for these in-between options while they are searching for a new home or waiting for their builder to complete their residence. Furthermore, widespread “work from home” employment has opened the door for many to consider a more nomadic lifestyle, hopping around from one city to the next for a monthly stay.
GET CREATIVE WITH THE LAND
A popular strategy in Austin is to buy a property, create two homes on that lot and then sell the properties separately. This strategy is made possible by the accessory dwelling unit laws in the City of Austin, and the condo regime which allows an owner to legally separate the two homes by creating a two-unit condo. You can take an existing home, rehab it, and then build another unit behind it. Alternatively, you can take a vacant lot and build two units. You could then sell one unit and rent the other, or rent out both units. You can also look for homes on large lots. If the numbers don’t work now, perhaps you could subdivide the lot and retain the home on a smaller lot as a rental. Then, you could sell the lot in order to recoup some of your acquisition costs, and suddenly it’s a cash-flow positive property. Perhaps there’s a large vacant lot with a high price tag. Since its cost is somewhat prohibitive there are less buyers. Could you subdivide it into smaller parcels and deliver a product that buyers are eager to purchase? You could likely cover your costs and still retain a lot or two that you could just sit on and wait for them to appreciate.
If you’re looking to make the most green investing in the Austin real estate market, you need to think outside the box. Rarely will you find a turn-key cash flowing property in an area prime for exceptional appreciation. However, if you understand the regulations (or have a trusted professional by your side who does), and are willing to put in a little work, there are plenty of ways to get your pot of gold in the Austin real estate market. If you’re looking for a creative investment play in the Austin market, I’d be happy to guide you through the process. Contact me today.
Multiple offers are back in the Austin metro area. In fact, every home I have written an offer on so far this year has been in a multiple offer situation. So, how do you make your offer stand out to the seller? While price is oftentimes an important component when a seller is comparing multiple offers, it's not the only factor that affects which offer they ultimately choose. The strength of the offer, the terms that align best with the seller’s goals, and facts about you (the buyer) can also sway the seller’s decision. Aside from offering the seller a higher sales price, here are some ways you can put your best foot forward when competing in a multiple offer situation.
1. Find Out What Terms the Seller Wants
Is the home vacant? If so, the sellers probably value a quick close. If it’s occupied, they may want a lease back or a closing date that’s far enough in the future that they have time to find a new home. Is there a sentimental chandelier that they want excluded on the contract? Does their Aunt Cheryl work at Best Title, and they really want to close with her? There are all sorts of things that a seller may prefer, but you’ll never know what these items are unless you ask. Find out what the seller prefers and do your best to craft your offer to match.
2. Shorten Contingencies
Anytime where the buyer has a potential “out” in the contract is a contingency clause. By “out” I mean the buyer can back out of the contract, and get their earnest money back. There are a plethora of these in the Texas real estate contract, but some of the most common ones are: the option period, the number of days in the third party financing addendum, and the number of days to review the seller’s disclosure. If there are a lot of days in any one of these, i.e. 21 days to obtain full buyer pre-approval, it’s a risk for the seller. If they accept your offer, they could take it off the market for twenty days, and then you could inform them you weren’t unable to get financing approval and you would get your earnest money back. They’ll incur carrying costs and lose time on the market when qualified buyers could have been looking at their home. Minimize all of these contingencies in order to entice the seller to accept your offer.
3. Increase the Earnest Money or Option Money
Increasing the earnest money is one of my favorite strategies to make an offer more appealing to sellers. In our market, most sellers expect to see a minimum of 1% earnest money. Consider depositing twice that or, if you can afford it, ten times that. The earnest money is held in escrow and ultimately applied to the sales price if you go through with it. If for some reason you don’t go through with the purchase, you will get this money back so long as you comply with the contract terms. Increasing the option money is a bit riskier. If you back out of the contract, you won’t get this money back. However, if you are fairly confident in the condition of the home, and you aren’t concerned about potentially losing it, increase the option money too. This will show your serious, and willing to put your money where your mouth is. If you go through with the purchase the option money is still applied to the sales price.
4. Pay for Typical Seller Expenses
Traditionally, the owner's title policy was most often a seller expense in the Austin market. In recent years, this has not always been the case. In an effort to stand out amongst a pool of prospective buyers, more and more buyers are offering to pay for the owner’s title policy. Title policy rates are standard in the state and you should look up how much the policy will cost, before offering to pay for it. If the home is in an HOA, you can offer to pay for the resale certificate and HOA documents. If a survey is needed, offer to pay for this too.
5. Add a Letter?
While the practice of writing a love letter to the sellers is not new, it has become controversial in recent years. These letters often allude to some aspects of the buyers' lives that could potentially put the sellers in a position of violating fair housing laws. Any letter that reveals one of the seven protected classes in the Fair Housing Act (race, color, religion, sex, disability, familial status, or national origin) could come back to harm you rather than help you. BUT, if you can avoid revealing any of these items about yourself, a letter to the sellers could help. I’ve heard of two cases recently in which the sellers chose an offer that was not the highest because they valued the fact that the buyers were going to be living in the home.
Buying a home in the Austin metro area right now is tricky, but it’s not impossible. Having a pro by your side who knows all the strategies is key to your success. If you’re thinking about buying a home in the greater Austin area, contact me today.
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