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.
If you’re looking to invest in Austin, you may be considering purchasing a property to use as a short term rental. Oftentimes, you can earn significantly more renting your property out short term than you can long term. Unfortunately, it has become more and more difficult to find properties you can use as vacation rentals in Austin as the city limits the number of permits available for short term rentals.
The City of Austin classifies short term rentals into 3 categories: STR Type 1, STR Type 2, and STR Type 3. Type 1 refers to primary residences used occasionally for vacation rental purposes. Type 2 refers to non-owner occupied single-family investment properties, and Type 3 refers to multifamily short term rentals. Take a look at this article to learn more about the different types of short term rentals.
The City of Austin is no longer issuing Type 2 permits. So, if you want to purchase a property to use solely as a vacation rental in Austin, you have two options. You can look outside the city limits to find a single family property or you can find a unit in a multi-family building to use as a short-term rental.
If you want to buy a single family home, consider the type of people that would like to procure a short-term rental in the Austin area. Austin has become a very popular wedding destination. Consider looking for homes outside the city limits near wedding venues. Areas like Dripping Springs, Driftwood, and Bee Cave are all outside the city limits of Austin and popular for tourists coming into Austin for weddings or simply for a weekend getaway to check out the breweries/wineries. A home with a pool tends to perform well as a short term rental as well. Guests are willing to stay a little bit further out if they can envision a group get-together with plenty of room to relax and play poolside. A number of tourists also come to Austin to enjoy the lakes. Consider looking at lakefront communities in the Austin ETJ such as Apache Shores, Volente, Hudson Bend, and Cuernavaca.
If you want to purchase a condo to use a short term rental, you will want to make sure the condo allows for short term rentals, and that there are STR Type 3 permits available for the building. Below is a list of downtown condo buildings that have units which have been issued STR Type 3 permits in the past. This list is for informational purposes only, please note that condo regulations can change and that permit availability is not guaranteed.
If you are interested in purchasing a property to use as a short term rental in Austin, contact me today. My background in vacation rental management coupled with my real estate experience is sure to give you the upper hand in procuring a solid vacation rental investment property.
Properties with Accessory Dwelling Unit Potential, Maximizing Your Investment with Two Homes on One Lot in Austin
Accessory dwelling units (ADUs) also referred to as secondary dwelling units, casitas, or granny flats are fully habitable homes that accompany a primary residence on a lot. In Austin, these have become quite popular as a result of the City of Austin loosening regulations on their construction. You can read all about the exact regulations in my earlier post, Navigating the Accessory Dwelling Unit Process in Austin.
ADUs are a great opportunity for investors to maximize their rental rates on a buy and hold property, homeowners to earn supplemental income through an on-site rental property, and developers to purchase one property and then sell two units.
For buy and hold investors, the ADU makes economic sense. As home prices soar in Austin, it’s become more challenging to find income producing properties with rental rates that justify the asking price. For example, a $300,000 home with a $2,000 market rent is an ok investment. If you put 20% down, your monthly payments will likely be less than the monthly rent you receive. However, the margins are close - adding in leasing expenses, repairs, and vacancy loss, -you may only be breaking even or losing money. Now, if this same property has a detached garage that you could convert to an ADU for $100,000 you have a much better investment. You could even do the rehab using a FHA 203k or Conventional Homestyle loan which combines the ADU project with the primary home purchase into a single mortgage loan.
Homeowners can also utilize the FHA 203k or Conventional Homestyle Loan by coupling their accessory dwelling unit costs with a refi on their primary residence. The new accessory dwelling unit could be used for a family member to live in hence the term “granny flat”. Alternatively, a homeowner could utilize the ADU as a long term rental to offset mortgage payments.
Developers are loving the ADU regulations in Austin. Most commonly you are seeing developers purchase a home or lot and then build two new units on the lot. The lot is not legally subdivided; rather, they do a condo regime in order to then sell both units separately. This practice is quite common in the following Austin zip codes: 78704, 78745, and 78702.
Identifying properties with the ability to have two homes on one lot in Austin is somewhat challenging. There is no easy way to search for homes for sale with ADUs in the Austin Board of REALTORS’ MLS. Luckily, I’ve identified a few properties with ADU potential. These properties either already have an ADU, have an existing structure that could be converted to an ADU or are located on a lot with secondary dwelling unit potential.
5002 Balcones Dr. Austin, TX 78731
911 Payne Ave. Austin, TX 78757
11705 Pollyanna Ave. Austin, TX 78753
6302 Brookside Dr. Austin, TX 78723
4202 Bradwood Rd. Austin, TX 78722
2301 S 3rd St. Austin, TX 78704
200 Ainsworth St. Austin, TX 78745
1309 Green Forest Dr. Austin, TX 78745
1209 Austin Highlands Blvd. Austin, TX 78745
4506 S. 1st St. Austin, TX 78745
2407 Cecil Dr. Austin, TX 78744
4402 Hayride Ln. Austin, TX 78744
1526 FM 1105 Georgetown, TX 78626
3018 Ranch Road 1869 Liberty Hill, TX 78642
2317 N Shields Dr. Austin, TX 78727
8601 High Valley Rd. Austin, TX 78737
If you are looking for a property with ADU potential, contact me today. I can help simplify the process of finding the appropriate property for sale in Austin.
If you’re like me, a steady marathon of Chip and Jo’s Fixer Upper, leaves me yearning for a flip of my own. Tear down some walls, add some shiplap and large beams, tear out the ugly carpet, and you have a dream home anyone would want to live in. If you’re planning to personally live in the home, a fixer upper offers the opportunity to customize the house to your unique design specifications. By putting in the work, you will spend less money and have a nicer home than if you were to buy a home that someone else already took the time to remodel. Whether you are looking for a fixer upper for a quick flip or a permanent home, Austin has a wide variety of fixer uppers ripe for renovations. Take a look at these 5 Austin area homes that with a little TLC could be true show stoppers.
1. Large East Austin Home with Guest Unit
2. Great North Austin Home on Private Lot, Easy Access to Mopac
3. Westlake Estate on Nearly 2.5 Acres with Sprawling Views of Barton Creek
4. Conveniently Located South Austin Home
5. Central Austin Fixer Upper, Walking Distance From South Congress Strip
With the rise of popular sites such as Airbnb and Homeaway, a growing number of Austin residents are considering renting their properties out as short term rentals. Renting your home out during events like SXSW and the Austin City Limits can easily provide you with enough money to go on vacation yourself and pocket some extra cash.
However, there are a plethora of regulations one must be aware of in order to earn extra money hosting out of town guests.
First, if your property is in the city of Austin limits, you must have a permit to operate. Obtaining a Short Term Rental (STR) permit is not particularly challenging; however, you must understand the types of permits.
Type 1 refers to owner-occupied residences. A Type 1 STR means that this must be the primary residence as shown in tax records. A few examples of Type 1 STRs are: you go on vacation and rent your home while you are away, you rent out 1 room in your home and stay there too, you rent out your guest house while you stay in your main house.
Type 2 refers to a non-owner occupied STR that is either a single family home or a duplex, NOT a condo. A Type 2 STR is an investment property that you rent out for short term rentals. The number of Type 2 units per geographic area is limited by the City of Austin. At this time, they are not issuing any more permits for Type 2 STRs. Also, it is important to note, the STR permit does NOT convey with the sale of a property.
Type 3 refers to multi-family short term rentals that are not owner occupied. The number of non-primary residence condos that can be used as STRs is also regulated by the city based on geographic regions. You must check with the city to see if your condo could be used as an STR.
However, you will first want to check with your condo association to see if they allow you to rent out your condo as a STR. Similarly, many HOAs will prohibit the use of residences as STRs.
If you’re thinking of purchasing a property, and would like to use it as an STR, give me a call today! I can help guide you in the right direction.
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