Show Me The Green: Strategies for Investing in the Austin Real Estate Market

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.