Home Buying in Austin>Question Details

Heather Luik…, Other/Just Looking in Santa Barbara, CA

What is the best area to buy investment property in Austin?

Asked by Heather Luikart, Santa Barbara, CA Mon Nov 5, 2007

I'm looking to buy property in Austin, sometime in the next year, that I can get for a good price in a good neighborhood and that I can ideally fix up to either rent out or live in myself if I need to, and eventually sell in order to reinvest in more property.

It seems like it should be obvious, but do I need to physically be in Austin to find a good deal? I live in Santa Barbara, but cannot afford to buy here!

Prices seem affordable now, but with the way the market is going it's so hard to tell what will happen, are prices expected to skyrocket soon?

Also, does anyone know of a good resource for like-minded people looking to invest?

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Answers

21
Some great areas in Austin for "flipping" are West of I-35, in the South Austin area. Dripping Springs is a growing area where you can come across fixer-upper homes on acreage that you can fix up and build an additional home on the land as well. It's about 15-20 mintues West of Austin. I'm not sure about the "skyrocketing" but I can say home prices are increasing in Austin. Resale values in South Austin/Dripping Springs are definitely up.
1 vote Thank Flag Link Wed Jan 2, 2008
Barry is right about our taxes. And Maintenance and proeprty mangement. That is why you really need to be placed in areas where they appreciation is going to be very good. In order to get into these great appreciation areas -- you need to put a 25% or 30% downpayment.

This country is so additcted to "no money down" or "little money down". The semiar gurus out there have made people think that putting over a 10%or 20% downpayment is akin to a crime! Leverage! Leverage! Leverage!!

I can always tell when I am talking to someone who has just completed a real estate seminar. Because they are more hooked on thier leverage than the actual placement of the investment. I say buy fewer properties-- with more downpayment -- in better area. Maintenance wont be as high because you will attract a better quality of tenant ( who will put less wear and tear on the building) and there will be less vacancy.

I agree with Barry about the vacant land. That strategy really has merit. But it is really, really hard to leverage with vacant land. Most people I know that do that are paying cash for the land. Which is not a bad idea!! Its just not a strategy everyone can employ.
1 vote Thank Flag Link Fri Nov 23, 2007
I love forets creek condos. For 188900, you get an 1800 a month lease for 24 months. It's a knock out place for Dell residents.
1 vote Thank Flag Link Mon Nov 5, 2007
You can buy real estate in your IRA. Check out this blog post that explains how a real estate IRA works:

http://irallc123.com/blog/real-estate-ira/
0 votes Thank Flag Link Tue Mar 5, 2013
Seeing how I just came to Austin from Southern California, my advice is there are definitely good values (especially compared to California, Santa Barbara, and LA) but the mentality is very different here. For the locals, a good appreciation is about 5-7% vs California where if you are not making $50-75K a year in appreciation, you are not having a good year.
There are definitely 2-4 unit buildings that will "cash flow" with the typical downpayment. But like every area, you have to buy in the better areas to attract better rents and better tenants. The closer to UT you get, the more rent you can expect but remember that these properties will not cash flow or if they do, it will be less than the outlying areas.
If you have a weekend, come visit Austin and try to get a lay of the land. If you need help, ask. Otherwise, ask your friends what they think. Friends usually dont lie to friends and they are blunt and direct!
For investments, I have been doing that section of real estate for 15 years and believe me, it can be done but depends on what return you are looking for. Good luck!

HAVE AN OUTSTANDING DAY!
0 votes Thank Flag Link Thu Jan 24, 2008
I couldn't find anything on Craigslist in Santa Barbara. I won't be in Austin for a while, and was trying to figure out what my options and opportunities were there before I up and moved. I chose Austin because I know people in town, it's a great city, the housing is affordable in areas, and I've heard of large amounts of growth in the area. I'm open to other areas in the US, just don't know where to start looking.

So no, I'm not in Austin yet.
0 votes Thank Flag Link Fri Dec 14, 2007
If you are happy in Santa Barbara, for God's sake stay there!!!!!!!!! We moved to Austin eight years ago from Ojai and although there is more to do here, better grocery store, etc, I definitely miss HOME. Our son and family are there and constantly asking us to move back home. The weather here sucks most of the time. Summer is horrible and winter is cold. We were spoiled in that area, so give this some real serious consideration. We did not. BTW, we have great business and lots of friends, but there is something about home and HOME will always be Ojai area,.
Flag Sat Dec 21, 2013
yes ma'am -- pretty much -- i recall though a scene from one of the indiana jones movies where harrison ford stood on the edge of a chasm and took one step -- and the other stepping stones showed up

go ahead and find an investment group there -- you don't hafta do a deal -- just learn the terms, the concepts, the pitfalls -- is there an opportunity for you to join an investment group in person here?
0 votes Thank Flag Link Fri Dec 14, 2007
Interesting. I'll look into further into the 1031 vs roth benefits. If I'm going to do it soon it will have to be no cash, as I just don't have it. I'd like to start in Austin rather than SB just because of the difference in affordable real estate, so it sounds like I should look into an investment coffee group down there if I can't up here...stand on the edge of the abyss and say..."I like it?"
0 votes Thank Flag Link Fri Dec 14, 2007
lots of issues here -- am not an accountant (my disclaimer) not attorney (disclaimer again) -- my understanding is that these two methods are different paths to minimize the tax obligations for investors -- i believe there is a limit to the tax benefit of placing funds into a roth, not a limit to the amount that can go into one and the growth is not taxed unless withdrawn early -- in a 1031, the capital gains have a reduced tax exposure and there are rules about what kind of re-investment can be made (as well as the time frames under which that re-investment can be made) -- ideas for getting started -- start small -- find ways to get into a property with no cash in the transaction -- yes, there are ways to get into the bidness without having to live in a property -- find a local investment group -- they are like coffee clubs -- use craigslist in santa barbara -- meet the people, get to know who you can trust, find a way to become a partner in a deal -- ask questions -- get answers you understand -- stand on the edge of the abyss --
Web Reference: http://www.roydubose.com
0 votes Thank Flag Link Fri Dec 14, 2007
I am familiar with the idea of the roth IRA, but there are limitations on how much one can put in each year, and I don't want to wait 7 years before I have enough for a down payment, so I'm guessing I would want to go the 1031 route to start out while I'm building my 401k and IRAs, right?.
You make a good point regarding the need to be immersed in the business locally. I would start my venture closer to home in Santa Barbara, CA, but there is no way I will be able to afford a downpayment any time in the near future. Is it possible to move to the area and jumpstart a real estate empire with little to no personal knowledge of the area? Are there people who specialize in helping other people do this? Is it necessary to buy my first house to live in before starting a chain of investments? Better question - what does everyone recommend?
Thank you so much for all this wonderful and diverse information. Keep it coming, please!
0 votes Thank Flag Link Fri Dec 14, 2007
IMO, the current "fad" of flipping will not evaporate, only become harder to capitalize upon -- 'specially if the flipper is not actively engaged in the market and able to see a project and the potential -- in our neighborhood recently, a 1950's cottage on a large lot came open, a parade of realtor/general contractor cars/pickups disrupted traffic for 3 days, and the property sold, at list, within 4 days -- lesson, you gotta be in it to do it -- unless you have a track record with the professioinals you deal with, the communication is crystal and complete, and accurate information is shared (both ways) -- there are comfortable places to live and renovate. i suggest also you consider the method through which you make the investment -- look into roth ira's and 1031 exchanges -- unless you're already familiar with these financial instruments --
0 votes Thank Flag Link Thu Dec 13, 2007
Ideally I'd like to be able to flip one property and make enough of a profit to put a downpayment on the next house, renovate, and live in or rent out while working on my next property. Any suggestions on the current "flipping" market? Is it gone forever?
0 votes Thank Flag Link Thu Dec 13, 2007
know this is little behind the curve of extensive opinions however, there is an area that really holds some current appreciation and long term opportunity -- crestview/brentwood -- north center of town, older neighborhoods, easy access to all austin has to offer, large lots for adapting cottages to contemporary life styles, really good schools, twenty minutes from lake travis, very little commute, and the "generational turn-over" has begun -- my new bride and i just added 1300 sqft to 1100 already on the ground and believe we've picked up $75/sqft added value to our existing investment -- many of the project properties are great renters while waiting owners renovations -- i think this is a terrific place to buy -- and the market is proving it
Web Reference: http://www.roydubose.com
0 votes Thank Flag Link Thu Dec 13, 2007
All great answers! However, you mentioned that you are looking to purchase some time in the next year...so, the area you may be looking at now may not be the best place to invest in six months. For example, a year ago the condo business...up and coming...now BOOMING! The Austin Market is still HOT; however, each area is different and changes depending on numerous factors. What are your goals?
0 votes Thank Flag Link Tue Nov 27, 2007
Heather,
Flipping is always an option. I don't recommend the flipping program if you are not in Austin. People are/were flipping properties b/c the market provided the value surge, not b/c they were seasoned investors that out foxed everyone else..(Market is the Great Hero) Suddenly (last 3 months) we have experienced a tremendous slow down as compared to the last 3 years. For instance: There are 40 sf properties for sale in Area 6 priced above $500k and 2 properties pending above $500k. A year ago it would have been even or sided to the pending side. 40 to 2 is a Buyers market. Flippers enjoyed a roaring market. Everyone made money . Moving forward, I just don't see the continued surge in values as other more optomistic people do.
0 votes Thank Flag Link Mon Nov 26, 2007
Ok, lots of good info, everyone seems to have a different opinion. What about for flipping properties in Austin? Is that even still a viable option?
0 votes Thank Flag Link Mon Nov 26, 2007
Dena,
I agree the line graph from a macro view of Austin (and the U.S.RE market in general), trends up except for the occasional downturns, however it is the unexpected downturns that eliminate many investors from the business. Staying Power is underestimated. The first signs of the Austin downturn were late "85, Denial set in till "88 -"89. Surrender '90-'92....."91-'95 was the very best time to buy Austin RE. Wealth changed hands in Austin. Though we have had a few bumps since then, they have not been significant.
My point in the previous response is that I am burdened that so many investors are involved in a game and unaware of the dangers should a correction or decline occur. In my opinion, returns are not enough at these price levels to sustain/attract further prudent investment .
For instance, let me compare/contrast
I still hold a few properties I bought in the early "90's that have averaged a cash on cash return of 35% per year for the last 15 years. Appreciation has been 5 fold as well. If I were to sell a duplex I own now it would go for $140,000.00 net. It rents for $1100 per month:

$1,100 x 12 months = $13,200
Less
Pro. Tax ($3,000)
Ins. ($800)
Maint. ($1,900)
Vacancy/Make Ready ave over 15 yrs ($2,000)
Net Flow $5,500 for a cash layout of $140,000.00....no thanks.
Any debt/financing to purchase wipes out any cashflow and requires the investor to realize return on appreciation alone. A 10% correction/decline in price levels in Austin leaves leveraged Investors with negative cash flow (assuming debt) and no way to sell the property short of bringing cash to the closing table, which most will not do.
Finally, life is too short for me to study/discover/invest in other cities. I have teenagers. For me, I must decide if the timing is right to invest in Austin. If it is, I invest with the intent to hold long term, if it isn't, I buy, remodel and sell. I do not believe Austin will contine to appreciate at the levels of late, indefinitely. The market in Austin is highly leveraged and if a correction occurs we will have an over supply to digest. Time will then determine if it is a breather/correction/decline. The fundamentals of growth and employment are excellent in Austin so it is unlikely we will have decline. I look for a correction.

BTW, when you say "I sell investment RE but invest in other markets" do you mean that you do not invest in Austin, or you do invest in Austin, but diversify with investments in other markets? Pleae write back. I think healthy dicussion helps all.
0 votes Thank Flag Link Mon Nov 26, 2007
Jay, You say Austin is at the highest point ever. True. But The line graph is a steep incline at almost any time on the graph-- ( except in the 80's ).

Jay -- What city are you suggesting one should invest in? Where their is the same appreciation potential and they can get a significantly better cash flow?

I sell investment real estate but invest in other markets.
0 votes Thank Flag Link Sun Nov 25, 2007
Dear Santa Barbara,
I was intriguied by your questions about Austin RE Investment.
I am an Investor in Austin and have been now for 28 years. May I offer my 2 cents worth:

High tide and low tide affect all homes, all neighborhoods.

What goes up necessarily WILL come down, at least to some extent.

Time will bail you out of an untimely RE purchase if you have staying power.

Staying Power is defined as:
Having extra money every month to pay negative cash flow
Mental strength to evict unscrupulous tenants from time to time
Ability to make untimely repairs on a timely basis,
Humble awareness to discover RE prices are falling in an area that you most recently invested in and discipline to respond quickly to cut losses.
Ability to pay for and continually maintain a GOOD LIABILITY INSURANCE POLICY for the untimely accident or better yet, the planned accident to force claim against your carrier...and YOU.

Facts: Austin RE prices are at their very highest..in the history of Austin Real Estate!
There are more people in the Austin RE business looking for good deals than ever before.
Good deals are best characterized as buying high and selling higher.
I have found nothing with prudent cash flow in Austin Texas at current price levels
The RE Market is the Great Hero...it is the reason people have prospered.
RE Investors graduate from RE school AFTER they loose money for the first time.

So Santa Barbara....I don't mean to be discouraging. I speak at RE clubs, RE functions and for a NY Times Best Selling Author of the book Flip and I have become burdened for many I come across who intend on investing in Austin because Austin is "hot." Once we thought we were insulated from RE downturns ('90's) ........................we were very wrong. Be careful!
0 votes Thank Flag Link Sun Nov 25, 2007
Before you judge home prices in Austin, remember that Texas home prices will never be equal to California. Our Sate government is funded mainly by property tax and that is generally between 2-3% of the home's value due every year. Think of it as an extra 2.5% interest on a loan, or an extra $210 per month added to your payment for each $100,000 in valuation. The longer you hold a property and the more it appreciates the larger the tax payment becomes. Homeowners have a ten percent cap on appraised value increase and a home owners exemption (discount). Investors do not. Buying a two hundred thousand dollar house and selling it for 300,000 after 5 years will hit you with a $30,000 property tax bill over the course of ownership. Add that to a six percent (or more) cost of capital over 5 years, and the carrying cost of the home is $90,000 over five years. Paying a six percent commission upon the sale puts the total cost of ownership at $108,000. To keep your appreciation and not let carrying costs eat you alive you need to be able to rent a 200,000 property for at least $1800 per month. Keep in mind that any property management fees, tenant free months, home maintenance, and remodeling costs will come out of that $100,000 profit margin. Most of the investors I know that have made good money buy undeveloped tracts of land near cities, plant trees and run livestock on them until they appreciate enough to be developed or sold. While the "rent" for pasture leases will not support the note, it avoids around %95 of property tax due to agricultural exemption, needs far less capital for maintenance or improvement, and can be divided and sold as soon as a portion of it is worth more than the original note.
0 votes Thank Flag Link Thu Nov 22, 2007
Heather,
There are a lot of good places in Austin. My personal philosophy is to keep investments as close as you csan to the central core of the city. The very central properties are pretty expensive for an investor. ( ex. will not cash flow with a 20% downpayment) but just south of central or east of central is a good option.

The market fundamentals here are just staggering. We created 29,000 new jobs in the last 12 months. But the credit crunch as cooled the jets a bit on the rocket fuel appreciation path that we were on.

Now is a good time to buy. There are deals out there.
0 votes Thank Flag Link Tue Nov 20, 2007
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