Why Investors Like Austin
represents what is best in America. Beautiful and diverse
But wait, you say: Is the time right to invest in Austin?
See for yourself in the following chart: Austin shines brightly enough that Austin area home values have held up well through the stock market difficulties, tech industry layoffs, and the aftermath of September 11th.
None of us can predict the future or can accurately assess the effect of current economic conditions. But you can use historic data as a tool to help determine where you might best invest. Although I have no crystal ball to tell you how your investment will fare here or anywhere else, Austin's long term real estate history shows that Austin has been a fine place to own property. Currently, sales are up significantly (see chart below) and Austin has more inventory than it has had in years; the frenetic pace of sales has moderated enough to where some investors are finding excellent buys. Following are some examples of recent years' appreciation in the the Austin area:
On the following chart, note the dramatic increase in numbers of sales running from 2011 to 2012. 2010 started strong due to the $8,000 federal tax credit for first time homebuyers, which expired in June 2010. THis forced sales into the first half of the year, creating a suckout in the second half.
Want to see supply and demand at work? On the following chart, note the dramatic increase in sold prices and the decrease in inventory during 2005 and 2006. Prices remained stable during the doldrums from 2007-2009. You can see the economy kicking back in in 2012 with a stunning drop in inventory contrasting with the resulting increase in average price.
In 2001, after ten years of strong appreciation, Austin's housing market so heavily favored sellers that buyers felt they had to jump on the next acceptable property that came on the market. Buyers worried they'd be priced out of the market. Then from 2001 to 2003, as in many fine cities, Austin homesellers found themselves confronted with four economic realities that affected home sales:
National Business Experts Promote Austin as Among the Best in the Nation
Nationally respected professionals have each done their own research and unanimously conclude that Austin is indeed a very fine place to live and to do business.
Click on the following links:
best city to ride out the recession
Austin #1 best
bang for the buck
fastest selling market 2008
Austin one of fastest
growing metros 2008
Austin third best
place for jobs in 2008
Austin in top
Austin in top
to invest in homes
the nation for business says Moody's Economy
Austin rated #1
best place for business and careers by Forbes
Austin rated #1
best place for making movies (BIG $$$ flowing into Austin)
best housing market (for investment) over the next five years,
The Meyers Group
Austin rated one
of the three best big cities by MSN
In top ten
best places to live,
place for families, Employee
Relocation Council (ERC) and
best place to live and work, Employment
best places to live and work, Monstermoving.com
#2 out of
200 best places to do business, Forbes/Milken
#2 out of
top 50 best places to do business, New
#4 in the
nation for hottest job growth, Business
2.0 (via Austin Business
#6 in the
nation for best schools, Forbes
Insider News Report: This just in from the Neal Spelce Austin Newsletter, www.austinnewsletter.com):
"The US Department of Commerce (headed up, incidentally, by Texan Don Evans) crunched the 2002 numbers and found that Texas has become the nation's leading exporter--surpassing the other giants, New York and California. In 2002, the Lone Star State accounted for a significant 13% of all exports.
For years we've told you how Texas has been affected more and more by global affairs. Long gone are the days when cotton and cattle drove our economy. But it's only been in recent years, when Texas has become a major business and high tech center, that products produced in Texas become heavily reliant on world markets."
This means that that Texas continues to diversify its economy, which is good for Austin investors.
Austin is located on Interstate 35, deep in the heart of Texas. Exceptionally central to major Texas cities, Austinites enjoy moderate drives to Houston (2 ½ hrs) Dallas & Fort Worth (3 ½ hrs), and San Antonio (1 ½ hours).
First time visitors are often pleasantly amazed with the unexpected variety in local terrain within 30 minute drives around town. Geographically, Austin is split vertically by the Balcones escarpment, yielding lakes and cedar covered limestone hills to the west and flatter farmlands of black clay to the south and east. Austin is also bisected horizontally by lovely Lake Austin, formed by the Colorado River. The following neighborhood characterizations are generalizations, with some semblance to the truth . . .
Typical Austin Neighborhoods (click on pictures and links for examples)
Where is the best part of Austin to invest? Inner city neighborhoods of fine old properties are good for appreciation, suburban areas are better for cash flow. Suburban areas are where one finds modern homes that have fewer maintenance problems.
Inner city properties are fine for local investors who can easily oversee maintenance and improvement issues. Out-of-town investors are probably better off with much newer buildings, which are mostly located in suburban neighborhoods.
Historically in Austin, the short-term investor usually must hold a property at least two years before recovering equity in a sale.
investor (at least 8 years) does well to choose neighborhoods
growth is prominent, where some infrastructure is still in development,
and where rents are high enough to support the sales price and cover a
significant part of the monthly payment.
Many investors want to visit Austin to get the "lay of the land" and to see what they are actually buying. I welcome these visits and I usually spend the better part of a day with them. To see what investors have said about this tour, click here:
The investor tour is a rolling mini-seminar in my car, starting downtown and lasting from about 10:00 am to 3:30 pm. This gives you plenty of time to catch a flight back home in the afternoon.
During our time together, we visit neighborhoods with the current best matches to investor criteria. You get a comprehensive view of business sectors in Austin, and an understanding of where Austin is growing and why. You also get to meet with the property manager, with whom, over the next several years, you will be spending much more time than with me.
The best day for a tour is Wednesday, Thursday, or Friday. Saturday is fine for seeing property, but you won't get to meet with the property manager, which is important. On Sundays and Mondays, subdivisions are not open until after lunch, and you won't have time to see the choices otherwise available to you. Therefore, Sunday is my day off.
Typically, an investor arrives in Austin in the evening and relaxes at one of several reasonable hotels (I have a list I can email you). Some like to stay right downtown so they can walk around and enjoy the local music and entertainment scene. When you arrange a tour with me, I can pick you up at your downtown hotel the following morning, about 9:30 am. Alternatively, you can plan your trip to fit into just one day, arriving in Austin about 8:00 am. When arranging a visit and tour, three weeks notice is usually sufficient.
Oftentimes multiple investors have scheduled a visit on the same day. In that case you'll be riding with other investors, which makes for a lively experience, each one having different questions that everyone benefits from. My car seats four passengers. Occasionally, when we can't all fit into my car, the visitors who follow me in their rental car can hear the play-by-play with a set of walkie-talkies I have available. We try to make this work for everyone.
By the end of the tour, most investors are saturated with information; most often they want to take a day or so to figure out which properties they want. Then, it's first come, first serve. You don't need to worry too much about another investor getting the house you want if you are ready to make a quick decision.
R E A L T O R S
Stanberry & Associates has operated as a real estate brokerage firm licensed in the State of Texas since 1985.
Tom Polk is a real estate broker licensed in the State of Texas.
All information is deemed reliable
but not guaranteed and should be independently
broker shall be responsible for any typographical errors,
misprints and shall be held totally harmless.
Definitions and Examples
Leverage is multiplying your gain by investing a small amount of money in an asset that is worth much more than the initial investment. Typical investments in stock and bonds do not use leverage. For example:
Not using leverage: Invest $30,000 in stocks that yield 5%. Your return is $1,500 (5% return on $30,000).
Now Let's say you invest just enough money in a rent house so that the rentals pay for overhead, and let's say your property appreciates at, say 5% per year; then you receive a much greater return than if you get 5% only on the amount invested. Illustrating the concept of leverage at its simplest:
Using leverage: Invest $30,000 in a $150,000 property that appreciates at 5%. The return is $7,500 (5% of $150,000). This is equivalent to a 25% return on the $30,000 investment.
That's the leverage concept. The actual return is less when considering operational and sales expenses; however, return can be quite a bit more when appreciation is higher. And holding property for several years can produce astounding results due to compounding appreciation.
Tax savings are achieved by writing off expenses and depreciation. For example, say you have a $150,000 property you bought with 20% down and a $120,000 mortgage. The following figures are a greatly simplified estimates used for illustration purposes only, are subject to change, and are intended only to give you a glimpse of the possibilities. YOU MUST CONSULT YOUR CPA FOR ACCURATE TAX ADVICE.
What does this mean to you tax wise? It means that you could afford to lose $1,569 and still have a break even cash flow after taxes. It also means that although you may have made money, IRS sees it as a loss, reducing your taxes. So the money you would normally spend to pay taxes actually helps pay for your asset.
Note that the rental income with one month of vacancy is $369 greater than the expenses, pretty much a break even cash flow before taxes. A wonderful benefit comes after tax: Because IRS allows you to depreciate the property, your after-tax cash flow is a negative $3,995, a net loss that reduces your income tax. The example does not take into account repairs, which you need to figure in; the good news is that they can be minimal on new properties.
Are you in the 30% tax bracket? If so, for every additional dollar or thousand dollars you make, 1/3 goes to IRS. Every additional $4,000 you make, $1,200 goes to IRS. But if you have a net loss of $4,000 IRS looks at it as if you have $4,000 less income. This would mean a tax savings of $1,200. So if you own more properties, you could save thousands in taxes, the properties could pay for themselves, and you could get appreciation on multiple properties instead of just one. Is it starting to get fun now?
Would you like more positive cash flow? We need to talk. Call me and I'll show you how.
Tom Polk 512-327-9310 x 234
Buying and Renting FAQ
A: A quality single family home is easier to rent and to sell than any other kind of real estate. As a rule, renters would rather live in a home than in a duplex, triplex, or fourplex. While multiple rental units sell mainly to investors, single family homes sell to homeowners, who vastly outnumber investors. With single family homes, your investment portfolio is scalable and your are able to diversify easier within a community or nationwide.
A: Value. The homebuilders we work with are able to sell new homes for less than individual homeowners with similar properties for sale. Plus, you get the benefit of full term warranties. There are fewer maintenance costs and headaches. And, given a choice between new and used, a tenant will choose new every time. This means higher rents and less vacancy.
Of course, as years go by, your property will gradually show wear and you will get gradually lower rents compared to shiny new homes. Yet your rents should still be higher than if you bought a used home to start with, as an older home would be even more out of date and show even more wear. If you buy in an area that is appreciating in value, then rents should be appreciating as well, contributing to a more positive cash flow.
Why single story homes?
What areas make up "Austin?"
Greater Austin includes five counties, three of which are in the top 100 fastest growing counties in the nation (http://www.census.gov/popest/counties/CO-EST2004-09.html)
The following popular communities are in these three fastest growing counties: Leander, Cedar Park, Round Rock, Georgetown, Hutto, Pflugerville, Manor, Buda, Kyle, and Dripping Springs.
Interestingly, "Austin proper" is not in one of the top 100 fastest growing counties.
How do I know a neighborhood is good for investment?
What upgrades should I choose?
My preferred local Austin lender is Cheryl Darter of Colonial Savings. She can get a loan approved on one day. In fifteen years, Cheryl has never let me down. She will quickly provide you with a good faith settlement estimate, a form that spells out your closing costs. Contact info: (512) 904-1191; email is email@example.com . Her online application is http://www.cnmcs.com/cheryldarter .
Most homebuilders have a business relationship with a local lender. Larger builders actually own lending institutions that make them money. Builders sometimes offer incentives for you to use their preferred lender. If you choose to go this route, you might consider getting a quote from another lender to satisfy yourself that your rate and fees are acceptable.
lender: There may be some overhead here, as an out-of- state
who does not regularly loan in Texas may have difficulty getting you
best financing. They also don't know who the best and fastest
are and don't have relationships with the local title companies, which
can cost you. If you like
your existing lender,
I would encourage you at a minimum to compare good faith settlement
between them and at least one of the above two lenders to help ensure
are getting the best rate and terms.
Can other investors go in with me to buy the same property?
What about LLC (limited liability corporation)
In addition, Texas has specific requirements (such as franchise tax requirements) that I'm not qualified to discuss. If liability is a concern to you and LLC turns out to be too cumbersome, attorneys can inform you on the nature of liability with respect to Texas law and perhaps suggest alternatives to satisfy your concern. I recommend legal counsel by a Texas lawyer, such as H a n c o c k - M c G i l l ( 512-459-6010) or R o d n e y S h e p p a r d (512-472-3966).
How do I find a good tenant?
How long does it take to find a tenant?
When reviewing such statistics, keep in mind that averages don't tell the whole story. The rental market is affected by regular seasonal changes as well as with less predictable economic factors. Factors such as local neighborhood supply and demand can affect both how long it takes to lease and how much you get. It's possible that you may have to lower the rental offering price below your expectations and/or offer incentives. Although the market shows impressive signs of strengthening, you need to have enough money in reserve for weak markets. Also, it's a good idea to develop and maintain a relationship with a competent and busy property manager to help stay up-to-date on the rental market.
Who manages the property?
1. I represented a seller who, before I met them, had bought a new home from a reputable builder. After 2 1/2 years living there, they asked me to help them sell the house. After we got a contract, the normal buyer's inspections revealed some electric outlets had reversed wiring and the exterior windows were installed inside out. The seller contacted the builder to correct the problems. The builder declined, saying they would not have made mistakes like that, saying the seller must have altered the home, and saying anyway it was out of warranty. Repairs were in the hundreds of dollars, and the seller, not the builder had to pay.
I represented a buyer who bought a new home from a reputable
This buyer had inspections, which revealed the water heater
did not meet code and presented a safety hazard. The builder
to differ, but upon checking, found that the inspector was
Consequently the builder moved the water heater, and felt obligated to
correct other similar installations in the subdivision. Had
one inspection not been performed, not only my buyer, but all similar
would eventually have been presented with similar inspection reports,
long after warranties expired, and probably having to foot the bill to
correct the hazard.
What should I do about insurance?
What do I get when I work through you?
I bring to your transaction twenty-five years of helping folks buy and sell Texas real estate. Daily, I continue to learn what to do and what not to do. Plus, the years invested while ascending to the office of Chairman of the Austin Board of Realtors has brought me into contact with effective people, whom you are welcome to include in your real estate circle.
One more thing: I've cultivated some relationships and developed some little known procedures that can save you thousands of dollars when you invest in Austin real estate. I know how to help you optimize your investment. I hope my diligence will cause you to employ me to sell your property when that time comes. In the meantime, I aim to please so you will enthusiastically refer others to me.
Want to optimize? Let's talk! Call me and I'll show you how.
Tom Polk 512-327-9310 x 234
Tom Polk is a real estate broker licensed in the State of Texas.
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