Austin Real Estate Market Questions

[TJT42]

Hello Everyone,

I've been reading the Mustache for a while now, as it turned out I have been living like a Mustachian for a long time... and just never knew it!

I live in the Austin, TX area now and I am attempting to buy a house. The market is currently red hot (bid war on every property I've put an offer on). However, this kind of insane market competition is leading me to believe that perhaps now is not the best time. But the current growth rates in Austin are just too large to ignore. So I am considering just holding off for the market costs to become more stable.

Does any Mustachian have any insight on this market and aspects I haven't considered?

[arebelspy]

Hello Everyone,

I've been reading the Mustache for a while now, as it turned out I have been living like a Mustachian for a long time... and just never knew it!

I live in the Austin, TX area now and I am attempting to buy a house. The market is currently red hot (bid war on every property I've put an offer on). However, this kind of insane market competition is leading me to believe that perhaps now is not the best time. But the current growth rates in Austin are just too large to ignore. So I am considering just holding off for the market costs to become more stable.

(Emphasis added.)

In other words you're waiting for them to stabilize (very likely at a higher amount), based on what is happening in the market?  That means you'll be paying a premium to not get into a "bidding war" - which is the same as getting into one and winning it.

I don't know much about Austin, though I do like Texas in general for real estate investing (I've mostly been looking into Houston myself, though DFW a bit as well), so I can't give you specifics, but you need to try and determine where your market is going, and why.  What are the market drivers, and are they driven by fundamentals?

Can you acquire property without going a traditional MLS route? 

[SDREMNGR]

My personal belief is that we are at the tail end of a boom.  Which means that prices will appreciate for a while longer,  but buyers will start to dry out, and when rates go up, prices will come down.  With the QE program going away, rates are already starting to creep up.  I think the economy will be growing for a while longer so there won't be any big busts any time soon but the hot air balloon is slowly being blown up to max capacity and whenever the next big hit to the economy comes (war, recession, etc) prices will surely come down then.

I took a brief look at Austin and it's hard to find good cashflow, it seemed to be more of an appreciation town.  I would only buy now if you do plan on holding on to it for a long time.

If you needed to sell within 3-7 years, you may find yourself upside down if the market were to crash.  No bueno.  But if you go into it with expectation of holding for 30 years at locked in rate, and it currently cash flows (net of PITI) then you are pretty safe buying it now.  Forget about the 1% rule.  You aren't going to get it buying a SFR that isn't a total fixer or buying apartments that cost millions.

[NonprofitER]

I live in ATX and can confirm that prices are going up very quickly - especially on the eastside.  Case in point, our primary residence we purchased in July 2012 has appreciated $90,000 since then.  Nearly $100k in two years!  We just had an appraisal done to refinance down to a 15 year.  I also have several friends in real estate investing and most of them say they need word of mouth tips to be able to jump on properties quickly - especially since foreclosures aren't in supply like they were in 2011/2012.

We too would like to (eventually) have real estate rental income in our portfolio, but its definitely a buy and hold situation. 

[Johnny Aloha]

In other words you're waiting for them to stabilize (very likely at a higher amount), based on what is happening in the market?  That means you'll be paying a premium to not get into a "bidding war" - which is the same as getting into one and winning it.

I'm not in Austin, but our market is similar.  Has been red hot for several years, with anything in decent condition (meaning not a tear down) under $650k gets multiple offers on the first open house.  My recommendation: don't be afraid to pay over asking price if you can afford it and it makes sense. 

(Yes, I understand lots of people were saying this in 2006 ... one must carefully evaluate each market.)

After about 70 offers, all of which were over asking, one finally stuck.  We were the first offer in hand within 1 hour of open house, and we offered $40k OVER asking.  The next morning, after the sellers accepted our offer, there were several cash offers (7 other offers total).

Over the next 12 months it appreciated about $130k.  It is reasonable to expect another $100k appreciation this year.

Very glad we were willing to pay $40k over asking (it was underpriced though). 

[TomTX]

Austin's very hot. 70-100 people moving in every day depending on who you believe. 3 different companies currently or plan to shortly offer Gigabit internet (limited areas.) Lots of high-paying jobs. Traffic sucks HARD for commuting, so close-in properties are being forced up even faster. Eastside (East of I-35) was quite disproportionately depressed values (50% or more) due to historical prejudice. Another chunk of the low prices were due to often being a rough neighborhood. It has been rapidly gentrifying over the past ~5 years.

The tax assessment on my house went up ~25% since last year - and I'm 20 miles from downtown (4.5 miles from work though.)

[thepfluger]

Hey! I'm from Austin, and bought a house 9 months ago, and was able to avoid bidding wars, over paying, etc. It pretty much comes down to doing more research and working harder than 95% of the other people (pretty sure there's an MMM article about that somewhere), and then also knowing exactly what you want so you can offer right when you see it.

Anyways, my wife and I bought a foreclosure with cash, paid around 80% ARV, all just by doing enough work to understand real estate values. I still worked with a realtor to get access to the MLS who mainly does investment properties, so he's used to people purchasing like a business, and thus looking for value. If you'd like the contact info, PM me.

Good luck!
-thepfluger

[TomTX]

The market has changed pretty rapidly in the past year. Tax assessor bumped my house up 25%. In one year.

Frankly, property values in a LOT of Texas are going up rapidly - sustained by the hundreds of billions of dollars of petrochemical investment (Well drilling, pipelines, sand companies, fracking equipment, LNG terminal buildout, et cetera, et cetera)

There are 1831 rigs drilling in the entire United States. 884 of them are in Texas. If you only look at onshore rigs, it's an even higher percentage.

Austin is sort of between the main oil producing areas, but it gets a LOT of highly-paid tech folks moving in, who mostly have experience with house prices in Silicon Valley.