Maybe you’ve had a chance to visit Austin, Texas or maybe you’ve just satisfied your curiosity with a quick Google search after seeing the “Keep Austin Weird” bumper stickers. Either way, the evidence is overwhelming.
The neo-boomtown’s population continues to skyrocket as millennials are flocking to the Texas state capital in search of the world-famous social scene, zero income tax, and some of the country’s most beautiful outdoor activities. And they’re not hurting for work when they get there. Small and large businesses alike are cutting bait throughout the country, fleeing unfriendly state regulations on business so they can settle down in Texas.
No matter how you slice it, real estate in Austin is becoming more and more appetizing to the shrewd investor. But where do you start? Which kind of property should you invest in? Who can you go to for help? I’m glad you asked…
Types of Austin Investment Properties
Any metro city will offer up a myriad of investment properties to choose from and Austin is no exception. And, as mortgage rates continue to sink to all-time lows, even COVID-19 is not stopping the red-hot markets. Demand is up 25% across the entire country as people jump to take advantage of rates dipping below 4%. But which Austin investment property is right for you? Here are a few of the most popular, along with an advantage and disadvantage for each.
A single-family home is defined as having no common walls, no shared property, and is built on its own parcel of land. It’s one of the most popular investment types and definitely the one you’re most likely to see on TV.
Perception – The American Dream is still alive and well, contrary to the opinion of some. Nearly three-quarters of millennials still aspire to single-family homeownership. Even in the rental market, over half of renters age 25 to 34 prefer to rent a single-family home as opposed to a condo or apartment.
Perception – It’s entirely possible a more affluent neighborhood won’t take kindly to you planting a rental in their community, especially vacation rentals, where one rowdy weekend can draw the ire of the full-timers.
Any single building meant to house multiple families living separately. Apartment buildings, townhomes, and duplexes all qualify.
Potential – Simple math tells us more units means more people paying rent. Higher profits might also open up the opportunity to hire a property manager, making this a truly passive income stream.
Upfront Costs – Travis County single-family homes are selling for roughly $376,500 in the midrange. To get your hands on a multifamily property, you could end up shelling out millions.
A property that is zoned specifically for selling goods, not manufacturing. Anywhere you might go to spend money that is not on the internet.
ROI – Your return on investment is potentially much higher. Where a residential property might net you 1%-4%, you can expect 6%-12% from a retail space.
Economic Conditions – Besides the toll internet shopping has taken on mom and pop and big box stores alike, COVID-19 has forced many businesses to find ways to make their fulfillment contactless. Time will tell if Americans turn out for retail like they once did.
Timing Your Investment
With one tech giant already breaking ground in Austin and another in very serious talks to follow, an already exploding population could go nuclear very soon.
Apple has called Travis County home for a year already, shipping the coveted weapon of choice for most professionals, the MacBook Pro, from a production facility in Austin. But plans to expand are well underway as their new facility broke ground in late 2019. The $1 billion campus will sit on 3 million square feet and eventually house 15,000 employees.
And after a very public game of chicken with state officials, Elon Musk has vowed to pull up stakes in California and move his Tesla gigafactory. While many states have made their pitch, massive tax incentives and insider reports say Austin is poised to come out on top. Tesla would be investing $25 billion into the facility and bringing a whopping 30,000 jobs that need filling. Musk also already has ties with Texas in McGregor, where SpaceX’s Rocket and Test Facility is located.
Austin’s population was already on the rise before these two titans of the tech world. US Census Bureau data shows the population had jumped from 14th to 11th on the list of the country’s most populous cities and some are predicting that Austin and its surrounding areas could be home to almost 4 million people by 2040. Millennials in particular are seeing Austin as an enticing option. 192,000 people between the ages of 25 and 39 moved to Austin in 2018, making it third on the list of top destinations.
As young folks from all over the country continue to pour in, Austin’s city planners are already preparing for the deluge, permitting over 9,000 multifamily units as of September 2019.
Pre-pandemic Austin was on a tear, posting a 7.7% economic increase according to the Dallas Fed. As COVID-19 pulled the country, and even the world, into economic freefall, Austin remains resilient. First-time unemployment claims were down for 3 weeks in a row as of May 23rd and 98.5% of Rastegar residents companywide are up to date on their rent. Due to its large population of professional services and technology industries, which lend themselves to telecommuting, Austin may find itself better able to thrive in adverse conditions.
As major corporations and young professionals continue to be drawn to Austin’s business-friendly policies and millennial vibes, a need for housing and commercial real estate is sure to follow.
Choosing a Real Estate Investment to Meet Your Financial Goals
The only predictable thing about many investment choices is their unpredictability. You might not guess it, but Austin real estate investment could actually mitigate some of the risk while still yielding a healthy passive income.
When investing in real estate, you don’t have to go it alone. If you’ve ever bought any kind of property at all, you probably remember how sore your hand was from the mountain of paperwork involved. The need to be completely educated on every subject and every signature can seem daunting to say the least. Partnering with an investment firm can save you from carrying that weight alone. Leaving the details to an experienced firm can not only help you find the right property but free you up to pursue other goals. The benefits don’t stop there either. Once the property is purchased, managing it falls to your investment firm.
Two of the most vital indicators when deciding where to invest are employment and population growth. As we’ve already seen above, Austin is headed in the right direction. Massive companies moving in right alongside plenty of small businesses, and people from all over the country are hot on their heels. Perhaps the most inviting aspect of living in and around Austin is its low cost of living. Millennials are well aware that they can now get a great job at a topflight tech company without paying the exorbitant prices of rent, gas, and groceries in Silicon Valley or New York.
For the more risk-averse investor, Austin real estate investment poses a relatively low-risk-high-return opportunity. Real estate tends to outperform the S&P 500, especially in volatile periods, and even with COVID-19’s toll on the economy, multifamily real estate is being bought, sold, and rented at a steady clip.
Even though real estate might take more capital to get you in the game, you are well-suited for long-term gains with relatively lower risk than many other investment options.
Growth Areas in Austin
It’s hard to imagine growth in any area during the troubled times we currently live in, but a smart investor would do well to pay careful attention to which areas were on the rise before COVID-19 changed the world economy as we know it. Regardless of which kind of real estate catches your eye as a solid investment choice, paying attention to where the people are (and are going) is your window into sound financial decisions. Below are a few examples detailing how Austin, Texas real estate markets (residential and commercial), are poised for resurgence and some tools that may help you determine it for yourself, no matter what area of the country you choose to invest in.
A Comprehensive Annual Financial Report (CAFR) is published each year by most major cities. The layout is standardized, and each can be considered completely reliable thanks to standards set forth by the Governmental Standards Accounting Board. A quick peek at the first few pages of the Austin, Texas report gives a hearty thumbs up to everything we’ve discovered so far. The Lone Star State capital has welcomed over 200,000 more residents over the last 10 years. A 26% increase. That’s 200,00 more people that need a place to lay their heads at night.
If you are wondering why they are choosing Austin, the answer is quite simple. Contrary to popular belief it’s not the barbecue. It’s jobs…and plenty of ‘em.
We’ve already examined how monster brands like Apple and Tesla are calling Austin home. Not to be outdone, even Amazon is adding an expansion of its facility that will bring 800 new jobs with it. They are joined by 49 Fortune 500 companies making a place for themselves in Texas. And it’s not just the big dogs. Texas is home to 2.4 million (yes, million) small businesses, many of which are transplanted from other states. In 2018 alone, the Austin Chamber of Commerce received 46 incoming relocation notices. Those 46 businesses amounted to 9,000 new jobs up for grabs.
Between millions of businesses to choose from and a world-class social scene, it’s no surprise people are arriving in Austin by the thousands, and each one of them feels confident they will be able to find gainful employment. Each one of them will also need a place to eat, sleep, work, and play.
Working with a Commercial Real Estate Company
By now you may have decided investing in Austin, Texas commercial real estate is right up your alley. But there’s also a good chance you don’t have the time to throw yourself headlong into the complicated world of real estate. The options seem limitless, making it hard to even know where to start. That is why it just might make sense to get some help from one of the top commercial real estate companies in Austin.
The most obvious reason may also be the most beneficial. You can let a real estate company do the shopping for you. As much as we’d all love to believe you can open a Google search and type “commercial real estate for sale,” then submit a bid and start collecting rent, all from your smartphone, it gets a little more complicated than that. There are far fewer consumer protections surrounding commercial real estate purchases than for single-family homes, so due diligence could become the difference between a tidy profit and a money pit. Zoning, permits, environmental investigations, and/or approvals are all on you to sort out.
And once you’ve found a property, there are still financial hills to climb. There are dozens of loan types, terms, ratios, and rates to wade through in order to make sure you have the perfect financing for your situation.
If you’re lucky enough to get to the point where you own a property, the work is just beginning. Managing a property with several units full of tenants can be a fulltime job. That leaves you with two options: pay a property manager upwards of $170,000 a year or do it yourself. Partnering with an experienced firm can take that concern wholly off your plate, all the way down to collecting rent from your tenants.
And have you ever dreamed of going after a big-money deal? Most do, but few have the capital in hand to make it happen. Investing with a top commercial real estate company can give you access to massive projects you might never have a shot at regularly.
All things considered, partnering with an experienced real estate company who knows the players and the game can simplify a very complicated, but very profitable opportunity and give you access to projects you may never have had the ability to tackle on your own.
The Benefits of Commercial Real Estate Investment in Austin
Commercial real estate in Austin has been a hot commodity. Zero income tax, top-notch schools, nightlife, wildlife, and more have made it a destination for corporations and their employees alike, making it very likely that the trend will continue to arrow up. Here are just a few of the major benefits that come along with commercial real estate in Austin.
Passive Income Potential
Risk is inherent in any investment, even in a market like Austin, but once you’ve acquired a good space and filled it with a good tenant, money arrives in your account every month and it doesn’t stop until that tenant leaves. Not only will a good tenant pay on time, every time, but most commercial tenants want to look the part to their consumers, so they’ll most likely take great care to keep your property in tiptop shape.
Non-correlated Assets and Diversified Returns
A non-correlated asset is essentially one that is not tied to the performance of others. The value of commercial real estate, for example, likely will not be tied to stock market performance. The Modern Portfolio Theory, developed by Nobel Laureate Harry Markowitz, suggests reducing the overall risk and boosting returns by spreading your investment across non-correlated assets.
Commercial real estate can create something of an inflation hedge, offsetting the long-term impact since property rent can be adjusted right along with it.
While a single-family property might only return 1%-4% of your investment, a commercial property usually brings a higher rate per square foot, likely netting you 6%-12%.
Tax benefits on commercial property abound. Income from most real estate investments is not considered business income, hence you have earned no income as a real estate investor as far as the IRS is concerned. And as long as you are “materially participating” in business operations you may be eligible to deduct up to $25,000 in losses.
The IRS also allows investors to claim depreciation over a period of 39 years on a commercial property. Essentially, you are able to deduct 1/39th the value of your investment property annually, whether you use funds on property upkeep or not.
Tax rates on “long-term investments” are also substantially lower than short-term investments, and a 1031 exchange will allow an investor to defer tax liability as long the income gained by the sale of one property is used to buy another.
As Austin’s population continues to balloon and major, minor, and independent businesses are lured to the city’s favorable tax laws and drastically lower cost of living, Austin real estate investment properties are looking more and more like a solid choice for investors looking to add to their portfolio.
If you think it’s the right choice, partnering with an experienced Austin real estate company could simplify the process and open up access to much larger projects, giving you a chance to spend less time working for your money and more time putting your money to work for you.