Investing in Austin

Investing in real estate enhances the investor’s portfolio by providing low-volatility options that yield competitive returns. The combination creates an excellent opportunity, especially in Austin. The Texas state capital is world-famous and a popular tourist attraction, boasting a beautiful, fun outdoor scene and zero income tax. People are flocking to the city, and businesses, both big and small, are finding it an ideal place to relocate, making it desirable for shrewd investors looking for low-risk and long-term gains.

 

Buy and hold
A popular investment strategy in Austin, buying and holding is generally stable with low risk. Investors will purchase a property, expecting it to increase in value later. Owning property will add variety to their portfolios and generate a steady income. It is a more reliable strategy than flipping properties or short-term investments while protecting the investor from price fluctuations in the market.

Flipping houses
Buying a house to increase its value before selling (or flipping) is a creative endeavor that — when done correctly — can yield a significant profit. Not for the faint of heart, flipping houses depends on budget, neighborhood, and market conditions to maximize income potential. One caveat: Texas has regulations and fees on flipping properties, so it’s crucial to thoroughly evaluate the required permits and records.

Rental properties
Short-term rental properties include vacation homes, like the ones found on Airbnb and VRBO. These properties are in demand and value as Austin attracts many tourists year-round (thank you, SXSW & ACL!). In addition to rental cash flow, the properties are expected to appreciate, leading to more value in the long run. Austin tends to be strict with renting regulations; however, investors will need permits, and guests must meet local zoning guidelines.

Mid-term properties are rented for over a month but under 12 months. They are often fully or partially furnished and are more flexible with terms than other rental properties. Mid-term rentals are usually rented by people from out of town searching for houses, people between homes, renovators, and corporate housing. With Austin’s constant ebb and flow of people, mid-term rentals can be a lucrative niche in the investment space.

Long-term rental properties are more traditional living arrangements of over a year. Typical apartment leases fall into this category. They are a simple and popular option for real estate investors.

Commercial property
A hot commodity in the city, commercial real estate generates passive income for investors from tenants who tend to sign long-term leases. This property is considered a non-correlated asset, meaning its value is not tied to an outside factor like the stock market or inflation. Commercial properties tend to provide higher rates per square foot than single-family houses.

BRRRR
BRRRR stands for “Buy, Rehab, Rent, Refinance, and Repeat.” It’s a strategy that allows real estate investors to leverage their investments to make more money. The process begins with buying a property, fixing it to increase its value, and renting it out. After a while, the investor refinances the property, using the increased value to unlock equity and access cash. This cash can be used to buy another property and repeat the cycle.

The main benefit of BRRRR is that it allows real estate investors to access cash for future investments without liquidating their current portfolio. It also allows investors to maximize their returns and minimize their risk.

Cash flow vs. appreciation
A cash-flow investment covers all expenses through revenues from the property. It provides investors with consistent cash, usually from rent. Cash flow investments work best in areas where growth is sustainable. Considering the influx of newcomers to Austin, investors can make money this way.

An appreciation strategy is when an investor buys a property and holds it until the value increases when the investor will sell or refinance. This strategy works best in markets of high demand, and as Austin enjoys tremendous demand, it is a good strategy for the city.

Appreciation can give investors significant money, but it depends on the market, while cash flow is more stable and immediate. The two methods complement each other. Investors can make the most of both strategies as a cash flow property appreciates over time.

Hot areas in Austin for investment
As of January 2023, the average median house price in Austin-Round Rock was $450,000. The month-over-month drop of 6.3% was the largest such decrease since 2011, per the Austin Board of Realtors. Despite concerns over high interest rates, the long-term outlook for Austin is so optimistic that investors are scouting properties in towns and neighborhoods well outside the city.

What follows are summaries intended as guidelines (as opposed to rules) for investors looking into properties around Austin. The monthly projections below are based on a 30-year mortgage fixed at 7%. Conditions fluctuate constantly, so confer with your trusted local agent when considering specific investments.

Pflugerville
Median purchase price: $450,000
Monthly rent approx.: $2,500

 

Here is a blueprint for investors looking to profit from properties in Pflugerville.

 

 

Here is a blueprint for investors looking to profit from properties in Cedar Park:

 

Here is a blueprint for investors looking to profit from properties in Round Rock West:

 

Here is a blueprint for investors looking to profit from properties in Lockhart:

 

Georgetown
Median purchase price: $480,000
Monthly rent approx.: $2,400

Here is a blueprint for investors looking to profit from properties in Georgetown: