Today we are talking to David Bain, a top performing real estate agent in Austin who works with investors. David is telling us all a first-time investor should know about the current state of the Austin housing market and the best investment opportunities there.
David Bain has been living in Austin, TX since 1994. He realized his passion for real estate while attending university, when his father asked him for help in analyzing building and development strategies for his small home-building company in Washington County. Subsequently, David has used his knowledge of Austin and his skill with numbers to assist his network of residential clients, investors, and developers and to create a successful real estate business. In addition to serving the needs of his residential clients, David also focuses on assisting local and out-of-state investors and has worked with developers in land acquisition and strategy.
David holds an MBA as well as an accreditation in Luxury Home Marketing. He is a Guild Member of the Institute for Luxury Home Marketing and a member of both Keller Williams Realty and Keller Williams Luxury. In 2018 so far, David has closed $16,894,000 in real estate transactions of all levels for his clients.
David, we are already in the last quarter of 2018. How did the Austin real estate market perform in 2018?
The Austin real estate market has continued to remain strong and to offer investors many opportunities. Despite heavy competition between investors and first-time home buyers, we are able to find value in various parts of the city. Some of the more “popular” areas have been priced out by investors and builders chasing the trend but, for those looking to get ahead of the trend, there is still ample opportunity.
What have been the most important real estate trends in Austin this year? What were the main changes/developments from 2017?
Austin is working very hard to address the rising home cost in the city brought on by a lack of inventory and high migration to Austin. Because of this, the city and developers are looking to increase the density within the city through infill. This isn’t a new trend, but it is certainly not slowing down as the price of land within the city continues to rise. We are seeing many lots redeveloped as Condo Regimes, effectively creating two single family homes on one lot.
After many years of planning and millions of dollars, the City of Austin recently threw out “CodeNEXT”, an attempt at revising the Land Development Code in Austin, leaving many developers anticipating what is next but continuing with business as usual.
Is the Austin real estate market a buyer’s market or a seller’s market at the moment?
The Austin market has been, and is continuing to be, a seller’s market, but we are seeing it begin to flatten. Properties are staying on the market longer and coming down in price quicker but, with very low inventory and high competition for deals, the seller’s still have a lot of leverage.
Then how is it possible for investors to buy a profitable investment property there?
Establishing what is a profitable investment property comes down to the investor’s expectations, goals, and systems. Is it easy to find a highly leveraged cash flow property in Austin? No. Can you find a profitable investment property through appreciation, adding value to the property, improving management, tax benefit, and/or using the right level of leverage? Absolutely.
What is the most traded property type in the Austin housing market?
The majority of my investor clients are looking for duplex and fourplex properties or raw land/tear down lots to develop. Single family properties are also quite popular as investors look to flip, improve and rent, or simply hold for appreciation.
Which neighborhoods are the hottest markets in 2018? Where do you see the most deals?
I am happy to share the data and my insight on this with my clients, ha! I particularly like three areas of the city currently, and all offer cash flow and appreciation.
How does the Austin real estate market look like for 2019? What major changes do you expect from 2018?
I believe the overall market will continue to flatten out but not rapidly. As this happens, there will be more opportunity for my buyer clients. But, with the rising of interest rates, I don’t advise anyone to wait to enter the market. As interest rates rise, not only will the buyer’s overall interest paid rise significantly, but their borrowing power goes down as well. The best time to buy real estate is just about always going to be right now… If an investor is in it for 5 to 10+ years, there will always be opportunity for making money.
What’s the optimal rental strategy in Austin, TX at the moment? Are Aribnb rentals legal in your market? What restrictions do they face?
Airbnb’s in Austin are tricky. As the rules currently stand, there are three permit types with only one allowing for investors with single family or duplex properties to operate as an STR (short term rental) without living in the property. The number of permits allowing for this type of STR are capped and very difficult to acquire. Additionally, as it stands, permits for non-owner occupied will all expire in 2022, effectively discontinuing STR’s for residential areas. I don’t anticipate the 2022 expiration to hold, but until it is amended to be more investor friendly, it’s a tough model to base an investment on.
Because of the current regulations around STR’s in Austin, I generally steer my clients away from making investments based on a STR model. We find properties that meet their goals based on traditional renters, and if at some point they become a STR, then all the better.
What budget should investors have before they decide to buy a rental property?
Investors in Austin can find a range of opportunities starting with a budget of about $300,000. There are exceptions to this of course, but for your typical investor $300,000 is a good baseline.
What are the financing options for investment properties in the Texas housing market? What interest rates do local lenders offer?
Clients of mine have access to Keller Mortgage, a unique lending product that offers competitive rates, quick approval, full service, and most importantly, zero lending fees. One client of mine just saved over $5,000 in lending fees on his $497,000 investment property. I also refer to other great traditional lenders as well as private and hard money lenders depending on the project.
What’s the average return on investment for rental properties in Austin at the moment?
The average return varies based on location, strategy, financing, and condition.
You specialize in luxury real estate. Tell us about the luxury real estate market in Austin.
The luxury real estate market in Austin is strong and continues to be a seller’s market. That being said, luxury homes will stay on the market for from about 3 to 6 months generally with undervalued, older, and competitively priced homes going very quickly in key areas. With high competition between investors and home buyers in the entry and mid-tier markets, some investors are looking to the higher luxury markets for greater returns. Of course, the risk and initial outlay is greater, but with lot redevelopment opportunities, investors with an eye for opportunity that believe in quality re-development can do well. Lot values are still rising so we are seeing some investors try to improve their margins with lower end build outs in luxury areas, these homes tend to stay on the market longer, and come down in price quite a bit compared to a luxury spec home with the appropriate finish out. The sweet spot is in providing high quality finishes and features without driving up the price with custom features that the unknown buyer may or may not want or need.
Why is 2019 the right time to invest in a real estate property in the Austin housing market?
Austin continues to see the fundamental aspects of a healthy economy grow. Unlike some other markets in the country, we continue to see growth in the business sector, new and re-developed business centers, continued development to meet housing needs, low unemployment, and active planning for future growth. And, compared to other similar markets, our cost of living is relatively low. It is these strengths that continue to make Austin an ideal investment for both long term and short to mid term investors.
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