We’re often asked why we don’t do more of our rehabs in Austin proper. We were asked this a LOT by one of our mentors (someone who’d been in the business a long time and had a lot more money than we do to invest). You may be considering the Austin market, yourself. If so, here are some of the reasons we choose to focus on the outskirts of town, and the areas to the north:
- Prices. Austin has fallen way down on the list of most attractive real estate markets in the US. A study by WalletHub found it plummeted from number 5 to number 68 among a list of 300 top cities. That’s because the home prices have risen so dramatically. Smaller cities in north Texas did much better (Frisco, Allen, and McKinney were the top three). And Austin is still more affordable than cities in the northeastern US! If you can’t get houses for a price that’s low enough to allow you to make a profit, it’s time to find another market.*
- Ease of Permitting. Well, let’s make that “lack of ease of permitting.” For example, demolition permits are a real mess, according to the Austin Monitor. Our City Council does appear to be listening to us real estate redevelopment folks, but at least for now, you have to pay extra money for expedited service if you don’t want to delay your project for months, or in our case with the Bobcat Lair, years. The bigger firms have specialists to help them. Smaller groups just have to renovate without doing any structural changes, or be willing to wait.
Inspections. You have to get lots and lots of inspections on renovations in Austin. And work has to be done by people with the right certifications. Now, it’s GOOD to ensure that renovations are done properly by licensed contractors, but sometimes there’s quite a backup. Some of the places where we work have fewer regulations or much more efficient systems.
- Competition. Ah, this one’s good. Since there have been so many television shows on rehabbing, groups promoting “flipping” as a way to get rich, and books making our business seem easy, many, many people compete for each “sad” house that becomes available. And often the price goes up so high that we wonder how the eventual purchaser will make any money at all. This is really obvious in the foreclosure market. We no longer focus very hard on that in Austin, because the prices on foreclosures have gone up so much. (We do look for foreclosure and pre-foreclosure deals elsewhere.)
- Inventory. Thanks to the aforementioned competition, the inventory of homes worth rehabbing in Austin proper is much lower than it was in years past. We simply find a lot more good prospects in the suburbs and surrounding area. This is where the people looking for affordable housing are, too, and they are the folks we market our houses to, both for sale and as rentals.
So, think about these factors if you are interested in the Austin rehab market. We’re not saying you can’t make money in Austin, because we know people who can, and we have, ourselves. We just choose to focus in less crowded markets with more opportunity to make some profit. We hope.
*We do continue to buy and sell a few properties in the greater San Antonio area, which ranked at number 215 in the study. Just like in Austin, we find better prospects in the surrounding area.