Buy a house in Austin now or in 3 yaers (Round Rock: real estate, 2010)

[koviljka]

Hi everybody:
My wife and I will retire in 3 years and have decided to relocate from New York to Austin in May 2012. We have enough cash available to buy a house now (up to $300,000) and are in a dilemma: Shold we buy a house now and rent it out for 3 years or keep the cash on a CD for 3 years and buy in 2012
Anyone has a suggestion

[atxcio]

Interesting question, I haven't seen one of these in a while, although they used to be all over the forum..

First, I guess I'd ask why do you want to buy now? Is it because you feel the appreciation would exceed that of a CD? Or you are worried the entry cost would be too high in 3 years? I can't say I'd bet on either being the case... home values have increased slowly but steadily here; mostly because of property taxes. They can be up to 3%, so consider the up to $9000 per year you may pay on your $300K home. Not to mention insurance, property management/maintenance fees. Also, forget any appreciation if you are buying in a relatively new, unestablished subdivision -- those will go down in value first before coming back. The only hope for significant appreciation will be in either transitional gentrifying/established or well established good neighborhoods. And that's still a big gamble at this point it time.

Second, have you lived in Austin before? How confident are you that in 3 years, you will 100% be moving to Austin and staying? Could there be anything that might change your plans? If so, is it wise to invest your money in what may very well be a non-liquid asset (or potentially an asset where you'd realize a loss) when it comes time to make the change in 2012?

You can see what I'm getting at... I'd suggest you keep the money. If you aren't pleased with the rates on CDs now (who can blame you), maybe consider index funds? Or if you were interested in real estate, perhaps pick up a vacation home or condo in an area which has seen a real significant decline (not like here in Austin), take advantage of the low mortgage rates, rent that property out and then when 2012 comes around either sell that or rent here in Austin for awhile.

Just my opinion though, I'm sure others will feel differently, but good luck whatever you decide!

[koviljka]

atxcio, thank you for your thoughts. Our son lives in Austin and we we have been cominig back and forth to Austin for years. We like the city so much and it is on top of the list of our retiremnrt places. I have been looking at a property (MLS#5392534)
which is in the range of my budget. So, as you can see everthing comes to a simple question: Will this kind of property cost more or less than now in 3 years.
CDs now don't even protect aginst inflation.

[CptnRn]

Given that local economists predict Austin will have a housing shortage in 2010, I think it is a good bet that the escalation of residential property values will outpace income on CD's. But there is some risk involved. Remember, keep your risks diversified.

[mm57553]

I don't think that area you are looking at (Round Rock) will appreciate in the next 3 years as much as some other areas. However, it shouldn't decrease. If you can at least cover your monthly expenses (mortgage, insurance, HOA fees, taxes) in rental income, it may be worthwhile. But I don't think you'll make much more, if any, than you will on a CD. Don't forget to add in the cost of finding and screening tenants, the inevitable repairs as a result of being a rental property, and the cost of any unoccupied months. Also, that pool may be nice, but it may raise your insurance rates - as will renting out the property.

[centralaustinite]

Yes, and no homestead exemption for a house that is rented out, so plan for hefty property taxes. Rents in Austin are about what they were in 2001. So don't expect that you can easily raise the rent. Frankly, I think that it would be way more hassle than it is worth. Keep your money liquid and sit tight!

[Exiled Texan]

Rents are low. Your price point though is one that is seeing homes moving.

I personally think wait and buy in 3 years unless you find the PERFECT property for you. Property taxes are a bear.

[dce_irish]

Koviljka-
If you decide to get that home & rent it out, I might be interested. I'm moving back to Austin after 3 years in Phoenix, and am coming from a home on 1/2 acre w/ pool for $1800 a month, and am looking for something comparable in North Austin, so this might be perfect - looking to move in no later than July 1 (at least a one year lease, maybe more). Let us know if you get it, and I'll get you my contact info - good luck with whatever you do.

[austin-steve]

Well, that particular house would rent for about $2,000/mo, maybe $2200, taxes would be about $600/mo, HOA $20/mo, insurance about $125/mo.

I'm assuming you want to pay all cash, in which case you'd have $1,250/mo. gross income before management fees (8% of rent), vacancy costs (10% annually), repairs and maintenance (10% of rent annually), etc. And I think to be conservative you'd have to figure zero appreciation for the next couple of years, just to be conservative about it. Your $1250/mo. gross becomes $690 after you account for expected other costs.

Putting your money in a CD at 3% would produce about $850/mo. interest income, with zero exposure to the vast number of really bad things that can happen with tenants, namely that you can have a 6 month hole blown in your rental cash flow without warning.

I'd wait. If this was Nov 2005, I'd tell you to buy. But at present, you would have no upside and big potential downside.

Steve

[verybadgnome]

From the investment perspective I guess it depends on what part of the greater Austin area you are talking about. A local paper, Community Impact, released some recent 2008 to 2009 appraisal numbers:

Appraised home values rise in Travis County, decline in Williamson County since 2008

Austin, Travis County, and Pflugerville were the only positive ones while all of the ISDs in Williamson County (Round Rock, Taylor, Leander, Georgetown and Hutto) were down, albeit slightly.

Looks like they did not include anything for Hays County.