The Austin Board of Realtors recently released the market statistics for the month of October. Check out the video at the bottom of this post for an update!
This month is a very basic stats update focusing solely on the city of Austin (proper). If you were to ask almost any Austin real estate agent What’s the market doing right now?, they will tell you that change is in the air. I’m not saying we need to brace ourselves for a market crash or anything- but something is changing. I’ve spoken with several listing agents in recent weeks who say things like, “We’re getting lots of showings but no offers.” or “We can’t get anyone through the dang door!” or “I’m dreading talking to my seller about a price reduction…but that’s definitely going to have to happen.”
I recently had the following exchange with an agent-friend of mine:
Agent: My listing has been on the market for months. This market is declining!
Me: I think you’re just overpriced.
Agent: But my seller thinks we’re priced correctly.
Me: Your seller is crazy. (or just delusional)
Agent: But there are lots of homes that are not selling right now.
Me: Lots of sellers are crazy.
Seriously, though, I don’t think the Austin market is in decline. We still have the same problem we’ve had for years: Significantly more people want to move here than those who want to move away. Regarding my friend’s predicament- I’m sure that if they were to reduce the price gradually each week by $10,000, they would end up selling it at a price that is about 8% more than they could have sold it for at this time last year. Instead, they are likely trying to sell the property for 25% more than they could have sold it for last year, which is insane. Our market can support moderate appreciation; it cannot support insanity.
Keep up with the blog for future market updates! (If you don’t see the video below, check it out HERE on my YouTube channel!)
Yeahhhhhhhhhhh……but no. In reality, as a homeowner, your “mortgage” (principal + interest owed to your bank) is only part of your total house payment for each month. There are several other expenses homeowners must pay that definitely do not apply to renters. The main expense is property taxes. Additionally, in most cases, if you are putting less than 20% down, you will have to pay private mortgage insurance (PMI) on top of homeowner’s insurance. In Texas, we tend to be proud of our lack of a statewide income tax. However, we have some of the highest property taxes in the nation. (see this article) I once heard a guy from Louisiana say, “Hey, we’ll keep our income tax and you Texans can keep your property tax!” In reality, if you were to purchase a $250,000 home in Austin, your TOTAL house payment would be around $2,000/month. Plus, you will need close to $35,000 in cash to cover your down payment and closing costs. (see screenshot of my house payment calculator below for a breakdown of closing costs and house payment) In real estate, we use the acronym “PITI” (principal, interest, taxes, insurance) to encompasses most of what one’s house payment consists of.
In general, the home you can rent for $2,000 is going to be much nicer and in a much more desirable area than any home you can buy for $250,000. Let me prove my point:
In the central Austin area (inside the Ben White Blvd/183/MoPac/I-35 “rectangle”), there is literally one single-family home available under $250,000. It’s on the very northern edge of these geographical boundaries. Actually, it is listed at $249,000, has been on the market for one day at the time I am writing this, and will probably go for quite a bit more.
In stark contrast, there are 33 single-family homes currently available for rent in the same geographical area for less than $2,000. In fact, the average rent for these 33 properties is $1721/month. Additionally, these rentals- for the most part- are a little bigger and nicer than that one available single-family home mentioned above.
So, maybe it doesn’t make send to buy a house at all?! Hey, not so fast! There are many reasons one should consider buying (e.g. tax write-offs). The purpose of this blog, though, is to give you a realistic picture of what your total monthly payment consists of. If you want to know more about how this might apply to you personally, shoot me an email or give me a ring! (info below) Below is an awesome article that was recently published on the National Association of Realtors’ website. In the article, they give some great tips as well as outline a few more regular costs associated with home ownership. Check it out!
Many home owners don’t think beyond the mortgage when it comes to purchasing property, forgetting about all the other expenses associated with maintaining a home that can really add up.
Thirty-eight percent of home owners tend to go over their household budget for home-related expenses, according to a 2014 survey by Houzz, a remodeling and design website. That’s why home owners would be wise to create an emergency fund equal to three months’ worth of living expenses to prepare for the cost of home ownership, says Holly Perez, consumer financial expert for Mint, a money management tool.
Here are a few of the most overlooked costs of home ownership:
Homeowners insurance: The cost varies, but in general, home owners pay around $35 a month for every $100,000 of home value. Don’t forget, though, that homeowners insurance typically covers structures and possessions — not the cost to fix the item that caused the damage.
Natural disasters: Many homeowners insurance policies cover basic natural disasters, such as hail storms and fires, but they do not usually cover floods and earthquakes. Often, separate coverage must be purchased for those types of events.
Insurance deductible: Home owners will likely still have to pay a deductible for any damages before insurance kicks in. The deductible is the amount of money a policyholder must pay before the insurance company will cover the remainder of the expenses. That deductible could amount to $1,000 or more of out-of-pocket expenses.
Preventative maintenance: Home owners should budget for maintenance of appliances and other systems in the house. Air conditioning units, refrigerators, and washing machines, for example, often can benefit from preventative maintenance. Homeowners insurance does not cover the cost of replacing broken appliances or faulty plumbing, so ongoing repairs and maintenance is important in preventing potentially higher expenses later on.
Homeowners association fees and property taxes: When comparing homes to purchase, buyers often look at the list price but fail to consider the property taxes and homeowners association costs — which could be a couple hundred dollars a month. Inquire about the association’s dues over the past 10 years to determine how often they rise and what they cover. Also, be aware that renovations to a home, while increasing its value, can also increase the property taxes.
Waste collection: Home owners also should factor in the charges for garbage and recycling services. Typically, these costs average around $150 to $400, according to HomeAdvisor.
The video below is courtesy of The Austin Institute of Real Estate. The first 90 seconds is golden in my opinion. I apologize on behalf of the video producer for the sound quality- or lack thereof- but the content is great.
If you have any questions at all about what steps you might need to take to start investing in real estate as rental property, let me know! I would love to sit down with you and show you examples of properties I believe will produce positive cash flow for you.