You may have read the news that Austin has been selected as the location for Formula One Racing in the U.S. A brand new 3+ mile Formula One Racetrack will be built probably somewhere near the airport that will seat 100,000+ fans. I’m thrilled about F1 coming to Austin, but I have one simple question:
What’s the carbon footprint of F1 going to be, and what does it do to Austin’s fanatical desire to be viewed as a progressive green city on the forefront of emissions reduction and alternative energy policy?
Am I the only one seeing the irony in this?
I mean, we’re being forced to get Energy Audits on our 10+ year old homes before selling, we’ve built this incredibly expensive and useless rail line to Leander, we have these little Go-Cars running around town that I still don’t fully understand, we’re trying to convert the entire City Fleet of vehicles to alternative fuel, and you’re not allowed to chop a tree on your own property without permission from your city government. If that’s not enough, we have the most generous green energy rebates in the country for upgrading your HVAC system, replacing old appliances, adding solar screen, insulation, weather striping, etc, etc, etc.
In short, Austin, (Boulder notwithstanding) has to be the most incredibly hypersensitive, wannabe-progressive, eco-nut city in the U.S.. That’s who we are and that’s ok. Part of it is to puff the political pride of our glorious political leaders, and part of it is in fact well intended and justifiable concern about energy consumption, and the desire to avoid building another coal burning power plant as Austin expands over the coming decades.
But that being the case, what are the real gains of these formal efforts in terms of carbon footprint and energy consumption reduction, and how much of those gains will be completely erased by a decade of Formula One Racing in Austin, and its accompanying carbon footprint?
As someone who’s bought and sold a bunch of rentals, and helped other investors buy, sell and manage investment property in Austin for a number of years, I’m about to ask a question that might seem counter to my professional mission of being in service to real estate investors.
Is rental property investing in Austin still a good way to build long term wealth?
My answer, for a lot of people, is “probably not”.
Let me rephrase the question.
Is rental property investing in Austin a good way to lose money and create financial stress in one’s life?
Absolutely. More so than ever.
So, am I saying you shouldn’t invest in real estate in Austin, or elsewhere? No, I think everyone should consider doing so. But I do think, after careful consideration, a much higher percentage of people should decide against it than would have been the case 15 years ago. The opportunity for mistakes, bad decisions and cash flow disruption for the real estate investor today is much greater than in past years.
In other words, your margin of error is very thin. You better know what you’re doing, or have a good adviser. Success is harder to achieve than if you started in the 1980s or 1990s simply because today’s ratios are thinner. The financial and psychological profile of a good candidate real estate investor today has a much higher bar to clear than in years past. Let’s take a look at why that is.
The $8,000 buyer tax credit ended April 30, 2010. Take a look at the following graph to see the effect the tax credit had on buyer activity in Austin TX. This shows Pending activity for Austin MLS listings going back to Jan 2005 through April 2010. The green line is 2010. The previous years of 2007, 2008, 2009 are represented by the other colored lines.
I used Pending listings because a lot of the April Pending sales haven’t closed yet, but anything that qualified for the tax credit would have to be Pending by April 30th, so this gives us a sneak peek at what the sales data will look like for May closed sales.
A couple of interesting things to note here. I went back to 2007 because that was the peak year for Austin. As you can see on the chart, April Pending listings exceeded the peak year of 2007 for April. I suspect we’ve never experienced an April in Austin where almost 3,000 homes received accepted offers.What does this mean for the future?
I just received my property tax appraisals from Travis Country Appraisal District (TCAD) and Williamson County Appraisal District (WCAD) for 2010. Doesn’t look like I’ll need to protest any property values this year. Some properties are borderline high, but not worth the time and effort to dispute because a) they are close enough, within a percent or two of my estimate, and b) some are low enough to offset the overage on the others, in my mind, and c) I still traumatized by my exposure to the utterly moronic and incompetent panel of idiots at my formal tax protest hearing last year. I need another year of recovery before I subject myself to that type of abuse again.
But as a home owner with only one property, even if your value is only a little bit high, it may be worth the effort to keep the value down so that the basis for future increases remains lower. And remember, if it’s your homestead, the value upon which you are taxed can’t rise more than 10% per year. This year, many of you will see an actual decrease in appraised value.
Each year Sylvia and I perform an increasing number of free comparative market analysis (CMA) for property owners seeking value guidance, or evidence to use in a property tax protest. That deal still stands. We did almost 100 of them last year, which actually benefits us as much as you because we get to really hone our CMA skills and see what home values are doing in many different parts of Austin. And many of you have turned into clients, which we really appreciate.
And here is a list of useful links to help you self-educate about the tax appraisal protest process at TCAD or WCAD in case you do decide to seek a reduction in appraised value.
With the April 30th expiration of the home buyer tax credit, it’s time for buyers, Austin sellers and Austin Realtors to figure out what happens next. Austin Sellers who didn’t get offers might wonder, “are the buyers all gone now?” Austin Buyers who didn’t get their act together and claim the tax credit might wonder, “did I miss the boat?” Realtors in Austin are wondering if business might dry up as the market takes a breather while the hangover wears off. Here’s what I think.
Many Austin Sellers in the sub-$250K price ranges placed homes on the market earlier this year, sooner than they otherwise would have, hoping of course to catch the wave of tax credit buyers. This is something we encouraged, and rightly so, as many of these homes did in fact sell. These “timing opportunist” sellers include both motivated sellers and fair weather “let’s see what happens” sellers.
The latter group of sellers with unsold homes will start removing homes from the market fairly quickly as they’re already experiencing the early stages of “seller fatigue”, and might now feel discouraged. They don’t really have to sell anyway, but would have if the right offer had come along. It just didn’t happen. If I’m right about this, the May real estate market stats for Austin will show a spike in Expired/Withdrawn listings.