Real estate investors still busy in Austin

This article was in yesterday’s Austin Statesman. More of what we already know, but a good read nonetheless.

In summary, new home builders have sharply curtailed sales to investors. Some no longer sell to investors at all, others limit sales to 10% of the neighborhood. But there are still plenty of investors buying new homes in Austin. About 12% of all homes sold in Austin Texas between January and June 2005 were sold to real estate investors.

AMERICAN-STATESMAN STAFF Saturday, September 10, 2005

Central Texas homes are selling at a record pace so far this year, and it’s not just the area’s robust population growth that is fueling the boom.

Investor activity in the Austin-area housing market has increased in the past year, due in large part to West Coast homeowners and real estate investors seeking more stable and affordable alternatives to overheated housing markets in California, Arizona and Nevada.

Slightly more than 12 percent of the houses sold in Central Texas from January to June were bought for investment purposes, according to San Francisco-based Loan Performance, which tracks 80 percent of monthly U.S. mortgage payments for single-family houses, townhouses, condos and duplexes.

That’s up from the same period last year, when investors accounted for 9.6 percent of local mortgages, but the Austin area still lags by far many West Coast and Florida markets, where investors accounted for up to 22 percent. “Over the last six months or so, we’ve definitely seen an increase in interest from those that wanted to buy investment property,” said Matt Duesing, director of sales and marketing for KB Home.
The increased interest among investors is just one more sign that the Austin housing market has rebounded from its tech-bust slump, but the increasing number of sales to people who don’t plan to live in their houses has a potential downside.

Investor activity has been blamed in part for rapidly appreciating home prices in California, Arizona, Nevada and Florida that have pushed homeownership out of the reach of many residents. In Las Vegas, home prices in some subdivisions plummeted after investors abruptly pulled out of the market in search of better opportunities elsewhere.

Mark Sprague, a partner with market research firm Residential Strategies Inc., said there have not been enough investment purchases in the Austin area yet to affect prices or the long-term stability of the market.

Sprague said investor activity would need to account for nearly 20 percent of sales before it began to cause concern, but he cautioned that certain areas in Central Texas could have a much higher proportion of investor-related sales than the overall average.

A negative effect
Even a few investment properties in any neighborhood can have a negative effect on surrounding homeowners, he said.

“A buyer is not going to want to buy in a rental neighborhood. That’s why most individuals don’t want investors in their neighborhood,” Sprague said.
Many of Austin’s newest housing investors are from the West Coast. Tom Polk, a real estate broker with Stanberry & Associates Realtors, has helped investors buy properties in the Austin area for more than 20 years and works with many West Coast investors.
Polk works with California homeowners — teachers, engineers, consultants, musicians and doctors — who have built up significant equity in their homes but are worried about the possibility that their local housing markets may finally have peaked.

“They are not high rollers,” Polk said. “They are people trying to protect the assets that they have. They are people who feel like they are struggling to get ahead in our society, and they see real estate as a vehicle that will stay ahead of inflation and help ensure their future.”

“They can’t do this where they are,” he said, “because either prices are so high they can’t get into the market there or they are afraid that it’s topped out already.”
Just a few years ago, these investors would have looked for alternatives closer to home, Polk said.

But so many investors have already poured into places such as Phoenix and Las Vegas that many can’t afford to buy or worry that prices there might also be destined to fall.
“It’s not just Austin. They are investing in other places such as Florida, North Carolina and Oklahoma City,” Polk said. “They are going where the prices are still low enough to where they can rent it (out for) somewhere close to what their payments are, and Austin has that.”

It’s become harder for investors to find desirable single-family houses in the Austin area, and not just because of competition from other investors.
Many of the area’s top home builders have significantly limited the number of houses they will sell to investors, and some have stopped completely.
“Most builders are not selling to investors now, and the ones that are are limiting it to 10 percent of a neighborhood, and that 10 percent has been achieved in a lot of neighborhoods, so it is very very difficult to find brand new homes compared to a year ago, when builders didn’t have these restrictions,” Polk said.
KB Home is one of these builders.
Duesing, the sales and marketing director, said KB Home makes a “concerted effort” not to sell to investors and is in the process of putting in place a principal residence agreement that all buyers will be required to sign.
“When people come in to rent or flip homes, it usually lowers the curb appeal. There’s less pride in the community ,” he said. “Owner occupants typically take better care of their homes.”
David Weekley Homes still sells houses to investors but limits the amount to 10 percent of any community and prohibits the posting of “For lease” signs in its neighborhoods.
David Weekley recently started requiring buyers to guarantee in writing that they are not buying the properties for investment purposes and requires nonrefundable earnest money to help ensure the original buyer closes on the home.

Outlying areas
The outlying areas of Austin are attracting the most investors because of the prices and availability of the housing. “They’re looking to stay under $200,000 typically, and they would love to be under $150,000,” Sprague said.

Many also prefer new houses because they require less maintenance. “There are still some that are buying the resales, but the majority of those are coming in, buying in Round Rock, Pflugerville, Hutto, Manor, Kyle and Buda,” said Michael Francis, president of Rollingwood Management Inc., which leases and manages single-family homes.

Central Texas has one of the lowest rates of home price appreciation in the country, and most investors aren’t buying to quickly sell for a profit. Adiel Gorel is president of Capital Group International Inc., a California-based real estate investment firm that helps investors find properties. Gorel’s group began buying in Austin three years ago and has acquired about 200 houses here.

“I normally believe that real estate investments are a long-term investment,” Gorel said. “We are going to keep them for probably at least a decade and see what happens.”
Gorel said he thinks Austin’s housing market will continue to strengthen as the area’s strong job growth, charm and affordability attract more people of all ages to move here. But even if the population growth doesn’t result in a significant increase in the value of his houses, Gorel says, it is still a good investment.
“Even if the Austin market decides never to really go up in value much, it will probably keep up with the price of living,” Gorel said. “If the home you bought with a loan merely keeps up with the cost of living, you’re doing something good, because later on in life, you are going to own it free and clear.”