I was recently asked if a particular 1 bedroom condo in south Austin (name withheld for posting) was a good investment at $96,000. So, let's break it down and see:
Is it a good investment
I'll start by first saying that I meet very few people who have bought real estate, especially as close in as 78704 in south Austin, who are not very happy that they bought when they bought. I think the 78704 in south Austin is an obvious choice for continued popularity and appreciation. The average 1 bedroom condo has sold YTD for $245/sf ($194k). That's up from last year's average of $228/sf which is up from year 2000 average of $99/sf. An obvious trend, right? So, from an appreciation aspect, it's hard to say that 1 bedroom condos in 78704 south Austin are not a decent play. Those are averages, of course, and some do better and some do worse. Critical to your decision is the actual condo UNIT and PROJECT itself and how it feels and "works"...is it a good unit...how is the location of the unit itself...is it on a busy corner...how is the floorplan...what are the condo amenities, etc.
HOA Fees
Since this particualr condo is a condo conversion, rather than new construction, my advice is to be sure to budget for HOA fee increases to cover "old building maintenance costs" in the future. This may or may not ever be a factor, but if you don't budget for them now you won't be prepared if it ever does happen. Same for budgeting increased tax appraisals for future years. In my experience, the older the condo building, the more building maintenance is required, so be prepared, maintenance is just a fact of real estate life.
But will I make money?
Let's look at a typical scenario for a typical buyer. If you put 10% down that's $9,600 down on $96,000 sales price, and if your taxes are $2400/year and HOA including insurance is 1.5% then your monthly PITI+HOA will be around $895/month assuming 7% mortgage interest. Then you would want to deduct out an expense for vacancy and maintenance. If you rent it for the break-even at $895/month and your property appreciates at 5%/year for the coming years, then your ROI will be:
•1) Negative 39% if you sell in 12 months
•2) Positive 11% if you sell in 24 months
•3) 175% if you sell in 5 years
Most investors will take some net monthly cash flow losses (which they write off against other investment gains anyway) for the benefit of long term appreciation...which is where the smart money will focus...of course, a nice mix of cash flow and appreciation is best. Also consider that your rents should continue to go up in south Austin especially. Also keep in mind that 5% appreciation is number plucked straight of thin air! But I think it's a SAFE number: between 2006 and 2007 this section of 78704 in south Austin appreciated 19%! Is it a good investment? I think so, but you tell me...
More 78704 South Austin real estate at:
www.AustinModernLiving.com
