Explore the Impact of Interest Rates on Your Real Estate Investment Decisions
That's a common question I've been getting lately, and for good reason: compared to two years ago, the current interest rates are atrocious! However, real estate investment isn't driven solely by interest rates—it also involves factors like local schools, employment opportunities, migration trends, the age of properties, and even the color of the grass (probably greener than mine😭).
That's why when I assess a deal, any deal—whether it's for a phone, a car, or a house—I look at the
Comparables, Alternatives & Complexity.
Assessing the Austin Real Estate Market through Comparables
People continue to flock to Austin, and the city's appeal hasn't waned just because the Fed raised interest rates. Housing costs in the Austin real estate market are about four to five times less than in the Bay Area, three times less than in Seattle, and two and a half times less than in San Diego and Boston. Furthermore, the challenge of securing a mortgage has intensified now that it's much more expensive! Below, you'll find a comparison of monthly payments based on loan size and interest rates, followed by a graph showing the differences based on a baseline (left-most column). The gaps were always steep, but with the new interest rates, the purchasing power has decreased significantly.
So, the main question we need to ask ourselves is: What are our expectations moving forward?
Considering that Williamson County recently ranked sixth in domestic migration across the entire United States, and cross-referencing it with the aforementioned data & real estate market trends, the answer seems to write itself.
Exploring Alternatives to Traditional Investments
A common sentiment I hear these days is, "Why should I invest in real estate with a 4-5% cap rate, when I could simply place my money in a high-yield savings account and get a 4-5% return without the hassle?" This overlooks two important points:
A) The intrinsic value of the land, which is a prime reason to invest in a market like Austin, known for its robust real estate appreciation and favorable IRR (Internal Rate of Return).
B) The fact that the recent surge in interest rates created new opportunities, and that the nature of mortgages in the US allows for refinancing when rates drop.
In the US, real estate is fencing us from inflation, while allowing us to leverage our capital and enjoy significant tax breaks. For people who are heavily invested in index funds, it can be a diversification tool that exposes them to a more tangible asset class.
Navigating the Complexity of Real Estate Investments
The Complexity factor is perhaps my favorite one —let me explain:
When evaluating stocks like TSLA, I face the challenge of outperforming analysts who have already dissected every detail. The information seems all-known, often considered fully reflected in the stock price. I often feel outgunned in this arena; how can I possibly know something that they haven’t already factored in? Indeed, the stock market has shown consistent growth over the years, with some opting for a slow and steady investment approach while others pursue rapid gains. Both strategies carry inherent risks, highlighted by tales of both monumental successes and devastating failures.
Then we have Index Funds—a solid investment choice for the long term, no doubt. However, they offer no real competitive edge since they have become the default strategy for many, due to their broad market exposure and relative safety. I appreciate index funds, I invest in them myself, but I need to diversify, and frankly I’m concerned by the fact it’s at all-time-high.
Real estate, in my opinion, presents a simpler market dynamic. Analyzing trends isn’t overly complicated: review the comparables, consider the alternatives, and draw conclusions. In Austin’s real estate market you’re not competing against other investors; you’re part of the wave of homeowners attracted by new opportunities, such as Samsung’s $70 billion investment in their facility here. The effects of such a massive investment are like a ripple that hasn't yet reached the shore—it can’t be fully priced in because it requires the physical influx of people, which hasn’t happened yet. Contrary to concerns about an imminent 'bubble burst,' the data illustrates a logical market correction. An electrical engineer in Austin ,Tx earning a median salary of $95K can afford a 3-bedroom home at $450K, significantly less than Sunnyvale, Ca where the same home costs $1.67M accounting for a salary of $130K. This ratio supports the sustainable growth observed in Austin, dispelling fears of an overheated market.
Concluding Thoughts on Real Estate Investments in Austin
I appreciate the macro simplicity of real estate. All that’s left is to engage with it in an informed manner. In the long run, I firmly believe investing in Austin will pay off—whether you partner with me or not. However, with my help, leveraging cutting-edge technology and extensive experience, your journey could be optimized to the maximum. That’s the whole point of working with a pro.
Engage with Austin’s Real Estate Opportunities
Real estate investment isn't for everyone—it has its challenges and risks, but that's where we excel. We handle real estate on a scale without compromising on our core values: Professionalism, performance, precision.
Guided by heart, backed by data.
Let's connect if you want to learn more and see if we can add value to your life!
Contact me at Howdy@theinvestory.net Join us for our live webinar “Investing in Austin” to learn more.
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