Written by: Julie Franklin
COVID-19 has everyone scratching their heads and struggling to figure out next steps. Realtors, landlords, and property managers are doing their best to keep up with the changes while trying to provide common-sense advice in a time when there are more questions than answers. It makes sense to ask whether buying rental property in the middle of a global pandemic is a good idea. A lot of investors are wondering what happens if tenants are unable to pay rent while there is an eviction moratorium in place and what the future looks like for the rental market if the pandemic persists. There are no simple answers but determining your short and long-term goals and educating yourself on the market are crucial first steps.
For the most part, the rental market in Austin has remained consistent because of the city’s popularity. While the rest of the state has seen a slow-down in net migration since the pandemic hit, Austin’s population continues to increase – along with the demand for housing. The influx of new residents, balanced by limited available housing, has helped stabilize the rental market, creating an opportunity for investors who are willing to wait out the effects of COVID-19.
Recent data show that while the pandemic has not put much of a dent in rental demand, rental rates have taken a slight hit with rents across the area decreasing slightly since December. The biggest disruption has taken place in the apartment rental market. For the first time in ten years, apartment rentals in Austin have slowed and rates have decreased. This shift has tipped the market in favor of tenants with landlords and property management companies offering discounts and concessions on apartments unseen in years.
A big consideration for landlords is how the pandemic will impact employment and their tenant’s ability to pay rent. On September 2nd, the CDC announced a halt on evictions through December to help slow the spread of COVID-19. Tenants who can prove their income has been adversely affected by the pandemic will need to provide a declaration to receive protection under the order. While this measure does not provide rent forgiveness, it does prevent landlords from pursuing eviction for non-payment, at least temporarily.
In years’ past, rent increases each year were standard. Landlords are now reluctant to raise rents and are opting to keep current tenants in place rather than risk vacancies or gamble on new tenants. The good news is that Austin’s job market is holding steady and it’s lower than average unemployment rates have translated, so far, to fewer non-paying tenants in the metro area.
Bottom line – investors need to consider what they are buying and what to pay attention to when looking for rental properties and there are several key indicators of a strong market.
- Jobs and job growth.
What does the employment rate look like? Is the job market growing? What did it look like prior to quarantine?
Jobs and population growth are the biggest drivers of real estate demand. During three of the last five recessions, housing prices increased in markets where jobs were thriving. Austin’s job growth has increased by 46% in the past ten years, and its population has doubled in the last twenty years. This is largely due to its consistent ranking as one of the best cities to work and live and its reputation as a tech hub. With the onset of COVID-19, unemployment in metropolitan areas skyrocketed across the country while Austin-Round Rock recorded the lowest unemployment rates among U.S. metro areas at 6.45% compared to the national average of 10.2%
How has the real estate market fared in the past? Is it susceptible to big fluctuations and how did it recover?
Despite being impacted by COVID-19, the Austin housing market remains strong and construction of new projects and mixed-use communities are still moving forward. The 3rd quarter of this year has shown an uptick in rentals despite setbacks from the initial shutdown in March and when the second wave hit in June. Research conducted by Capitol Market Research indicates rent collections through July were running in excess of 90% at the properties surveyed. Historically, Austin has been fairly insulated from other dips in the sales and rental markets. It is one of only 8 U.S. metro areas that have fully recovered to pre-recession values in the last 10 years. Austin’s economy is strong and varied and the pace of people moving here exceeds the rate of houses coming available. NAR considered 4-6 months of inventory to be a balanced market. With only 2.5 months of inventory, Austin is likely to remain a seller’s market for quite some time.
What are your long-term and short-term goals?
Real estate is a solid way to protect assets. With historically low interest rates coupled with low inventory and high demand, it seems like a no brainer to invest right now. An important thing to consider is that an investment might not cash flow initially – especially in a seller’s market where prices are high and there is more competition among buyers. A good long-term strategy is to look for properties that will appreciate over time and eventually cash flow as rental rates continue to increase. Property values in Austin have almost doubled in the last 10 years, and rental rates exceed the national average by approximately $100 per month for a 3-bedroom unit despite the pandemic. The demographics of Austin has a significant impact on the rental market. One-fourth of Austin’s population is comprised of millennials and most millennials are opting to rent instead of buy. The campus expansions of Apple, Amazon, Google, etc. which attract young talent, combined with the number of University of Texas students who opt to stay after graduating, all but assures this demographic will not change anytime soon.
Hopefully, this has been helpful in helping you navigate the current pandemic reality. If you have any tips to share with us, feel free in the comments. And hope to see you on our new email list just for Realtors.
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