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The Best Ways to Invest in Austin Real Estate, Part IIBy Graham SummersMonday, September 24, 2007 Austin's luxury condo market looks ready to hit a glut.
According to Capital Market Research, 328 condos changed hands in 2006, including resales as well as first-time purchases.
To be sure, 328 isn't bad. It's a 26% increase from the 259 sold in 2005. However, it's nowhere near enough demand to meet the 1,400 luxury condos under construction. When you add in the 3,200 planned for construction, you can see how Austin's condo market is headed toward a massive oversupply.
The signs were already there at the end of 2006: by year-end only 44% of the condos completed that year had sold. And with 4,600 condos scheduled to hit the market, there are only two possible outcomes:
1. Austin undergoes a 10-fold increase in demand for condos.
2. Many of the condos coming on line will be marked down considerably.
Option No. 1 is certainly possible. Austin's mayor, Will Wynn, hopes to have 25,000 people living in downtown Austin by 2015. That represents a fourfold increase from Austin's 5,800 current downtown residents.
To me, the most at-risk units are at the higher end parts of the market. From 2000 to 2007, Austin built 50 condos priced at more than $1 million, and 80% of them sold.
But what happens when more than 500 such condos come on line in the next three years? I think the market may have trouble absorbing many of the more expensive condos. Savvy buyers would do well to wait a couple of years and swoop in to buy on the cheap once the units are discounted or initial buyers are desperate to flip.
Austin is a fantastic city. And if you're looking for a potential second home there but aren't in a rush to buy, wait a couple of years. You'll likely find some terrific deals.
In the meantime, if you're looking to buy now, I suggest condos that have been converted from apartments. You don't usually see the same fanfare or PR efforts made when conversion projects come on line. Consequently, there's less of a "sexiness" premium in these projects' prices.
The conversion market in general is more stable. So while you may not double your money flipping these sorts of units, you're likely not to lose your shirt either. For one thing, you know the property already rents (it used to be an apartment) so you could potentially buy and rent the property out if you're not looking to move right away.
Some of the condo conversions I heard about are the Summerfield Suites, Sabine on Fifth, and 800 Brazos. But you may find better value in a smaller project. The local experts I mentioned in my last Austin essay could likely help you out.
Good trading,
Graham Summers
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