Saturday, January 12, 2013

Downtown Austin Rents are Cheaper than Buying: The Downtown Austin Anomaly


Downtown Austin rents are currently cheaper than buying, unlike almost all of the rest of Austin.  In most of Austin, is it cheaper to buy than rent, due to low interest rates and the high occupancy rate in apartments.  However, Downtown Austin is an anomaly to this rule.  Read on to find out why it is cheaper to rent an apartment in downtown Austin than to buy.

Let's take two units in the 2nd street district, by all accounts a very desirable place to live.  A two bedroom, two bath apartment in this area, with 1187 square feet, rents for $2836.  It has all the amenities you'd expect from a high end apartment complex such as a luxury pool, incredible views, a fitness room, etc.  

Now let's look at the condo that you purchase rather than rent.  A two-bedroom, 1.5 bath, 1,953 square foot unit is priced at $1,560,000.  Obviously, this unit is 766 square feet bigger than the apartment, but you would still expect it to cost no more than twice that of the rental unit, right?  You'd be wrong.  The mortgage and taxes on this unit add up $8,114.09 monthly.  Add in the $1,185 monthly HOA fee, and you are looking at a monthly payment of $9,299.  That's over three times the monthly rent on the apartment!

What are some of the reasons for the large discrepancy?  Well, it's mainly because sale supply is only limited to four buildings downtown and there are no additional condo projects under construction.  That's because it's gotten more difficult for developers to borrow money due to the national housing bust, which hit condominiums especially hard.  Add to that the fact that the rental market is more popular than sales, and you wind up with a shortage of condos that can command unheard prices.