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Texas wins for renting or buying vs California and Florida

Are you renting and thinking of buying?

If you have been listening to the news you might be aware that home prices throughout the nation are currently disconnected from the basic fundamentals that rule the real estate market. This may apply for the rest of the nation, except for the State of Texas.

In situations where average rental rate for the year is close the mortgage payment, it's almost always better to buy. Using a buy vs. rent calculator, like the one referred to below, can help you determine if you should buy or rent a specific property. Also the rental demand and direction of the market should be taken into consideration.

Although the real estate market is depressed in many parts of the U.S. (notably the east and west coasts), at least one state, Texas, continues to defy the naysayers predicting a big bust.

In Texas we’re still seeing gains in the market at all levels, from home appreciation in nearly all areas of the state to active buyers’ and sellers’ markets in many communities. The overall market has slowed down, but not nearly to the degree of the rest of the country. Texas even has areas on the highly coveted coast where oceanfront property has strong rental demand and relatively low prices - where average rental rate and mortgage payments are about the same.

According to recent figures from the Office of Federal Housing Enterprise Oversight, home prices in Texas increased 6.9% during first quarter 2007, well above the 4.3% national average.

“Despite the national slowdown, Texas is still strong,” says James Gaines, Ph.D., research economist with the Real Estate Center at Texas A&M University. “There’s no reason prices shouldn't continue to rise despite the increase in foreclosures and the slowdown in transactions, construction, and new-home starts.”

By comparison, home sales are down in Miami and median prices are falling throughout the state. In January sales were down 27 percent across the state of Florida compared to last year, and condo sales were down by 30 percent as well. Miami posted a 9 percent decline in single family home sales and a 27 percent decline in condo sales.

The San Francisco Bay Area of California has been plagued by a housing affordability crisis for some time now. In January of 2005, the California Association of Realtors found that only 20 percent of the people within Solano County could afford to buy a median priced home of $389,000. The median price of homes has risen since then and based on the difference between incomes and local home prices, Consumer Reports recently rated this market as the second most overpriced market in the San Francisco Bay Area, and ninth in the country.

Within Texas, there is a wide variation in appreciation rates in the 25 metropolitan areas. Combined with low interest rates, strong job growth and limited supply on new housing in many markets, Gaines says some of the appreciation rates are astounding.

“Among the state’s large metro areas, Austin and San Antonio are seeing the strongest rate increases at more than 10 percent,” he said. “With low levels of inventory and building permits off by over 20 percent in each community, it’s easy to see why these two markets are humming.”

“Interest in Texas real estate has been magnified by the declining markets elsewhere across the nation,” said Dr. Mark Dotzour, the Center’s chief economist, citing the current Texas housing market as one of the strongest in the United States.

“Texas housing is still very affordable,” he said, “and the low tax structure and pro-business climate makes Texas a destination for corporate relocation for firms that are striving to compete in the global marketplace.”

Dotzour said population growth is another key factor contributing to the state’s healthy real estate climate.

City Single Family Homes Sales
(median prices)
20062007
Miami376K396K
Solano County 470K430K
City

BEACHSIDE
2007

OCEANFRONT
2007

South Padre350K750K
Galveston 350K500K
Bolivar 160K 350K
Port Aransas230K425K
“The latest figures show Texas is growing by about 400,000 each year,” he said. “All of these people need homes or apartments in which to live.”

Job growth is also strong, with Texas outperforming the national average and likely to continue doing so for the foreseeable future.

Let’s take a look now at the different rates among the East, West and Gulf Coasts.The Chart to the left depicts the Median Sale Prices of Single-Family homes for the different areas. As you can see the Bolivar and Port Aransas areas have a fairly low median price. Bolivar and Port Aransas are two areas of the Texas Gulf Coast where average rental rates and mortgage payments are about the same.

The Texas Gulf Coast resort areas are located just a few hours drive from major metropolitan areas such as Austin, Dallas, Houston and San Antonio, creating a strong and steady demand for vacation home rentals and purchases.

Major developers have already seen the potential for these developing areas and are investing in new communities such as Cinnamon Shore in Port Aransas, Audubon Village in Gilchrist, Laguna Harbor in Bolivar, Palisade Palms in Galveston and Wild Sands on South Padre island's new north-end.

Below you will find short term rental numbers on the different areas mentioned above:

Galveston, TX
# of BedroomsNightlyWeekly
1118417
2135665
35101698
South Padre Island, TX
# of BedroomsNightlyWeekly
1116598
2215883
32581966
Bolivar, TX
# of BedroomsNightlyWeekly
1314786
2469990
35931606
Port Aransas, TX
# of BedroomsNightlyWeekly
1122665
21961066
32571491
Miami, FL
# of BedroomsNightlyWeekly
1145977
22061450
33772241
Solano County, CA
# of BedroomsNightlyWeekly
11691057
22481283
34322766


City1 Bedroom 2 Bedrooms3 Bedrooms
South Padre*1008.001891.001983.00
Galveston1190.001220.003016.00
Port Aransas1225.001832.003472.00
Single family home long term rentals *Amounts based on data gathered from VRBO.com season.
When looking at long term rentals on the Texas Coast it was difficult to gather data for areas such as Bolivar, Port Aransas and South Padre Island. These areas are mainly vacation spots and property owners prefer to rent their places in the short term during the high season and only offer monthly rentals during the low season. 

Bolivar does not have any major hotels, so the residential homes are the primary rental market, making demand very strong and short term rental rates higher than the other coastal markets. In fact, the Bolivar short term rentals are so strong that you have a hard time finding a property to rent at long term rates or during the summer season. SwedesRealEstate.com has over 275 vacation home rentals on Bolivar and operates like a motel.

TX vs CA vs FL
Terabitz analysis tool also shows Texas' advantages

How do you determine what is the best option in your case?

We recommend using the calculator available at http://www.dinkytown.net/java/MortgageRentvsBuy.html. Or download this free investment calculator spreadsheet investmentcalculator.xls

Below is an example of the calculator you will find in which you can adjust the different variables that suit your particular situation and it will help you decide on the best option for you.

Also check out the government's rent vs buy tool at: http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp

And Texas Gulf Coast Sales Analysis at: http://www.texasgulfcoastonline.com/Sales.aspx
and the Bolivar-Best-Bet-on-Texas-Gulf-Coast Article

Interested in finding out your home's value?
This site, http://www.biggerpockets.com/house-value-comps.html offers a list of resources for finding your home's value in your local market. Beware that many of these services aren't as accurate as using a professional, but they will help to give you an idea of your home's worth.

How to buy a rental property:


Investing in rental property should be treated like a business decision. Once you have identified a property that could be a good investment, you need to:
  • Estimate the property’s current value
  • Project its future value based on the local market’s appreciation outlook
  • Make a realistic assessment of rental income and expenses
  • Get expert advice on benefits from depreciation and tax write-offs

Your calculations should be based on how long you plan to own the property and whether you think you can personally manage the property or will need to hire a property management firm.


Texas is also a winner in price appreciation and sales volume
Property Value Appreciation Conparisons
NAR Existing Home Sales CA vs FL vs TX 2006 - 2007

Vacation Home Rental Advice

Most investors are focusing on the fundamentals that guided the market before the housing boom, especially cash flow -- the ability to actually make money from, say, rentals, rather than from quickly selling the property. They are sticking with properties that turn a profit (or at least break even) after factoring in interest payments, taxes and other expenses.

The stock market goes up and down, but real estate continues to be a bright spot in the U.S. and Texas economies. Nationally recognized second-home expert and EscapeHomes CEO Clark Thompson says the current climate represents a unique opportunity to purchase a vacation home. "Interest rates are low, and there are still a number of undiscovered places where the housing prices are a steal," Thompson says.



Thompson’s list of advantages of owning your own vacation home:
  1. Buying a vacation home today is like buying California property in the 1970s. Vacation home prices now are low relative to where they are expected to be once the baby boom generation begins to retire in force.
  2. Families who own vacation homes take more family vacations.
  3. The 1997 tax law changes allow couples to avoid paying capital gains taxes on profits of as much as $500,000 on the sale of a primary residence. Equity in your primary residence can help purchase a retirement home.
  4. It’s a good idea to get a head start on retirement living. Your favorite location might be a lot more expensive in 10 to 15 years when 73 million baby boomers begin retiring.
  5. Owning a second home allows another mortgage interest write-off.
  6. Vacation homes are a great way to alleviate stress. It’s good for the soul, says Thompson.
  7. A second home is a great way to spend your inheritance. Trillions of dollars are trickling down from the "saving generation" to the "spending generation."
  8. Vacation living equals more exercise. More and more people are buying locations close to ski slopes and golf courses.
  9. The stability of real estate value makes it a good choice to diversify the non-aggressive portion of your portfolio.
  10. Finally, a vacation home is more fun to use than a stock certificate.
If you already own a second home and are considering renting it out when you’re not using it, make sure you are aware of what your customers are looking for.

Swimming pools, hot tubs, proximity to the beach/bay, shopping districts or restaurant areas as well as number of bedrooms and number of beds are all factors that attract renters to your property. Additional features such as wireless internet access, plasma screens and DVD players also help attract more business.

If you want your property to not only be a great place for family vacations but also a good source of income, then you may want to consider investing a little towards adding those additional features that will attract more renters. They could make the difference between renting it for a couple of weeks during the year to having it booked consistently throughout the year.

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