Austin Property Management Blog

What's Better: Long-Term or Short-Term Rentals in an Economic Downturn?

Grant Williams - Tuesday, March 24, 2020

We are only three months in and 2020 is shaping up to be quite the year. With the current COVID-19 pandemic in full swing the markets have taken a huge downturn in recent months and it’s beginning to affect everything from toilet paper sales, tourism, the real estate market and practically every industry across the globe. 

Which leads us to the question - Which is a better investment in an economic downturn, a short-term rental property or a long-term rental home?

Short-Term Rental Properties in Austin, Texas 

In light of COVID-19, several businesses have had to adapt or close overnight and companies like AirBNB or VRBO are not immune to the impact. In nearly every part of the world, AirBNB markets are drying up overnight. Owners have experienced a sharp cancellation of reservations and properties are beginning to sit for long periods of time with no end in sight. Well-renowned events such as South by Southwest (SXSW) here in Austin, which serve as pillars of the community, have been canceled and AirBNB owners faced the harsh realities of that decision. In January, Austin had 5,188 short-term rentals posted across all short-term rental sites. Now, just two months later, the short-term rental market has more than 9,200 active listings. The chart below shows a comparison of revenues in the Austin short-term market in March 2019 and projected revenues for March 2020, which are still subject to decrease depending on how AirBNB and hosts handle refunds in this market.  

With recent developments across the country and with many cities, counties and even some states going into lockdown to fight the COVID-19 pandemic there’s no end in sight to the slow down in Tourism to Austin, Texas or even the entire world. With hotels seemingly on the verge of collapse, one can read the “writing on the wall” that the short-term rental markets are going to be further impacted.

If you're an owner who has a portfolio of properties in the Austin, Texas area that you fill using AirBNB, VRBO or any other short-term rental site you may find yourself with a portfolio of empty rental units at this time. With Austin authorities announcing a 'shelter-in-place' effective at midnight tonight (Tuesday, March 24th), there doesn't seem to be an end to all of this craziness in sight. This could be bad news for short-term rental owners who have seen their revenue sources disappear seemingly overnight. 

Long-Term Rental Properties in Austin, Texas

While tourism does affect long-term rental homes it does so in different fashion. Tenants in a long-term accommodation typically call Austin home and are local to the area. While they may be directly affected by an economic downturn via layoffs or other factors, your property isn’t directly affected by a drop in tourism in the Austin, Texas area. Instead, your property would be indirectly affected by this recession through a loss of the tenant's income, etc.  

We advise any and all owners we speak to about their property to be strict on their criteria for accepting new tenants into their rental homes. While some things are unavoidable, a thorough screening process that tackles all of the necessities for determining if a tenant is a reliable occupant is key for your property in times of economic abnormality. The more you “vet” potential applicants on their financial history, occupational status, the more likely you are to find a higher quality tenant and increase the security of  your rental investment. 

It’s worth noting that if you decide to convert your short-term rental property into a long-term rental you open yourself up to different options for tenants. For example, you can choose to accept Section 8 tenants in your property. Depending on your property’s location and price this could be a great recession deterrent as your tenants rents are paid by the government. No such program exists for short-term rentals. Here is an interesting article posted just days ago about the benefits of Section 8 for your properties

While both investment opportunities are at their weakest during times of economic downturn, short-term rentals are subject to more market variables than long-term rental properties which places them at a higher risk. It’s in times like these where a solid tenant can make or break a property for a landlord. . 

Can you convert your short-term rental into a long-term unit? Of course you can! We’d be happy to connect with you and discuss your property, goals and how that transition would take place. For more information about converting your short-term rental property to a long-term rental, please don’t hesitate to contact our team of Austin property managers! We have turnkey solutions available to you. 

Getting Your Austin, Texas Home Ready for Lease or to Sell

System - Thursday, March 12, 2020

In this short video, Andrew discusses the 'make-ready' process for your Austin, Texas rental property and how you can be prepared for new tenants or new owners at the time of move-in.

More questions about Austin real estate? Visit our FAQ to read common questions we receive from property owners in Austin, Texas! 

Austin Home for Rent: 2304 Granada Drive

Grant Williams - Monday, March 9, 2020

2304 Granada Drive, Austin, TX 78741

1,864 SF | 4 Bed | 2 Bath

View this and all of our available Austin homes for rent!

Austin Home for Rent: 1903 Alegria Road Unit B

System - Wednesday, March 4, 2020

1903 Alegria Road Unit B, Austin, TX 78757

View this and all of our available Austin rental homes!

What to Expect When Searching for a New Rental Home in Austin, Texas

Grant Williams - Monday, February 24, 2020

It’s getting close to that time of year again – leasing season. While you may be staying put and extending your current lease, you may also be moving locations as an upgrade or to just get some different scenery. The best time to start searching is sooner rather than later, as great rentals in the Austin area go quickly! 

tenant moving items into Austin rental home

When you find “the one”, you need to be able to apply quickly and efficiently. The costs associated with finding, applying and moving into a new place can add up. Whether you’re leasing from an Austin property management company or an apartment complex, there are a lot of documents and information that you will need when going through the application process.

A well-educated renter will be better prepared to act quickly and find the perfect place! The following is what you can expect with the application process for rental homes in Austin, Texas.

fees for applying for a rental home

Fees You Might Expect When Renting a Home in Austin, Texas

These are fees that you can expect to pay when applying for a rental home in Austin. They will vary from company to company, and from property to property. For example, our company does not charge a pet deposit, but you will find that around Austin.

  1. Application fee: $50-100 per person over 18 (non-refundable).
  2. Admin Fee: not very common, but usually around $75-100.
  3. Security Deposit: usually equal to one month’s rent.
  4. Pet Deposits/Fees: $200-500 per pet. 
  5. Pet Rent: $20-50 more per month in rent.
  6. First Month’s Rent: Will be a pro-rated rent if you don’t move in on the 1st.

Documents to Have When Applying for a Rental Home in Austin, Texas

For a more efficient and quicker leasing experience, gather all of these documents and information in advance. Submitting an application will be easier and you’ll be able to take immediate action when you find a place you like.

  1. Your 3 most recent pay stubs, bank statements or other proof of income. 
  2. A copy of your driver’s license.
  3. Names, addresses, phone numbers and emails of your landlords from the previous 3 years.
  4. Names, addresses, phone numbers and emails of your current and 1-2 previous employers.
  5. Pet records including microchip and/or license information.
  6. Vehicle Information - Make, model and license plate number.

Finding the right place can be tricky. If you are organized, informed and ready, you can let yourself have fun and find your next home! Be sure to check out the available Austin rental homes from Stone Oak Property Management. 

Still have questions about renting in Austin, Texas? Read through questions from renters in Austin, Texas that we hear regularly. 

3 Numbers to Know Before Purchasing an Austin Rental Property

System - Tuesday, January 21, 2020

Have you ever wanted or considered investing in Austin’s real estate market? With a booming population and the crazy growth Austin has been experiencing over the last decade it has become a hot destination for real estate investors to park their cash. 51.3% of Austin, Texas residents rent their homes meaning the majority of the population is filling rental properties owned by investors across the nation and even the world.  This has made Austin’s rental property investment market a competitive one where investors are competing for great deals on property. Now more than ever you need to make sure the deal makes financial sense and below we go over 3 numbers that need to be evaluated before you buy a rental property in Austin, Texas.  

Capitalization Rate

Capitalization Rate, or cap rate, is the rate of return that should be expected on your investment. The cap rate can be used to quickly compare to deals you may be looking at and can be calculated by subtracting annual expenses from the annual rent and dividing that number by the total cost of the property. You’d then multiply that number by 100 to receive a percentage. If you calculated the cap rate and found out your investment’s cap rate is about 20% you should expect to have your initial investment back from the property after 5 years.  

Mortgage Payment

When purchasing a home that you plan on living in you have access to loans, such as FHA, that can get you in a property for as little as 3.5% down. When purchasing a rental property, most lenders will require you to put down a 15-20% down payment. To qualify for the lower 15% would require you to have a credit score above 720. In the event you are looking to acquire a multi-family property, you are looking at a down payment closer to 25%. Another thing to consider is your debt-to-income ratio. When purchasing a rental property, most lenders say the maximum debt-to-income ratio you want to have is 45%. What happens when you experience a slow period where no one is renting this property? Do you have the means to and cash on hand to cover any expenses and the mortgage during this time? Like any investment, there is always risk involved and minimizing your risk is key. 

The Property’s Cash Flow

In the end, you want your rental property to be an asset, not a liability. If you can cover the operating costs of your rental property with the monthly rent you are in great shape as a landlord. Of course, any unexpected speed bumps with your property, such as repairs or unexpected vacancies, can have you dipping into your own pockets for cash to cover your property’s expenses. Be wary of how much money you borrow on your investment property. Borrowing too much can put you in a hole where your property runs a negative cash flow and you could end up defaulting on your loan.

While these numbers are important to factor into your decision when buying rental property in Austin they aren’t the only things you need to consider before pulling the trigger on your purchase. Due diligence is an important step of any investment acquisition so be sure to run the numbers once, twice and even a third time to make sure you know exactly what you are getting into. 

Want to discuss acquiring properties with a team that's been in the Austin rental market for over a decade? Contact our Austin property management team today to speak with an investment real estate specialist. 

1601 E 5th Street #213 for rent in Downtown Austin, Texas

System - Thursday, January 16, 2020

1601 E 5th Street #213, Austin, TX 78602

1,225 SF | 2 Bed | 1.5 Bath

View this and more rental properties in downtown Austin, Texas

171 Salt Fork Drive for rent in Liberty Hill, Texas

System - Tuesday, January 14, 2020

171 Salt Fork Drive for lease in Liberty Hill, Texas.

Check out this and other homes for rent in the Austin area!

1122 Sussex Place for rent in Round Rock, Texas

System - Thursday, December 19, 2019

1122 Sussex Place, Round Rock, TX 78665

Learn more or apply today for this Round Rock Rental Home!

Should You Raise the Rent on Your Austin Rental Property Every Year?

System - Tuesday, December 10, 2019

Raising the rent on your Austin, Texas rental home can be a delicate art. If your rents rise too much you could force tenants out and could have trouble finding new occupants on the open market. If you don’t raise it enough you could be stuck with a property that doesn’t turn a profit for the duration of the lease. So how do know how much your rent should increase every year?

Rent increases are a part of life for both landlords and renters in Austin, TX. When expenses that owners have no control over raise so does the amount of rent they are charging. These types of unavoidable expenses include:

A rise in property taxes for your property

A rise in HOA fees in your neighborhood

Cost of utilities in your area rising

Austin property management fees

Costs for landlord insurance

If you aren’t raising the rents when your expenses go up you’re effectively giving yourself a pay cut. However, if the thought of raising the rent or asking for more money from your tenants makes you cautious your best bet is to run the numbers! You can receive a free rental market analysis for your Austin, TX rental property to learn how much your property should be renting for. These reports are done by someone with knowledge of the Austin rental market and all of the data is based on what the Austin rental market is currently offering!

Your personal expenses DO NOT determine your property’s rental rate.

One thing Landlords need to keep in mind when wanting to raise the rent of your Austin, Texas home for rent is that your expenses don’t set the market rent.  Let’s say you needed to replace your home’s roof this past year. This is an expensive project and can put a dent in anybody’s pocket. Some landlords may choose to set their rent amount higher to try and offset the cost of this repair. This is a no-no and it can result in your property sitting vacant if you’re charging more than the comparable properties in your area. If the costs of doing business (roof repair) outweigh your means to do the repair you may look at offloading your property!

As an Austin, TX landlord, you are allowed to make money!

Owning a rental property is a bit like owning your own little business and as a business owner, your first priority is turning a profit. Even if you haven’t experienced a rise in uncontrollable expenses on your end your property can still be subject to a rate increase! The best way to know how much you can raise your rent is to have a professional market analysis done for your rental property if you aren’t able to run the numbers yourself.

How much of an increase in the rent amount makes sense?

Let’s start this off by saying that most rental hikes are inflationary. Never will you be able to tack on $100 to your rate and not be harming yourself in the rental market (unless you were way below market rate to start with). An extra $1,200 a year is enough to help a tenant decide between your property and the next. Any increase in rental rate needs to be done so that it competitively positions your Austin rental home in the market and exposes your property to the largest pool of qualified tenants possible. An increase of 2-5% is more common and is more manageable for tenants compared to a hike of 10-20%! If you plan on making an increase to the rental rate you want to make sure you aren’t hurting yourself in the marketplace to do so.

Austin Property Management & Rental Increases

If you choose to partner with an Austin property management company on your rental home(s) they will typically increase your rent every year with what the market allows. Before the renewal of your lease every year your Austin property manager should be performing a market analysis to ensure you are receiving the max rental rate for your rental property.

Exceptions to the Rule

Is there ever a time you wouldn’t want to increase the rent even though the market allows you to do so? The answer is complicated and comes down to personal preference. Let’s imagine you’ve had a renter in your property for the past 2 years and they’ve been perfect – never missed their rent, on top of maintenance, easy to work with, etc. Some landlords choose to reward loyalty from their tenants with lower rent prices. Raising the rent could force those tenants to vacate and go elsewhere so some landlords trade-off the rent increase for keeping A+ tenants in their property. In the end, it’s up to you – the landlord.

For any questions about Austin rental home or property management services don’t hesitate to contact Stone Oak Property Management.

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Stone Oak Property Management
13497 N Highway 183, Ste. 700
Austin, TX 78750

Phone: 512.617.6766
Toll Free: 888.892.7940
Fax: 512.994.2300

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