The Downtown Austin Condo Buyer FAQ
A comprehensive overview of the emerging downtown Austin condo market prepared by Jude Galligan, REALTOR, answers the most common questions facing buyers. Condos have unique rules and expenses compared to owning a single-family house.
How much does it really cost to own a downtown condo?
The price of a condo is only one component of the final cost. In addition, you’ll need to think about monthly HOA fees, property taxes, utilities, etc. The good news is that the major costs of ownership are relatively fixed. Unlike owning a single-family house, you won’t need to worry about surprise maintenance projects like replacing a broken window, or repairing a roof.Calculated below are cost estimates for five commonly found condo sizes in downtown Austin based on 4.5% mortgage interest rate, using 25% equity, an average monthly HOA fee of $0.41 per square foot, and a "homesteaded" property tax rate of 2.2%. For illustration purposes only. Actual amounts will vary.
|One-bedroom||One-bedroom (large)||Two-bedroom||Two-bedroom (large)||Three-bedroom|
How much are condo HOA fees?
One of the most common questions asked by first time condo buyers is how much individual buildings charge in monthly HOA fees. Buildings with more dwellings tend to have more amenities, spreading those maintenance costs across more people. Smaller buildings, or adaptively repurposed buildings tend to not have a pool or concierge.
Condo fees fund the daily operations and maintenance of most condo buildings. They cover security, landscaping, cleaning of common area, common area energy use, maintenance, and other key building functions. On average, our research shows, condo unit owners can expect to pay $0.47 / SF / per month or $470 in monthly condo fees for a 1,000 SF unit.A table of downtown Austin's building HOA fees
|Building||Monthly HOA Expense (USD)
|W Hotel Residences||$0.62|
Looking at detailed MLS records on more than 30 units on the market today, we’ve calculated the rough fees for the major downtown condo buildings that currently have units on the market. Condo HOA fees are calculated on a dollar-per-square foot basis. So, condo fees are not higher for more expensive units, or units with more bedrooms, or units on higher floors compared to other units of the same size in the same building.
The prices in new buildings that we have looked at are surprisingly varied — they range from $0.33 / SF / Month to $0.75 / month — an amazingly broad range.
Why are condos more expensive than houses?
Let’s compare condos and single-family nomes. New downtown condos typically cost more per square foot than new housing in high-end areas close to downtown such as Tarrytown, Pemberton, and Clarksville. Downtown land is very expensive.
Residential towers require lots of concrete, glass, and steel which are more expensive but also higher quality and easier to maintain than the typical single-family home built from a wood frame.
When you focus on price-per-square-foot in evaluating costs, downtown condos may seem expensive until you begin to add up the maintenance savings and quality-of-life improvements.
- Energy costs in a condo are typically very low: it’s not uncommon for average utilities in a 2,000 SF unit (Electric + Gas + Water) to be under $100 per month. A similar house with a lawn could have average monthly utilities in the $300 – $500 range.
- Maintenance costs are included so you won’t have to spend $10K for a new HVAC unit, roof, or other potentially expensive repairs.
- Possible to eliminate a car and the related expenses of car ownership such as, gas, insurance, and financing payments that come with it.
- Many buildings include amenities such as swimming pools, shared “guest” bedrooms, etc. that allow tenants to live in smaller units that they might otherwise own. If the building has an extra bedroom that can be used when guests are in town, you may be able to live in a unit that is smaller than a comparable single family house.
- And there are many more economic benefits: you won’t need a paid security system or service, your insurance premiums will likely be lower and you won’t spend money on landscaping, exterior painting, or pool maintenance.
So while the price per square foot may seem high, think about the complete picture. There are some great economic benefits to life in a downtown condo.
Which are the best condos for investment?
To answer this question, AustinTowers completed a comprehensive unit-by-unit analysis of appreciation in the Nokonah condos. The Nokonah, a luxury high-rise project completed in 2002, was one of the first successful projects that helped to ignite the current condo boom in downtown Austin. The 11-story project is located at 9th and Lamar just north of Whole Foods and on the western border of downtown. The centerpiece of the study was a comprehensive analysis of public tax records (tax records are available online through the Travis Central Appraisal District) to better understand downtown condo market values and how they have changed over the last five years. This analysis, which tracks every unit in the Nokonah, shows appraisal value and $ / SF by floor, apartment size, # of bedrooms, and year. The data is fascinating and will be a useful tool for anyone looking to purchase a downtown condo (Register for the full report).
Here are some of the results:
– The average appraisal value of Nokonah units rose 61% from $233 in 2003 to $376 in 2006 – a growth rate of 17% per year. This is more than triple the 5% annual growth rate in sales prices for the Austin market during the same time period. Even as other projects have hit the market, Nokonah values have continued to increase in value.
– While the average appraised value is $450 / SF today, there is incredible variance. If you’re trying to figure out what the right price is to pay for a new unit, the Nokonah data is very interesting: current appraised values actually range from $230 / SF to $498 / SF depending on size, floor, bedrooms, etc. In future postings, I’ll dive deeper into the factors that make a unit more or less valuable.
– Appreciation varied dramatically by floor: the higher the floor, the greater the appreciation. The strongest lesson is to stay away from ground floor apartments. at the Nokonah, the ground floor units appreciated by 30% while floors 2-5 appreciated by 58% and floors 6-11 appreciated by 77%. The highest appreciation was on the 11th floor which went up by 84% over the three year period.
– The largest units appreciated the fastest: units over 2,500 SF appreciated by an average of 70% while smaller units appreciated by an average of 60%.
– The smallest units (under 750SF) , even though they were on the lowest floors, appreciated at a faster rate than the mid-size units between 750 and 1,500 square feet. The most valuable unit on a $/sf basis, was unit 1002 at $498 / sf — it is 697 square feet on the 10th floor. The third most expensive unit at $476 / sf was the largest unit — # 1101 which is 4,459 square feet and currently valued by TCAD at $2.1M — a huge jump from it’s 2003 value if $1.1M.
How easy is it to sell a downtown condo?
The market for downtown Austin condos is very active but quite different from the single family home market in two key facets.
First, downtown condo owners who want to sell are competing with new units entering the market. This was more of a problem back in 2007-2008. Today, the inventory of downtown condos is considered “locked” in as the number of sites available to build has dwindled. Four new construction towers and resales of existing units dominate the marketplace.
Second, units for sale within a building compete directly with other units within the same building. It’s important to note that condo projects are more commodity-like than single family houses in established downtown neighborhoods. If you buy a house in central Austin, the odds are that it is different — in one way or another — from every other house in central Austin. When it comes time to sell your unique house, you may get lucky and sell for more than it’s worth, or you may be unlucky and have it sit on the market for a long time. Setting a price is a key variable, but pricing a unique house is as much art as science.
The issue is that the value of unique single family homes is subjective and highly personal. Every house, every street, and every aesthetic is valued differently. The single family home market, as one would expect, is very different from the downtown Austin condo market.
Every high-rise condo project has a large number — sometimes hundreds — of interchangeable commodity-like units [e.g. unit 16B is essentially identical to unit 17B one floor higher]. The result is a highly efficient resale market. When it comes time to sell a downtown condo, there will likely be similar units on the market. If they are cheaper, they will sell faster. If they are more expensive, the may take months to sell. If you’re inside the proverbial “bell curve” representing most buyers, then the resale market for downtown condos is incredibly efficient.
While the floor (the higher the better, stay away from the ground floor) matters and in some buildings the view can vary greatly from side to side, the effect on value is not as dramatic as one might think. Our ongoing analysis of Nokonah values and appreciation confirms this: units on floor 11, the top floor, are valued at just 11% more than units on the second floor. Buyers seem to pick a building first, and then look for the right unit weighing size and price. This approach leaves very little room for creative pricing.
Yet, it’s amazing how differently sellers price similar units. the AustinTowers’ listings pages provide a few great examples of this. For example, there were recently two units for sale in the Nokonah: a 670 SF 1/1 for $450K and a 1,225 SF 2/2 for $550K — the smaller unit is almost certainly overpriced.
Because it so easy to compare prices, downtown condo values will be efficiently set by the market. The building will make a huge difference, but actual prices will be set by your neighbors. This has some benefits and drawbacks. On the positive side, accurate comparables make it easy to set the right price and correctly priced units should sell quickly. On the downside, pricing may fluctuate more widely with supply and demand: when there are lots of people selling at the same time, it’s likely that prices will drop. And there is very little chance to get lucky and sell your unit for above market value — if a unit doesn’t sell, the most likely reason is that it is overpriced.
Who provides Internet, cable, & utilities to downtown condo owners?
When it comes to third-party services, owning a condo is just like owning a single family home. Buyers will typically contract directly with the phone company, cable company, and gas company for service at market rates. The same is true for water and electric, although sometimes those services are sub-metered by the building.
As for Internet, customers can choose between DSL from the phone company or high-speed internet from the cable company. Some buildings may offer free wireless in common areas or units as part of the building services.
For most services, there is no building mark-up, owners simply contract directly with the provider as if they owned a single family house or rental apartment.
Who actually lives downtown today?
Every type of person you can imagine. There’s a broad range of generations, nationalities, couples, singles, and families. Census data provides a good picture of who lived downtown in recent years. To get the clearest picture, we’ve looked at the most recent census data for 78701. 78701 and 78703 are the predominant downtown zip codes: it includes the area between the lake and MLK blvd and between Lamar and I-35. Virtually every project covered by AustinTowers is within these boundaries. In 8 years, the downtown population is expected to grow by a factor of 5.
So who lives downtown?
– Approximately 10,000 people and growing
– Well Educated (52% have college degree v. 26% across Texas)
– Racially Diverse (61% white, 21% Hispanic, 9% African American, 3% Asian)
– High Income ($55K per capita v. $21K across Texas)
Do downtown residents actually work downtown?
One of the big questions has always been whether the people who live downtown also work downtown, making them less dependent on cars. If so, downtown residents may need fewer cars and may become a core constituency for the public transportation system. With traffic an increasing problem, the more people who are able to bike or walk to work, the better. The results look positive.
Demographic analysis reveals the following facts about downtown residents:
– Less dependent on cars (60% drive to work v. 92% across Texas)
– High utilization of public transportation compared to Texans (14% take public transportation to work v. 2% across Texas)
– Crazy high walking / biking (19% bike or walk to work v. 3% across Texas)
– More work at home (7% work at home v. 3% across Texas)
– A quicker commute (16.3 minutes v. 20.8 minutes across Texas)
How many downtown condo units are bought by investors?
While there are no good numbers on this, a reasonable estimate would be 10-15%. For example, even though the 240 unit Milago is completely sold out, 30 units — 1 / 8th of the building — were listed on MLS soon after the project opened. While as many as half could be from people whose plans have changed between when they signed the contract and now, the remaining 5-8% are most likely condo investors hoping to flip the units. In addition, there are likely an equal number of investors that have purchased units that they plan to rent. Together, these groups likely represent 10-15% of the downtown market.
Do MLS statistics accurately capture the current state of the downtown condo market?
No. Texas is a “non disclosure state.” One problem with analyzing the downtown Austin condo market is the lack of good sales data on many of the projects currently on the market. When REALTORS sell traditional single family homes or resell condo units, they are listed on MLS and the actual sales price is recorded in MLS and available to any participating real estate agent. Unfortunately for buyers and sellers, many of the new downtown high-rise projects are being marketed by in-house sales teams without the assistance of realtors. As a result, these units never hit MLS, aren’t included in market statistics, and the comparable sales data isn’t available to realtors. The result: downtown condo buyers have very little information on sales prices and discounts in the major downtown projects. Working with a REALTOR is highly recommended if buying downtown.
The only upside is that the lack of transparency may help buyers get better deals. When a large project is marketed on MLS, developers are very resistant to give discounts as every future buyer will ask for the same deal. They are much more likely to stick to list price or standard discounts to protect their margins. When the sale is non-public, the developer doesn’t have to worry about providing a break on an uncontested unit as nobody else will know.
What is being done downtown to promote affordable housing?
Over the last year, a city-sponsored Affordable Housing Incentives Task Force has been discussing ways to encourage the development of affordable housing units as part of large scale development projects. The city wants more affordable downtown units, but State law doesn’t allow the city to place affordability requirements on new developments. The purpose of the task force is to create incentives that make it attractive for developers to include these units.
Last week, the Task Force delivered its recommendations to the Austin City Council, Planning Commission and the Community Development Commission. After seven months of work and twenty meetings, the task force reached consensus on incentive policies to encourage developers to provide affordable housing.
Like most policies, there is a carrot and a stick. The carrot provides for expedited review, fee waivers, and zoning variances that allow for greater height or density if affordable units are included. The stick is a fee — as much as $10 per SF — that applies to project area in excess of standard zoning density requirements when variances are granted for projects that do not include affordable units. As the City Council has already been applying similar rules in some zoning discussions, the incentives seem likely to be put into effect.
While Austin remains much more affordable than many of the Country’ largest cities, affordability is becoming a bigger issue as prices continue to rise. To keep the city vibrant — and to make sure that there is always central housing for teachers, public servants, and other middle income workers, these incentives seem to make sense. Like any policy that appears to redistribute resources, the rules will be controversial. But they seem balanced enough to be fair to increase the stock of affordable housing without reducing development.
Here are the specific rules that apply to downtown:
Central Business District (CBD):
For rental CBD projects that provide either 5% of the total project square footage or 10% of the additional gross square feet in the project, above what is possible with 8:1 floor to area ration (FAR), must provide units at below 80% of Medium Family Income (MFI) in order to receive fast track permitting and to have all City of Austin fees waived. In for sale projects, the same amount of affordable units are required; however, the units must be affordable for households earning at or below 120% of MFI.
Residential developments in the CBD that choose not to provide affordable housing on-site or non-residential developments seeking an increase in FAR must pay a “fee in lieu” of $10 for each additional gross square foot in the project, above what is possible with 8:1 FAR.
Downtown Mixed Use (DMU):
For rental DMU projects will be required to provide affordability at or below 80% MFI for 10% of additional gross square feet in the project, above what is possible with 5:1 FAR, or that exceeds 120 feet in height. For sale projects must provide the same amount of affordable housing at a level of 120% of MFI.
As with CBD, residential developments that choose not to provide affordable housing on-site or non-residential development seeking an increase in FAR must pay a “fee in lieu” of $10 for each additional gross square foot in the project, above what is possible with 5:1 FAR, or that exceeds 120 feet in height. Projects that do not seek a FAR bonus, but 5% of the total project square footage meets the affordability requirements, will receive the allowed incentives.
It looks like there are several developable sites downtown, will that effect values?
Actually, it is getting very difficult to assemble a downtown parcel large enough for a major project. The number of viable sites is rapidly dwindling. The mayor has set a goal of 25,000 residents downtown by 2015 — 12,000 more than exist downtown today. While their may be enough downtown parcels to get there with very dense development, downtown capacity is very limited by the following factors:
(1) Capital View Corridors (shown on the map below in pink) that strictly limit the height of development
(2) Historic sites and large existing structure that would be difficult to develop
(3) Current projects under development
The Capital View Corridor is a unique Austin phenomenon. As part of the downtown master plan, the city has set aside a number of corridors, shown in pink below, where development is severely restricted. The corridor essentially requires all buildings to be short so that they don’t block views of the capital from a number of predetermined angles.
This explains why downtown land prices have skyrocketed — there are very few remaining lots that are attractive for big projects. It’s also why downtown projects seem to keep getting taller and taller — developers need to build as many units as possible to cover the cost of land, pushing them higher and higher.
The result is probably good for downtown condo owners. Since prime downtown sites are limited by natural boundaries (I-35, Mopac, Town Lake, and The capital / UT) and severely restricted by capital view corridors and the historic structures, it’s likely that downtown will reach near-maximum capacity in the next decade. After that, developers will need to move further out to less attractive lots or build on more expensive sites to continue to add units. If demand grows– and it should as downtown comes alive with residents– the most attractive projects will likely appreciate in value.
What is a good source for downtown condo listings?
Start with AustinTowers’ Building Navigator to figure out which building or buildings you want to live in and then look to see which units are available. Despite their popularity, Zillow and Trulia do not have the most accurate property data. AustinTowers gets is data directly from Austin Board of Realtors and is updated every hour.
Jude, this FAQ has been a great start, but whare do I go from here?
- jude [@] towers.net
Or, continue to educate yourself: download and read my free report for condo buyers: 7 Crucial Mistakes Buyers Should Avoid When Buying A Condo (pdf).
Jude Galligan, REALTOR, Principal-Broker of TOWERS Realty and publisher of Austin Towers, is a resident owner in downtown Austin. In 2014 and 20015, Jude recorded the highest number of downtown condo sales, compared with more than 9,000 Austin Realtors (per Austin MLS sold data). Jude serves on the Board of the Downtown Austin Alliance and Downtown Austin Neighborhood Association.