Quick: name the U.S. News top-20 MBA program where you can afford to own a nice, spacious home in a truly urban setting.
Sounds like an oxymoron, right? Here’s a hint: this MBA program is in the same city that ranks #1 on Kiplinger’s 2010 Best Cities for the Next Decade list, #2 in Parenting’s Best Cities for Families and #12 in Bloomberg’s 2011 America’s Best Places list. It is also just 20 minutes from Money Magazine’s #3 ranked “Fastest Job Growth” county.
Still stumped? Does it help to know that this top MBA program is located in The Live Music Capital of the World?
That’s right, it is the full-time McCombs MBA at the University of Texas at Austin.
I know what you are thinking: how can such an exciting town and prestigious MBA program make for such an affordable combination? I once had my doubts, too. Before moving to Austin, I lived in Washington, DC — one of the only cities that has yet to see housing and rental prices decline. Rent in DC rivals that of San Francisco, Chicago and even parts of New York City. With tiny 1-bedroom condos in “emerging” neighborhoods starting between $400-500k, home-ownership was out of the question.
Everything changed when my fiancee — a graduate student at UT’s LBJ School of Public Affairs — and I moved to Austin in 2010. Imagine our shock when we discovered that our modest 2-bedroom apartment in West Campus — one of the pricier and more attractive neighborhoods in Austin — was overpriced at $1100/month. We were less than one mile from McCombs’ doorstep and we even had a private parking space!
That’s when it occurred to us: if we are overpaying for a place that would be two or three times as much in DC, can we afford to buy a nicer home of our own?
We promptly set to researching options with our realtor, Matt. It didn’t take long to begin finding the hidden gems we suspected were out there, especially with the economy driving home prices down. In mid-August, just as our lease was set to expire, we closed on a brand-new, eco-friendly 1-bedroom apartment in The Crestview complex in North-Central Austin. At 1,100 square feet with an additional 200-square foot outdoor balcony, we are still in disbelief that our monthly mortgage payments are less than our rent had been at our last home.
If I were reading this, I would suspect this means we are now living in the sticks. Not so. Heading into campus each morning, I have a choice between a 30-minute bicycle ride (a straight shot on Guadalupe St., a.k.a. “The Drag”), a free 20-minute bus ride or a 12-minute car ride to the Forty Acres. In the evenings, the amazing Black Star Co-op brew pub greets me at the bus stop.
As you can probably infer from my enthusiasm, my fiancee and I are indeed among “the converted” — folks who once thought Willie Nelson and BBQ were the only good things to come out of Texas yet now consider ourselves proud Austinites who will do whatever we can to stay here. She recently accepted a full-time offer from a major league consulting firm and, yes, she will be based in Austin. For my part, I have been hooked by the entrepreneurial culture of Austin and the UT campus and am working on a tech startup, reQwip, with other McCombs students and a smattering of students from other UT departments. reQwip was born at UT’s Austin Technology Incubator complex at 3 Day Startup, an international program based at UT. There is no better place for us to pursue our “lean startup” than Austin.
Despite our desire to stay in Austin and own our home, we were only willing to purchase a home that we could easily rent. There is no telling if future professional situations might force us to leave our hearts in Austin and take our furniture elsewhere.
Through careful evaluations of our neighborhood and the rental behaviors of students and professionals in Austin, we confidently concluded that, even if rental prices were to drop 20% — an unlikely scenario given that Austin’s professional population is growing steadily and deflated economies increase demand for rentals — we will still be able to rent our home out for more than our mortgage. In short, we hope to enjoy our luxurious condo and its sun-drenched patio for many years to come, but we won’t be in a real estate pickle if we have to move in the years ahead.
We aren’t the only ones who took this view at McCombs. First-years Matt Schmit and Sean Supon — both single guys with military backgrounds — each purchased new units at the 41 Waller condo complex in the hip East Austin neighborhood. Matt and Sean began their condo search during the spring Preview Weekend, where they also connected with their future roommates. Both ride bikes to campus, though Sean’s bicycle doesn’t make quite the same entrance that Matt’s chopper guarantees.
Sean based his decision to purchase his home on three factors: (1) historically-low real estate prices; (2) Austin’s great rental market (“high rents and frequent turnover, thanks to UT”) and (3) historically-low interest rates.
“The housing crash and credit crunch left a golden opportunity available to those who had the capital to receive financing,” Sean explains. “As it is now, my roommate’s rent almost completely covers my mortgage payments and I will build equity throughout school rather than pay rent.”
According to Sean, Austin’s growing demographics and UT’s revolving student base make it “a nice place to own a rental property.”
|Metro Area||Avg. 2-BR Rent||Median Sales Price of Single-Family Homes|
|SF Bay Area||$1,899||$400,000|
|SOURCES: RentVine (rentals) and Kiplinger (homes)|
“Austin is a city for people of all ages and interests,” adds Matt. “Although I’m already committed to taking a job in Colorado Springs, CO as an instructor at the Air Force Academy following the MBA program, I felt that the long term investment in a home would allow me the opportunity to remain connected to this great city for years to come.”
This isn’t Matt’s first time buying, either.
“Having previously purchased a home in Charleston, SC during the housing boom, and subsequently watching its value take a bit of a hit, I quickly learned that investing in real estate is not always a quick turn, cash cow,” he cautions. “Having said that, I have been renting that house out for the past three years, steadily collecting equity, and enjoying the many perks that go along with home ownership. A couple of those advantages stem from the considerable tax breaks and benefits available at the end of each year – all interest, property tax, and mortgage insurance payments are tax deductible. Not to mention, anytime I visit Charleston and check on my rental, those travel expenses are also tax deductible.”
Matt’s experience with the nationwide downturn in the housing market has steeled him well.
“Whether I am able to sell my home in Austin for a profit at the end of the MBA program or I decide to turn this property into a rental, the pros of owning far outweighed the cons of renting,” Matt explains. “There are many great neighborhoods in Austin and with home prices still relatively low, so I would recommend buying to anyone moving to Austin… unless of course, you’re looking for a great 3 bedroom, 2 bath condo within walking distance to downtown – I know of a place that may be opening up in May of 2013,” he says with a wink.
For each of us, the general path to home-ownership in Austin was the same. Whether housing prices climb, remain stable or drop, paying money and never getting it back (as is the case with renting a home) is always less preferable than paying money and at least getting some of it back in the future (as is the case with buying and then selling a home). In each instance, careful logic was in play and we only considered locations that could be easily rented at least at-cost out if we were forced to move out of Austin.
That, or we were all equally emotionally illogical and just desperate to put a nail in the wall and not have it taken out of our deposit.
|Metro Area||School(s)||Cost of Living (higher figures indicate more expensive)||Income Growth||Avg. Temperature|
|Austin||University of Texas at Austin||93||3.00%||68 degrees F|
|New York||NYU, Columbia||218||8.90%||55 degrees F|
|SF Bay Area||Stanford, UC Berkeley||164||7.00%||57 degrees F|
|Chicago||U. of Chicago, Northwestern||115||5.60%||48 degrees F|
|Philadelphia||U. of Pennsylvania||126||8.90%||55 degrees F|
|Los Angeles||UCLA, USC||134||5.40%||63 degrees F|
|Boston||Harvard||100||8.30%||51 degrees F|
|Pittsburgh||Carnegie Mellon||94||10.80%||51 degrees F|
|Washington, DC||Georgetown||141||9.50%||56 degrees F|
|SOURCES: Kiplinger (cost of living and income) and Weatherbase (temperature)|