Hello everyone - greetings from Austin!
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On to the newsletter! I have two items for you this week:
A few cool notes related to the IPO
A quick primer on what’s driving Austin’s growth
This week AirBnB went public at over a $100 Billion Valuation. Here's the email between Justin Kan (the co-founder of Twitch) and Paul Graham (the co-founder of YCombinator). One day later on this email and AirBnB may not be the company it is today.
YCombinator's investment of $20,000 in 2008 as of today is worth $2 Billion, which is a 260% IRR. YC was also an investor in DoorDash which also went public this week. Not a bad way to close out 2020. Here's letters from YC leadership on AirBnb and Doordash.
When I moved to Austin earlier this year, there were a few reasons for my move: My apartment Real Estate acquisition strategy had shifted towards acquiring in Austin and Dallas, I wanted to reduce the amount of taxes I pay, and my wife and I wanted more space and great weather. Austin checked all those boxes.
This week, we heard that Elon Musk has left California to live in Texas full time and that Oracle has now changed their HQ to Austin from California. This is in addition to all of the other people we've heard moving here such as Joe Rogan, Tim Ferris, Joe Lonsdale, and the list goes on and on.
Why is this happening? Well, I believe it's for many of the same reasons that I moved here. One reason is taxes. California has some of the highest tax rates in the country. Texas has 0% state income tax. Austin winters are short and mild. Austin has also managed to remain cheaper than San Francisco, New York, and L.A. The nature in Austin is also comparable to California which makes it great for hanging out by the lake or going on hikes.
But, it's not all rainbows and sunshine. Austin does have some of the same troubles that San Francisco has had -- such as a growing homeless population and a weak infrastructure leading to traffic. The major difference however is that Austin has generally focused on building growth opportunities in the region, versus California's protectionism mindset. As an example, from 2014 to 2018, Austin added more new apartments relative to the size of their housing market than any other major U.S. city. Remember this last point, because we will come back to it.
Some interesting info provided by the WSJ shows the inflows and outflows by city with Austin leading the trend:
For every person who moved to the Bay Area from Austin between April and October, 2.9 people moved in the other direction, according to an analysis from LinkedIn. That is a 39% increase from a year earlier. For New York, the ratio was 2.2, up 45% from a year earlier. Austin’s overall population inflow-to-outflow ratio was the highest among 47 metropolitan areas analyzed by LinkedIn. Long-term stays through websites such as Airbnb are also on the rise. The number of 28-day-plus Airbnb reservations for entire homes in Austin increased 57% in the third quarter compared with a year earlier, according to data company AirDNA.
Now one last point on the population growth. From 2010 to 2019, the population of Texas swelled by around 3.8 million inhabitants. That leads to a total of about 29 million residents — more than the entire population of Australia. And, Texas is home to an outsized amount of new home owners compared to the rest of the country, with seven of the top 25 cities nationwide for new home ownership in the state.
Now that I have shown you that virtually everyone is moving to Texas we have determined that there is demand. Every Real Estate investor's dream. However, this is no secret. As I noted above, supply of apartments has grown in line with that demand. Because of that, I think it's important for investors to understand that Real Estate is no different than any other market where there's a supply-demand curve that must be taken into account when thinking about Real Estate asset performance. This is one of the main reasons that is has remained a relatively affordable place to live versus coastal cities.
Now having said that, there is such a large influx of ambitious and talented people that are piling into Austin that I believe the growth prospects of the city are enormous. The next major $100B company will not be built in San Francisco, but rather in Austin, Texas. Founders, Executives, Investors, and Builders have moved to Austin and when you get all of these people in one place magical things happen. We're going to see a substantial amount of growth in every single sector in the region across Tech, Manufacturing, SMB, and Real Estate.
I'm excited for the ride. So the question becomes — when are you getting down to Austin to join in on the fun?
Have a great Sunday,
Rohun