Love Austin Homes Investing Blog

I’m studying REI full-time currently, and am learning that, with the
many REI strategies one can employ, there are some that work better in
some markets and some that don’t work well in some markets at certain
times.

My question is this: would flipping be an advisable short-term
strategy in the Austin market at this time?

Some would say it’s too hard to find decent deals in a market that’s
seeing rapid appreciation, as Travis county has begun to see. Some
would say flipping is too popular right now, further increasing the
number of competitors looking for deals. To those who know the REI
game in Austin, what do you think?

Thanks for your insights.
Andrew

ANSWER

Andrew,
I guess I would have to say I am an experienced investor in Austin. My personal perspective is that the market is petty saturated with investors. There are always deals to be found, but with so much competition, there are frequently too many people willing to pay too much for properties. A lot of these are newbies that underestimate costs and pay too much, get burned, and eventually drop out of the business. But, they are quickly replaced by a new crop the next month.

Info books and tapes making it sound easy and TV shows like “Flip That House” fuel the fire. I especially have a pet peeve with Flip That House, because they show an inaccurate profit made on every deal, and they purposely don’t include closing costs, carry costs, or cost of sales (which can easily add up to 15% of the finished product) in the profit calculation. I can prove that several of the featured deals they illustrated as profitable actually LOST money…

Personally, I’m also NOT big on books and tapes. The authors are in the business of selling books and tapes – and telling the truth that this is a business, and that the businesses that are successful require hard working smart people with resources, is not going to sell as many books and tapes as spinning a version of the truth illustrating how to get rich in real estate.

What I am big on is networking and partnering. If you are serious about investing, find some smart, experienced, hard-working people with resources that have been doing this for a while and work with them. At least half of the many projects I’m funding these days, came to me from another investor looking for an experienced partner…

Phill

Another approach to avoiding a lender from calling a loan on a property that has been sold is to title the property into a land trust, and have your LLC be the beneficial interest of it. Titling a property into a land trust
> for estate planning purposes is a specific exception to the due on sale clause. The land trust itself does not technically isolate legally liability from you personally. The LT provides identity separation between you
and the property. If the beneficial interest of the LT is held by your LLC, the liability protection would be limited to the assets of it.
Lawrence

ANSWER

Lawrence,
Lands trusts don’t offer liability protection, only identify protection. Transferring the beneficial interest of a trust to an LLC will put you at risk with the due on sale clause, just as transferring ownership directly into the LLC would. That said, using a trust makes it more difficult for the lender to figure out what is going on. That being said, lenders almost never call performing loans due anyway…

All of these are fun tricks of the trade that learn about in RE books, but as a practical user of all of these techniques, I have come to also take into consideration the administration of such vehicles. The trust requires paperwork, a trustee, etc. The LLC requires articles, annual filings, possible tax filings, and, if you really want to get the liability protection, regular officer meetings – including documented meeting minutes, etc. Technically, you should even keep a separate set of books for each entity. Once you have 10-20-30 properties, and try to maintain all of this, it becomes overwhelming.

Another approach is to minimize your entities, and get a personal liability umbrella insurance policy for enough to more than cover your assets.

Phill

We have a house that we lived in that we want to turn into a rental and
transfer ownership to a limited liability corporation. I realize
that this an legally cause a due on sale event. From your experience, as
long as we continue to pay the mortgage, does the mortgage company ever care?

Thanks.
Jane

ANSWER

Jane,
As a practical matter, it is VERY UNUSUAL for a lender to call a loan that is being paid on time regardless of whether the home was sold or not. I can give numerous examples.

My only fear would be in the even that at some future date interest rates shoot up AND the foreclosure situation subsides. In the past, in this environment, loans have been called.

Phill

Hi,
I’m new to the RE investor field. First, I spent a considerable amount
of time learning, reading, attending local REIA meetings and
educational seminars. I plan to continue learning but I wanted to get
started ASAP. I have been actively seeking houses to buy for about 3
weeks now. I created my 1st direct mailer (postcard). The post cards
were over sized and an extra thick card stock to get attention.
The card was sent out MLS listing, in the NW side of San Antonio,
which met one or more of the following criteria.
Over 90 days listing
Price reduction
Expired/canceled

I feel like I got positive responses, 5 out of the 190 I sent out
called back. After talking to them, I set up 3 appointments. Of the
3 meetings one is interested in a subject to deal, but wants to try
and sell on MLS for one more month. If it does not sell, I feel like
he will do the deal. The other two were not very motivated to sell
and were fine with over pricing their house and waiting for a buyer.
Over all I feel like I did not reach/find very motivated sellers.

I figure I need to find motivated sellers. I have seen
somelists/systems advertised, but I wonder how many of these have
value. Seems like they re too good to be true. IE they advertise,
“Sellers will com knocking on your door.” They will call you begging
to buy their house, etc.

Any one know were I can get reliable Pre-foreclosure, divorce,
probate, etc list for the San Antonio area?

Sunil

ANSWER

Sunil,
Everyone here is looking for motivated sellers…

My own experience is that you are doing some of the right things by marketing to FSBOs and foreclosure lists, however, remember that these are the same people everyone else is marketing to, so competition is stiff.

5 responses is a good start, however, my advice is to wait until you find a real deal. I frequently look at 10-20 deals to find a good one. I sometimes see newbies get frustrated and try to force a deal where there is not one to be had.

Phill