Love Austin Homes Investing Blog

Hi, I am a beginning investor looking at Austin. I have been investing for almost a year in my home market of Salt Lake City, but I want to expand my operation. One of my mentors told me that the secret to finding great markets is researching them. Having no clue where to start, I started seeking out market analysis companies, but was shocked at the cost of most market reports. Then I found this company called Redfish Emerging Markets (redfishemergingmarkets.com). Has anyone heard about them before?

Answer

I’ll assume you are talking about buy/hold rental property. If you were talking about flipping properties, you really need CMAs for prospective properties (to determine value) and you also need to know a little about how easy the property will be to sell, and how marketable it is relative to other properties in the area. I recommend a realtor for that purpose. I use my realtor, Shenoah Peck.

For Rental Property…
For starters – I DON’T recommend investing in a market you don’t thoroughly know. You can spend any amount of money you want trying to determine what cities to invest in, but the truth is that the devils are in the detail. Case in point – droves of California investors bought reports over the last couple of years touting Austin (and central Texas) as one of the hot hot markets to buy rentals in. So in they came, by the bus load. The problem is that many of them bought properties in Round Rock, Hutto, Pfluggerville, Del Valle, Leander, and various new construction areas. When you buy in these areas, you compete with builders. Builders offer financing…often sub-prime financing. Areas filled with sub-prime borrowers have lots of foreclosures. Areas with lots of foreclosures go down in value and not up. Bottom line – lots of California investors got wiped out because they bought in the right city but wrong subdivisions.

Now, you can buy reports telling you where, in general, to invest. Before you spend your money, however, I suggest looking at the free reports done that are all over the internet. If you email me, I will send you one from Wells Fargo, for example. This recent report, which is fairly sober overall, basically says that Austin and several cities in Texas are among the best places to invest nationally.

Keep in mind, however, there is no such thing as a national market analysis report that you can buy that will tell you EXACTLY where to buy within a market. The only way to get this right is with a lot of local expertise. You need to develop that expertise or hire someone that has it. My partner and I, for example, have that expertise and we buy properties for ourselves, and for our clients, in very specific neighborhoods. Our own sizable rental property portfolio has appreciated at 5-12% (12.5% average) annualized, for example.

Phill

I am interested in getting started in real estate investing. Do you have any suggestions on training, books, tapes, etc.? I want to start off part time, but evolve into a full-time career.

Answer

Well, this is actually a long and involved discussion, but let me give you a few pointers.

1) On my website I have links to just about every web-based resource a Texas investor would need, including this link: http://www.johntreed.com/Reedgururating.html , which reviews just about every book and guru out there.

2) In general, I am OK with reading books, but they are not for everyone. I, for example, fall asleep after about two pages - I’m more of a learn by doing than learn by reading kind of person. Everyone is different, and you have to determine what works for you. What worked for me was getting out there, joining some of the local real estate clubs (see links) , meeting other investors, and working with a local mentor.

3) My biggest problem with most of the books, tapes, and gurus out there are that they tend to emphasize successful case studies and strategies and gloss over the problems and catches. Sort of like the gambler that always brags about his big wins, but never mentions his big losses, these books have a “get rich fast and easy with no money down” flavor to them. I guess that’s what sells books. When someone looks at these get-rich-quick books in the bookstore next to my “work hard and get rich slow over time” book, they always go for the former, until they ultimately realize that those books are fiction and mine is a biography. I guess my point is that those that can, do, and those that can’t teach, so you might consider finding a doer to be your teacher.

4) If you do hire a trainer or mentor - get someone LOCAL! I can tell anyone that would like to listen dozens of stories of California investors that came to Austin and got slaughtered. Simply put, they bought the wrong houses for the wrong prices in the wrong places expecting the wrong appreciation. Many of these people were experienced investors that were employing strategies that had worked for them in California…but just didn’t work here. Why? Every market is different.

5) While I’m at, I’ll also plug my own training class. I have a training class that I give a few times a year with a training partner. I only give a class a few times a year. I also offer personal mentoring. I only do this a few times a year because, I’m a full-time investor, and don’t have time to do this more often, but I do like bringing new people up to speed, and most of my students go on to become partners of mine in various real estate ventures in the future (which is the real value of doing the training). Regardless of who you decide to work with in learning real estate, I’ll go back to point #4 - do go local. If you want more info on what I offer, check out my website for info on the next class coming up: http://www.loveaustinhomes.com/real_estate_education_and_mentoring Thx.

Phill

I have a question.

A friend of mine and his brother live in a house that one of them bought a few years back. The owner of the home is wanting to move to a nicer house, and the renting brother is interested in buying the home from his brother.

To me it seems that they could cut down on closing costs significantly just by hiring an attorney to write up the contract (anyone know what that costs?).

I was also wondering what else they could do to make the transfer as painless and minimal cost as possible. I don’t think assuming the loan is something they would want to do, as it would probably hinder the credit of the owner making it harder to buy a nicer home.

Does you have any suggestions of what these two could do?

thanks
Andrew

ANSWER

Anyone can download contract at TREC, fill it out, negotiate an offer, and give it to a title company with some earnest money to “receipt” it. for their, the title company will sechule the rest and process the transaction with all parties. If you want copies of contracts, look at my links section at: http://www.loveaustinhomes.com/real_estate_investing_links

Now - keep in mind that this can get a little complicated, which is why most people hire realtors to handle everything. In general, realtors are like insurance - you really don’t need them unless something goes wrong, in which case they are priceless…

A few other ideas for doing this creatively…

The very cheapest simplest transaction would be for the one brother to simply sign a general warrantee deed giving the property to the other brother who would then simply continue making the payments on the loan indefinitely, or until sometime in the future when he refinances. This is sort of a “poor-man’s subject-to” transaction that can work for family to family transactions. The beauty of this is that the total cost of the transaction is just the $25 filing fee for the warrantee deed. The cons is that sometimes relatives don’t trust each other with each other’s loans.

The next slightly more complicated transaction would be for the first brother to sell the property to the second brother with owner financing. In other words, same as above, except the seller collects the loan payment from the buyer and makes sure the underlying loan is being paid. The pro here is that the seller is more protected and could even sell the home at a different price and interest rate than the existing loan. If that is done, it’s called wrapping the loan – “a wrap”. The con here is that the seller still needs to service the loan and the buyer has some risk that the underlying loan payments might not be made.

Either of these transactions could also be done at a title company to provide title insurance, further increasing the cost of the transaction, but providing insurance that the ownership and amount owed on the property is as expected.

Phill

Has it become more difficult to obtain a stated income loan since the mortgage industry is having such difficulties these days.
Dawn

ANSWER

Dawn,
Generally speaking, yes it has, but money is always available to people with good credit, and money is always available to fund good projects regardless of credit.