Love Austin Homes Investing Blog

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

Austin Business Journal - 3:07 PM CST Wednesday, February 28, 2007

A bill recently filed in the Texas Legislature could essentially nullify an Austin city ordinance that restricts home sizes in certain neighborhoods.

Rep. Edmund Kuempel (R-Seguin) has filed House Bill 1736, which would require that cities only regulate home size on one of three criteria: impervious cover, footprint of the lot or floor-to-area ratio. An ordinance passed in 2006 by the Austin City Council limited home sizes on all three criteria–an effort to stem new construction not in keeping with the character of Austin’s more established neighborhoods.

Ned Munoz, director of regulatory affairs for the HYPERLINK “http://www.bizjournals.com/search/bin/search?q=%22Texas%20Association%20of%20Builders%22&t=austin”Texas Association of Builders, says the group has been lobbying for legislation that would ease restrictions on new home construction. TAB also supports another bill filed by Kuempel, House Bill 1732, which would require a municipality to give proper notice before changing housing regulations. Munoz emphasizes that both bills would apply to municipalities across the state that might try to place so much restriction on new construction that it takes away from property value.

“What has happened with this ordinance is that people who own land are very limited on what they can do with it,” Munoz says.

The ordinance is essentially a one-size-fits-­all law, says Munoz, putting the same restrictions on both small and large lots and penalizing the owners of smaller lots.

“This is impacting property values,” Munoz says. “People will not be able to get the same price for their land.”

Both bills are currently pending before the HYPERLINK “http://www.bizjournals.com/search/bin/search?q=%22Land%20%26%20Resource%20Management%20Committee%22&t=austin”Land & Resource Management Committee.

“The impact of the bill is to gut the ordinance,” says Austin Assistant City Manager Laura Huffman. “This won’t allow us to regulate in areas covered by the ordinance.”

Huffman says the city council put together a 16-member taskforce comprised of people representing development and neighborhood interests. “That strikes a balance of those who are interested in remodeling homes, constructing new homes and protecting the character of our urban neighborhoods.”

Huffman says the taskforce held meetings for five months before making its recommendations to council in June 2006. The ordinance’s implementation was delayed until October to give the city time to get the word out to stakeholders and ensure staff was prepared to process requests based on the changes.

Huffman says Kuempel has asked the city to participate in discussions on the bill, but she adds that the city is opposed to any legislation that would gut its own ordinance.

Kuempel could not be reached for comment.

ANSWER

The formulator makes some good points: 1) It’s not fair for the city to change building codes on existing land owners retro-actively, and 2) Such rules make land difficult to develop and/or less valuable

Phill

FHA Finalizes Anti Flipping Fraud Rules - Article 6/12/06

The rule takes effect nationwide July 7:

http://realestate.yahoo.com/Real_estate_news/story?s=rytimes/item-f9dbb8ab6fcca41b8aef2e25bc71154e.html

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

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

Hi, this is Nirav, I need some advice.
I am actually going to place my first bid within the
next 24 hrs. The house is listed at 93,000, I looked
at the CMA’s and all of them are going from 110,000 to
127,000. I have done a walk thru inspection on the
house, and needs very little work. I was just
wondering where I should start my bid at. It is a HUD
home owned by the bank. Appreciate any response.

ANSWER

Nirva,
I always suggest the classic formula of 70% ARV (After Repaired Value) – repairs. If this home should be worth an average of around $120K ARV, and it’s going to take you $5K to renovate, you would bid $120K x .7 = $84K - $5K repairs = $79K.

This formula assumes a relatively conservative 15% cost of sale and carry/money (C&C), 5% contingency, and 10% profit. Obviously, if you have estimated your renovation costs well, and the home sells in a timely fashion (because it is a fairly ‘resalable’ home), you won’t use up your contingency. Also, if you have cheap money and/or you use discount realtor services or sell it yourself, some the 15% C&C costs can be reduced, though it may not actually be worth it for a newbie to cut these corners.

In this example,

In a best case resale scenario, your profit might be: $127K (resale) - $79K (buy) - $5K (reno) - $7.5k (C&C) = $35.5K (profit)

In a worse case resale scenario, your profit might be: $110K (resale) - $79K (buy) - $10K (reno + contingency) - $16.5K (C&C) = $4.5K (profit)

Something in-between is much more likely.

The truth is, however, it’s pretty hard to actually find and get 70% deals. Because of this, most people take a gamble and bid closer to 80% or even more. At those margins, you would bid up to $91K for this home, and cut your best case profit to $23.5K and your worst case to, gulp, a LOSS of $7500. As you get better and better at doing this, you will be able to tighten up your ARV, reno, and C&C estimates and feel more secure about what you can afford to bid. I just negotiated a 75% deal this week, for example, that I’m pretty excited about. $235K (ARV) x .75 = $176K - $25K (reno) = $151K (buy price). Would I love to get this down to 70%? Sure, but I also realize that pigs get fat and hogs get butchered, and I’d rather just be a fat pig

The biggest mistakes I see newbies make is going into deals too rosy-eyed. They overestimate what homes will really resale for, by overlooking problems the home has, like being on a busy street or having a funky layout. Sometimes these problems are the reason the home is available at a screaming price today. Newbies also underestimate renovation costs and don’t take into consideration that once you start pulling walls down, etc. more problems are likely to show up. The real ‘cash and burns’ occur when a newbie borrows too much money at a high interest rate and runs out of $$, or has to price the home above what someone will really pay and the project starts going into the red. I just bought one of those, from a newbie, in midtown last week. He had to cut and run.

The second biggest mistake I see newbies make is being too cautious and never doing anything…

Good Luck!
Phill

Needed, Experienced real estate investor to help me learn the
business better. Looking for someone that is a licensed real estate
agent or at least has access to the MLS. The area I am weak in is
knowing what neighborhoods in Austin are good to look for properties
so I need someone that is able to look at a lead on paper and have a
general idea what the deal might be worth.

Getting the leads is not a problem however I need someone to do some
due diligence on them to see if they will be a good lead. I try to
pre-qualify them as much as possible but because of my lack of
experience this is were I need the most help. Not only will the
deals be in both our names, I am also willing to split a percentage
of the deals we close together to compensate for the time and
training that someone will give. Right now I am more interested
in “Flipping” because I need to build up my capital reserves before
I can invest in to properties to fix up. However, I would be
willing to try it.

Thanks,
Tim

ANSWER

Tim,
I frequently partner with new investors and bring experience and $$ into the relationship. I flip a 2-4 properties a month. I also renovate, buy rental properties, and do lots of short sales. If you have some prospects you would like to explore together, let me know.

Phill Grove

UPDATE: I now offer a formal Mentoring program to new investors. Look at www.loveaustinhomes.com and click on the “Training and Mentoring” link.

Phill

Below is an interpretation of the SB629 lease/option law in Texas. This is an “investor interpretation” and not an analysis from a lawyer.

>
> If a lease/option is for 3 years or less, only certain provisions
> of the law
> apply to it. The changes are as follows:
>
> 1. You cannot impose a late fee that exceeds the lesser of :
>
> a. 8% of the monthly payment
>
> b. the actual administrative cost of processing the late payment.
>
> 2. No prepayment penalty for exercising the option early
>
> 3. cannot forfeit option money for a late payment
>
> 4. cannot increase price for requesting repairs
>
> 5. cannot make optionor waive rights to repairs or other liabilities
>
> 6. Tenant/buyer can cancel contract for improper platting and
> landlord/seller will have to give ALL monies back
>
> 7. Landlord Seller cannot have any liens against the property
> except:
> a) a lien due to conduct of tenant/buyer
>
> b) agreed to by tenant/buyer to improve property
>
> c) a lien placed on property prior to lease/option contract,
> only if it
> was used to purchase the property(does this exclude 2nd’s and home
> equityloans taken out prior to lease/option contract?), is
> attached only to the
> property being sold, is less than the amount due by the tenant/buyer
> (throughout the contract), where the lienholder does not prohibit the
> property from being encumbered by an executory contract (does this
> mean if
> they prohibit contract for deeds, I can’t execute a
> lease/option?), and the
> lienholder consents to verify the status of the loan on request of
the
> purchaser and to accept payments directly from the purchase if the
> sellerdefaults on the loan (I guess the means we need to give the
> tenant/buyer a
> signed ATRI form?).
>
> 8. If there is a lien against the property prior to contract, then
> landlord/seller must do the following or give ALL monies back
> (includingrents):
>
> a) 3 days BEFORE the lease/option contract can be signed, notify
> tenant/buyer with a written notice disclosing:
>
> 1) The name, address, and phone number of the lienholder
> or, if
> applicable, servicer of the loan;
>
> 2) The loan number and outstanding balance
>
> 3) monthly payments of the loan and the due date of those
> payments
> 4) in 14 pt. type: If the seller fails to make timely
> payments to
> the lienholder, the lienholder may attempt to collect the debt by
> foreclosing on the lien and selling the property at a foreclosure
> sale.
> b) Place the following covenants in the contract:
>
> 1) A covenant that obligates the seller to make timely
> payments on
> the loan and to give monthly statements to the purchaser
> reflecting the
> amount paid to the lienholder, the date the lienholder receives
> the payment,
> and the information described by the above written disclosure
> statement.
> 2) A covenant that obligates the seller, not later than
> the third
> day the seller receives or has actual knowledge of a document or
> an event
> described in this paragraph, to notify the purchaser in writing in
> 14-pt
> type that the seller has been sent a notice of default, notice of
> acceleration, or notice of foreclosure or has been sued in
> connection with a
> lien on the property and to attach a copy of all related documents
> receivedto the written notice
>
> 3) A covenant that warrants that if the seller does not
> make timely
> payment on the loan or any other indebtedness secured by the
> property, the
> purchase may, without notice, cure any deficiency with a
> lienholder directly
> and deduct form the total outstanding balance owed by the
> purchaser under
> the contract, without the necessity of judicial action, 150% of
> any amount
> paid to the lienholder.
>
> 9. Failure to perform means returning ALL monies paid (including
> rentpayments — tenant/buyer lives for free if you make a
> mistake… i.e. 12
> point type) PLUS the value of any improvements made by the
> tenant/buyer(with or without landlord/seller permission). So if
> your tenant/buyer built
> a fence without you knowing, and you mess up and make one small
> mistake…you just bought a fence!
>
> 10. Seller is not liable if a lien is placed on the property by
> someoneother than seller and seller takes all steps necessary to
> remove the lien
> has the lien removed from the property within 30 days of receiving
> notice of
> the lien.
>
> This applies to any and all contracts executed on or AFTER
> January 1, 2006

These are in effect on ALL lease/options including those less than
three years. If it is more than 3 years, then the entire bill takes effect
which even more bad news for the seller.

In that case, the tenant/buyer would have conversion rights meaning they
could, at any time, request the the lease/option be converted to a 30 year
fixed mortgage simply by delivering a promissory note that has their current
balance (price minus rent credits minus option consideration) amortized at
their current interest rate (0%). That’s right… If your lease/option is
more than 3 years, you just financed a home at 0% interest. You would be
required to give title at that time. If you don’t have title (lease/option
sandwich) then be prepared to pay all monies back. If the owner financed
sale triggers your due on sale clause, then pay off your note, or face
foreclosure (and the subsequent lawsuit and paying back all monies from your
tenant/buyer). Plus, there will be many more reporting requirements, such
as monthly reports showing your tenant/buyer how much interest they have
paid — $0.00. Failure to report is a $250.00 fine per month retroactive to
your last reporting date. So if you go 2 years without giving them a
report, or having a mistake in your report, you now owe your tenant/buyer
all monies paid PLUS you’ll owe the government a $4,800.00 fine. Nice, huh?
There are other reporting requirements, etc.

I guess you could take a home under a lease/option for longer than 3 years
and then take advantage of this law to force your seller into giving you all
your rent back or converting the lease/option into a 30 year fixed at 0%.
Seems pretty unethical, though. I’m sure also you would be tangled in a
legal battle as you are the “expert”.

But I’m pretty sure this law will create incentive for some unethical
investors to take advantage of sellers by signing long-term lease/option
contracts. Seems the legislature forgot that sometimes sellers are the
“consumers” needing protection as well.

Its not so much the reporting requirements that make this really difficult
for me to continue to do lease/options beyond this year, but rather the
problems this will create with the banks. The fact that I have to
essentially put my tenant/buyers in contact with my bank and disclose to the
bank what I am doing is enough to kill it for me. Especially when I own the
home sub2!!!!! I would essentially have to get the previous homeowner…
The person who’s name is on the loan… To sign an authorization to release
information for the tenant/buyer…. And each subsequent tenant/buyer.