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 was reading on the Texas Rental Laws understanding the eviction process. Step 1) the notice to vacate I had a few questions about. It says there must be written notice that is delivered with an eye witness, certified mail with return receipt, or any other method required by law.

My question is, what if everytime you go to the property with a witness the tenant is either missing or doesn’t answer the door? What if you send certified mail and the tenant once again doesn’t answer the door to send receipt that mail was received?

I supposed one way to do it would be to change the locks on the door, forcing the tenant to get in contact with the owner for a new key, but that’s kind of like a very last option for me.

Anyone has a really successful formula for dealing with tenants who are very late on rent payments enough to warrant an eviction?

Thanks

Andrew

ANSWER

Andrew,

You can POST the notice on the door.

The last time I did this I STAPLED the notice on the door and I took a photograph of it (on the door) with a daily Newspaper and a witness, also in the picture, where the date of the Newspaper could be verified to prove the date the notice was posted.

Phill

I need some advice. I just closed on a property last Friday. The seller had abandoned the property and wanted to sell quickly and leave town for various personal reasons.

Every few days he would contact me from a different cell phone number and ask me to write it down since his cell phone was disconnected and he was staying with various friends around town in the meantime. Throughout the entire option period the seller had been telling me that he was making arrangements to come collect his personal belongings and have them placed in storage. At closing he told me that he was coming for them on Saturday. Suffice to say, Saturday has come and gone. I have tired to contact the seller numerous times at the various contact numbers that I was given, but everyone says he skipped town after he picked up his check from the title company.

Now I have a 2 car garage filled with literally an entire house-worth of furniture, clothes, personal items, yard equipment, etc….

Personally, I want to keep some of the nicer pieces of furniture, put all the comic books and collectibles on Ebay, Craigslist the rest of the stuff, then haul whatever’s left to the dump, but I’m not sure if there is a “right” way to do this, or if there would be any legal consequences in case the seller decides to just show up out of the blue a month from now and expect me to hand over his things? Sould I consult a RE lawyer?

I’m sure some of you must have had experiences with seller’s leaving personal items behind. Could anyone offer some advice on how to proceed?

Thanks!
-Mark

ANSWER

Mark,
I had a similar situation, and my attorney suggested I do an eviction. Yes, I know there is nobody left to evict, but you still are safer evicting the possessions.

The reasoning is this: If you buy a home at auction that still has people in it, or if you, say, buy a property with tenants in it and want the tenants out, in either case, you have only legally transferred ownership but not possession. Going through the process of posting an eviction notice, waiting the appropriate few days, and carrying the stuff out to the curb will provide you with the appropriate cover in the possible, though unlikely event that the guy comes back after you.

My attorney also told me some funny stories about throwing out an old dressers. Apparently, there is a chance that the previous owner will come after you in court asking for restitution, complaining that the dresser was a rare antique, and that it had gold bars and expensive jewelry in all the drawers. So, if you ever witness am eviction, and someone’s stuff being carried to the curb, be sure to check the dresser drawers – apparently they are always filled with gold bars

Would I do an eviction every time? No, I’d try to judge risk on a case by case basis.

Phill

Appreciate any advice you might have.

I am about to close on my first multifamily property that does not break-even / cash flow, but will, over time, hopefully appreciate in value and break-even on a monthly basis. I am putting 10% down, with 5% in capital up front for renovations. The monthly carrying cost is ~ $2,900 on a fixed 30 year note and I’m expecting approx. $2,500 -> $2,700 per month in gross rents right now. My partner’s agreed to invest 50% since we both believe the real opportunity is in appreciation / future rents in this Central Austin property.

Thanks,
Ritesh

ANSWER

Ritesh,
I’m not sure exactly what your question is, but here are a few comments:

Make sure you accurately estimate your rents. I often see people OVERESTIMATING rents dramatically. Right now it’s generally very hard to rent stuff. My Austin properties usually rent fairly quickly, but Round Rock and Leander take forever to get rent. Competition is stiff and rents are low.

Regarding negative cash flow – everyone has different philosophies here depending on their financial plans. Some people will not do negative cash flow either because they don’t have the resources to sustain it (especially during long periods of vacancy), or because they don’t believe in negative cash flow under any circumstance.

I personally will do negative cash flow if I get a lot of equity up front or if I get high appreciation. For example, I bought a property in central that cost me $150K, after repairs, that I’m now renting for $1200/mo. With a PITI of just under $1400, I’m losing $200/mo in cash, but the property is easily worth $205K, and probably appreciating $10K+/yr. With this amount of equity and appreciation, and the corresponding tax breaks this property generates, it’s a great deal for me, and in 8 years, I’ll probably be able to sell it for $300K. So, my $2400/yr investment (taken as deductible losses) should yield me $150K+ (taken as long-term capital gains) in 8 years. If you can find a better investment with that return, let me know.

If your strategy is to buy at full retail price and take negative cash flow. Well, I pass of those deals, unless it’s in a high apprecaiton neighborhood. Hey, it’s still mostly a buyers market – take advantage of it.