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Tag Archives: Prospecting

How Not to Sell a House

Simple enough even the family pet understands.

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Here’s a cautionary tale for all you investors who have to move fast to get a house you really look forward to selling or using as a rental. A quick summary is: don’t move too fast.

We Found a House

As you know, we’ve been looking harder than usual in Milam County, because we think the area may start to do better economically soon. We found a house we really liked. You would have liked it, too. It was in pretty darned good shape, in a really interesting neighborhood that did NOT smell like meth (one of our criteria!), and had really great curb appeal (however, we are not showing a photo, for reasons that will become clear). And there was a bonus empty lot behind it.

We made an offer on the house for a bit under the asking price, knowing we could easily rent it out and it would cash flow nicely. Once it was accepted and we were in the option period, we immediately ordered an inspection.

That Was Smart

Now, sometimes, especially in houses you know are a big ole mess, you don’t bother with an inspection. But we had a couple of questions about this property, so we brought in our favorite local guy and he looked around. The house was, as we had thought, in pretty good shape, but…

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We Want To Buy in Rockdale

Man speaking in front of a Rotary club flag.

Jim Kyle, Vice President of Bitmain Business Development, explains the Bitmain plan at the Rockdale Rotary Club.
Photo by Steve Young


Seriously, we want to buy a few houses in Rockdale, Texas, an area we’ve previously been avoiding because of negative appreciation. It’s a town the same size as Cameron, and it’s also in Milam County.

You’ve probably heard myths like “Real estate always appreciates.” This statement is technically true. But real estate can experience both positive appreciation (going up in value) and negative appreciation (going down in value). After all residences in Petra—not to mention Detroit—aren’t worth what they used to be.

You’ve also heard you should buy land because “they’re not making any more of it”—except in Hawaii and a few other places. But unless you’re a farmer or rancher, you can’t make raw rural land pay for itself. Unless you have a development plan, and we’re not in the development game.

So why are we suddenly interested in Rockdale? Continue reading →

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A Near Miss on a Hoarder House

It doesn’t look so bad on the outside.

I saw an HONEST TO GOD HOARDER HOUSE this week. I’d raced out of the house for an early meeting with a client, totally failing to bring my boots. Yes, it’s August in Austin, Tx and I was wearing open-toe sandals.

My next appointment of the day was with the relative of the owner of the house in question. Sadly, the owner had been rushed to the hospital earlier in the week and according to this fellow, he’s been diagnosed with brain cancer. So he was quite unavailable.

About the House

The home is a 1-story, and its lot is the largest in the cu-de-sac. I was excited at the prospect of finding my next rehab. I’ve been investing in real estate for about 15-years now, and my favorites are homes which have double side gates and room for a great workshop out back, or the addition of an additional dwelling unit in the backyard. This home fit the bill.

The man I met was son-in-law to the owner and he was horrified to find the home in the state that it was. Apparently, it had been a long time since they’d come to visit, and the mental health issues his relative was dealing with hadn’t been apparent. They live in Arkansas on 23-acres. The property apparently, keeps them very busy.

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Six Rules for Buying at the Right Price

Understanding the demographic trends in your market is crucial to success in following the first three of Sherer’s Rules. To identify the “sweet spot” you must anticipate what demand will be six to nine months from now when you finish your project. You can’t do that if you don’t know who is moving into—and more importantly out of—your area and why.

Writing for The Street, commercial real estate guru David Scherer lists 6 Rules for Value Investors to Buy Real Estate at the Right Price. While he is speaking specifically to commercial investors in his article, I will describe how to apply each of Sherer’s rules to residential real estate.

But first, why is buying at the right price so important? It’s the only way you can ensure you make money. Redevelopment projects can take long enough for the markets to change, sometimes radically. That’s all well and good if the market goes up, but it can be devastating if the market tanks. As the truism goes, “You make your money when you buy. You just get paid when you sell.” Or as Sherer puts it, “For real estate investors, it starts by understanding the difference between price and value. Price is what one pays, while value is what one receives. Buying investment property at too high a price isn’t a good value.”

Now for my first caveat. If you do pay too much for your property, all is not lost. You can still make a profit if you can afford to hold the property long-term. Real estate prices historically trend upward given long enough. But when you’re getting started, a single bad deal can end or significantly slow down your business. That’s why it’s so important to do your homework, know what you’re buying, and know what you can sell if for.

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Are Austin Area Home Prices Starting To Plateau?

ABOR Median Home Prices continue to rise

This graph shows the median home price in the greater Austin metroplex as of December 2004-2016. The 2017 data is for January, which is the latest available at this writing. Future prices are guesses based on the average year-over year change.
Source: Austin Board of Realtors®

In October, I published an earlier edition of the infographic shown to the right. It lists the median price of houses in the Austin market at the end of the year from 2004 through 2016. That article focused on the dangers of trying to time the market. Although real estate prices generally rise over time, that price growth is never a straight line. Like all markets, there are ups and downs along the way.

Definition
Median Price is a statistical measurement that is useful in identifying and tracking trends. The median price is the price at which the number of houses selling above that point is equal to the number of houses selling below that point. Median price is usually a more stable number that average price, which can show wild swings due to extreme outliers—extremely high or low priced sales.

Today I added December 2016 and January 2017. This post was inspired buy the drop of just over $10,000 between December 2016 and January 2017. What could that mean? Are home prices in the Austin area starting to stabilize or maybe even fall?

It’s impossible to say from just one month’s performance. Housing sales always slow over the winter. This slowdown results from a number of factors, including the holiday season and bad weather (although bad weather is the best time to look at a house). These factors form the “seasonal differences” you hear so much about.

There are other factors at play, too. Inventory (the number of houses available to sell) in the Austin area remains extremely low. The February inventory held only a two month supply. In contrast, a stable market usually has about a six month supply. The inventory alone will ensure prices don’t go down to far and will probably keep pushing them upward.

Then there’s the national debt. The national debt lowers the value of money, which causes the price of everything to rise. General inflation bleeds into the housing market, too. Higher prices create higher prices.

And look at the trend line in that graphic. During the Great Recession, the trend line went up, even when we experienced a temporary drop in housing prices. And now, even with the drop between December and January, prices continue to increase apace.  I projected that trend into the future by adding the 10-year average year-over-year change in price to SWAG future prices.

It looks like homes will only get more expensive as time goes on.

Next time, I’ll talk about what I think that means for individual homeowners.

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