What to Invest In?
I often get asked by other investors (often very new or green investors) what do I invest in or buy in the Awesome real estate market that is available in Austin, Texas. Well, that is not an easy or one sentence answer especially in this market. With the Austin real estate market avoiding the dramatic hits that have hit the East and West Coasts with property values decreasing, we've been lucky enough to still see a steady appreciation of values ranging from 5-10% in areas. While we haven't been immune from the rash of foreclosures like a lot of the other areas of the country, at least most of our foreclosures are at or below in value making them ideal deals for short sales or equity deals.
Along with the foreclosures, Austin was home to one of the best rehab and flip market in the country with investors buying homes, adding square footage or simply updating the property cosmetically and walking away with somewhere between 20 and 100% profits (depending on the area). Austin was home to a lot of California transplant investors who refinanced their home during the boom in Cali, pulled out a ton of equity and sold their homes at the top of the market, and then moved to Austin often buying a home equal in size or greater than their previous west coast home and then still using several hundred thousand dollars to boost their investment careers. Unfortunately, many of them used their own cash to buy houses and are now stuck holding homes looking for someone to buy the home and cash them back out. Unfortuantely with the mortgage industry debacle, not to many people can qualify for a mortgage or conventional financing. Investors have had to accept the fact that it is much more of a buy and hold market, even in Austin.
So this leads back to the original question? "Scott, what the heck are you buying in Austin these days?"
Well......I'm doing a bunch of things. I am regularly marketing to the monthly foreclosure list that comes out along with working with several realtors to identify listed and non-listed properties for short sales. While this may not be the quickest way to bring in cash, it is a way that I fill my pipeline full of deals and I end up closing anywhere from an extra 1-3 deals a month as the banks work with my negotiators to settle on a price. While short sales use to take 3-4 months to settle, they are now taking 6-9 months as the banks are so behind and backed up with them. I have the most amount of success on properties with a first AND second mortgage. I've been lucky enough to usually get the second to drop off for a $1,000 and still get the fist lien to take a hit and cover closing costs. I'm usually lucky enough to be the only person making offers on a large majority of short sales here locally and my team is working anywhere from 10-25 short sales at any given moment. I'm not going to say that I come close to closing them all, but I am still closing around 50% of what comes across my plate.
After getting the banks to accept my short sale offers, I either go ahead and immediatly find a end user who can either finance the property conventionally or have a substantial down payment for owner financing, or I wholesale the deal to another investor for quick cash (5% of negotiated price). This provides me with either a quick cash infusion, cash flow, or a large down payment to play with as well. If I owner finance the property, I always include a 24-36 month balloon to give the buyer an incentive to refinance as soon as possible.
Another way that I find deals is by making bulk offer's to REO's (Real Estate Owned) of banks. I run a search on the MLS using my trusted realtor and ex-wife (it's a strange situation so don't ask!) to pull a list and make cash offers at 65-70% of Fair Market Values. I prefer to make offers to the listings that are at 90 days or older as that is usually the first date that most banks will start to drop their sales price. I usually include a 14 day close period to help spice up the offering. I usually find 1-2 deals a month that I can do the same thing by either wholesaling for quick cash or taking the property down and then either sell conventionally or owner finance.
"But Scott, my market doesn't have a lot of those deals available as the get bought up quickly so what do I do next?" I hear this a lot. A lot of investors target short sales and REO's along with mailing out to the liz pendence or NOD (Notice of Default) list. I've talked to home owners who are facing foreclosure who have received 30-40 mail pieces from different invesors. Believe me, there is a lot of competition. Especially in a hot market like Austin!
A couple of lists that I market to that not a lot of investors do is the probate and obituary lists along with the post bankruptcy lists. These three lists have led to some of the sweetest deals that I come across in the past and have helped several of my investor freinds across the country. The probate lists often have some nice equity deals and I have helped several families avoid the hassle of having to list a property, and try to go through the listing process by coming in with a cash and fast closing that has helped families unload problem properties in a quick and painless process. I get a lot of funny looks from people when I tell them that I market to the obituaries. While I don't get a lot of immediate results, I look at this list as being the pre-probate list. I often get many phone calls on my marketing from family members of the loved one who have propeties to deal with, and they have no where to go or its a property that needs some work and they (as a family) don't have the time or resources to complete. I've been able to help quite a few of my students land very profitable deals that were a win-win for my buyers (by getting a deal) and the sellers (by taking a problem off their hands and giving them cash!).
While Austin is not the largest city in the nation, it is a wonderful, highly educated, and rapidly growing city. When you add in Williamson County (north of Austin) and the rapidly growing areas of south Travis and Hays counties (Kyle and Buda), Central Texas is a investors dream. With properties values still being very affordable ($190K average) the area has a lot of room for growth and appreciation and a large population being able to afford homes, the capital of the lone star state has a very bright future as being one of the hot markets to invest in. God knows that the city has been good to me and my investment career!
By the way, a few books that have helped my investment career is "The Four Hour Work Week" (by Jeff Ferris), "The Millionaire Real Estate Investor" and the "The Millionaire Real Estate Agent," by Gary Keller" "Flip", and "Abosulte Wealth" by my personal mentor, Robert Leonetti. These books have helped me in more ways than I can personally count in my investment career!
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