This country is so additcted to "no money down" or "little money down". The semiar gurus out there have made people think that putting over a 10%or 20% downpayment is akin to a crime! Leverage! Leverage! Leverage!!
I can always tell when I am talking to someone who has just completed a real estate seminar. Because they are more hooked on thier leverage than the actual placement of the investment. I say buy fewer properties-- with more downpayment -- in better area. Maintenance wont be as high because you will attract a better quality of tenant ( who will put less wear and tear on the building) and there will be less vacancy.
I agree with Barry about the vacant land. That strategy really has merit. But it is really, really hard to leverage with vacant land. Most people I know that do that are paying cash for the land. Which is not a bad idea!! Its just not a strategy everyone can employ.
There are definitely 2-4 unit buildings that will "cash flow" with the typical downpayment. But like every area, you have to buy in the better areas to attract better rents and better tenants. The closer to UT you get, the more rent you can expect but remember that these properties will not cash flow or if they do, it will be less than the outlying areas.
If you have a weekend, come visit Austin and try to get a lay of the land. If you need help, ask. Otherwise, ask your friends what they think. Friends usually dont lie to friends and they are blunt and direct!
For investments, I have been doing that section of real estate for 15 years and believe me, it can be done but depends on what return you are looking for. Good luck!
HAVE AN OUTSTANDING DAY!
So no, I'm not in Austin yet.
go ahead and find an investment group there -- you don't hafta do a deal -- just learn the terms, the concepts, the pitfalls -- is there an opportunity for you to join an investment group in person here?
You make a good point regarding the need to be immersed in the business locally. I would start my venture closer to home in Santa Barbara, CA, but there is no way I will be able to afford a downpayment any time in the near future. Is it possible to move to the area and jumpstart a real estate empire with little to no personal knowledge of the area? Are there people who specialize in helping other people do this? Is it necessary to buy my first house to live in before starting a chain of investments? Better question - what does everyone recommend?
Thank you so much for all this wonderful and diverse information. Keep it coming, please!
Flipping is always an option. I don't recommend the flipping program if you are not in Austin. People are/were flipping properties b/c the market provided the value surge, not b/c they were seasoned investors that out foxed everyone else..(Market is the Great Hero) Suddenly (last 3 months) we have experienced a tremendous slow down as compared to the last 3 years. For instance: There are 40 sf properties for sale in Area 6 priced above $500k and 2 properties pending above $500k. A year ago it would have been even or sided to the pending side. 40 to 2 is a Buyers market. Flippers enjoyed a roaring market. Everyone made money . Moving forward, I just don't see the continued surge in values as other more optomistic people do.
I agree the line graph from a macro view of Austin (and the U.S.RE market in general), trends up except for the occasional downturns, however it is the unexpected downturns that eliminate many investors from the business. Staying Power is underestimated. The first signs of the Austin downturn were late "85, Denial set in till "88 -"89. Surrender '90-'92....."91-'95 was the very best time to buy Austin RE. Wealth changed hands in Austin. Though we have had a few bumps since then, they have not been significant.
My point in the previous response is that I am burdened that so many investors are involved in a game and unaware of the dangers should a correction or decline occur. In my opinion, returns are not enough at these price levels to sustain/attract further prudent investment .
For instance, let me compare/contrast
I still hold a few properties I bought in the early "90's that have averaged a cash on cash return of 35% per year for the last 15 years. Appreciation has been 5 fold as well. If I were to sell a duplex I own now it would go for $140,000.00 net. It rents for $1100 per month:
$1,100 x 12 months = $13,200
Pro. Tax ($3,000)
Vacancy/Make Ready ave over 15 yrs ($2,000)
Net Flow $5,500 for a cash layout of $140,000.00....no thanks.
Any debt/financing to purchase wipes out any cashflow and requires the investor to realize return on appreciation alone. A 10% correction/decline in price levels in Austin leaves leveraged Investors with negative cash flow (assuming debt) and no way to sell the property short of bringing cash to the closing table, which most will not do.
Finally, life is too short for me to study/discover/invest in other cities. I have teenagers. For me, I must decide if the timing is right to invest in Austin. If it is, I invest with the intent to hold long term, if it isn't, I buy, remodel and sell. I do not believe Austin will contine to appreciate at the levels of late, indefinitely. The market in Austin is highly leveraged and if a correction occurs we will have an over supply to digest. Time will then determine if it is a breather/correction/decline. The fundamentals of growth and employment are excellent in Austin so it is unlikely we will have decline. I look for a correction.
BTW, when you say "I sell investment RE but invest in other markets" do you mean that you do not invest in Austin, or you do invest in Austin, but diversify with investments in other markets? Pleae write back. I think healthy dicussion helps all.
Jay -- What city are you suggesting one should invest in? Where their is the same appreciation potential and they can get a significantly better cash flow?
I sell investment real estate but invest in other markets.
I was intriguied by your questions about Austin RE Investment.
I am an Investor in Austin and have been now for 28 years. May I offer my 2 cents worth:
High tide and low tide affect all homes, all neighborhoods.
What goes up necessarily WILL come down, at least to some extent.
Time will bail you out of an untimely RE purchase if you have staying power.
Staying Power is defined as:
Having extra money every month to pay negative cash flow
Mental strength to evict unscrupulous tenants from time to time
Ability to make untimely repairs on a timely basis,
Humble awareness to discover RE prices are falling in an area that you most recently invested in and discipline to respond quickly to cut losses.
Ability to pay for and continually maintain a GOOD LIABILITY INSURANCE POLICY for the untimely accident or better yet, the planned accident to force claim against your carrier...and YOU.
Facts: Austin RE prices are at their very highest..in the history of Austin Real Estate!
There are more people in the Austin RE business looking for good deals than ever before.
Good deals are best characterized as buying high and selling higher.
I have found nothing with prudent cash flow in Austin Texas at current price levels
The RE Market is the Great Hero...it is the reason people have prospered.
RE Investors graduate from RE school AFTER they loose money for the first time.
So Santa Barbara....I don't mean to be discouraging. I speak at RE clubs, RE functions and for a NY Times Best Selling Author of the book Flip and I have become burdened for many I come across who intend on investing in Austin because Austin is "hot." Once we thought we were insulated from RE downturns ('90's) ........................we were very wrong. Be careful!
There are a lot of good places in Austin. My personal philosophy is to keep investments as close as you csan to the central core of the city. The very central properties are pretty expensive for an investor. ( ex. will not cash flow with a 20% downpayment) but just south of central or east of central is a good option.
The market fundamentals here are just staggering. We created 29,000 new jobs in the last 12 months. But the credit crunch as cooled the jets a bit on the rocket fuel appreciation path that we were on.
Now is a good time to buy. There are deals out there.