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Category Archives for Investing

The Growing Acceptance of Real Estate Value Inaccuracy

What is my Austin Home Worth

What is your Austin home worth, right now? When considering a sale, it’s generally worth “market value”, defined loosely as the highest price a buyer would pay, and that a seller will accept in an open, competitive market. This assumes neither buyer nor seller are under any undue stress or duress external to the transaction itself.

Many homeowners want to know their home value even when not considering a sale. Such as when protesting assessed property value at Travis County. Or maybe you are just curious, or you want to update your Net Worth spreadsheet with a current value.

If you don’t want the “market” to determine your home value, because you don’t want to sell, there now exists a plethora of “Automated Valuation Model” (AVM) tools that will tell you the supposed value of your home online based on mathematical algorithms and data. The most well know is perhaps the Zestimate on Zillow.

Let’s take a look at these AVM tools and see how accurate they are. I’ll use a home I own in SW Austin as the subject property, as I am preparing to sell it and in the process of determining the best list price.

Read more …

Posted by Steve
last month

Your Austin Real Estate Investment and Wealth Building

Value rising

I receive regular inquiries from prospective investors about investing in real estate in Austin. At the outset I try to determine the objective of the investor by asking some questions. Usually it will be an open ended question like “Why do you want to own investment property in Austin TX?“.

Then I just listen.

It’s amazing how many prospective Austin real estate investors cannot articulate a coherent reason for their interest in investing in real estate. The responses vary from wholly uninformed dream seekers, kicking tires and “researching” on a whim (which is fine!), to incredibly informed wealth builders who really do know their numbers and what they hope to accomplish with a real estate investment over time.

It’s the latter we seek to help, though I like to think I’m always helpful and friendly to the ones with unreasonable hopes and expectations by discussing it a bit, or directing them to our Investing in Austin Real Estate page.

The most striking disagreement I have when talking to prospective investors comes about with the ones focused solely on “cash flow”. They want to buy a “property that cash flows at least a couple of hundred a month“.

I don’t personally care about cash flow, so I’m unsympathetic to this requirement. I’m not tuned in to it, because it’s not how I think about wealth building. Cash Flow is meaningless to me. Many are confused when I say this.

I just think it’s the wrong thing to focus on because that’s not what ultimately determines the success or failure of a real estate “buy and hold” investment, over time. I’ll explain further below with an actual real life example of a property I actually own.

What I do want from my real estate investment is that it produce a slow, steady, reliable increase in Net Worth over time.┬áThat’s it. I’m patient, as this is something that happens over decades, not a quick flip. I am a “Buy and Hold” real estate investor, and that’s who I specialize in helping as well. I help people seeking wealth accumulation, not income. Read more …

Posted by Steve
9 months ago

Should You Attend an Austin Real Estate Investing Seminar? Probably Not

Real Estate Investing Seminars

With all the news about the alleged fraud committed by Trump University, and how it ripped off unsuspecting victims, I wonder if any modern day journalists know that the Real Estate Investing Seminar industry was around long before Trump. And it remains alive and well today, doing exactly the same thing Trump is accused of. But if all you know is what you read and see on the news, you’d think he was the first and last.

If you listen to local radio while driving around Austin, or watch much TV, you’ve seen and heard the real estate investing seminar ads. At least 2 big Real Estate Investing seminars that I know of have come through Austin this year already, promising that you’ll learn how to become a real estate investor.

I think another one will be here next week. Do a Google search for “real estate investing seminar Austin”, then click on images in the results, and you’ll see something similar to the screen shown here. And you’ll see plenty of paid ads meant┬áto capture your interest and take your money.

Should you attend a real estate investing seminar? Probably not.

I won’t claim that all real estate investment industry education is bogus. In fact, I purchased the Carlton Sheets video tape and workbook series for a few hundred dollars in the early 1990s. I was a sucker too (or was I?). More on that and how it actually helped me in a minute. Read more …

Posted by Steve
last year

Should you keep your Austin rental home or sell?

Is Rental Property Investing in Austin Still Profitable?

It’s the start of 2016 and already I’ve received a few inquiries from my investor clients wondering whether they should hold on to their rental property, or sell this year. It’s a conversation I have multiple times with multiple clients each year, and it’s a question Sylvia and I sometimes ask ourselves about our own rental property. Especially given the appreciation gains of the past 5 years in Austin. So this article will walk through some of the questions you might ask yourself when contemplating whether to sell your real estate asset, based on how I look at the question with my own rental properties.

The first questions to ask yourself are:
1) Do you need the money? and
2) What will you do with the money?

I normally don’t make it past those two questions, because the answers for me are are “no” and “I don’t know”.

For most, the equity would simply go into almost zero-interest savings or CD accounts, or into the stock market. Having just watched The Big Short, watched my Mutual Fund IRAs tread water last year, and then take a dive the first week of 2016, I’m pretty OK with leaving my real estate alone.

But if you have a defined purpose for the money, such as purchasing your retirement home, or funding a child’s college costs, those reasons can make sense. Using it to fund lifestyle adventures, like buying a boat or an RV, would be a bad idea though, in my opinion. Unless it’s part of an overall “next chapter” of retirement, and it’s time to spend that money. Read more …

Posted by Steve
last year

Some Perspective on Rental Property Cash Flow Disruption

Bedroom fire and flood

Bedroom below attic while lightening caused home to catch on fire

About a year ago, Sept 2014, during a violent Austin thunder storm, a rental property I personally own in SW Austin was struck by lightening and caught fire in the attic.

As the thunderous flash of light, noise and immediate smoke jolted the tenant out of bed at 2:30AM, he quickly realized that he was standing in water. The home was flooding, and also on fire, simultaneously.

Wow! Wake up!! His elderly mother was visiting and he was able to get her and his son out quickly as the house filled with smoke. Then he called 911. Then me.

I showed up around 3:15AM, sloshed through about 18 inches of water at my driveway, as about 6 firetrucks were on the scene. It was an apocalyptic scene, like out of a movie. But everyone was ok, and the fire was contained to mostly the attic and three bedrooms. But the home was rendered uninhabitable.

Of course the tenant had to move out, insurance got involved, and a year later I’m just now getting ready to re-rent the home. Insurance only paid 4 months of lost rent, and denied my appeal for more, not accepting my explanations of why the job took longer. So, as it stands, I’m out of pocket 8 months rent ($12K) and about $8K more after insurance deductibles and other snafus that I won’t go into. Plus whatever continued vacancy loss I incur until I place a new tenant. Read more …

Posted by Steve
a couple of years ago

Austin Real Estate Predictions for 2015

Austin home sales 2005-2014

What will the real estate market in Austin do for 2015?

Most likely, more of the same. More of what we saw in 2013 and 2014 Spring/Summer selling seasons, which was strong price increases caused by limited supply and increasing demand. Especially in the central core areas of Austin but not limited to just those areas. Even homes in Pflugerville get multiple offers now.

The increasing demand is coming from job growth in Austin, which is showing no signs of abating in 2015. Unemployment in Austin is a low 4%. Simply put, barring a major macroeconomic event that affects our local economy and job growth, our housing market will keep chugging along and prices will continue to rise. Nothing will stop it short term, but it will top out eventually and take a breather. Maybe in 2 or 3 years from now.

The recent drop in oil prices will affect Texas to some small degree, maybe Houston mostly, but represents nothing more than a pothole in the road for Austin currently. If anything, it could free up a bunch of construction labor that fled to the oil fields for higher pay, which would help the new home builders increase volume. New home construction is currently restricted by labor shortage and low availability of build-ready lots, which exasperates the effort to meet demand.

Current, Past and Future Values
The median value of a home in the Austin Metro area is now about $250,000. Average value will probably break $350K this summer. A decade ago median sales price was about $150,000 and the average was $225,000. That’s really only a 5% annual increase roughly, which is what we expect over a decade of time, but so much of it has happened the past few years that it feels like too much too fast.

Also, and of concern, much of the appreciation is concentrated in the central “core” areas of Austin proper, which is no longer affordable to service workers or median income families. I sold a home last summer in 78704 zipcode for $290K which sold for $58K 18 years earlier. That’s bumping a 10% annual appreciation rate over two decades. Same with a home we bought in Westlake in the low $300s in 2010 and sold for $500K in 2014. That’s a 10% annual increase over 4 years.

And wages haven’t kept up, so the median income buyer who wants to live in Austin proper, close in, will continue to be pushed out into the suburbs like Leander where a home at or near $200K is still doable, but where they will have to endure ever worsening and soul crushing commutes on our congested roads.

How Should Austintes feel about this?
The value appreciation of Austin home prices gives me mixed feelings. Read more …

Posted by Steve
a couple of years ago
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