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The Crossland Team
Sylvia Crossland, Broker Steve Crossland, MPM (512) 301-5811 |
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Austin Real Estate Investing – Then and Now
May 2, 2009
Since the end of WWII, rent prices in the U.S. have run parallel to relative sales prices consistently over time. By this I mean that a $60K home would normally rent for about $600 per month, or 1% of its sales value. The chart below illustrates the gap in sale to rent value ratios that has developed over the past 10 years in Austin in a certain class of home. I limited the stats to what I believe is the “meat and potatoes” or “bread and butter” rental stock. Those are homes between 1400-2200 square feet in size, minimum 3 bedroom, 2 bath, 2 car garage and a maximum 4 bedroom, 3 bath, 3 car garage.
Of course there are rental properties outside these parameters, but for an investor following the approach we follow – to stick with good, basic homes that will always attract good average renters – these are the homes that accomplish that. So the chart below shows both sold and rented homes in Austin that fall into the above profile of basic rental stock.
What we see above is that sales values essentially ran away from rent values in the early 2000s in Austin. In 1999 and 2000, the ratios for typical rental stock were holding to historic ratios.
Our sales market would have taken a larger dip after 2001 were it not for the investors fleeing the dot.com tech stock bust and turning to real estate. Also, we had home owners unable to sell and turning to leasing instead, which created excess rental inventory and drove down rent values.
The big question is, will these lines ever converge again, and if so, will it be because rent values increase or sales values lag until rents catch up again? Or a combination. Or, alternatively, is the old rule gone forever and rent will continue forward in our lifetimes at a ratio of about 0.75% of sales value instead of the historic 1%. How does this affect the viability of real estate investing in Austin long term?
Crossland Team Buyer and Investor Seminar March 4th
February 24, 2009
Sylvia and I will be hosting our first ever Buyer and Investor seminar in Austin on Wednesday March 4th from 6PM till 8PM at our Keller Williams Office.
Why do I refer to it as a “Buyer and Investor” seminar? Well, we think even owner-occupant buyers should approach the home evaluation and purchase process with the mindset of an investor. We are experienced at helping both “regular” buyers and investors. The evaluation process followed by smart buyers is really no different than that of an investor.
We’ll have our entire team of expert vendors on hand to answer questions and talk about the various stages of the home buying process. You will leave this free 2 hour buyer workshop feeling empowered and knowledgeable about the entire home purchase process.
Our featured speakers will be:
Steve and Sylvia Crossland, of course.
We’ll provide an over view of the current real estate market in Austin and why it’s a “buyer’s market”, and why it’s a great time to buy if you are the right buyer. We’ll cover how to balance the often conflicting components of your decision – Location, Price and the Home itself.
We’ll tell you why picky buyers usually pay more for their homes than investors (hint: it’s got something to do with emotion). We’ll walk through the home purchase process from start to finish, with our vendors taking turns explaining what happens at each stage.
Meet our Vendors.
Bob Petersen from Precision Inspection
Bob is one of the very experienced inspectors we refer to our buyers. Precision inspection has inspected more than 20,000 homes in Austin since 1983. Bob has seen everything you can imagine and has a lot of valuable information to share with you. He will explain the inspection process and what it covers, and why a home inspection is a vital part of your purchase process.
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Austin Real Estate Networking Club
February 18, 2009
Tomorrow (Thusday Feb 19) I’ll be giving the stats presentation for the monthly Austin Real Estate Networking Club. Each month a different Realtor is invited to provide a real estate overview of the Austin market, and I’ll be up this month and March also.
But that’s not why I want to encourage and invite you to attend the meeting tomorrow. My friend Rick Villani, author of the book Book “Flip – How to Find, Fix and Sell Houses for Profit“, will be be presenting the topic for the night, “How To Make Smart Investment Decision”.
If you are an Austin real estate investor, you must attend this and hear what Rick has to say. I’ve attended several of his workshops and cannot say enough about how much I admire and respect the evaluation processes and approach that Rick brings to the business of flipping real estate.
His company Home Fixers has flipped over 1,000 homes as well as performing rehabs for other investors. They did a beautiful remodel for one of our buyers last year. He knows how to evaluate a deal, which rehab items to focus on, and most importantly, he’ll share some of the most common mistakes and pitfalls he sees investors make, and his 5 step process for making smart offers.
Topics will include:
Why do so many people lose money investing in real estate?
What are the biggest mistakes others make and how can I avoid them?
How do you determine the risk of a particular improvement project? How do you compensate for risk?
When should I manage improvements myself verses hiring a general contractor?
The Austin real investors networking club meets the third Thursday of each month from 7PM till 9PM at Ventana Del Sol, 1834 E Oltorf St. A map is below. Guests are invited for a $10 cover charge. The $10 is credited toward your annual membership fee if you join. See you there.
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Austin Rental Market Update for 2008
January 23, 2009
The rental market for single family homes in Austin continues its march upward. Rent prices increased about 6% in 2008 over 2007. Remember though that the 2008 average rent amount of $1,424 per month in Austin is still less than the year 2000 average rent of $1,497/mo. and the year 2001 peak of $1,524/mo. The graph below shows the historic average and median rent values for Austin from 1999 through 2008. The big dip you see in the chart is a result of the tech bust, 9/11 and the resulting job losses, weak economy and over-supply of rental homes that resulted in all the failed sales efforts from 2002 through 2004. You can see that our rental market bottomed out in 2005 and turned upward in 2006 and has continued that trend for three years now. But most rental homes in Austin still rent for less than they did in 2000 and 2001, so renters have had a good run.
Will the Austin rental market continue its upward climb in 2009? It’s hard to know for sure, but I think it might level off a bit for 2009. Demand for rental homes will increase due to the non-buyers who are choosing to not buy a home and instead becoming or remaining renters. But that is offset by the slower job market, and the increased rental supply provided by sales listings converted to rentals after not selling, as those sellers refuse to lower the price further and instead decide to simply hold off on selling for a year or two until the sales market rebounds. Also, although the rental stats look really good for landlords, those of us in the business of renting properties know that we are not always able to increase rents and not all homes rent as quickly as the stats suggest.
Finally, apartments are over-built again in Austin and there will be a large number of just completed new apartment units coming online in Austin in 2009, as well as new condos converted to rentals due to slow sales. The move-in deals and concessions offered by apartments tend to siphon away at least some of our home renters who ordinarily might not consider an apartment but can be swayed by economic incentives such as three month’s free rent, $99 deposits and free washer and dryer. So, while demand will increase, supply will be increasing by even more.
I just mailed lease renewal notices out for 4 rental properties I manage, and we did not raise rent on any of those particular properties. It’s much cheaper and more prudent to retain a tenant at the current rental rate than to cause them to think about moving because of a $50 or $100/mo rent increase.
December rental stats, Year to date rental stats, and a breakdown comparing 2008 to 2007 by MLS area are all posted below.
Mortgage Rates Plunge Below 5% – But Does it Help Investors?
November 26, 2008
From my Daily Realtor news feed:
Mortgage rates declined Tuesday after the Federal Reserve said it would spend $600 billion to support the mortgage securities market.
Rates fell to 4 7/8 percent, a 1 1/8 percentage point decline. David Beadle, president of BestInfo, said it was the sharpest one-day decline since 1988.
“I hope that the effect is that it brings more investors home to investing in housing,” said Alfred DelliBovi, president of the Federal Home Loan Bank of New York. “[Investors] have had a sense in the markets that anything connected with a mortgage is bad” even though most people pay their home loans, he said.
This is great news for buyers, but I have a news flash for Albert, who says “I hope that the effect is that it brings more investors home to investing in housing”.
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Austin Rental Market Update – July 2008
August 23, 2008
The Austin TX rental market continues to do well overall. Rents are steadily rising for the third year in a row after falling for 4 straight years (2002 through 2005). Average rents for homes in Austin for July 2008 were $1,493 per month. Year to date the average rent is $1,425. the graph below shows nearly the past 10 years of Austin’s rental market and our ups and downs.
The rental market is helped now by the fact that fewer renters can qualify to purchase homes, which increases demand. The easy loans that renters were able to obtain from 2002 through 2007 are gone. You need a down payment and decent credit to buy a home now, as it should be.
The chart above shows the past decade of the ups and downs in Austin’s rental market. Despite three years of gains, the average and median rents are still lower than they were in 2000. Yes, that’s right, rents are lower still today than they were 8 years ago. Austin renters have had a great ride, while landlords have been nailed with higher property taxes, insurance costs and repair costs.
I just rented a home I own for $1,225 after an extensive remodel. I rented the same home, in average condition, for $1,325 in 2001. Rents are still very specific to location, price range and condition. We just rented a luxury home for $2,295 that rented for $2,495 a year ago. We simply did not have the number of showings needed to fetch the higher rent this time, and we disallowed large dogs.
Below are July rental stats chart and the year to date stats chart. I’ve added some color formatting to the charts this time. Green fields indicate numbers that are moving in a direction positive for landlords.
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Dear Out of State Investors – We Told You So
July 26, 2008
Today’s Austin Statesman has an interesting, if not predictable article about California investors being disproportionately represented in Austin area foreclosures. We’ve participated in several sales by California investors (not ones that we sold to though) bailing out, some of which were short sales or pre-foreclosures.
As the Austin real estate market rebounded at the end of 2005 and through 2006 and the first part of 2007, Sylvia and I were deluged with calls from investor prospects, mostly from California, wanting to invest in Austin real estate. We were careful in screening those buyers. We never departed from our philosophy of sticking “closer in” rather than chasing better cash flow to the outskirts. As stated on the Investing in Austin page of our website;
Our approach to investing seeks to do more than simply help you buy or sell a rental property in Austin. We have some specific ideas and values about the manner in which real estate investing should be approached, and the effects it can have on neighborhoods and the greater Austin Community. If you agree with our viewpoint, we want you to consider working with us.
Mainly, we do not wish to participate in the mass caravan buying approach that other real estate agents have implemented in Austin in recent years. We don’t think riding in a bus full of other investors out to a new home neighborhood where you buy what your “real estate investing club” tells you to buy is very smart. This approach results in the overselling of homes in many of the new subdivisions around Austin. Especially in the “starter home” areas that young families and first time buyers can afford.
We think you should spend a little more money and buy a better home in an area that less enlighten, short-sighted investors stay away from. Or consider purchasing your investment property in a mature and established neighborhood. While other investors are looking for the cheapest homes with the best cash flow, you should be looking at the neighborhoods with better appreciation potential, where the homes are well cared for, or the area is undergoing a renewal.
The above is verbatim what we’ve told investor since 2005 when we started working heavily with real estate investors buying in Austin.
How did we do?
Were we right in holding this viewpoint?
This philosophy of ours eliminated a lot of potential clients who would have been easy sales for cheap homes in Pflugerville, Round Rock, Hutto, Kyle, etc. We left a lot of potential sales and commissions on the table by turning away misguided buyers who wouldn’t agree with us on where they should buy rental property in Austin.
What happened to those investors who disagreed with our long term approach and found other Realtors to work with? Let’s look at an example quote from the Statesman article:
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Austin Real Estate Sales Breakdown by MLS Area – June 2008 YTD
July 14, 2008
Below is the breakdown of year-to-date home sales in Austin by MLS area. This is for houses only, no condos, townhomes, etc. I’m often asked, “how is the Austin real estate market?”, to which I reply, it depends on which market you are talking about. There are multiple “markets” and sub-markets in Austin. Here are some summary points I gleaned from the stats.
* Of the 42 Austin MLS areas tracked below, all but 1 have fewer sales Jan-Jun 2008 compared to 2007. The only area with more sales than the same 6-month period last year was the UT area with 26 sales YTD this year compared to 24 last year.
* 28 of the 42 Austin MLS areas have higher average sales prices for 2008 than the same period last year. That’s 2/3 of Austin’s MLS areas experiencing price increases for average sales price.
* The same number (28) of Austin MLS areas have increases in Median Sold prices compared to a year ago.
* 24 MLS areas saw an increase in both average and median sold prices.
* 27 of the 42 Austin MLS areas saw an increase in average price per square foot on homes sold.
* Of the 24 MLS areas that saw an increase in both average sold and median sold prices, 21 of those areas also showed an increase in the average sold price per square foot. This means half of all Austin MLS areas have experienced price increases in all three of the main metrics that indicate price appreciation. These areas generally tend to congregate around Central Austin. 14 of these areas are within a 20 minute drive of downtwon. 7 are east of IH35.
* 7 of the Austin areas saw a decrease in all three metrics of avg, median and psf sales prices. Those areas were 8W (Eanes West), EL (Elgin), LN (Lake North), LS (Lake South), MA (Manor), SC (Far SE Austin) and W (West Austin). It’s interesting that, with the exception of area LN, all of the areas with triple drops are either way above or way below the Austin average and median sales prices. This jives with what we know, that both the upper and lower ends of the market are slow.
* 7 of the 42 MLS area saw a decrease in the Days on Market, meaning homes are selling faster in those areas than a year ago. Most areas saw an increase in days on market, indicating slower sales.
Check the chart below to see how your particular area is doing. As usual, questions and comments are welcome.
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Austin Sales Market – June 2008 and Mid-Year Stats Update
July 14, 2008
Below is the June 2008 Austin real estate market update, including YTD stats. For starters, I thought I’d post a graph showing Average Sales prices in Austin from 1999 through June 2008 for houses, condos and multi-family properties. Austin’s real estate market has historically moved in fits and starts. The slowdown indicated by the June 2008 YTD dip in the graph is real and present, but I’ll match this graph against that of almost any other metro area in the US and say that, relative to the rest of the country, the Austin real estate market is looking pretty darned good.
The average sales price for houses in Austin increased 0.47% in June from $263,421 in June 2007 to $264,653 June 2008. We continue to have a large number of expired and withdrawn listings though, and days on market continues to creep upward. Nevertheless, many homes are selling fast with hardly a sign of a slow market, while others, though seemingly well priced and in good showing condition, sit with no offers. Sylvia and I placed a new listing in South Austin on the market a couple of weeks ago and had it under contract in 4 days with a good offer. It was in average condition. Other listings we have in south Austin are equally as well priced and in better showing condition, but no offers yet. I just placed a new listing in Cedar Park yesterday which is priced at about 97% of market value, and I expect it to sell fast, but can’t be as confident as I could in 2006 and 2007. The market seems fickle and somewhat unpredictable at present.
Here is a quick summery of the June stats.
• Number of homes sold is down 25% from 2,702 June 2007 to 2,032 June 2008.
• Average sold prices in Austin were up 0.47% over the same month last year to $264,653.
• Median sold price was up 3.62% over the same month last year to $202,000. I’ll have to doublecheck, but I think this is the first time the median sales price in Austin has broken through the $200K mark.
• Avg sold price per square foot is up 0.84% over June 2007 to $124 per sqft.
• Avg days on market is up 11 days (22%) from 50 last year to 61 this May. Exactly the same as last month.
• Median days on market is unavailable again this month because our $1M/yr MLS software, MLXChange, won’t produce it. (I continue to be dismayed and deeply disappointed in the poor performance of our MLS software, MLXChange, which we are 8 months into and still experiencing numerous data intergity problems.)
• Number of “Not Sold” (exp or withdrawn) is up a whopping 29% over the same month last year, but a far less increase than last month.
Below is the chart with these stats, along with a YTD chart. I’ll have area breakdowns posted in a separate post later today or tomorrow, so check back to see how your area is doing.
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Missed Flip Opportunity or Prudent Caution?
June 13, 2008
A couple of months ago I made an offer on a home to flip. I’m not actively looking for homes to flip in Austin, and I don’t help buyers locate flip opportunities, but when I come across a candidate property that I like, I’ll make a run at at. All of my attempts the past several years have fallen short. This is mainly because I have a formula for evaluating flip candidate properties, and I stick to it. The result is, my offer is never accepted because someone else is always willing to pay more.
On the most recent lost project, which is a few blocks from where I live, I stopped in yesterday to meet the buyer, who turns out to be a contractor, and take a look at what’s being done. I was impressed with the work and the approach being taken. I had a couple of assumptions before I even stopped in.
Knowing that the home sold for $30K more than I offered, and that my numbers are fairly accurate estimates, I assumed the eventual buyer 1) was a hands-on contractor with better remodel cost points than I can achieve (not doing any of the work myself) and 2) used a higher more optimistic ARV (After Repair Value) than I did.
I was right on both accounts. I plugged in $225K as a resale value after repairs and, sure enough, the contractor thinks he can sell it for $250K.
Let’s look at my basic math:
|
Me
|
Winning Buyer
|
|
| Purchase Price |
$132,000
|
$162,000
|
| Remodel Cost |
$50,000
|
?
|
| Silent Costs |
$24,750
|
?
|
| Total Cost |
$206,750
|
?
|
| Finshed Value |
$225,000
|
$250,000
|
| Profit |
$18250
|
?
|
Let’s go through the numbers above.
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