I found this post on the web while doing some research on an investment club someone mentioned to me. The story was posted by an investor who apparently joined one of these investor groups that has the entire process all laid out via a pre-established “network”. They tell you where to go, what to buy, which realtors and lenders to use, which builders to buy from, etc. And the network gets kickbacks from all of these people in exchange for bringing in busloads of buyers.
As I read it, I thought to myself “this is exactly why we try to keep our investor clients away from these new starter home neighborhoods in the Austin outskirts.”
Here is the investors story:
“I bought a new house in {City Removed}. I trusted everyone they assigned to close the deal (title company, insurance company, appraiser, closing agent, property management company, etc.). Real friendly people! To start the nightmare, the property management company refused to market the home until closing (they said they could not show the property while it was being built).
(Steve’s comment: I don’t know any property managers who will lease a house before the new owner closes on it. I personally wouldn’t do it either. All sorts of problems could result)
This should have been my first clue. When i finally got my HUD-1, there were $4k more closing cost i had to pay over what my mortgage broker quoted 2 months eariler in a GFE. My closing agent (picked by the realtor), John {Last Name Removed}, charged a whopping $1425 in closing fees! $350 alone in doc prep fees and they didn’t even prepare any documents! $1k went to the property management to get a renter after it was rented. (Never did find a renter because they had 83 other properties closing in the same time frame as mine and in the same area!) The fees went on and on! Tenn has more fees than you can shake a stick at!
After closing, the property management team, {Name Removed} Property Management in {city removed}, asked me to discount my first months rent by $400 in order to get a renter! Apparently, they sold so many new homes to investors in the area that that forced a rent war so i had to eventually drop my rent by $350 a month plus discount the first month. They got me to this position after 8 months of an empty new house!
(Steve’s comment: This is why we don’t take investors to areas that are over-sold to investors. The new home deal looks good on paper but you can toss your spreadsheet out the window if the place sits vacant for 8 months because half of the new neighborhood is for rent)
I decided to sell the house after 1 year and found out that the FMV price of the house was 10k less than the original purchase price!
(Steve’s comment: Again, when you buy cheap starter homes in new home neighborhoods, you better be ready to hold on to it for many years because you’re not going to be able to sell for what you paid – at least not in Austin and apparently not in Tennessee either)
I learned to not trust anyone, especially one that claims to be a Christian like {Name Removed}.
Hope this helps someone. Oh yea, in the south, if someone say to you “Bless your heart”, they really are saying “Kiss my A$$”!
I thought her last comment was pretty cute. I can just imagine this lady lamenting to the mortgage people, the Realtor, the Property Manager, etc. and keeps getting “bless your heart”.
Real Estate investing in Austin is very risky. I’ve talked to plenty of investors in Austin with stories similar to this. Be careful and know what your plan will be if the property doesn’t lease right away. Always have at least 6 months cash reserves on hand to ride out the turnovers/vacancy. Don’t trust anyone who tries to immediately convince you that your best real estate investment buys are in new home neighborhoods outside Austin. (where, by the way, most builders pay much higher Realtor commissions along with the incentives and buyer discounts you receive)
The “busload of people” comment you made reminds me of another “investment club” right here in Austin. At one of their meetings, they had a condo expert from Florida tell us how he organizes trips for investors who want to buy condos to flip. He charges something around $500 per person, loads everyone up on a bus and gives them a tour of whatever city he operates in (might have been Miami). Needless to say he probably gets generous kickbacks from all the builders.
In Austin, the best investment is to buy a house in a good solid area with strong demand, like areas 10 or SW or NW, and hold it for several years. There might not be much cashflow but appreciation will more than make up for it.