Prices Now Higher at the South Austin Dump

I made a trip to the south Austin dump this weekend. Aside from my own personal small dump load that I had from my recent garage cleanup, I had a small amount of debris that I had tossed into the back of my truck from one of my rental properties. Just some scrap lumber and a piece of sheetrock. So it was time for a trip to one of my favorite destinations, the dump in South Austin.

When I arrived, I learned unfortunately that the minimum dump fee for a pickup truck is now $35, and the “unsecured load” penalty is now $20. That means, if you toss a few things in your truck and take them to the dump, and you don’t have a tarp handy with tie-downs (even if the items are heavy items that could not blow out) to cover/secure your load, you’re looking at a minimum $55 disposal fee, even for just one broken kitchen sink (if it’s uncovered). Ouch. If memory serves me, it wasn’t that long ago that I paid about $9-$12 for a dump load. The unsecured load fee was previously $5, so $20 represents a 400% increase in that fee. What has the world come to when it costs this much to get rid of a few things?

Since I have a Commercial Account at the dump, I told the attendant I would just drive up on the scale (which use to be cheaper). She informed me that the minimum commercial load is now $35/ton with a 2 ton minimum, so minimum $70 on the scales plus the unsecured load fine = $90. This, to dispose of a piece of sheetrock, about 10 pieces of scrap lumber, and some misc household stuff. All totaled, about 1/4 of a pickup truck load. I elected to pay the civilian price.

Those of us who manage rental properties and who make regular repairs to properties are going to feel this price sting as our vendors, who regularly dispose of broken things and other stuff, are going to have to raise prices to us. In the move-out letter I send all tenants, I expressly warn against leaving junk piled at the street or left-over stuff in the garage, and inform them there will be a haul-off fee if they do that. Most tenants do in fact leave some stuff to haul off anyway, and then complain about the charge. Now that fee will be even higher and I need to edit my move-out letter to reflect that, and the tenants will be even madder when they see the charge, which increases my chances of getting sued over deposit refunds. Swell.

But, as our do-gooder government, which caused these fee hikes through new regulations and fee increases (the politically expedient way of raising taxes without calling it a tax increase), fails to understand, another result of these ridiculous fees will be a huge increase in illegal dumping and the further financial squeezing of the average middle class citizen.

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Investing in Small Commercial vs. Residential Real Estate

One of my commercial tenants skipped out on me earlier this year, so I have my office building on Manchaca Rd. for rent again. I knew it could possibly take 6 to 12 months to find a new tenant, and so far, even after dropping the rent from $1,700 to $1,495, I still don’t have it leased. Bummer.

This unfortunate reality is one of the first big differences between owning small commercial investment property versus single family homes in Austin. It would never take 6 to 12 months to rent a house (well, if you have a lousy Austin property manager it could I guess). But extended vacancy is not unusual with a commercial property, especially in this economic climate. Meanwhile I am absent the $1,700/mo. rental income that the former tenant, a tow truck company, provided. Ouch.

Ironically, I could have leased this property immediately, which would have been a streak of incredible luck, but I decided I didn’t want the type of business that the business owner wanted to set up. This is the second big difference in owning commercial investment in Austin versus residential rental property, making sure the tenant is a good fit for the property and the community.

The tenant prospect wanted to open up a “gaming room”. I wasn’t even sure what that was until I looked into it a bit more. It’s legal, apparently, but I just don’t want 40 or 50 of these gaming machines, which are a cross between bingo and slot machines, in my building, with gambling addicts sitting in front of them till midnight smoking, guzzling coffee and blowing their money trying to win Visa gift cards. It just doesn’t seem like an activity that adds value to the community of Manchaca, or society in general, so I don’t want to be involved by providing the venue. And I worry that even if the business is technically legal at present, our friends down at the Texas State Capital, who have a fondness for trying to legislate morality, might change the laws and cause me a vacancy. So I passed on the quick lease-up for personal reasons.

With residential property, you can’t do that. Applicants either qualify or they don’t, and even if the applicant owned a business I don’t like, it would be improper for me to decline rental on that basis.

Plus, that’s too many gamblers flushing my commodes in a property serviced by a 30+ year old septic system. On the other hand, the $15K in lost rent between then and now would have paid for a brand new septic system.

So, in a nutshell, this small commercial investment property is a cash cow when it’s leased. I paid $58K cash for it in 1998, and immediately invested another $17K remodeling it, so I’m in $75K for a property that was paying $1,700/mo. rent until it went vacant. Not a bad return. I can’t buy anything today that even comes close to that kind of ratio. Plus, it’s appreciated nicely to a value of about $250K today, and it’s located in the fastest growing zipcode in Austin, 78748. Had I invested that $75K in the S&P 500 10 years ago, I’d still have about $75K. Today, rent proceeds plus equity buildup make this a good investment.

But when it’s vacant, it stays vacant for a long time. Much longer than a typical house. As an investor, if you’re thinking about small commercial, you have to ask yourself if that’s ok. Can you handle extended vacancy or will it drive you crazy? I’m in it for the long haul and the vacancy, though unwanted, is just part of the business of investing in small commercial real estate, so it’s not upsetting or distressing to me given the return the property has already produced. But I don’t think the average small investor wants to own a property that is this difficult to rent. It’s high return, high risk and I think most small investors would prefer a more predictable real estate investment.

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Austin Real Estate Sale Stats by MLS Area – Sept 2009 YTD

Austin’s real estate market is a “market of markets”, and thus the overall news reported about real estate activity in the Austin Metro area may or may not be reflective of conditions in the specific area in which you live, or the home you own, or the home you want to buy. Each quarter I break down the Austin Real Estate market year-to-date stats into MLS area-specific comparisons of the year before so we can take a look at the variations among different pockets of Austin.

If you follow these quarterly Austin MLS breakdowns, you know that there is always variation among different MLS areas and price ranges, for better or worse. This Year-to-Date report through Sept 2009 is a head scratcher for me though, mainly because the number of Austin MLS areas that normally outperform the overall market has dwindled substantially. Based on what Sylvia and I are experiencing in the field, I would have guessed the opposite to be true. And the market overall is holding up.

But here’s what I’m talking about …

Of the 44 Austin Metro MLS areas tracked below…
5 Austin MLS areas had an increase in average sold prices (3 months ago it was 11)
7 Austin MLS areas had an increase in median sold prices (3 months ago it was 11)
1 Austin MLS area had an increase in average sold price per square foot (3 months ago it was 7).
4 of the Austin MLS areas saw a decrease in average days on market (same as 3 months ago)
7 of the Austin MLS areas saw a decrease in median days on market (3 months ago it was 6).
1 (only 1) Austin MLS area saw an increase in the three main pricing metrics – avg and median sold, and price per square foot. Three areas were in this clug at mid-year.

So does this mean the Austin real estate market is getting worse? As usual, it depends. From a statistical standpoint, more areas are trending down than up. But if you ask Sylvia and I if we’re busy, yes we are. We had 4 closings in October and three on the board already for November, which is unusual for the slow season. On the other hand, if you ask an agent who specializes in luxury homes in Lakeway, they will probably say things are dismal. And I do in fact have a listing on 10 acres in Dripping Springs that isn’t getting any showings even though we think it’s under priced.

Add in the government interference/intervention in normal real estate market activity with the tax credit incentives, the nervous jitters of the stock market, artificially low interest rates, appraisal issues, and what we have is a number of variables pulling and tugging with and against one another. Bottom line, overall, at 3% down for the year on average sold price and about even on medial sold price, Austin’s market is doing about what we think it should, as a whole. It’s just interesting to see all the underlying cross currents.

That said, below is the breakdown summary, then you can study the chart yourself and see how your areas of interest are doing. As usual, questions and comments are welcome.

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