During a class I was teaching in 2005, one of the students asked why all the “idiot” California investors were flocking into town and buying newly constructed houses for as much as $0.90 cents on the dollar? His question drew some laughs from others in the room and they also wondered why they would pay that much when the local Dallas market was not appreciating while the rest of the country continued to appreciate to record highs.
I remember not knowing the answer at the time but I began to question the California investors when I was in contact with them and started to take notice of what and where they were buying and what they were doing with them. Within a few months, my opinion had been formed and I began re-raising the students question and following it up with my answer.
Q: “Why are all the idiot California investors flocking into town and buying newly constructed houses for as much as $0.90 cents on the dollar?”
A: They aren’t idiots. In fact, they are the opposite.
People wanted to know my reasoning. It was simple really and I suggested that “us Texans” just might be the actual idiots. The reactions I was met with told me that I had better start making sense because “everything is bigger and better in Texas!” In this case, my assessment was our ego’s was about the only thing that was “bigger.”
The fact of the matter was…
California investors were pouring into Dallas, Ft. Worth, Austin, San Antonio and Houston by the planeload on a daily basis. All of them appeared to be going directly to the builders and snatching up as many houses as they could get.
They appeared to be buying in under-developed or “up and coming” parts of town. In the DFW area they were buying like crazy in Keller, Wautaga, Justin, Frisco, Celina, Corinth and Prosper. The areas in the Ft. Worth side of town all happened to be around Ft. Worth Alliance Airport and the Texas Motor Speedway. The areas they were buying over on the Dallas side were all on the northern outskirts of town.
The last thing I noticed about the California investors buying habits was that the majority of the houses were under the $150,000 price range.
None of the investors were selling either. All of them were putting renters into the houses.
I decided that, all those California Investors knew what was coming. While the rest of the country was busy paying attention to the appreciation that was taking place in California, those investors were in Texas…Buying new houses and renting them out for $1,500 or less in most cases.
Since that time, most of the country has seen property values go down faster than Mondale in ’84. And…At the same time, Texas stayed stale and the hottest part of the Dallas market appreciated only 4%.
In other words…Most of the United States appreciated to record levels and now we are seeing the values go back down but…Texas, yes Texas…Never went up.
What does that mean? It means there are thousands and thousands of foreclosures every month and the people that lived in those houses will be looking for affordable housing. In addition to that, we have investors all around the country, all looking for the next great deal.
While us Texans were laughing at the California investors for buying all those new houses, those very same California investors were and still are laughing at US!
You see…They bought houses that were brand new. Ten year warranties for foundations, roofs, HVAC systems, water heaters and so on. They put renters into those new houses to pay their holding costs until their big, pay day comes. I doubt Texas will come close to the triple digit appreciation so many parts of the country saw but, I am willing to bet that Texas will easily see double digit appreciation in the next couple of years.
That age old saying… “Buy Low…Sell High” is what the Californians had figured when they stormed into Texas. Think about it… Texas has nowhere to go but up. In today’s and even tomorrows real estate market, I think most people would agree with me that, investing in Texas real estate is a better bet than investing in a market that has seen its values peak and are now on the way down. The trick is being able to handle the carrying costs until the pay day comes.
Things may not always be “Bigger” in Texas but… They are about to get “Better.”
Related posts:
- Real Estate Boom as indicated by Books and Amazon.com
- U.S. Housing Boom: The World Wants To Know, What Next?
- Real Estate News Bubble Briefs
- Economist describes positive outlook for real estate
- Meet the Investor: Interview with Pre-Foreclosure Real Estate Investor Jim Watkins
Article Author: Jim WatkinsJim has written 39 articles for us.
Visit Jim's Website: http://www.dfwmentor.com
Joshua Dorkin
{ 12 comments… read them below or add one }
I personally know many Californians who are investing in Texas. Aside from the high taxes, some of the highest in the country, it offers some of the lowest cost per unit in the country in markets that offer growth or potential growth. Some cities to consider are San Antonia, McAllen, Houston, and Dallas.
YES it is true what they say about Texas….. We can obtain pricing well under any other state and our housing market as well as business’ are booming regardless of the mortgage market, due to incoming investors. For an example we owner finance our homes and can sell them for 80 cents to the dollar and many times lower. How about three duplexs; rent averaging 500 per side and picking up all three for 59,900 each!!!!
I live in California, and have many colleagues with properties in Texas. For a while, it became sort of the darling of the real estate world… just as Arizona was for a while. A downside to California real estate is that even though home values have plummeted, many Realtors are still trying to get higher sell prices on these homes…
Anyhow, time to go to Texas!
Good post!
I live in Washington state and many Californians started buying up properties over 15 years ago and they have profited handsomely as Seattle’s real estate market has steadily appreciated at 8-10% a year. Those Cali investors that diversified are sure happy especially in the So Cal area as there own homes are down close to 20% year over year.
Nice post, keep them coming.
I don’t know the Texas market, but I know that in California most of the appreciation happened in the coastal areas where there has been strong population growth combined with substantial geographic constraints (ie steep mountains) to housing growth. Are there any areas in Texas that have such geographic limits to stop the sprawl over time?
Investors need to pay attention to Austin over the next year. Austin’s economy is very strong and unemployment is low. However, the lending mess combined with buyer psychology combined with buyers who can’t sell in other markets being cut out of our market have lead to a slow-down here. The number of listings is way up and prices are flat. The slow and steady appreciation we have enjoyed in Austin looks to be flattening out and I think we’re headed for a decrease in prices. As the “national” market improves in a couple of years, my opinion is that Austin will be very strong.
Texas is one of the fastest growing areas in the country. Now that the boom in Las Vegas is over, investors will be looking for new areas an with the hurricane and the people growth, Texas is the next logical step. Warm Regards,
Rob
I’m a Realtor in So. Cal. Two years ago, not a day went by when I didn’t get at least one call out of the blue from somebody that wanted to buy a piece of undervalued property. Of course, they wanted to flip it. At the time, there were no undervalued pieces of property. Last year, those calls dried up. And this year…we all know what’s happened this year. I guess the lesson is that once the flipper calls stop coming, it’s time to get the hell out of the market.
To all of you who took the time to post a reply and or/nominate this article… Thank you!
I think all of you had very interesting things to say and I hope we can all make out great if/when Texas booms.
One other thing to note about the Austin market… I read last week that Dell Computer will be closing their main plant soon. If I am understanding that correctly, I think that could really hurt Austin’s values.
-Jim Watkins
To be honest, this is kind of old news. The boom hit in 2004-2006. 2007 was a little shaky, but we’re holding steady despite the mortgage downturn. Spring really heated up the Austin market in certain areas.
It’s interesting to go back and read this post given the events that have unfolded in the last month. Real Estate is going to get real cheap, but at least Texas will have a shorter distance to fall than Arizona, CA and Florida.
With the global economy going into a massive slowdown period – the US midwest is much better shape than California and Florida. Governor Schwarzenegger is already looking for his own 7 Billion + bailout to keep the state a float, I don’t see Texas in that kind of predicament.
{ 3 trackbacks }