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.”

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Tags: california real estate, investing texas, landlord, real estate, real estate investing, real-estate-deals, texas, texas real estate

It has been a while since we’ve shared one of our investor profiles with everyone . . . I’m excited to say that this one is worth the wait!

Connie Brzowski, soon to be a contributor here on the BiggerPockets blog, has shared some incredible insight with all of us in her interview. A relatively new investor / landlord / rehabber out of East Texas - Connie has proven that anyone can become successful in real estate investing if they put their mind and energy into it. She has developed her own plan and systems through trial and error, which will help her continue to make money where others may fail.

Everyone . . . get some great tips and . . . .

Meet Real Estate Investor Connie Brzowski

How long have you been investing in real estate?
Almost 4 years. We organized and started our company about a year before that, but we closed on our first property in November of 2004.

What attracted you to becoming a real estate investor?
My dad loved old houses and from the time I was just a little sprout, he took me along to look at prospects. That sort of thing sticks with you. Dad worked construction to pay the bills, but he remodeled houses for extra cash. Now I think they call it “leapfrogging” — buy a house cheap, remodel, sell for profit and move on to the next dump. We moved every 2-3 years and dad spent every spare minute looking for the next place. I never could swing a hammer, but I got pretty good at spotting what needed fixing

My husband works full-time in the petro-chemical industry and we began to realize there was no such thing as job security. He works a rotating shift with a 7-day long change each month which gives him blocks of time to devote to projects. We had 20+ years of repair, remodeling and rehab experience both working with my dad and his various projects and our own homes. For about 10 years, my husband made extra working part time doing home repairs and remodeling. When we decided to start investing, real estate with an emphasis on rehabbing was a natural choice. And it fits perfectly with both our short and long term financial goals.

I take care of the business end—looking for houses, running the numbers, making offers, handling tenants and keeping the books. He deals with contractors, does some of the rehab work and scares the tenants silly when necessary. Actually, he’s a fantastic landlord—a natural. He’s particularly good at the initial lease read-through—you ought to hear him go over the late-fee clause!

Are you a full time or part time investor?
Part time although I’m pretty sure that’s a trick question . . .

How did you get started investing?
We spent 3 years getting out of debt and learning about real estate. I visited forums, asked questions, read articles and spent way more than I’d like to admit on books. During that time, I also became an expert in our local market and established relationships with a real estate agent, mortgage broker, lawyer, accountant and the folks at our local bank.

I learned to work a financial calculator and compulsively ran the numbers on every house that came on the market until I knew the price we’d need to pay to make a profit. For fun, I’d write up imaginary offers with all types of creative financing. Every week, I’d make a list of homes for rent from the paper and drive by to get a feel for the market rate for each neighborhood.

One day, a house finally came on the market in a good neighborhood that made sense. Because of all the homework, there was no hesitation—we wrote the offer without looking back.

Tell Us About Your First Deal . . .
Our first rehab was a 3/2/2 brick, 1500+ sq. ft. single family home in an excellent school district listed for $100K. The place was a dump—complete tear out, all the way to the sheetrock. We offered $83K and the owner accepted without countering. (We learned at closing that two offers came in the same day and ours was $500 higher.) The plan was to rehab the house ourselves to save money, then rent for $1100/month.

We bought with 80/20 financing and paid for repairs using credit cards—Lowes and Home Depot both were offering 12 months, no interest, no payments. We intended to have the house reappraised and refinance to pay off the cards. It didn’t quite work out that way.

Our primary residence was destroyed in a storm the day after the house was finished. Friends showed up with a horse trailer and moved us into this little jewel on Memorial Day weekend of 2005. We lived there 18 months and refinanced with owner occupant financing which lowered the monthly note by $100+. Now, the house rents for $1150/month and has positive cashflow of $400/month. Recently, it appraised for $130K and we opened a $30K HELOC that we use to make cash offers on smaller houses.

What are some of the biggest mistakes you’ve made or seen others make?
We’ve been very fortunate, but we’ve also been cautious and moved slow. Our biggest misconception was thinking we could save money by doing all the work ourselves… forgot about those nasty holding costs—mortgage payments, higher insurance rates for empty houses, payments on the credit cards and months of lost rent. The day we realized we could’ve hired out the work and turned the place around in a fraction of the time (and saved a bundle in the process) was a big day. It changed everything.

We see new investors who’ve learned about real estate in general but haven’t taken enough time to thoroughly understand their local market. Also, we get out-of-state investors who’re seduced by our prices without taking into account the higher operating expenses. We live in an area with sky-high property taxes and hurricane-influenced insurance rates. If you don’t account for that, you can get upside down fast.

What is your investing focus (area of expertise)?
The only thing I’m an expert in is our local market. Otherwise, I’m just trying to learn like everyone else. We shop for single family homes, fix them up and rent them out. Our goal is to have 20 SFH’s with half the mortgages paid off by the time the mister retires.

What do you look for in an investment?
We look for dumpy houses with good bones in stable neighborhoods. Big fixes don’t bother us as long as the numbers make sense—we’ve got a great contractor. To reach our current goal, we want $250 or more positive cashflow from each unit with as little of our own money in the deal as possible.

How many deals have you done so far?
Three. We spent almost a year looking for each one. In the future, I’d really like to speed things up! At present, we have four rental units—3 houses and a garage apartment.

Do you have your real estate license?
No—

What advice would you give to a beginning investor?
Be honest, keep your word and guard your good name even if it costs you. In the end, it’s worth more than the few extra bucks in the bank you might gain short-term.

Be willing to work for nothing to learn the business. Help others and others will return the favor. Be generous, be kind, control your temper, act like a professional. Don’t pretend to be someone you’re not, but don’t sell yourself short either.

Sometimes people forget how important integrity is—but those you do business with need to know you’re trustworthy. Once trust is established, opportunities march right up the front walk and dance the maranga… you don’t have to go begging.

On another note, have your systems in place ahead of time. Set up your office, your books, put your lease together, line up financing. Develop relationships with professionals you trust. Take them to lunch, give them your card, ask about their kids, don’t waste their time.

What was your toughest deal?
We bought the second house before rehab on the first was complete. At the last minute, the financing fell apart because someone from another state decided the house was in a commercial zone. We switched to a local mortgage broker and the deal went smoothly from there.

What would your dream deal be?
A package deal of 10-20 homes from a retiring investor who’s begging to owner finance.

Is there anything else you’d like to share with the rest of us?
Some people talk about real estate investment like its divination—read a few books, say the magic words (I’m a winner! I can do this!) and leap into the Great Unknown.

Real estate is a business. Nobody in their right mind would open a pizza parlor or dry cleaners with as little market research and preparation as some give real estate.

Having said that, I firmly believe almost anyone can build wealth and financial security if they’re willing to do their homework.

Note: Connie can be reached through her blog found at: http://www.conniebrz.com

Tags: Connie Brzowski, landlord, rea, real estate investing, real estate investor, rehab, texas real estate

NOTE: This is applicable in Texas. Consult your attorney to find out the legality of this technique in your state

Getting a tenant to move peacefully and without causing physical damage is hard to do.
Tenants being evicted tend to feel victimized and when they get upset they are a risk to do physical damage to the house and leave behind mountains of trash.

It will take a minimum of three weeks to legally evict a tenant and can cost in excess of $500 (Texas Law).
Owners tend to reason that they will keep the security deposit to offset losses but a tenant can cause thousands of dollars in damage in minutes.

Here is a plan that has yet to fail:

Let the tenant know that you have filed to evict them and give them a copy of the eviction papers. (Making sure to follow the courts procedures)
Tell the tenant you will only talk to them 30-minutes before the court hearing and there will be no contact until then. When they laugh at you, tell them you will refund their full security deposit, in cash, the date they move out.

(30 minutes before the hearing) Offer to issue their FULL deposit back to them the day they move out as long as all belongings and trash are removed.

Set a date for them to be out (date needs to be before a date the court will set), add the requirement that they agree to leave the property completely free of belongings and trash which includes small things such as a candy wrapper
Have them sign your prepared agreement and proceed to your court hearing.

Tell the judge that you have reached an agreement and you would like him/her to endorse it (This is the only time I remember telling the Judge how I want them to rule and they agree).

The judge should (and has) accept the agreement and inform the tenant that if they break this agreement, he/she will authorize an immediate eviction.

Finally, once the tenant is officially out, then withdraw the eviction.

It is hard to justify giving the tenant cash to leave after losing money with them already. I can only point out that in a situation such as eviction, there is NO winning! There are only degrees of LOSING!
Evicting a problem tenant only to face a damaged property is bad enough. Give the tenant the one thing that is of use to them…. cash. And offer it when it will be needed…. upon move out! This is also known as a “Cash for Keys” settlement.

Hope this has helped…
Jim Watkins

Tags: evict, eviction, landlord, real estate, tenant, texas law, texas real estate