SET YOURSELF UP FOR CASH FLOW AND APPRECIATION!

In my last article, REAL ESTATE FORTUNES TO RISE AND FALL IN BALANCE BETWEEN HEAVEN AND EARTH I suggested that real estate investment success be secured at any time by understanding LOCAL real estate cycles and NATIONAL credit cycles.

I bought my first investment property in Texas at the worst possible time when the market peaked at the end of 2006.My first property was a beautiful new construction 1,800 sq ft, 3 bed/2 bath home in the Villages of Woodland Spring in Keller, which at the time was a community in Forth Worth’s path of progress.I purchased the home directly from a national builder for $144,590 with a deposit of $2,128.....try to do that today on new construction!

Just 3 years later the value of my Keller property bottomed out at about $120K and I didn’t care that I was underwater.I was safe because I chose the right market with strong job and population growth.I had 100% financing and I was still cash-flowing $50-100 per month!If I had a tenant that did not renew I always had several people lined-up.It was a nice, new house in a great school district with plenty of demand.

Cash flow existed when I bought the property and the fact that the property devalued by $25K, or 17%, did not kill me because the market had great momentum before the great financial crisis of 2008, which was more like a speed bump for Dallas-Fort Worth but a sinkhole for other markets like Los Angeles or Las Vegas. DFW was in the cocoon stage of its real estate cycle waiting to emerge and fly to new record high levels of appreciation. I eventually sold that house in 2016 for $180K giving me 278% annualized returns on a $2K investment!

The formula for success for today’s investor is to find the Next DFW.Find a market that is in its cocoon stage with the potential to appreciate very quickly over the next three to five years regardless of the credit cycle.In these markets you can secure cash flow now and future appreciation, insolating yourself from any economic downturn just as I did with my first investment property in Keller, Texas in 2006.

The Dallas Metroplex attracted over 120,000 new jobs from 2005 to 2008 and subsequently real estate appreciated over 48%.A market with emerging characteristics of job and population growth in turn increases a market’s liquidity....and where money flows prices appreciate!

So how do you pick a Sleeping Giant real estate market?The Science is actually boringly easy as the indicators are simple supply and demand fundamentals with Job growth being the most important.More jobs attracts the second most important indicator affecting demand, which is population. Then you want a high rate of household formations.Jobs, population and household formations outpacing the supply of new housing indicates a Sleeping Giant real estate market.

The art of choosing the right state, local economy, submarket and property involves more due diligence and intuition.Time your entry and exit well enough and get the best of both worlds with Cash Flow and Appreciation!

Watch out for my next article where I evaluate the supply and demand fundamentals of what I believe to be Sleeping Giant Real Estate markets!

Stevan Garcia