All Forum Posts by: Alex G.

@Neil Narayan I agree with you that the location is important. There are multiple central Austin areas that are appreciating at a much higher rate than the same on the outskirts, and will probably continue to do so. That's been said again and again, no point in debating this.

My point was, if the location is comparable a big lot is hands down a winner from the investment view point. You can add a large chunk to the value of the property IF your current or future zoning allows to build more, and/or if you subdivide and create extra lot(s) on your property.

I just checked the MLS. There are a total of 225 single lot listings with Austin addresses of which 96 are under contract. Starting prices are about $100K. Again that's a "starting" price. A $100K potential value increment for an extra lot you can squeeze out of the property is nothing to ignore.

If one manages to do this in a premium location the rewards could be much higher. I sold a vacant lot near downtown to a spec home builder a couple of months ago for $388K. I separated it from a larger property. This strategy can substantialle reduce your acquisition cost for a property that otherise may not be economically feasible.

We had quite a number of discussions on this forum on how there is almost no cashflow in Austin. Chopping off a chunk of your land  and selling it, is one of the ways to turn negative cashflow into positive.

Any investor who doesn’t understand that Austin is going through a major construction boom will completely miss out on one of the most lucrative opportunities we have here.  There is a huge demand for infill lots for new construction within the city that will likely continue for years. 

Right now the demand is primarily in the more central areas.  However, due to rapidly escalating costs of buildable lots, the demand has been spreading outwards as small builders search for cheaper lots to build on.

In that regard, it’s not a matter of whether the house is old or new. It’s a matter of whether you’ve got a lot you can build more on than presently is built there. Or will be able to to build eventually, assuming CodeNext ever becomes a reality.

If you’ve got a lot like this, there is a chance you can carve out 1-2 extra lots in the back through subdividing. Or you may already have it through favorable current zoning or a future zoning proposed by CodeNext.

For example, current zoning of this 0.40ac lot allows only one dwelling per lot, that of course already sits there. If you subdivide this lot and get extra 2 lots out of it, you now got 2 new vacant infill lots for 2 more SFRs.

If CodeNext passes in its current version, you’ll have an opportunity to get up to 7 (yes, seven!) units on this lot, using a “preservation” provision of the new version to keep the old house on the front rather than tearing it down. What do you think this will do to the value of your property?? That’s a forced value creation that will far exceed any appreciation you can hope for or any cash flow you could potentially extract from just a a single family home.

Plenty of opportunities here: (1) sell the lots to raise cash and pay off your loans on your existing house to get free and clear property for a long term hold, (2) Sell the front house keep the lots for long term appreciation (they will appreciate at the same rate as houses nearby), (3) Trade a lot to a builder to get him to build a small home on the back lot for you at a very low cost, (4) Sell some of these lots with owner financing for cash flow... And so on.

You have to be patient with these opportunities as subdividing your lot takes time and capital, monetizing your lot(s) takes time while you’re paying taxes, maintaining it, etc. But the $$ payoff is certainly worth it.

Happy bargain hunting!

I bought some 50+ houses subect to existing financing. Sent you a PM.

@Brandon Harrison I don't see how your math is going to work, unless you're a licensed realtor and saving 3% BA commissions on buying and 3% listing commission on selling.

Your resale costs are usually about 7-7.5% with 6% realtor commission and 1-1.5% in typical seller expenses on closing costs, title  policy, possibly a survey, HWS insurance, lender required repairs, etc. That's some $40K+ in sale expenses.

With $30K in remodeling + resale costs, your total costs are $70K+. Your gross margin is only $60K at today's ARV. I.e., you're presently negative on your project.

Are you counting on a significant appreciation? Nothing wrong with that, but your flip doesn't have financial merits to stand on its own based on today's ARV of the home.  Unless you're doing for experience only. 

In general you'd want to shoot for a better margin to work with to make a decent return on your money/time/efforts.

You put yourself in a difficult negotiating position with this approach.  When you offer the list price, a seller will rarely ask for a waiver of the appraisal contingency. By offering 10% above the list you’re inviting the request from the seller for the removal of the appraisal contingency.  Yours is obviously the highest offer, ie., you want the house more than anyone else at the moment. 

Assuming you’re not willing to walk away, you can try to reduce the exposure for extra DP by negotiating an appraisal of up to $X that’s higher than list but lower than contract price, and the right to cancel if it exceeds $X. 

“Wanting” to buy a particular house in a situation with multiple offers virtually guarantees giving up all leverage in negotiation. And if the house inspection doesn’t uncover any serious issues, you won’t have a chance to get a price reduction later either.

@Matt Stricklen Starting prices for an entry level home in the Austin metro are at about 200-220K. One could find them right now in Round Rock, Leander, Manor and Del Valle - in the nearest suburbs. A $200,000 loan at 2.5% amounts to $790/month in P&I and roughly $1,300/month PITI.

80% of our metro renters are probably paying more than that in rent for single family homes. We are talking about somebody earning $4,000-$4,500/month. Perhaps, the limitation isn’t the income but credit ratings and funds saved for a down payment? 

For example, I recently had 2 sisters renting a home in Leander from me for $1700/month. They were both nurses making in excess of $4,000 a month and each could individually afford to buy this home from me based on their own respective income. They both had good credit. They moved out and ended up renting separate houses due to changes in their personal circumstances (boyfriends, etc.)

I suspect the folks from SmartAsset also don’t take into account people who sell their home and have cash for a larger DP to reduce the amount of money they have to borrow, ie, to reduce the reliance on the size of their income in relation to price they are paying.

$60K is only $240/month P&I on a 30-years 2.5% loan. The gap can probably be overcome by most families who are that close.

More importantly, averages never tell the full story. In almost any neighborhood there exist a price differential due to a property condition, sq.ft. size, bed/bath configuration, lot size, etc. So those who can't qualify would have to either buy a home that needs some work, or get a smaller home in the same area, or get a 3/1 instead of 3/2, or adjust their appetite and settle on buying in a lower priced sudivision.

I closed on a N. Austin fixer today for $154K. It needs a lot of work and it's only a 2/1. But I'm not paying anything close to what SmartAsset would suggest it should sell for. 

I have a friend who is investing for appreciation. He has done extremely well by buying several condos in Downtown and south of the river. Most of them were either new or within 5 years from construction. He bought a total of 8 properties between 2010 and 2015 at prices in the range of $300K-$400K.

Out of 8 he bought, 5 were from MLS. He purchased 3 at the courthouse steps with some guidance from yours truly, though he paid more than the professional grade investors who usually buy there.

He paid cash for all of them, he could afford it.  His annual returns from cash flow after expenses produced around 4%-5%. However, he has seen some amazing increases in equities over that time.  I think he is down to 3 properties now. He sold the rest over the last couple of years.

Looking back at his results - he has done so well due to (1) buying relatively early in the rising cycle, (2) Buying slightly under market,  and (3) buying in the areas that appreciated very fast. Since he paid all cash, he also never had  any risk of losing the properties due to negative cashflow or vacancies.

Certainly, the majority of investors buying today aren't in a position to pay all cash for properties. Even with a 25-30% down payment they are looking at a real possibility of a negative cash flow that will have to be tolerated for a while. And that's with paying tenants. Vacancies or non-paying tenants can put a financial strain on investors who don't have cash reserves to carry through those dips.

Obviously we are all very positive that Austin is going to continue to grow and values will continue to rise. While it's a good bet I, personally, am willing to make, there are no guarantees in any of that. The only true guarantee is paying down the mortgages over very long ownerhip time, and hopefully pushing these properties into a positive cashflow as rents increase over time. 

Then again, we have some money hungry politicians locally who just love finding ways and reasons to keep raising our property taxes.

The other way, as has been highlighted in other threads, is buying 30%+ below market to keep the costs and the payments at lower level where they can be comfortably covered with rents.

Happy baragain hunting!

@Bruce Lynn Where does 25,000 jobs estimate come from? For comparison, the large Oracle campus on Riverside currently houses about 5,000 jobs and can potentially house up to 10,000.  Apple has 7,000 jobs and building another campus to house 5,000 more. So 25,000 jobs in Austin for TikTok seems, well... optimistic. 

Your client likely can skip the HML route altogether and from the get-go get funding with the "alternative" sources that lend on a basis of credit score, LTV, DSCR and bank statements (no tax returns). Their 30 years fixed rates were in mid- to high 5%s before pandemic, then jumped up to 9-10% during first few months of it.

However, they are now back down into mid-upper 5%s again. Companies like LendingOne, CoreWest, Finance of America, possibly LendingHome, and such. They also have ARM products too that will put your client in low- to mid-5%.