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.”