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Texas Real Estate Inventory

Texas Real Estate Inventory

Texas Real Estate Inventory (or lack thereof)

While most of us have spent the past year thinking about other aspects of life, Texas real estate investors have wondered what the market was going to look like when everything returns to normal. A year ago at this time we saw demand increase while supply levels dropped. Most experienced investors were surprised by what they were seeing, and anyone new to the business probably didn’t understand that this was not a normal market.

 

The Latest Numbers

Real estate professionals will tell you that a six-month supply of houses on the market is considered healthy and balanced. As of March 2021, available inventory was 1.5 months in Texas. Inventory levels at both the wholesale level and retail level are at historic lows, and the days on market for anything retail is averaging less than 30 days across major markets in Texas. This is causing prices to not only remain high but also to continue increasing. Most investors that are finding deals are going outside their respective metropolitan area and into tertiary markets. So what does this mean for the housing market and deal flow for investors, and when is this going to change? 

 

Inventory Factors

There are two factors worth considering that may increase inventory levels for investors, as well as retail buyers, but to what extent is still to be determined. First, the number of homeowners in Texas that are behind on their mortgage payments as of March 2021 is 8%. Of this percentage, 13% believed that their chances of being foreclosed on were ‘somewhat likely’ in the next two months, according to Texas Housing Insight. While they didn’t give an exact number of how many mortgages this would be (this was a U.S. Census Bureau survey of some undisclosed number), these percentages most likely represent a large number of people just given the size of the Texas housing market. 

Will there be any foreclosures in the near term? As of the date of this article, there is still a foreclosure and eviction moratorium in place through the end of June 2021. However, a federal judge recently ruled that this was unconstitutional, and the case will most likely go to the Supreme Court. The process to get there might be accelerated, as the impact of this on lenders, and the mortgage-backed securities behind all of these mortgages, is significant.

The second factor is the snowstorm that devastated Texas in February, resulting in billions of dollars in damages. Roughly 4.5M homes were without power, some for several days. While not every one of these homes experienced issues from pipe bursts, hundreds of thousands of homes were affected. Due to the record number of claims being processed by the insurance carriers, many of these homeowners have not received a check for their damages yet, let alone repaired all the damage they suffered. This may be due to the overwhelming cost to repair, and the fact that demand for contractors has outstripped supply. Many of these owners cannot afford to pay for their mortgage and pay for a temporary place to live. Others will not be able to afford repairs even after an insurance check is cut. Both circumstances may result in an owner’s decision to sell out of necessity.

 

Timeframe and Possibilities

So what’s going to happen and when? I don’t have a crystal ball, but I do think there will be some foreclosures that take place in the second half of the year, possibly in the fourth quarter of 2021 or maybe in the first quarter of 2022. If/when this happens, there will probably still be a tremendous amount of demand for housing. Coupled with very low mortgage rates that will likely be available and the continued influx of new residents from other states, those houses will quickly get absorbed in the market. Many homeowners that were victims from the storm might take their insurance check, not make the repairs, and move somewhere else, if they can find a place to go.

Intervention

No one wants to see anyone be foreclosed or have to move from their home due to costly repairs. While the latter will not be protected by the federal government, the feds could intervene and prevent foreclosures by mandating adjustments to mortgages (i.e., through forbearance agreements, loan modifications, extensions, etc.) thereby limiting an increase in inventory levels, and keeping the supply low.

Moving Forward

This is the type of market that can scare some real estate investors if they aren’t patient, not diversified, and/or have limited experience. If you are a wholesaler or flipper, it’s challenging to find deals. However, the rental property owners I know are having success. They are cash flowing better because rents have increased, and they have been able to get financing at record low interest rates. 

As I have stated many times and written about in my book, Easier Than You Think, An Expert’s Guide to Single Family Real Estate Investing, you need to be able to implement all investing strategies (i.e., wholesaling, renting, and flipping), to be successful in this business and not walk away from a deal. Bouncing in and out of industries as the market changes, won’t lead to long-term success. Staying focused with a plan is the best course of action.

 

Get Ready to Protest Your Property Taxes

Get Ready to Protest Your Property Taxes

Over the past several years, the appraisal review boards have been raising assessed values across the state of Texas, with the major markets being hit hardest. I want to help you save some money, and be ready to protest as the window of opportunity is rapidly approaching. 

My clients, friends, and associates know that, over the years, I have devoted time not only to protesting my taxes, but also teaching others how to protest their taxes. Since the protest season is right around the corner (May timeframe), let’s dive right in with an example and what to do.

Say you purchased a property that has a current county tax-assessed value of $200,000, with a tax rate of 2.67%. This would mean your annual tax amount would be $5,340. If you purchased this property for $100,000 because it needed a significant rehab, shouldn’t the tax-assessed value reflect the property in its purchased condition?  Of course it should, but in most cases it will not. Why? Most property owners do not protest their property taxes, and if you bought this property off-market, the appraisal district isn’t going to know what you paid for the property, let alone the condition.

If you protested the property taxes in this example, and reduced the tax-assessed value to the purchase price of $100,000, you would now have a tax amount of only $2,670, or one half the current tax amount. 

Let’s say the market rent for this house is $2,000/month. The principal and interest payments are $852/month (based on a loan amount of $150,000, interest rate of 5.5%, on a 30 year note), and insurance of $100/month ($1,200 per year). Your positive cash flow before protesting would be $603. After protesting, your cash flow increases to $825.50. This additional $222.50/month is a 37% increase!

Conversely, if you are flipping this house, and it takes you six months to get it sold, your savings on the tax credit you give the borrower would be $1,335. While that doesn’t seem like a lot of money, every dollar counts when you’re flipping a house. For a couple of hours work, you can decide if it’s worth the effort to protest.

Steps to Protesting

The first step in protesting your property taxes is to find the appraisal district website for the county where your property is located. For example, if your property is in Dallas County, go to www.dallascad.org. Once you are there, look for the menu, or search the site for tax protest guidelines. Many districts allow protest filing to be submitted online. However, each appraisal district has their own protest time window for when you can protest, along with their own procedures, and how the process works. All of it is quite simple and doesn’t consume a lot of time. Just follow the steps and you’ll be on your way to saving money.

Whether you protest online, by mail, or in person, be prepared to have the following four items ready to make your case:

1) Settlement Statement from closing. This shows the appraiser what you paid for the property. A copy is fine as they do not need your original.

2) Photos of the property that the appraiser can keep for their file. You will want to use pre-rehab photos. The uglier, the better. This illustrates why you were able to purchase at such a low price (“Mr. Appraiser, this property was a disaster when I bought it. Just look at these photos….”)

3) Estimates of work to be performed. This shows the amount of work needed to get the property in livable condition. If you have this documentation, it helps prove your case.

4) Sold Comparables (comps) in the subject’s area. You need these for a current understanding of the market in your subject’s area. The tax appraiser will certainly be looking at them online, when making a decision on your value. However, they will not be weighted as heavily as the other items if your property needed significant work. If you are not familiar with how to get effective comps, you need to get with a realtor or appraiser to help you. 

After you file your protest, you will be sent a notice with a date and time for your ARB hearing. Prior to this hearing date, you will want to make an appointment for an informal review with a staff appraiser. This can be arranged by phone or going to the appraisal district in person.

At your protest appointment, your objective should be to get the tax assessed value lowered to the purchase price of the property. If the property needed significant work, the purchase price is justifiable for the new assessed value. My advice is don’t talk too much. Less is more in these situations, and the appraiser already knows why you are there. Merely stating that you want the value lowered to a specific amount due to condition, should suffice. Submitting your settlement statement, ugly photos and estimates of work to be performed, will illustrate that you are prepared and will provide appropriate data to make your case. The appraiser, in most cases, will lower the value, maybe not to the purchase price, but to some lower assessed value.

My advice is take what you can get. However, if you are not happy and feel that you were not treated fairly, you can refuse to sign the adjusted value form, and take your case to the Appraisal Review Board (ARB) at the scheduled time you received on your protest acknowledgement. This is a separate in-person hearing with ARB members, and the district website will explain the process for doing this. I’ve had success at an ARB hearing. They can be worth your time, if the savings are significant.

If you hold the property as a rental, you need to repeat these steps each year.  You won’t be able to get the value down to the purchase price again though, so you will need to use your realtor or appraiser to figure out what the new comps are that year and be prepared to state the new value you are looking for instead of providing a settlement statement.

As real estate investors, we want the maximum return we can get from each property. I would highly encourage you to protest every property you purchase, including properties you are going to flip where the numbers and timeframes make sense. Even protesting just one property can make a huge difference in your returns. If you have multiple properties the savings can literally be thousands of dollars.

Title Insurance and Why You Need It

Title Insurance and Why You Need It

What is Title Insurance?

Buying an investment property is one of the biggest purchases anyone can make. To protect the investment from tangible, physical damage like fire, storms or vandalism, hazard insurance is often purchased. What if mistakes are made related to the legal ownership involving the property being purchased? This is where title companies and title insurance come into play. While hazard insurance is easy for most of us to understand, title insurance is often an afterthought, as it occurs automatically as part of every transaction at a title company.

If you are new to real estate investing, you may not be completely aware of why you close at a title company in the first place. Also, there are many investor programs and seminars out there that discuss acquiring real estate without stepping foot into a title company. Many of these “no money down” strategies can create enormous problems for investors, the most important one is losing money! Before we spend time addressing why you should purchase title insurance, let’s make sure there is a thorough understanding of what a title company does.

Value of a Title Company

A title company is a neutral third party that assists in the conveyance (or transfer) of ownership between sellers and buyers of real property. Title companies make sure that the title (proof of ownership) to a given property is legitimate, and free and clear of all liens and judgments before a transaction is closed. Title companies offer insurance on the title to the buyer (called an owner’s policy) and also to the lender (called a mortgagee’s title policy) if the property is going to be financed. These title insurance policies ensure there are no other claims against the property, for example, by other family members or heirs, or by vendors who may not have been paid by the seller of the property for work performed.

A Real-World Example

Consider the following: You buy a house that is deeply distressed.  You execute the documents, money changes hands, and you take possession of the property. Two months later, an heir to the property has their attorney contact you stating they have legal rights to the property and are going to sue for possession. Maybe this happened to be from an estranged sibling of the seller, who is still entitled to their share of the property. You are blindsided by this.

Scenario A:  You closed this transaction by getting the deed to the property conveyed to you directly by this seller or someone who claimed to be the owner of the record, without closing at a title company. You trusted the tax records and thought no one else needed to be involved from the seller side. Also, you were super excited about the deal and just wanted to focus on getting possession. The seller was behind on their mortgage, and your plan was to catch up on the note and start making payments. You even gave this seller $10K for the deed to the property, as this was an incredible deal that you didn’t want to lose. Now you are in a situation where you are most likely going to lose money and/or the property. If you think this hasn’t happened before, think again. There are many stories out there similar to this one.

Scenario B:  You closed this transaction through a title company.  You call the title company who issued the policy and file a claim. At this point, the title company will handle the heirship issue, and you will either be getting money back or be allowed to keep the house.

Performing transactions without a title company can be a recipe for disaster. Not only can you lose all of the money invested and/or the property, but you may also be in a situation where you need to hire an attorney to defend yourself, potentially costing thousands of dollars in legal fees.  

While there are many federal regulations regarding real estate transactions, most real estate laws are governed by the states. Title companies understand not only how heirship issues are addressed, but also how liens and encumbrances to title impact a specific deal, based on the laws in your state. Relying on them is critical to having a successful transaction, and protecting you as an investor.

Conclusion

As a long-time private hard money lender in Texas, we have seen many title issues not get resolved in the closing timeframe of the buyer and seller. In fact, many may not get resolved without legal pursuit. However, doing all of the research to discover what is needed to effectively close a real estate transaction is what a title company gets paid to do. This is why closing at a title company and buying title insurance should not be a consideration, but a requirement in every real estate transaction you pursue in Texas.

Defining the Term “Real Estate Investor”

Defining the Term “Real Estate Investor”

There’s a lot of misinformation out there regarding real estate investors and what you have to do to be considered one. I don’t know why, but I think it may have to do with how real estate investing is portrayed in the media. So let’s clear up this confusion right now.

What A Real Estate Investor Is Not!

I recently watched a documentary about the 2008 market crash. In one of the segments, they interviewed homeowners who borrowed against the equity in their home, anticipating the value would go up so they could sell the house and make a profit. I’m sure you have heard stories like this and may even know people who did this.

In the documentary, these people were viewed as “real estate investors” who were speculating and ended up getting burned because the value of their home actually went down and they were underwater (owed more than the house was worth). Anyone not in the real estate business might believe these people are real estate investors, but this isn’t what those of us in the industry mean when we use the term.

For better or worse, this is how real estate investors are most often portrayed in the media. This, of course, is totally absurd. A homeowner is NOT a real estate investor. Your home, contrary to what you have heard, is not your biggest asset. In most cases, it’s your biggest liability. It pays you nothing, and in fact, can become a bottomless pit of money.

Now don’t think I have something against homeownership. I love home ownership. I just don’t think someone is a real estate investor simply because they purchased a homestead.

Also, “speculating” is not in the vocabulary of any successful real estate investor. By speculating, I mean buying a property with the expectation or hope that it will be able to be sold for a profit, usually due to positive market conditions, but doing so with the risk of a loss.

Furthermore, a real estate investor is not a handyman, painter, plumber, electrician, landscaper, or any other type of contractor. It doesn’t matter if you are one of these by trade or not; you should not be at your investment house fixing it up, making improvements to it yourself, or doing any type of work to it personally. Separate your day job from your investments.

What should you be doing? Focus on managing your contractor and finding your next deal.

So, What Is A Real Estate Investor?

As the saying goes in the real estate investing world, “you make money when you buy.” Therefore, a real estate investor is not a speculator. A real estate investor looks to acquire a property where value can be added, either by themselves or someone else, where there is equity and most importantly, where a profit can be made. Whether you are wholesaling, flipping, or renting property, if you are doing it for the purposes of making a profit, then you are a real estate investor.

If you are a Real Estate Investor looking for a hard money loan, contact the best in Texas today!

Texas Real Estate Inventory

Top 10 Steps for Selling Faster

The goal for any investor, who is flipping a property, is to get in and out of the deal as quickly as possible at the price they want. 

There are many books on flipping. Rather than reading an entire book (or several books) on how to sell your property faster, I am going to list my top 10 steps you need to take to achieve this goal.

There are so many examples where investors skip one or more of these and completely blow up their deal. However, if you follow these, you will be in a much better position to sell your property faster and for the price you want. 

 

Top Ten Steps for Selling Faster

  1. Make sure your rehab is 100% complete before you market the property. This means you have done everything, including the final make ready so that it is clean and green. This means clean inside and out, with the landscaping and drive-up appeal looking great as well.
  2. List your Property on MLS – To get maximum exposure, you want to list the property on the MLS, preferably with an agent/broker that works your area. Discount brokers are generally a bad idea, as they have the potential to be unresponsive to buyers and their agents. You may have heard the saying, “You get what you pay for.” That totally applies to discount brokers.
  3. Photos – Before the property goes active on MLS, be sure all of the photos look good and you approve of them. You’d be surprised at the ones we see that still have a mop and bucket, cleaning supplies, etc., in a photo from the final make ready. Or, have some area of the house that looks dirty online. Don’t be the seller with that listing.
  4. Discuss the proper pricing with your agent, and be sure not to overprice the property relative to the overall subject’s market. This is a common mistake that will force an early price drop so you can ultimately get showings. If you get showings right away, that’s an indication that you are properly priced. If you don’t get showings right away, that is a strong indicator that you are overpriced. The market will generally tell you what the price needs to be based on other active listings (your competition) and recently sold comparable properties.
  5. Once it’s active on MLS and you start getting showings, make sure your agent gives you feedback from the buying side. It’s important to know what the market is saying. It may be something you can address quickly and maintain your pricing level. If it’s something out of your control (i.e., your property is on a busy street) you may only be able to address this through a price adjustment.
  6. If you have to lower the price, be strategic about it, and lower it to the correct amount. Large price drops don’t look good, and too many reductions in price can give a false impression of something seriously wrong with the property. That can make your property sit even longer on the market, forcing you to be more motivated to further lower the price to get it sold.
  7. When you get an offer(s), make sure your agent gets an approval letter from the buyer’s lender. This is often overlooked as everyone assumes that all buyers that submit offers are qualified. However, nothing could be further from the truth. Not getting this confirmation can end up costing you time and money, if the buyer has to back out of the contract because they were never approved to buy it in the first place.
  8. The best offer is the one that is the most qualified financially and will close on time. Usually, but not always, your first offer is your best offer. There are some exceptions to this that I address as it’s own topic here. Once you select the best offer, get ready for the inspection process.
  9. You are most likely going to get an inspection report from the buyer that has a list of everything they want you to do in order for them to close. While it may be frustrating to get this request, maintain your composure and focus on the right things. If you overlooked something major that any buyer is going to discover, you will probably need to get it repaired. Things like the roof, foundation, HVAC, hot water heater, etc., are big items that you can expect to see if they have any defects. Your agent will help you negotiate these items. It is always better to concede with some agreed-upon dollar amount, credited to the buyer, so they can repair the item(s) themselves, and you can continue to move to close. This will save you time, money and headaches. You don’t want to fix a bunch of items, only to have the buyer back out, and your next buyer request totally different things. Get these worked out with this buyer as best you can.
  10. Appraisal – Once you are through #9, one final remaining requirement is the appraisal. Access needs to be given to the appraiser, and if it’s on a lockbox, that makes the process easier. Once this appointment is set up, I encourage you to meet that appraiser at the property and give them a copy of your original appraisal, if you have one. This gives the appraiser valuable information that they can use for their own research. It helps them understand how the value was originally determined and hopefully arrive at or above that same value, depending on the market conditions at the time. If the value has been met, chances are you will be moving toward closing very shortly.

That’s it! Follow these steps and you will be on your way to faster sales.