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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.

 

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.

 

Top Five Things to Consider for Ordering a Land Survey

On more than one occasion, I have seen investors have to clean up a mess after closing that could have been prevented had they ordered a land survey. Unfortunately, most Real Estate investors avoid getting surveys. Why? They don’t want the added cost in doing their deal, they don’t believe surveys are that important, and land surveys can take time to get, potentially holding up their closing. In this blog, I discuss when you should consider getting one. But let’s cover some basics first.

What Is a Property Survey?

For those of you new to real estate, a survey is a graphical diagram used to depict the boundaries of a property and illustrate the exact amount of land that is owned. Surveys will show any easements or encroachments on a property. For example, if the neighbor’s fence is encroaching on your property or sewer lines run through it, a survey is going to reveal that. These issues can range from being insignificant, where nothing needs to be addressed, to serious and need to be resolved before closing.

What Issues Can You Experience?

Maybe your neighbor’s shed is inside your property line, or the in-ground pool was installed over the utility easement, or your driveway starts on your neighbor’s property, before connecting back to your property. All of these can present problems after closing.

What problems can you have? – Problems with your neighbors, problems making any improvements to the property, incorrect or skewed appraisal values – are just some of the things that could be avoided by ordering a survey prior to closing. While you don’t necessarily need to order a survey on every deal, you probably want to take note on when you might want to order one so you don’t experience any of these issues with your deal.

Top Five Things to Consider for Ordering a Land Survey

  1. The property is located outside a metro area or what we would refer to as “in the country.” This also applies to properties, not in platted subdivisions. If you are buying a property like this, you want to make sure that the boundaries are accurate and the amount of land included is what you are expecting. Also, you want to be sure there are no encroachments or easements that need to be corrected before you close.
  2. The property is on an old site or the existing survey on file is old. “Old” is subjective, but probably anything built before 1940 should automatically warrant getting a survey. It’s worth noting that even if the seller has the original survey from their purchase if the survey is older than seven years, the title company may require a new one in order to issue any additional survey coverage.
  3. The improvement is oversized for the existing subdivision (i.e., a McMansion). You may have seen these houses in some older, more established neighborhoods where original homes are being torn down, and new houses that take up a larger portion of the lot are being built. If you are buying a deal like this, be sure to get a survey to make sure any improvement is within the boundaries.
  4. The legal description is metes and bounds as opposed to lot and block. This is typically seen on older properties and/or properties outside a metro area. Metes and bounds can be very lengthy and contain reference points to mark the boundaries. If you see this in the title commitment, definitely get a survey.
  5. Utility easements don’t always warrant getting a survey. However, if there is a sewer line easement, you should get a survey to determine where the line runs on your property.

In addition to these five points, the fact is you may be required to get a survey if you are refinancing or selling and a traditional lender is involved. However, if the seller has a survey when you close on your purchase, you may not have to get a new one if the title company will accept it. Always ask the seller if they have one when you are contracting the house, but don’t make it a deal-breaker if they don’t have it. Just order one at the time of purchase and get the additional coverage (for a nominal fee) from the title company.

Real Estate Investors: Greedy Profiteers or Good Samaritans?

I am proud to be a real estate investor but in the many years I have been in this business, I have heard the most inaccurate, absurd, as well as offensive things about real estate investors. Things like: we are greedy profiteers, we are slumlords, and probably the most outrageous that was told to one of my real estate friends by his banker – “we are in an evil business”. Imagine that. Who would say something like this, except someone who doesn’t truly understand what we do as real estate investors?

I want to set the record straight so when you hear things like this you can respond with the facts and be proud to call yourself a real estate investor. Real estate investors add more value to a distressed community than anyone else. I can also argue that real estate investors maintain and improve the value of vibrant communities as well. This may sound bold, but it’s absolutely true. Whether you wholesale, flip or own rental properties, you are adding tremendous value to the community by taking risks others won’t. And guess what? You should make money doing it! If there were no incentive, and no one willing to put their time and money at risk, entire communities would deteriorate.

When you drive through a neighborhood and see that awful house on the street (you know the one I am talking about), the one with 3 foot tall weeds, 15 newspapers in the yard, mail covering the front porch, broken windows with stray animals going in and out, etc., you see opportunity. The neighbors see a bad situation that won’t go away fast enough because, from their perspective, no one cares enough to do anything about it.

Even worse is when the city takes action and boards up the house, creating a false impression that this is a bad neighborhood. Think about this for a minute. If you saw 2 houses like this on the same street, what would you think? How about 3 on the same street? I have seen this many times. When this happens, the value of the neighborhood can completely erode (along with the property tax revenue, affecting schools, hospitals, and even essential services like police and fire). There is less desirability for a homebuyer to purchase a home in a neighborhood with 3 boarded-up houses on the street. Safety becomes the #1 concern in these situations and fear will make buyers look elsewhere.

I once had a tenant from Detroit who retired to Dallas because he had family here. I remember asking him what it was like living in Detroit. He said he was scared all the time as he lived in the inner city and most of the houses on his street were vacant. Moving here for him was a blessing as he said he escaped the cold weather as well as a dangerous neighborhood. This happened because no investors were willing to take on the risk where he lived.

When a real estate investor finally steps in to improve a property the value of the property increases, the tax assessed value increases, the neighborhood feels safer and more desirable, and families want to live there. For you to take on this level of responsibility, you need to be rewarded financially and need to feel great about what you are doing. So when you hear anything negative about real estate investors, remember to counter back with what I mentioned, in a way that is confident, courteous, and professional, because no one is doing more for distressed communities than real estate investors.

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