Darryl T. Agostinelli Real Estate Broker

Community Impact Newspaper

darryla — Sat, 07 Jul 2007 05:18:00 GMT

Many North Austin Suburban residents are probably familiar now with the Community Impact newspaper which reaches your door. If you toss it out with the rest of the junkmail, stop now! I have been reading it regularly since it became coming to me about 2 years ago. I find it to be great. It's far more useful and relevant to me than television news and even the Austin American Statesman.

Here's a Web Link

A few topics of choice in the past have been the toll roads, the new amusement part, the new commuter rail and other real estate and small business developments. They journal also talks about happenings in local government which has a far greater impact on our everyday lives than what Mr. President does in Washington.

It's a great paper. I'm happy it exists.

A distant second would be the Hill Country News. The information is less localized, and so the relevancy suffers a bit, but it's still a great paper as well.

Flipping Houses

darryla — Tue, 19 Jun 2007 20:40:00 GMT

Lots of people watch those shows on TV about fixing and flipping houses. Lots of customers come to me asking to see foreclosures or ones with foundation damage. Then they want to offer 20%-30% off the asking price. That is generally a great way to waste everyone’s time. The reason is that everyone watches those shows and knows to ask their Realtor those same questions and offer a low-ball. So what has been happening is those houses get multiple offers and then ultimately bid up to the asking price or more.

Just to test this theory, I did some historical analysis in the MLS. I looked for certain keywords in the descriptions and then computed how much “off the asking price” the final buyer got. This data is for the period between March 2007 and March 2006. Here is a snippet of the results of that research.

NOTES: If the discount is positive then they got it for less. If the discount is negative then they paid over the asking price. I actually searched for variations of the keywords and also took out the ones which were obvious false-positives.

Keyword         Discount
handyman         1.07 %
needs work      -0.4 %
short-sale         -0.02 %
motivated seller  -0.03 %
foreclosure      -0.008 %

As you can see, these houses aren’t going for 20% off their list prices. They are often listed, however, for 5% or more below market.

My point is this -- When you make your offer, look at the property relative to everything else in the neighborhood. Is it cheap compared to everything else?

Real Estate Statistics

darryla — Sat, 19 May 2007 20:42:00 GMT

In recent weeks, I have been asked often, “How’s the terrible Austin real estate market going?” or “It must be tough working in this market, huh?” I wanted to address these questions.

Thankfully people have it all wrong. The Real Estate market in Austin is strong. In 2001 and 2002 we had our real estate recession. After that we’ve had stable appreciation year after year while the rest of the country went crazy. This stability has paid off. While the bubble has burst in other places, in Austin, the bubble never formed -- so there was no bubble to burst!

The chart in the attached document shows a mathematical average of all of the homes which were transacted under the MLS of the Austin Board of Realtors. Resale prices have appreciated 6% over last year. Before that it was a little less and before that, even smaller. 6% appreciation is actually a little fast for Real Estate. Normally, we like to see something a bit closer to 4%. But 6% happens. Compare that to the 20% or more appreciation figures you probably heard about in places like Los Angeles. 20% is a bubble, 6% is “growth”.

Some micro-markets around Austin have experienced extremely high appreciation in the last 3-4 months. One area of notable interest is Cedar Park and Leander. In a Leander subdivision called Block House Creek, if you take an average – it’s about a 10% bump. That’s extremely fast for Real Estate. While no-one can say with certainty why this has happened, we’re all guessing that it’s most likely due to the new highway and the planned development for the area which includes a Cinemark, 2 light rail stations, a Super Target and an HEB-Plus.

There are other micro-markets which are going through some hyper-appreciation. East Austin is another famous one. Despite those, overall, Austin remains a strong, stable market.

ARMs causing Foreclosures

darryla — Wed, 14 Mar 2007 20:00:00 GMT

Interesting article on questionable borrowers and foreclosures:
http://www.csmonitor.com/2007/0302/p01s02-usec.html

Many people are often taken by the low rates of an ARM. It makes sense. ARMs are cheaper and they are a very cool product. But incorrectly used, they can spell disaster. Over time, the rate of the loan will increase. It may have started out at 4% or so, but after it starts to increase, it might eventually before 8% or 9% or more. Your payment will increase as well. For people who could barely afford the payment at 4%, when it reaches 8% or more, they often have trouble meeting their mortgage payment.

ARMs aren't evil as some might have you believe. In the world of investing, we have something called a "time horizon". That refers to the time in the future when you plan to exit from your investment. In the case of houses, the time horizon will be the year when you sell your home. As a real estate investment advisor and loan officer, I ask my clients "when do you think you will sell your home?". In essence, I am trying to determine their time horizon. I ask other questions such as, do you plan to have children in this home? How likely will you be to change jobs and other questions to gauge my clients' time horizons. Given that information, I make a recommendation and outline the pros and cons to each option. If my client is sure that their time horizon is just a few short years, and the rates are low enough, I have recommended the ARM and it makes sense for these people.

Unfortunately, people seem to like to use the ARM to qualify for homes they shouldn't be buying. For instance, for people who can't afford the payment for a 30-fixed loan, they see the ARM as a really neat way to get the home cheaper. You cannot have a long time horizon if you are getting an ARM! You really need to either sell or think about refinancing around the time when the rate starts to adjust.

Microsoft's Daylight Savings Time Bug Repair

darryla — Tue, 13 Mar 2007 21:45:00 GMT

Apparently, even if you are the sort of person who updates his computer regularly, you aren’t immune to this daylight savings time bug in Outlook which moves all of your appointments. Here is the official fix from Microsoft.

http://www.mailstreet.com/dst/default.asp

If you are using a PDA running Windows and you use Microsoft Outlook, you will need to read this posting.

Here Comes the Neighborhood

darryla — Tue, 13 Mar 2007 20:00:00 GMT

AUSTIN (Austin American-Statesman, Austin Business Journal) – City leaders and developer Catellus Development Corp. have selected six companies to build the first phase of the new Mueller neighborhood.

The neighborhood, which is being built on the site of the former Robert Mueller Municipal Airport, will eventually include 1,500 single-family homes, 900 row houses and 2,200 apartments and condominiums. About 25 percent of those units will be included in the Mueller Affordable Homes Program.

The builders are David Weekley Homes, Meritage Homes, Standard Pacific Homes, Saldaña Homes, Streetman Homes and The Muskin Co. Saldaña, Streetman and Muskin are locally based.

The Mueller project, which is the largest public-private venture in Austin's history, will house up to 10,000 residents. In addition, it is expected to add $1 billion to the city's tax base and generate thousands of jobs.

I'm a Full Time REALTOR Now!!

darryla — Mon, 12 Mar 2007 03:06:00 GMT

You may have heard the big news. I have decided to become a REALTOR full time! I have actually held two positions for some time now as both a Software Consultant and a Realtor. The two roles have always acted in symbiosis helping me to be more effective in both. I’ve been an active Realtor for three years. In the two years before that I was an avid investor in Real Estate. So this isn’t some hair brained idea that I schemed up last week. Nope, this one was hatched 5 years ago!

So what does this all really mean for you? It means I can provide you with state of the art services!

With 5 years experience in Real Estate and 11 years experience in software engineering, I have been able to create value added services that you will not be able to get from other agents. I have written software to locate property and build a pro-forma analysis based on computer calculated statistics such as vacancy, historical appreciation, population density, historical rents, current rents and many others. All you have to do is tell me your profile (how much you would like to put down and what area) and then my software spits out the homes in those areas which fit your profile. This works very well for both home buyers and investors.

Here is my service lineup:

FREE - Assess your home’s market value – Just send me an e-mail whenever you want to know what your home is worth and I’ll work up an electronic market analysis. This will be particularly useful when the county tries to raise you property taxes every year. You can contest the tax hike and win if you can show a Realtor’s market analysis showing that your property isn’t worth as much as the county would like it to be worth.

FREE - Recommend Home Services – I can recommend service providers such as a handyman, carpet cleaning service, painters, home upgrade construction services etc.

FREE - Recommend Related Service Providers – In this line of work I meet lots of people. People like CPAs, financial advisors, attorneys, insurance agents, etc. If you need one, I can refer you to some very good ones. I use them myself!

FREE - Notary Public – I’m a Notary Public. I provide this service free to all of my customers. If you need me to meet you somewhere just give me a call!

FREE - Help You Buy Your Next Home – Whether you want a brand new home from a major builder, a resale home or would like a builder to build a home on your lot, I can help you. This service is provided FREE to you because, generally, in Texas, the seller pays my commission, not you. If you are confused about how this works, let’s talk about it. Many people incorrectly think that if they go without an agent to a major home builder or approach a seller on their own thinking they will get a better price. To be fair, that does work in a very small number of cases. I happen to know what they are and can explain if you want to know. But most of the time, all you are doing is entering into a very complicated transaction without competent representation or guidance. This is not a wise decision. For those who really want to go it alone, I can provide assistance ala carte at a nominal hourly fee.

FREE – Advise you on Mortgages - I am a trained loan officer and I also have affiliations with several other very competent loan officers. I will educate you about the different types of loans available and show you how to compare loan packages. I will also provide you with a free good faith estimate for a loan from Apollo Lending which can save you even more money! We are similar to Lending Tree in that once we find the right loan program for you we will shop 4 or more loan investors to find the best rate we can offer!

FREE – Residential Real Estate Investing Consultation and Locating – Real Estate investing can be a very fun and very lucrative endeavor. Using my special software, I can help you find deals all over the city. If you have a financial advisor, with your express permission, I can work with your advisor to fit your real estate investment plan into your larger investment plan. I can also teach you how to manage your investment property and manage tenants. I can show you how to tactfully charge an application fee and then use that fee to pay for premium tenant screening. I use the same techniques that banks and private eyes use except I don’t follow people around with cameras.

Help You Sell Your Home – You all know about this one. If you are going to be buying a new home and selling your existing one, I offer a rebate system on the purchase of the new home. This will save you thousands.

That’s the line up!

New hospital to open in Cedar Park

darryla — Mon, 24 Apr 2006 14:26:00 GMT

SOURCE: http://www.impactnewspaper.com/www/docs/121.334

by Mandy Hobby

Triad Hospitals, Inc. is partnering with Seton Family of Hospitals in a joint-venture to build a $105 million hospital with 151 beds catered to Cedar Park and Leander residents.

Cedar Park Regional Medical Center is expected to break ground in June and open February 2008, at the intersection of the new US 183A toll road and Whitestone Blvd.

“We have a commitment to the partners and to the community to take care of the needs today and in the future,” Charles Barnett, Seton president and CEO, said. “We recognize the tremendous growth in Williamson County, and we respond when the community asks us.”

The Cedar Park Chamber of Commerce met with three hospitals before driving to Plano to meet with Triad. Because of this determination to provide for the growing community’s healthcare needs, the partnership was made possible.

“This is a great day in the history of Cedar Park,” Mayor Bob Lemon said at the press conference announcing the partnership, Feb. 28. “The Cedar Park Chamber [of Commerce] took the initiative to go out and make it possible for this to happen.”

The Partnership

According to Lemon, the Chamber began working on this project three years ago, and after a year and a half turned it over to the city of Cedar Park.

Triad is known for partnering with other hospitals in order to fulfill healthcare demands in fast-growing areas. The for-profit Fortune 500 company partnered with Texas Health Resources in 2005 to open Presbyterian Hospital in Denton to better serve the Dallas area.

“We knew we would not go forward in Cedar Park without a partner,” Denny Shelton, Triad chairman and CEO, said. “A single [owned] hospital is not the best strategic thing to do because of growth.”

According to Cedar Park Regional Medical Center’s new CEO, Dr. David Klein, Triad joined with Seton because of its reputable name and quality healthcare. Seton Family of Hospitals currently has 20 locations in Central Texas. Klein considers it to be one of the leading providers of healthcare services in Central Texas.

Experienced Administration

“We want to maximize on the good things of both Seton and Triad,” Klein said about the partnership. “We both have a lot in common: we want to be involved in the community, put the patients first and also be physician advocates.”

Klein is moving from the Presbyterian Hospital in Denton to Cedar Park to head the new hospital. His support for physicians and administration is unique because he has been both a general surgeon and now an administrator.

“Without physicians, we would never be successful,” Klein said. “The physicians provide for the patients and we want to give them all they need to serve the patient.”

Putting the Patient First

Klein said that the new hospital is being built with the patient and family in mind, with the outpatient services and fast track emergency room in the front.

“This will be a comfortable place that patients will want to go,” Klein said. “The care we will provide will not just be for the patient, but also the family because of the time the family spends in the hospital, as well.”

Dr. Oliver Lou, chairman of the Cedar Park Chamber of Commerce, is excited about the economic impact the new hospital will have on the major employers in the area.

“This hospital is a true testament to the saying, ‘If you build it, they will come,’” Lou said. “They being doctors, nurses, staff and patients.”

Healthcare Boom

Scott & White University Medical Campus will also be opening in 2007 and Seton Williamson in 2008. Both will be located off IH 35 on University Blvd. in Round Rock.

St. David’s Round Rock Medical Center, as well as other St. David’s affiliates, recently received new Chest Pain Centers and an accreditation from the Chest Pain Society. They now have new testing equipment for heart patients, allowing for faster testing for heart blockages during a heart attack.

Austin is Undervalued

darryla — Sat, 18 Mar 2006 22:17:00 GMT

Wondering if Austin is a good place to invest? This site suggests it is!

http://money.cnn.com/2006/03/13/real_estate/overvalued_housing_markets/

As a reminder, when you buy a home, you should look at the micro-market forces at work. It's fun to look at the overall market from the city level, but when you make your own decision, your proximity to movie theatres, Wal-Marts, grocery stores and your job matter most of all.

The Best Places to Invest

darryla — Sat, 18 Mar 2006 21:36:00 GMT

If you like investing, then if you read nothing else I write, read this. The information from this article comes from research performed by the renouned Brookings Institute and Virginia Tech. It describes places around the US that perhaps are the best places to invest.

http://money.cnn.com/2005/10/26/pf/megapolitan_biz20_1105/index.htm?cnn=yes

Of course, put your wisdom hat on while you read this. As a reminder, information like this doesn't particularly help with an individual's decision to purchase a home. A decision like that needs to consider more micro forces. This information serves to help guide your larger decisions, such as, "should I move to Austin" or "will Austin become a large metroplex".

This information will no doubt be extremely beneficial to commercial investors attempting to decide whether Austin is the place or not. Austin, and for that matter, just about anywhere along the I-35 corridor is "a good place to be". End of story.

This is a site about Austin, so I've pruned the list:

Houston / New Orleans - This is one that I personally don't fully understand. Since the Katrina disaster, I suppose it's a land grab if you can afford it. But I think that will stabalize pretty fast As a resident of Austin, I happen to know that a lot of people "fled" to Houston and Dallas after the tech bubble crash searching for work. Many are gone for good, but many will come back. I'm not sure that Houston will be a boom town. But again, I don't fully understand it. The people that did the research are pretty smart.

I-35 Corridor - That's the area between San Antonio and Kansas City, which includes Austin. Take a ride down I-35 and you'll see it in action. Places like Austin are nice places to live.

As an added note, Boston / NY / Washington were listed. Big surprise. Immigrants come into the US and move right into these places, supplanting the previous "natives" who emigrate away from the coast toward the interior. However, more people tend to stay than leave, increasing the population and value of the already scarce land. Where do these move to? Where it's hot and nice. It's historically been Florida and Arizona, but some move around here.

The limits for FHA loans have been increased again!

admin — Fri, 06 Jan 2006 16:13:00 GMT

The limits for FHA loans have been increased again! Great news.

One-family $200,160.00 (this used to be only 178,000ish!)

Two-family $256,248.00

Three-family $309,744.00

Four-family $384,936.00

Self-Directed IRA Providers

admin — Tue, 06 Dec 2005 01:28:00 GMT

Someone on a mailing list that I follow asked about Self-Directed IRAs. Capturing that info here. I personally use TrustETC.

The "BIG 3" in Self Directed IRAs are:

Equity Trust Company - www.trustetc.com

Entrust - www.entrustadmin.com

Pensco - www.pensco.com

Real Estate Investment Strategy #2 - For The Middle Income Earner

admin — Thu, 01 Dec 2005 14:32:00 GMT

A new article has been written about a Real Estate investment strategy. Click here for entire posting

Real Estate Links for Austin Texas Area

admin — Tue, 18 Oct 2005 13:34:00 GMT

austin isd page
you can see test scores and other interesting data

Travis County Apraisal District
to see what the county thinks of your property

Williamson CAD
Same, but for Williamson county

Travis County Open public records
Past sales and all that jazz

City Data
Interesting demogrpahic data by zip code

Article on valuing property
Not a source of data, but interesting none the less. Talks about how to
value property based on Price/Rents and Price/Income. Used like a P/E on
a stock. I was supposed to write a little article for Darryl on this, but
life got in the way.

What is a warranty deed?

admin — Wed, 05 Oct 2005 15:41:00 GMT

A warranty deed is a particular type of deed which contains guarantee statements from the seller that the house will be transferred free of something which undesirable. Usually, that means it will be transferred free of any "liens and encumbrances" such as a federal tax lien or previous mortgage.

As a buyer of Real Estate, if you get a loan from a bank, they will absolutely demand a warranty deed as well as "title insurance". The insurance is a guarantee from a title company that if the house turns out to have a lien or encumbrance, the title company ill reimburse the buyer for any damages.

Conversely, a "quit-claim" deed is a deed which just transferrs the house complete with whatever liens or encumbrances which might "cloud the title". You'd issue a quit-claim deed to a buyer, for instance, if you were in bankruptcy and couldn't continue to make payments on the house. You just want out from under it and want to walk away. You'd be "quitting your claim" on the house.

Here's a little more reading info if you're interested: http://en.wikipedia.org/wiki/Quit_claim_deed

Not sure if this one will come up (I just wrote it. They didn't have a warranty deed article) http://en.wikipedia.org/wiki/Warranty_deed

What's a Real Hard Money Lender?

admin — Sat, 10 Sep 2005 01:08:00 GMT

This came from a web post by graywolf_357@yahoo.com

Real Hard Money
I have received numerous calls, e-mails and even letters asking what the real deal on hard-money lenders is. At the heart of all these inquires is basically one question. That question is how one can tell the difference between a real hard money lender and a non-conforming sub-prim lender that is claiming to be a hard money lender to justify charging 8 to 12 points up front and 14% to 18% interest. This is an easy one. OK here it is plan and simple and don't let anyone try to tell you different. Please understand my position on non-conforming sub-prim lenders, I think they are great. I get all my hard to place loans done through these lenders;
however, this is not to suggest that a sub-prim lender has the ability to make a hard money loan.

The following are things that a real hard-money lender will NOT ask you for:
1) Hard-money lender will not ask you what your credit score is, he
does not care one bit.
2) Financial statements.
3) Tax returns.
4) Will never ask you to jump through hoops.

Now what he will ask you for is simply this.
1) LTV 65% max.
2) Appraisal subject to completion.
3) First lean holder's position.
4) Exit strategy

If you can provide these simple things you can get a real hard money loan.

No doubt this type of loan will cost you the big points up front some can be as high as 8-12% and a heavy rate of 14-18% or more. In many cases the lender will finance the points.

Often times the lender will allow you to repay the loan when you sell the house or refinance. I hope this answers some of your questions.

For more information on this subject and others as they relate to real estate investing join us at:
http://finance.groups.yahoo.com/group/CREI-Alliance/

If there's a bubble, what do I invest in?

admin — Fri, 09 Sep 2005 02:26:00 GMT

A Reader asked if I had any ideas about money to be made else where if real estate went bust. He saw these 2 books on amazon and asked what I thought about them.

http://tinyurl.com/9f3bw
http://tinyurl.com/daovo

I firmly believe that there are really only 5 classes of financial investments.

Financial:

Cash or Currency equivalents - such as US Dollars, Euros, CD's

Debt-Backed Securities - such as Bonds and Notes - basically, you lend money to somebody

Own a Business - this includes stocks, funds, and equity interests in LLCs or something

Natual Resource - such as Gold, Precious Metals, Silver, Oil wells, saltpeter mine, diamond mine, etc

Real Estate - buy and hold, not flipping

Those are investments, not jobs. Landlording, running a businiess, those are jobs.

I firmly believe that you should be evenly distributed 20% to each and 1/3 of your holdings in each should be in another country. My own portfolio is horribly out of balance. This is hard to do. As time goes foward, Gold gets expensive, while stock gets cheap, etc, etc. You have to watch when you load up (as in the case of Gold right now, who knows which way it will go)

I think one must also understand what makes these things go up and go down. For instance, I think buying certain kinds of duplexes today is a good thing (you'd have to make an appointment with me to hear the whole tale), I don't think my method is flawed because the prices are supported by rents which are supported by the population density and median incomes of austin. As long as they hold, the Real Estate value will hold. "Over priced" real estate happens when people buy too far above that support line...just like in stock.

I guess I can sum it up by saying: Understand what causes the prices to change in your investment. Watch those indicators and act appropriately.

What frustrates me about stock is that no one values it the same. No one knows how to value it. It's all subjective. It's not obvious like real estate is.

Debt-Backed securities are also a little nebulous, but at least we have rating systems that everyone sticks to. Such as FICO scores for individuals, That AAA, AA, A Rating system that I think Lehman Brothers came up wtih for corporations, and the DnB system are all ways to determine credit risk.

If there is a bubble that will burst, it will not affect every last house in the US. It will affect market segments that have soared beyond their support lines. It will also probably affect houses in what I call the "whimsical band". That would be houses owned by people that love to keep up with the Joneses. They live in places where a 200k house can go up to $250k in 2 years and people think they are such amazing investors. No, the people that came later followed the herd instict. You have to think like the "popular people" in high school. Whatever they wore, was the "in" thing. It's very "in" to live in a golf course.

Lots of conjecture there and strictly anecdotal opinions.

I'm not sure what to invest in if not the 20% all around thing and watch them all. The only way that Real Estate would go really really bad for everyone involved is massive amounts of illegal activity like the fraud that took place in the 1980's or what happens today on a small scale with investors illegally buying HUD homes.

A reason the stock market burst, IMO, is buying way above whatever the real value of the stock was. It's hard to not do it though. Like paying too much in a hot area. The ones that come after you will buy your house! Kind of like a pyramid I guess. Very scary.

HUD has taken all the HUD homes off the market

admin — Wed, 07 Sep 2005 02:04:00 GMT

HUD has taken all the HUD homes off the market in Austin. They are going to let Hurricane Katrina refugees live in them. There are no more HUD homes for sale! I have no idea how long this will be or how it will affect the market. It is going to reduce inventory for a little while. Anyone want to theorize on what this will do to our market?

UPDATE: September 7, 2005 @ 11am

Here's a link to the Austin, TX HUD Home handler:

http://www.southwestalliance.com/notice.asp

UPDATE: September 7, 2005 @ 12pm

Another quote:

http://www.dfw.com/mld/dfw/business/12579716.htm

"Meanwhile, HUD has frozen the sale of all its foreclosed properties in 11 states, including Texas. The homes may be used for evacuees, but it is not certain how many will be used or when they will be available, said Patricia Campbell, local HUD spokeswoman. HUD homes are often in disrepair, requiring substantial work before they can be occupied."

UPDATE: September 7, 2005 @ 1:12pm
Mike Springer writes...
What will this do to our market? I think the Austing market has had a strong summer and inventory has gone down. You combine that with HUD not bringing any new inventory to market fora while and if everything else in the economy stays the way it is now, I think it could slightly intensify this transformation from a buyers market to a sellers market. All summer I have felt like it has become much easier to sell properties and more difficult to find good investor deals. I fear it might even get harder to find good investor deals. Mike Springer

Million Dollar Skinny House

admin — Wed, 31 Aug 2005 06:51:00 GMT

This is more craziness in the home world. A million bucks to live in a column.

Link

'Bubble' fears are well-founded; just ask Texans

admin — Sun, 28 Aug 2005 21:54:00 GMT

Ran across a great article on Boston.com talking about the Real Estate Bubble. It likens the current situation in California, Florida and Boston to what took place in Texas in the 1980's. In short, the massive crash left many devasted and created huge opportunities for Real Estate investors to pick up the pieces.

Some highlights are as follows:

“One indicator, cited in a recent issue of Grant's Interest Rate Observer, is the dollar volume of home sales divided by gross domestic product. The figure for 2004 was a near record, nearly three standard deviations greater than the average of the last 35 years.“

”Our collective net worth declined from 1999 (no surprise there) and bottomed in 2002. You also learn that we had fully recovered by 2003 and that we've gained $9.4 trillion in net worth -- nearly 25 percent -- from the 2002 bottom“

“We have been borrowing at a prodigious rate, with mortgages equal to 43.7 percent of home value. That's only a bit less than 2004's record 44.2 percent.“

“The bottom line: Collectively, we're heavily mortgaged in a period of extreme prices. The return to more normal prices could be as painful at the Great Texas Real Estate Crash.”

Original Article

Do Not Call Registry - Release of cell phone numbers

admin — Wed, 24 Aug 2005 14:22:00 GMT

31 days from today, cell phone numbers are being released to telemarketing companies and you will start to receive sale calls. YOU WILL BE CHARGED FOR THESE CALLS...To prevent this, you may call the following number from your cell phone: 888/382-1222. It is the National DO NOT CALL list. It will only take a minute of your time. It blocks your number for five (5) years.

Good luck in life!

More Thoughts on Real Estate

admin — Wed, 24 Aug 2005 06:11:00 GMT

A reader had some questions
***

I realize I'm a much more conservative investor that you, but interest only and negative amortizing loans (like Pick-a-Payment) scare me. Here's a good article from the Fool about the dangers of negative amortization: http://www.fool.com/news/commentary/2005/commentary05081505.htm

It's like putting your house on a credit card.

[Darryl] I half-agree with you. Pick-A-Payment is not a credit card loan. It has a huge benefit that knocks the socks off of a conventional. That would be the ability to pay whatever the heck you feel like paying. That means if you manage to toss in a few extra payments and get that principal down, you’ll be rewarded with lower monthly payments. That’s huge.

Where people get into trouble is when they pay a lot for a house and then get an interest-only loan to get “cash flow” and it’s not real cash flow. It’s a credit loan. Very dumb. That’s not the right way to use these things. Anyhow, you shouldn’t be using them in this market. Things are too tight around Austin. The margins are slim. This is not the thing to do.

Go 80-10-10 Conventional or Pick-A-Payment (20% down required)

2. Since so make loans are really more than the borrower can actually handle, as interest rates rise I expect that foreclosures will be common in the next several years. Do you think collections companies will benefit as foreclosures happen? It might be morally wrong to try and profit form other people's hard times, but it seems like a decent investment opportunity. Any opinions?

[Darryl] I'm not licensed or trained to pick companies to invest in. Can't answer this one!

3. Can you recommend web sites for the DIY non-realtor to do his own leg work? All I know are the county CAD sites and the OPR sites. For instance, I wanted to see if 9209 SPRINGWOOD DR sold yet, but I can't really tell.

Try the OPR database for the county. (Official Public Record) I go there a lot for Travis. But they don’t seem to record stuff in there always right away.
http://deed.co.travis.tx.us/search.aspx?cabinet=opr

4. I heard a story on KUT today about how real estate was one of the biggest laggard industries in getting online. Obviously since so many (but not all) realtors' only qualification is that they hold keys to non-public data, it's clear why they are so reticent to release any of it. These barriers will break down one day, and it'll have to be through individual enterprising realtors. When I think of people in that category, I think of you :)

Thanks!

So how's this for an idea: You make some data accessible to users (maybe for a per use or subscription fee), and let them do most of the leg work themselves. Great for DIY guys like me. Legally, they can't do everything, and if they want to use you, you offer to rebate some of your fee to entice yourself as a broker. Now I'm not sure about the laws surrounding charging for the data or rebating fees, but it would mean easier and less work for you. It's kind of like offering software without support. You can get higher volume with lower overhead (time and work), but less reward for each customer.

You found an article I think about Re/Max and Coldwell doing something like that? I can talk about this topic at length. Something like that would help and hurt. I can go on and on about why… Here's some info.

Some Pros

Cheaper fees for sellers
People will have the data themselves

Some Cons

No automatic representation - Despite what you might think, houses are darn expensive and the transactions are darn complex. Without representation, you are depending on the title company to make sure it's all right and you are left to fight the battles yourself. What you are paying a Realtor for is to 1) Market your house, 2) deal with the nonsense, 3) fight for you. In the case of buying a home, you'll need to find one that 1) can empathize with you 2) deal with the nonsense, 3) fight for you. Weird stuff happens in almost every deal. It's my job as a Realtor to deal with it all. You might never know that your potential buyers had a last minute credit problem or that the bank needed a few extra certifications at the last second. I hide all the nonsense that goes awry during a transaction so that my client feels like everything went smoothly. Believe me, almost every deal has bumps in the road. But they are all surmountable if you have the right people working the controls. That being said, I never hide “major“ stuff from clients, like the discovery of a leaking roof, a buyer backing out or a major financing problem that will take days to fix. The things I consider simple, an untrained individual might have a cow about.
Decentralization of the sales data will make it nearly impossible to establish market values.
MLS based market indexes will be rendered useless
Integrity of advertised data will likely diminish

PR Ratio's and Real Estate Indicators

admin — Tue, 23 Aug 2005 23:58:00 GMT

A reader asked the following questions. My answers are interlaced.
*** ***

A good value to value houses in their price/rent ratio. Here's a brief table on national P/Rs: Link to MS Money

[Darryl] The PR ratio, I used to use a TON. It used to be my primary indicator. But it’s way off usually in Austin because it’s too simple. It doesn’t factor in interest rates. I prefer to use the cash flow calculation with vacancy and repair in it.

Monthly Rent – PITI – (1.5 * PITI / 12) – ($1000/12) = Cash Flow

[Darryl] You have to replace the 1.5% and the $1000 depending on the values for the specific locale. Use a 30-year amortized loan. If it’s positive (and it’s almost always not) then it’s a good investment. It’s the best coincident indicator. Which is why this is my primary indicator.

I think it’s wise to next look at the P/R ratio. I usually look at that next as a reality check. At this point, all the P/R tells you is if your rent estimate or sales price is fishy. You want this to be as close to $100 as possible. Lower is better, but too low is fishy. (not sure where that article below get these low numbers of 11, 22, 47, etc. I just take the Price/Rent=PR ratio)

I am working out a little thesis I have. I’m trying to determine a Profitability Indicator by looking at other coincident and lagging indicators like unemployment rate, median incomes, population changes and home sales. The crux of this is trying to get the data restricted to a granular enough geographical locale for the data to be useful for an individual attempting to make a decision about a particular property.

It's looks like Austin's the worst (highest) in TX, while SA is the best.
Is that why the flippers are so active down there?
http://recenter.tamu.edu/tgrande/vol12-3/1731.html

[Darryl] Yup. You’re preaching to the choir. Been saying this for 2 years. SA is almost finished as well. In Austin, to find the growth, IMO, watch the population movements. Jonestown, Lakeway and Spicewood = Baby Boomers; South of 2243, east of I-35 = working class migration.

"The ratio of median home price to annual rent in 2003 varied from as low as 11.45 for Philadelphia to 47.55 for Honolulu, with a national average of 22.04. Among Texas cities, Austin was the highest with a home price-to-annual-rent ratio of 20.07 while San Antonio was lowest (12.60). Based on the home price-to-rent ratio, the city of Austin is 8.95 percent less expensive than the national average."

Travis County Tax Office has a new site

admin — Sat, 20 Aug 2005 04:31:00 GMT

The tax office has a new site:
http://www.traviscountytax.org/

Looks like it's definately biased toward the tax foreclosure sales.

Results of the Survey

admin — Tue, 02 Aug 2005 15:50:00 GMT

All,

Back in March, I sent an e-mail (there is a copy below) asking what sort of cash flow people get when they invest in property. I got a few responses which I have finally gotten around to sharing with everyone. Thank you VERY much to those that responded. I loved reading the e-mails and talking to you all on the phone. We had some very good conversations! I’m sorry that I took 5 months to write it down. I have some great excuses if you want to hear J

Results

1 person looks for cash flow break-even

1 person shoots for $50/month, settles for less

1 person shoots for $100/month, settles for less

1 person shoots for $200/month, settles less

3 people want $200/month, never got it, still looking

1 person doesn’t buy, just sells break even stuff, uses IRR, Cap rates, etc to value property

1 person is switching to commercial because this person feels Residential isn’t where it’s at.

1 person suggested forgetting houses and buy duplexes instead. There was a great reason for that.

Clearly no one said they were looking for $400/month.

Lessons Learned:

1) There are about 300-400 people that received my e-mail. I cross-posted it to 3 groups. 11 respondents out of 300 is statistically a decent response rate. Even so, 11 people is hardly enough people to make a scientific evaluation from. Please consider that when reading what I write in this posting. I am very grateful to the people who responded. Some of you took a lot of time crafting your e-mails. They were great!

2) It’s must be true – property is always priced to cash flow break even – no one said they got oodles of cash from their houses right out of the gate.

a. Incidentally, if you manage to get a seller on the phone that is willing to give you a 30% discount off fair market value and you’re a licensed Realtor, you’re committing a grave offense. Why do you think those get rich courses say “don’t get a license”?

b. There are cases when property is not priced to break even – for good reason – such as the property being old and broken, “needs work”, etc. There is nothing wrong with taking a huge discount on a property that is broken.

i. I call that the fear-factor. If cats used the base boards as a litter box, there will be a smell and the base board would appear rotten. You’d have to lower the price of the house below the repair cost of this stuff to unload it. The difference between the repair cost and the actual sales price is the “fear factor”. That’s where your profit lives.

3) Multi-family (n-plexes) are probably the place to invest

a. Great Reason: Rents are low right now. They will surely go up. N-plexes are not owner occupied, therefore, are not subject to being over priced by people that fall in love with the house. They are habited by renters, who, after just 1-2 years, price shop for a new place. N-plexes are sold at the cash-flow break even point. So if you buy now, when rents go up, you can sell at a profit. This seems to fit the proper definition of an “investment”.

b. This point came from Robert at Castle Hill Investments www.castlehillinvestments.com – he published his opinion to the REICA list on 3/28/2005

c. I embellished his point a little bit.

Next Steps:

I’d say there are two next steps. I’m going to investigate multi-family now. But also, I think there’s still something to be said for Single Family Home investing. There are areas around town that will go up in value. For instance, areas of North West Austin and also Area 10. They go up because the building in those areas has stopped and people want to stay there. You know the areas I’m talking about, Area 10, Central Austin, just about anything inside the 620-loop on the west side of the interstate, Lakelike Mall area, Lakeway, parts of Cedar Park, etc. These houses will appreciate, albeit slowly.

Sales Pitch

Over the past 5 months, I hatched a method for finding single family homes which are priced right at the cash flow break even mark using a 30 year loan @7%. Depending on your financing, you can get them to cash flow better. For instance, I believe 30-year investor loans are at 6.5%. That will get you another $30-40/month in cash flow. I’ve spent an enormous amount of time pining over this. It works.

I find that Realtors use 5% or 6% interest when they calculate cash flow. Often in the MLS I’ll see someone write in the comments section that the property will cash flow. I usually can never figure out how they come to that unless I call them. Almost invariably they use an owner-occupied interest rate. Those rates are usually 1% lower than investor loans. They also sometimes use an unrealistic rental price.

My method ignores the comment field. I strictly look at the numbers and the location.

Here are some genuine examples:

130k, lease @ 1125 = small cash flow (Area 10) $84/ft

132k, lease @ 1150 = small cash flow (Area 10) $86/ft

135k, lease @ 1200 = needs work (Area 1N) $62/ft

114k, lease @ 1100 = small cash flow (VA Home) (Area NW) $72/ft

100k, lease @ 925 = small cash flow (Cedar Park) $75/ft

Yes, they are on the MLS.

As you know 90% of this business is finding the deals. If you’re interested in one, let’s do a deal. I’m a Realtor, so the other guy pays. All we’ll do is draw up a buyer representation agreement between you and I for the specific homes that I will show you. If you don’t like one, we can part ways.

Thanks again for your responses! I hope these e-mails were helpful. I’ve posted this message on my web site which is at www.darrylthomas.com/realestate

Remember to read the original e-mail below!

Darryl T. Agostinelli

Realtor and Software Architect

mobile 512 585 3246

fax 512 692 1880

e-mail darryl@darrylthomas.com

Original E-Mail

Hi Everyone,

I’d like to take an informal survey. Respond if you’d like. You can respond to me personally to avoid any spam to the lists.

Question:

What kind of returns are you guys looking for from residential cash flow property? $50/month? $100/month? $300/month? Obviously, we’d all love it if we could earn $500/month off a sub-150k house. But that’s far fetched and I think we all know it by now. What are you guys looking for? Perhaps I can help you find it. I feel as though I’m grasping at straws sometimes. What’s the number?

Discussion Point:

A little background info… A sub-150k house is your “bread and butter” home. That’s the one that rents out pretty well, can be sold rather quickly and you can buy one rather easily. The taxes on these little guys range from $2700-$3700/year on average. Call it $300/month.

The P&I on one of those using today’s rates (7% or less for an investor loan) is around $500/month for an 85k home, around $600/month for a 100k home, $750ish on a 120k home and $900ish on a 150k home. Let’s go with the 100k property, so that’s $600/month.

Lastly, you have insurance. Put it at $900/year = $75/month

In total that’s a PITI of $975. Rents are right around there for the bulk of Austin’s bread and butter homes. So there’s like no cash flow around town. The reason seems to be that rents are too low just now. Some would argue that this is the perfect time to snatch up some property. It’s like buying at the low end of the stock market.

To me, to make a buck, you have to nab a home which can rent for $1200+/month and get it for like $100k.

What are some of your thoughts around this?

Observation:

I’ve noticed that there are some differences in the calculation we used to determine cash flow on a house. Mostly, I see that people use the following calculation:

Monthly Rent – PITI = Cash Flow

Some use this:

Monthly Rent – PITI + depreciation = Cash Flow

Personally, I think this is the “correct” formula:

Monthly Rent – PITI – (1.5 * PITI / 12) – ($1000/12) = Cash Flow

That 1.5 * PITI is for the vacancy. I think there’s around 1.5 months worth of vacancy in Austin at the moment. Of course it varies by area, but this is just a general survey.

That $1000 in there is “annual maintenance” for a sub-150k house and I personally think it’s kind of low. Think of it like an annualized amount over a few years. You might not do much for a couple years, but then you have to fix the roof or the water heater or paint the place when a tenant moves out.

I think the first two formulas are dangerous and their widespread [mis]use contribute to the reason why we have almost no cash flow property available around town.

So, when I apply that last formula, the vast majority, if not just about every property that I come across is cash flow negative. In fact, in the last 4 years, I’ve only come across 1 property from the MLS that was cash flow positive. But that’s in my own experience. Your mileage may vary.

I know that there are a few fancy loans you can get to try and make your PITI a little lower. For instance, you can use an ARM. But I always thought that was a bit strange especially if you intended on keeping the property for a few years. Interest rates are at their low. Why not take advantage and lock in a sexy low rate for 30 years? You could always make an extra payment. Then there’s those Pick-A-Payment loans (like what World Savings has). You can pay the interest-only payment, the 30-year-am payment, the 15-year-am payment or the reverse-am payment. I ask the same question to that. What’s wrong with the 30 year conventional at today’s rates? Why pay the extra points? It’s an ARM.

And I think we all know of one or two other ways to get a low-payment loan using not-so-legit mechanisms. But I try to keep away from that stuff.

I’d really appreciate your thoughts on these points. I’m sure others will as well. I’ll happily post a summary of what you guys come up with in a subsequent posting to the group. I’m assuming that most of use shoot for the sub-150k “bread and butter” homes, but maybe I’m gravely mistaken?

Darryl T. Agostinelli

Realtor and Software Architect

mobile 512 585 3246

fax 512 692 1880

e-mail darryl@darrylthomas.com