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leveraged real estate investments
Old 10-06-2005, 09:35 PM   #1
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leveraged real estate investments

Today I talked to a California real estate investor who is buying 'deals' in the Austin, TX area. When I found out where they bought I thought they had gone nuts. I wondered how they knew the local real estate market so well and manage it all from a distance. I guess if you live in California, everything in TX looks like a steal. They typically buy brand new entry level homes that are built in pastures outside of Austin that have been converted into subdivisions. Cheap, fairly large homes at $50-70/sqft. The converted pasture land is of negligible value at 0.1 acre. The areas are being excessively overbuilt now.

The idea is: 20% down. Rest is mortgage. Builder issues a 1099() as a commission type deal for a rebate which reduces the out of pocket down to 10%. The investors expect the homes to appreciate by 3-8% per year. (That 8% seems to be complete bogus to me, I think some of these areas will go through some depreciation). The rent will take care of all annual cost incl property manager until they sell it. With the 1099 kickback, it seems that appreciation in the very low single digits would still work for these folks. So if you buy a $100K house with 20% down, assume a 10% kickback and a 4% measly appreciation per year for 5 years, you would still make $20K with only $10K. I guess this sounds so good that they are just scooping it up regardless of where it is.

The latest house they bought in Texas, was also a 'great deal' somewhere at a lake - they just could not even remember the name of the lake any more......

Vicky
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Re: leveraged real estate investments
Old 10-06-2005, 10:33 PM   #2
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Re: leveraged real estate investments

The 1099 sounds very odd ... they're creating immediate taxable income in exchange for the house discount?* On what basis ... are these licensed agents?

What I really think is some of these investors may have misjudged TX real estate taxes .... hard to believe these deals will pencil, considering the taxes, and low rents relative to market values.
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Re: leveraged real estate investments
Old 10-07-2005, 10:54 AM   #3
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Re: leveraged real estate investments

Quote:
Originally Posted by vic
I guess if you live in California, everything in TX looks like a steal.
Imagine how well this would work in Cleveland-- or Macedonia!

Everything looks great when you assume annual appreciation of 3-8%. But there's a reason that most people don't take out margin loans on their brokerage accounts.
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Re: leveraged real estate investments
Old 10-07-2005, 11:10 AM   #4
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Re: leveraged real estate investments

There was a huge flyer in our local paper today out here in So. California --
"Lakeside Living With a Taste for Lone Star Luxury" featuring homes near Austin, TX - a waterfront paradise known as The Hollows on Lake Travis.
I believe Centex Homes printed the flyer. I think it is a smart move on their part to advertise out here in SO. CA.
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Re: leveraged real estate investments
Old 10-07-2005, 11:24 AM   #5
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Re: leveraged real estate investments

Forget moving to Panama or Thailand to ER! Move to Texas. This might be a very real trend if So Cal cost of living stays where it is or continues upward.
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Re: leveraged real estate investments
Old 10-07-2005, 11:53 AM   #6
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Re: leveraged real estate investments

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Originally Posted by justin
Forget moving to Panama or Thailand to ER! Move to Texas. This might be a very real trend if So Cal cost of living stays where it is or continues upward.
Justin, are you a nut pie? Texas is just Hell in disguise. No one in their right mind would move to that state. Even "W" only visits here occasionally.

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Re: leveraged real estate investments
Old 10-07-2005, 12:13 PM   #7
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Re: leveraged real estate investments

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Originally Posted by REWahoo!
Justin, are you a nut pie? Texas is just Hell in disguise. No one in their right mind would move to that state. Even "W" only visits here occasionally.

You may do a better job at dissuading So Cal residents from migrating to Texas if you tell them that "W" is there all the time. Because he is, right? He takes six week vacations there every month, from what I hear in the media.
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Re: leveraged real estate investments
Old 10-07-2005, 04:12 PM   #8
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Re: leveraged real estate investments

The* $50 to $70/sq ft homes as described by Vicky near Austin would have to be far east Austin. The lake would be Lake Decker, a big cooling pond for the Decker power plant. East Austin is/was known as the 'Barrio' by those raised in Austin. These homes at the above prices would be clap board soon-to-be slums.

Californians have already turned 'laid back' Austin into a rude replication of southern Cal.. There is no solution to the traffic, yet the state plans to build a series of toll road 'fly overs' that are already paid for with tax money. I moved 60 miles west of the place, not far enough.

Wait until the new residents of Texas see their property tax bills (over 2.5% current market value) and the long list of fees tacked on the city owned utilities. The city electric utility is powered by three natural gas plants plus a nuke.*

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Re: leveraged real estate investments
Old 10-07-2005, 05:10 PM   #9
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Re: leveraged real estate investments

Quote:
Originally Posted by justin
Forget moving to Panama or Thailand to ER!* Move to Texas.* This might be a very real trend if So Cal cost of living stays where it is or continues upward.*
I certainly hope not.

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Old 10-07-2005, 09:27 PM   #10
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Re: leveraged real estate investments

Quote:
Originally Posted by Ginger
There was a huge flyer in our local paper today out here in So. California --
"Lakeside Living With a Taste for Lone Star Luxury" featuring homes near Austin, TX - a waterfront paradise known as The Hollows on Lake Travis.
I believe Centex Homes printed the flyer. I think it is a smart move on their part to advertise out here in SO. CA.
That is the one! She said something about Hollows. Very very scary to not even remember Lake Travis if you are a real estate investor in Austin

Vicky
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