All Forum Posts by: Leland Barrow

What I have never liked about flipping is what I don't like about used car dealerships...you cannot control your inventory. How do you scale a business when your inventory is variable and dependent? Worrying about customer acquisition is a lot already, but having to worry about sourcing inventory adds such a complicated dynamic. It is an industry that created an entire sub-industry in wholesaling only because inventory is so difficult to source.

I can see it as a side gig, hobby, or opportunistic; but not as a scale-able business with long term viability. 

Gamble and play the odds in Vegas, but not in business.

Texas buy and hold real estate has not really been worth it over the last 24 months or so. Someone earlier hit the nail on the head, rental rates have not kept up with appreciation. Having properties that go up $100k in value but $50 a month in rent is a bit ridiculous. Jay is also right, property tax increases wipe out any rental increases. Buying your holds in a seller's market just doesn't make sense. It looks to me like we are now entering a correction. I would like to see prices slide some over the next few years as well as have property taxes stay stagnant. 

I don't see a bubble. At least not in Texas. Here we are talking about small changes in rental rates versus purchase price that take properties from a little in the negative to a little in the positive. Additionally I wouldn't want to get caught with a portfolio of recently purchased and fully leveraged properties if prices do slide. Life is full of unknowns and it is better to have a portfolio you can borrow from instead of one that you are upside down on. 

I think today's real estate investors will play a larger role in mitigating market corrections. The days of fire-sales are over. The days of whole blocks of foreclosures are over. The great thing about real estate is that there is money to be made no matter what the market is doing. If the POTUS causes some huge financial market interruption and people cannot buy personal homes then the right kind of rentals will be in demand. 

Even if the economy went full on Venezuela someone would make money in real estate, they just may not realize returns for awhile.

Those that are at risk are those that play the game at a higher level and with higher risk, but they are always at risk. Those that want their 100$ a month net buy-and-hold rentals are probably going to see opportunity. 

As anecdotal as it is I do know this...culture is shifting. My kids are growing up fast and I am planning for college. My wife an I are adding onto our property for our kids to be with us long term. We figure Bachelors, Masters, and a few years to save up their own money before they leave. We are thinking that they will be with us until at least the age of 28. We are also fully prepared for fiances or spouses to be living with us. My kid's world is much different than the world of just a few decades ago. I am sure I am not the only post Boomer parent that thinks this way.

Because of that I think we will see a market that stays pretty flat on inventory. Niche developments will replace volume developments. Families will change homes less frequently. IIRC market cycles can last about 7-8 years, that puts us at having the oldest of Gen Z thinking about home ownership. There is not enough millennial home owners to replace the dying Boomers. 

What I see for this market cycle is sliding prices, stagnant inventory, increase in number of renters, and a decrease in homeowners; with more variation in regional markets vs the national market. 

My comment is speculation and nonsense, don't take it seriously.

Texas has been a great place to do business. Central Texas is as good as it gets. Austin is more of a matured market. It has gone through a pretty significant gentrification process. Austin has grown in all directions but the new push is south. Kyle and Buda have quickly grown. At one time those were commuting suburbs. Now commuting suburbs are San Marcos, New Braunfels, and Canyon Lake. San Marcos is a beautiful college town. It is going through a miniature gentrification and the West Side of San Marcos is attracting a lot of attention. New Braunfels has been growing just as quick. Both cities are now family friendly with a lot of amenities. New Braunfels has a much more polished city plan and code department. Canyon lake finishes out this Central Triangle, it is still lacking an identity but it is quickly changing. It used to be the hillbilly lake town. Now it is on the verge of going through a change process. I would imagine Canyon Lake will be the city where most people kick themselves for not building in. Farther South you have San Antonio. West San Antonio is growing. I don't think it gets much better than West San Antonio. As a city it has a lot to offer. The cultural diversity is awesome. I can only compare it to San Diego of the 80s and early 90s. A fun city that has a lot to offer people of all backgrounds. San Antonio is a bit more blue collar in my opinion where as Austin is white collar. Just outside of San Antonio you have Seguin. Now that little town is about to really start changing. Seguin is a poor town. A poor town on a river, on one of the busiest interstates, with transportation growth that it has happening all around it. Seguin is a is the gateway to Houston and the oil fields. Out west you have Kerrville. Also located on I10 it is a retirement town. Kerrville is known for art and wealthy retirees. That city does not want growth. However, it is the gateway to Texas hill country. Anywhere you look around San Antonio are towns that are growing and the cusp of becoming premiere suburbs. Downtown San Antonio has a real hipness. Today it was what Austin in the early 2000s was trying to be. Downtown San Antonio has the amazing historical charm and vibe that you cannot get anywhere else. You can feel the history, while also sensing the change. If I chose one word to describe Downtown San Antonio it would be "authentic". It is authentic Texas. Those that saw the beauty and potential are already making it happen. 

In my lifetime Austin and San Antonio will essentially become one city. A new and better version of Dallas/Ft Worth. It will get professional sports teams and become an international player as far as metros go. There is decades and decades of petroleum and energy resources in the Permian Basin and Eagle Ford. The widening of the panama canal has increased shipping and transportation. Texas is a gateway into South America by either land or by sea. Railways built Dallas/Ft Worth and the ports combined with interstate transportation will continue to build Central Texas. El Paso to Houston is a transportation corridor that is always increasing. 

The hyperloop if it gets built will be a game changer. I look forward to the day when my kids can live near me but commute to Houston or Dallas in minutes. 

There is nothing temporary about Texas. It is still a baby as far as growth is concerned. Austin cannot even figure out how to build a loop. Look at a map of all of the states and pick out the ones that have the interstate transport, massive amounts of natural resources, ports, coasts, and diversity that Texas has. If you are an out of stater you can pretty much draw a circle around Austin to West San Antonio and be hard pressed to make a bad purchase as far as areas go. Developers that want value land should consider Comal and Hays Counties. Value investors should look for deals inside 410 San Antonio, Seguin, and Canyon Lake. Heavy Hitters should look at Austin, downtown San Antonio, West San Antonio, Downtown San Marcos. The city with the most potential is hands down San Marcos Texas. It is gentrifying quickly. It has developers already pushing for developments that cater to the university. Is has the same kind of charm that cities in Colorado have. It is halfway between Austin and San Antonio. I would make the bold prediction that Hays county will become the Orange county of central Texas over the next few decades.

Hopefully you got something out of that.

Jay has good points. Much of Texas has limestone/caliche 6"-36" under the top layer. That is a perfect condition for foundation damage due to shifting. However, Texas also repairs foundations cheaper than any other state. If you do not account for possible foundation repairs into your acquisition cost them you have increased risk. If you buy turn key or new then you are buying at market value and not at a discount.

You can ignore Texas. I35 between Austin and San Antonio is the fastest growing corridor in North America. To essentially blow that off because you do not know how to acquire at a discount...well, go for it. I buy houses with foundation issues and I negotiate the crap out of them, I fix the foundation and then transfer a warranty to the next buyer, because I can negotiate a 10-20 year warranty with mom and pop foundation repair company. 

The spin is you can buy a house without a warranty that may have foundation issues or you can buy this house that has a 10-20 year warranty. It becomes a value-add if sold correctly. 

At the end of the day real estate investing is about buying correctly. 

Give them their security deposit back. You have already invested too much time and thought into this.

To answer your question and don't take it as snarky because it is an honest answer. I don't have these issues. I reply to text messages. When you are dealing with people you always have the human factor. Always be timely, always be within the law, always factor in the extremely high cost of standing your ground.

Always be professional. Realize emotions will cost you money.

If you have credit card debt then I am assuming you have no money for a down payment. It is hard to buy an investment property with low or no money. There are a variety of options for low down payments if you are buying a residence. If it was me in your shoes I would house hack a multi-family with a low down payment loan. I would do as many of those as you can until it is no longer a viable option. 

Also you do not need a corporation.! I think you need to spend about 3 months reading through the educational content on BP. 

You are not building equity. If you had 7 years left on a 15 year then you would be paying a significant amount towards principal. Right now with 14 years left you are still paying a lot of interest. 

When you rent out a property one of the three key functions that makes it an investment is the renters paying down your debt. It does not matter if the payment is $500 or $3,000 the renter is paying the payment. That also means that the interest could be 1% or 15% and it would not make much of a difference as long as a renter is making the payment. How much of a down payment did you put into this property? If you put 20% down, paid initial transaction fees, and refinance transaction fees then you are into this property for some serious cash. I am going to throw an arbitrary number out and say that you have $30,000 in cash in this property. 

Would you pay $100 a month to bank to keep $30,000 in cash there?

or would you let the bank give you a $100 a month for them to use your cash you have there?

That is the question you are asking. Should I pay someone to hold my cash or should someone pay me to use my cash? Your "gut" is telling you to pay someone to hold your cash for you.

If the property is appreciating then that would be a different story. You could pull all of your money out of this investment and invest in real estate that cash flows and appreciates. 

To answer your question I would do neither. I would sell it because it is not a good investment based on the information that you provided.

@Bret Rubash what you are looking for is a career not real estate investing. Careers are great and I am not one of the band wagon people on the 4 hour work week train. You can either be born into wealth or make wealth. You and I come from the same path that we have to make wealth. You cannot build wealth without having an income. What you need is an income that can drive wealth. 

I learned about your age is that people either get payed for what they know or what they do. You are currently being payed for what you do. I would recommend you start transitioning into getting paid for what you know. Education and experience are the only two requirements for getting paid for what you know. Either education or experience or any combination of both can get you toward that goal. 

I would suggest that you define where you want to be. What would you like life to look like at 75, 60, 45 and work backwards. Be realistic and set realistic goals. 

I will tell you the very short stories of two men in my life that have had a huge impact on me. 

The first was a guy that I knew in Studio City California. When I met him he was in the process of buying a 150 unit complex in North Hollywood. This was before the housing bust and the prices were astronomical. This guy had no formal education. His path to success started twenty years earlier on the boulevard. He had the idea to valet park cars for people coming to dine and shop at night. He started by hustling valet parking. He would park cars in less trafficked areas and literally sprint back. After awhile he started talking to the businesses along the boulevard and made deals to have valet stations outside of the most popular businesses. This was a relatively new concept at the time so the business owners saw it as an extra service for their guests and were willing to let the booths be setup for free. Twenty years later he had every booth on the boulevard and over a hundred valets working for him. At that time he made over 20 million a year.

The second was a guy that worked as an electrician. He wanted desperately to own his own business. He found a willing partner and they went into business together. They bid every government contract that they could find for electrical work and eventually found a contract in California around 2005. His partner and his partner's son drove an old truck to California. Meanwhile my friend got his CDL license and drove OTR to fund operational expenses. They rented, begged, or borrowed equipment to get the contract done. This year that business has 57 million on contract. 

The point of both stories is that an income had to come before wealth could be built. One valet parked cars and the other drove OTR truck. It doesn't matter what you do as long as it fits within your goals. 

Hope that helps.

At the core of any real estate investment is three very basic functions appreciation, debt paydown, and cash flows. Any one of those or all three combined can make a property worth acquiring. If you have zero cash in a deal and someone is paying down the 100% LTV you can end up having a higher IRR than a property that cash flows $500 per month, but loses its value and requires a very large outlay of your cash.

There is more money than there are good deals and there are more passive investors than active investors. Holding large amounts of cash is like holding a hot potato. The game is played by getting cash into deals. Foreign investors will park large amounts of capital into American real estate, because it is far more secure for their cash than other alternatives. In America we are not competing against just ourselves. Instead we compete with Chinese, Russian, Australian, and European investors on a daily basis. We even compete with hedge funds and REITS. Baby boomers may even want to park large amounts of cash into real estate for estate planning purposes. 

People without money need cashflow because it helps their debt to income (borrower types). People with money do not need cash flow because they could care less about debt to income (lender types). At the minimum wealthy individuals want to beat inflation which is why they are holding a hot potato. Every second cash is held it is worth less than the second before. 

The vast majority of people on BP are ok with CCR because they have no real wealth. At least not significant enough wealth that they can disregard cash flow. If you do not watch your debt to income then you can figuratively paint yourself into a corner. That is why CCR is so popular and also why it is not that bad to use as a primary evaluation for an investment. In other words income building is a higher priority than wealth building. Income comes before wealth, attempting to build wealth without income is putting the cart before the horse. For those that are actually wealthy they play a completely different game.

Have two real estate agents:

The new and inexperienced agent that doesn't mind writing a lot of offers and the experienced agent that you use for guidance and as an advisor. Have one agent you tell what to do and one agent that you ask them what you should do. You can actually play that dynamic back and forth although if you don't feed both of them they will move on. Don't intentionally waste anyone's time.