All Forum Posts by: Matt Smith

Please share your thoughts on where you think the best Opportunity Zones in Texas are, and why.

I like Houston's Eastwood and Greater East End, and Karnes County.

1-Houston's Eastwood and Greater East End, Including the 2nd Ward--The East End, without a doubt, has the easiest ingress and egress to Downtown. It also happens to be the best part of Downtown since the major sporting venues, convention center, live music, restaurants, and night life can all be found on the East Side. Location, egress, and new developments make this a great choice to invest...business and property, commercial, or residential.

2-Karnes County, including Kenedy and Karnes City. Karnes County is in the middle of what I call Texas Triangle Mega-Region Lite. It's within 60 miles of San Antonio to the Northwest, 100 miles of Corpus Christie to the South, and 60 miles of Victoria. All in all, the population adds up quick in every direction. No traffic, low prices, strategic logistics make this a great choice to invest.

There is a lot of discussion on Opportunity Zones and what they are, but not many discussions on where they are.  If you haven't considered investing in a Qualified Opportunity Zone, you may want to.  Most focus on the real estate in the zones, but let's not forget that the goal of this program is to invest in businesses, too.  It's important to note that the QOZ were determined based on the 2010 Census.  Karnes County, for example was regarded as one of the poorest in the state around that time; however, it is now one of the richest due to the Eagle Ford Shale Oil Boom.  Not all information will be up to date, so when considering map views, try views from main roads.  Population will not be accurately portrayed in rural areas, so be on the lookout as 2020 Census kicks into gear this year.  These are my pics for the best Opportunity Zones to invest in Texas:

As for other states, there should be a discussion made up of each state.  When potential investors can see what these Opportunity Zones have to offer, they will be able to better decide where they would like to invest, and if they would like to invest in businesses and property, or just one or the other.

All Opportunity Zones are worthy of our investments and have been selected by every state's Governor based on 2010 Census.  The goal is to invest capital gains into businesses and real estate in these zones as a long term investment strategy.  10 Years, or longer, investment will lead to paying ZERO TAXES on realized capital gains.  There's more to it, but it's definitely worth your consideration.

Thanks in advance for your feedback and for keeping the discussion going.

It's a shame.  CPAs have a fiduciary responsibility to inform their clients of this program. 

@David Hagen  Here's a general outline based on my experience as a response to a similar inquiry:

Thanks, but investing in rural has its drawbacks when trying to sell; hence, the great deals! But, for long term investments...I'm very happy.

I take time to try and find unlisted deals, or very long DOM. I'll try to acquire with seller financing. My experience with agents in the rural areas isn't too good. It seems to me that they're not as passionate about real estate. As for the seller financing, my experience has been that locals to rural areas undervalue their property.  When looked at from current income potential standpoint, the numbers start making a lot of sense.

NOTE: For rural, I would focus on your current living area's 1-3 hrs radius. If not practical, or if you prefer remote investing, then I'm not sure what a good recommendation would be. Maybe buying 1/2, or partial, but I don't know anyone doing that. In the 1980s equity sharing, or buying 1/2 a house seemed to be a solution for home ownership. I think it's great idea for any ownership, especially commercial (isn't that how the big boys acquire?). Not sure why it's not discussed more, especially since it can solve management concerns, and can be very close to true passive income...like a nnn lease with the right tenant. None the less, I travel to the areas 1-3 hrs from where I live and look around a lot.

Recommendations for Rural narrowed down to this:

1) Find a major metro area with strong jobs and increasing population, and search up to 60 miles out.

2) Find the most affordable region 60 miles out that has something special to offer in the path of progress. Maybe rivers, lakes, camping, general land layout, quality of the area as a whole--does it seem like a nice area when I drive through. New construction, but probably most importantly would be govt construction. Road widening, intersection improvements, etc. It lets me know that the government anticipates growth.

3) Find a vacant structure that can be leased "as-is" or very close to it, or an undervalued performing commercial asset. FSBO, Unlisted, Homemade Sign, or vacant and neglected structure. Or, a property listed by an agent with high DOM. Find the best deal on a single family that may be used commercially, or commercial property that can be leased as is. Consider the flow of traffic, egress, regress. Something on a large corner lot, if possible. I try to find value adds. Is the quality of the structure solid, and what would it cost to rebuild.

3a) Verify taxes. I've noticed some of these smaller towns have very low taxes. They'll likely go up, but to avoid mass financial shock to the older population, they'll go up slowly. This has been my experience so far.

4) Make sure purchase price can be justified based on worst case rental income. Commercial, as you can imagine, is always tougher in the smaller rural areas (commercial location not significant in my mind these days, I'll elaborate more another time). Find value that others have overlooked.

5) Prepare an offer for the seller to finance, and/or find some way to leverage having the property start paying for itself by leasing it asap. I look into tax records to see what can be determined. Questions I have are: Have the sellers owned it for a long time. Have they had trouble selling, was it inherited, does it include additional tracts of land, or solid construction traits not advertised.

6) Try to acquire with $5k or less down, and payments low enough to sustain long term in case of long vacancies. If the seller will only sell with a balloon, then demand a clause with the option to extend with no, or low consideration.

I see great architecture, especially commercial, in some of the small towns in Texas. Such a waste to see many of them vacant. I'm all for recycling these classics, generating cash flow to the local communities. Something that I find very valuable is the access to the locals, other businesses, and city leaders in these areas when investing in commercial. Everyone wants success, even the City Mayors, and having access to them is very encouraging.

I could go on and on. There's more to it, but hope this helps a little if/when you decide to invest in the outskirts.

Most of my acquisitions came between 2014-2015. Timing and luck.

Hope this helps and encourages others to consider the rural areas that make sense.

Good Luck and Happy Investing

I'm anticipating a 2× to 4x increase in price within the next 3-5 yrs. Call me crazy, but after record money printing and slow lending, we might not be in for another crash anytime soon. Consider construction stops during the last crash, the lack of bank lending, the lack of present day private lending (playing too safe and requiring returns that won't make sense for investors), the lack of deals due to all the foreclosures drying up, inflation in everything else from groceries to building material, and the destruction of tens of thousands of homes from natural disasters...from a supply demand stance we'll be seeing some rising prices. Plus, interest rates will rise, new election gov't will pressure banks to make easy loans, and buyers will flood market with newly lent money that banks have been sitting on. Of course I could be wrong, but...time will tell.  If you're a new investor, play it safe by acquiring deals only, and hold. A deal is 35%-45% off lust price retail. If you're not seeing that in your area, then consider value add opportunities in commercial where you're getting the deep discount, but have proactive plan to increase value by 20%-30% over retail pricing. I'd say hold what you have if possible, and buy very low where it makes sense. Good luck.

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Edna.

This For Sale By Owner sign caught my attention while passing through a town of about 5500. It was a duplex that was converted into a single family home. Since it had been on the market for a little while, the seller was looking to finance the sell. Sure, it needed some work, but with such a solid structure and in No Flood Zone, it was a no brainer for only a couple of thousand dollars down. Even more so with a partner willing to front half the down payments.

What made you interested in investing in this type of deal?

This deal is on a heavily traveled Texas State Highway. I always consider the commercial possibilities first, then I look for value add potential. This was a Two-Story duplex that was converted to a single family home. It wasn't quite right in terms of layout since it was originally an older upstairs garage apartment that had been enclosed at the bottom.

How did you find this deal and how did you negotiate it?

There was a FSBO Sign in the front with a little overgrowth in the grass. The sign had information on willingness to seller finance, so my partner called on it to work something out. Price was negotiated so that seller would get his price, and we would get it for less upfront. It had been on the market for a while. We paid a $2,000 down ($1k each) to acquire this property.

How did you finance this deal?

This deal was a seller finance for $2k down and $500/month. Sale Price was $53,000. So $2k down with a balance of $51,000 to be paid off at $500 month until paid in full with no balloon. We spent 2 months redoing flooring, painting, windows, and door. All in all about $4k-$5k in expenses before leasing out. Once complete, it leased in a week. When upstairs leased, it is expected to generate an additional $700-$800 income for total of $1500-$1650 gross income.

How did you add value to the deal?

This property was converted back into a duplex, which wasn't an easy decision before making the change. Sometimes if the layout doesn't feel right, or doesn't make sense, it might be best just to do a low cost conversion. After converting back into a duplex, it made a lot more sense. Instead of a weird 3/2 layout (1/1 down and 2/1 up) SFH, we now have a nice solid 1/1 down, and are working on repairs upstairs to get rent ready.

What was the outcome?

After $2k down, and another $4k-$5k in repairs downstairs, it was lease right away for very solid return. Going strong so far. Upstairs will require an additional $2k to get rent ready. Once minor repairs and improvements made, it is expected to rent for $700-$800/month. this price includes utilities and electric, since only one meter. Downstairs rents for $850. Currently at about break even with all expenses, debt service, and insurance and taxes, upstairs income will be pretty good.

Lessons learned? Challenges?

It wasn't easy to see that it should be converted back into a duplex. We were attempting to get rent ready on a budget, so our focus was to keep it as it was and do necessary upgrades/repairs as a SFH. The layout just didn't make sense, so in the end we spent more to convert back into duplex; however, we now have a solid duplex property that makes sense. Looking back, our first move should have been to convert as duplex instead of trying to make a terrible layout work as a SFH.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

This was a FSBO and we had the privilege of dealing with the seller directly.

Not familiar with Ga. market, but maybe it's similar to Texas. I prefer seller finance deals, long term with no balloons. Most of my holdings are in rural areas that are in the path of progress. I've found success in asking sellers to carry. It's probably more common for commercial sellers to finance. So, going this route may bypass the bank finance. In terms of resale value, it will be easier to resell, or refinance the larger 5+ units. But, stick with what your budget will support. As long as the market rents will cover the debt, I wouldn't worry about the debt too much. Just be prepared for worst case if you choose a larger, more expensive property. More units is more maintenance, and repairs, but maybe there's a great deal on the market with little deferred maintenance. Always use LLC. Good luck!

Investment Info:

Single-family residence wholesale investment in Kenedy.

Called on a FSBO sign while following up on another property I manage. The goal was to compare their asking price, since I viewed it as a healthy comp to my property. It would turn out to be such a great deal that I got under contract and assigned it to a hungry investor. Win, win, win. Seller got quick cash close, buyer got great deal, and I got a bonus...right? NOPE!

What made you interested in investing in this type of deal?

FSBO Sign piqued my interest. I'm always looking for my next seller finance deal. You never know unless you ASK.

How did you find this deal and how did you negotiate it?

I called on the FSBO sign and asked about the property. Thinking i would be ball park range of my expectations, I could hardly contain myself when it was offered at HALF! This was an opportunity, no doubt.

How did you finance this deal?

This was offered as a seller finance deal, or straight cash deal. The cash price was so good I felt I could save some time and energy simply by locking it up and assigning. So that's what I did.

How did you add value to the deal?

I added value by promoting it to a hungry investor. A title issue nearly killed it. This deal took lots of time, and lots of legwork. Value was added by solving the title issue in the 13th hr when buyer is about to give up. Most investors, I suspect, would have given up on the deal. It was truly a lesson in dealing with a lazy title co., a family affair that clouded the title, and a lack of trust between the buyer and the seller. Seller didn't believe title problem...at first.

What was the outcome?

Not at all the smooth outcome that I expected. Seller sets price. Buyer (Assignee) agrees on price. But, for some reason they don't trust one another. I mediated for a month. During which a title problem surfaced that involved the seller's family scandal unbeknownst to them. After playing detective, being cross with lazy title service, and driving 8 hrs out of my way (4 hrs each way), I was able to settle the title issue with the attorney that signed a vendor's lien over 15 yrs ago.

Lessons learned? Challenges?

Always ask, especially on FSBOs. You never know when you'll be pleasantly surprised by the offer. Never assume smooth sailing. Great if it is, but prepare for some challenges, and then don't give up when they occur. Always use title service/insurance when dealing with free and clear property. This property seemed fine, but turns out, there were some title problems that needed to be fixed before closing. Be stern with title service and don't let them drag feet.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

No agents were involved in this transaction; however, the title company is a big name in Texas, and dealing with the branch manager was PITA. She needs to retire, or remember what it's like to be hungry.

Thanks, Matt and Nakul.  Invaluable information.  Looking forward to next time.

The Port of Freeport and the community is all in for deepening, and expanding the port.  Billions in commitments from DOW, BASF, Freeport LNG, Tenaris, and more.  This is a long term play that will reward investors for as long as they invest in the area.  

Keep in mind that the local rankings in order of desirability, as harsh as it may be, are as follows (sorry locals, I grew up in Brazoria): 1) Lake Jackson and immediate surrounding area (Clute not viewed favorably by long time locals) 2) Angleton area 3) Brazoria 4) West Columbia 5) Sweeny 7) Surfside and Freeport maybe tied.  These rankings are the perception of the locals and have no bearing on the job growth/short term workers who are there short term and what they perceive. 

Know that many Counties are backing the Port of Freeport, and the development of Tx HWY 36A.  There are only two state highways that connect to the port.  TX Hwy 288 and TX Hwy 36. 

If preparing short term, worst case, consider investing in property that may be leased to locals long term when the refineries go on hiatus.

Happy Investing!

PS I can't stress the neighbors enough.  I have investments 3.5 hrs away from where I live and the neighbors there have helped tremendously in finding tenants, property and community updates, etc.  Plus, one of the neighbors might love to add additional sf to their property, or have an income property they can keep an eye on next door.