Investing In Austin

Where is the best part of Austin to invest? Inner city neighborhoods of fine old properties are good for appreciation, suburban areas are better for cash flow. Suburban areas are where one finds modern homes that have fewer maintenance problems.

Inner city properties are fine for local investors who can easily oversee maintenance and improvement issues. Out-of-town investors are probably better off with much newer buildings, which are mostly located in suburban neighborhoods.

Historically in Austin, the short-term investor usually must hold a property at least two years before recovering equity in a sale.

The long-term investor (at least 8 years) does well to choose neighborhoods where growth is prominent, where some infrastructure is still in development, and where rents are high enough to support the sales price and cover a significant part of the monthly payment.

During our time together, we visit neighborhoods with the current best matches to investor criteria. You get a comprehensive view of business sectors in Austin, and an understanding of where Austin is growing and why. You also get to meet with the property manager, with whom, over the next several years, you will be spending much more time than with me.

Typically, an investor arrives in Austin in the evening and relaxes at one of several reasonable hotels (I have a list I can email you). Some like to stay right downtown so they can walk around and enjoy the local music and entertainment scene. When you arrange a tour with me, I can pick you up at your downtown hotel the following morning, about 9:30 am. Alternatively, you can plan your trip to fit into just one day, arriving in Austin about 8:00 am. When arranging a visit and tour, three weeks notice is usually sufficient.

Not using leverage: Invest $30,000 in stocks that yield 5%. Your return is $1,500 (5% return on $30,000).

Now Let's say you invest just enough money in a rent house so that the rentals pay for overhead, and let's say your property appreciates at, say 5% per year; then you receive a much greater return than if you get 5% only on the amount invested. Illustrating the concept of leverage at its simplest:

Using leverage: Invest $30,000 in a $150,000 property that appreciates at 5%. The return is $7,500 (5% of $150,000). This is equivalent to a 25% return on the $30,000 investment.

That's the leverage concept. The actual return is less when considering operational and sales expenses; however, return can be quite a bit more when appreciation is higher. And holding property for several years can produce astounding results due to compounding appreciation.

Tax savings are achieved by writing off expenses and depreciation. For example, say you have a $150,000 property you bought with 20% down and a $120,000 mortgage. The following figures are a greatly simplified estimates used for illustration purposes only, are subject to change, and are intended only to give you a glimpse of the possibilities. YOU MUST CONSULT YOUR CPA FOR ACCURATE TAX ADVICE.

Yearly Interest	$ 7,800
Yearly Insurance	$ 650
Yearly Taxes	$ 3,765
Yearly Management fees	$ 936
Rental charges	$ 780
Depreciation	$ 4,364 (paper loss)
Total annual write-offs	$18,295 ($13,931 actual losses)
Rental income (11 months)	$14,300
IRS sees a loss	$ 3,995
Gain before appreciation	$ 369
After tax cash flow	$ 1,569 (not including appreciation!)

What does this mean to you tax wise? It means that you could afford to lose $1,569 and still have a break even cash flow after taxes. It also means that although you may have made money, IRS sees it as a loss, reducing your taxes. So the money you would normally spend to pay taxes actually helps pay for your asset.

Note that the rental income with one month of vacancy is $369 greater than the expenses, pretty much a break even cash flow before taxes. A wonderful benefit comes after tax: Because IRS allows you to depreciate the property, your after-tax cash flow is a negative $3,995, a net loss that reduces your income tax. The example does not take into account repairs, which you need to figure in; the good news is that they can be minimal on new properties.

Are you in the 30% tax bracket? If so, for every additional dollar or thousand dollars you make, 1/3 goes to IRS. Every additional $4,000 you make, $1,200 goes to IRS. But if you have a net loss of $4,000 IRS looks at it as if you have $4,000 less income. This would mean a tax savings of $1,200. So if you own more properties, you could save thousands in taxes, the properties could pay for themselves, and you could get appreciation on multiple properties instead of just one. Is it starting to get fun now?

Would you like more positive cash flow? We need to talk. Call me and I'll show you how. 512-680-9906

Samsung expansion to bring 300 new jobs (exerpts from Austin American Statesman)
$500 million upgrade at Austin chip plant will boost production, add tech workers
By Kirk Ladendorf
AMERICAN-STATESMAN STAFF
Friday, May 2, 2003
Samsung Austin Semiconductor plans to add between 300 and 380 jobs over the next three years as it spends $500 million to upgrade and expand its chip factory in Northeast Austin.
Most of the jobs will be for engineers and technicians, with an average wage of almost $53,000 a year. The total new payroll as a result of the expansion will be $15 million a year. Samsung has about 930 workers at the plant now...
...The $500 million investment is the largest industrial investment in Austin since Samsung built the $1.4 billion factory in 1996. It is the second-largest foreign investment in the state in the past two years. Toyota Motor Co. announced earlier this year that it would spend $800 million to build a truck manufacturing plant in San Antonio...

Buying and Renting FAQ
Why single family homes?
Why new homes?
Why single story homes?
How do I find a good builder?
How do I know a neighborhood is good for investment?
What upgrades should I choose?
How do I choose a lender?
Can other investors go in with me to buy the same property?
What about LLC (limited liability corporation)?
How do I find a good tenant?
How long does it take to find a tenant?
Who manages the property?
Is an inspection really necessary on a new home ?
Should I use the builder's inspector instead of hiring my own?
What should I do about insurance?
What do I get when I work through you?

Q: Why single family homes?
A: A quality single family home is easier to rent and to sell than any other kind of real estate. As a rule, renters would rather live in a home than in a duplex, triplex, or fourplex. While multiple rental units sell mainly to investors, single family homes sell to homeowners, who vastly outnumber investors. With single family homes, your investment portfolio is scalable and your are able to diversify easier within a community or nationwide.
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Q: Why new homes?
A: Value. The homebuilders we work with are able to sell new homes for less than individual homeowners with similar properties for sale. Plus, you get the benefit of full term warranties. There are fewer maintenance costs and headaches. And, given a choice between new and used, a tenant will choose new every time. This means higher rents and less vacancy.
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Q: Why single story homes?
A: One story homes have fewer limits than two story homes. A prospective tenant does not have to choose between "master up" or "master down." One story homes generally have a larger "footprint" on the lot, which means less yard maintenance for the tenant. Plus they are easier for tenants to move in and out of.
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Q: How do I find a good builder?
A: We can help with this. We know who has track records of quality and service. Plus we've actually negotiated discounts with builders strictly for our investors.
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Q: How do I know a neighborhood is good for investment?
A: If a neighborhood has good access to shopping, schools, and if it looks nice, it can be a good candidate. The rents must support the sales price. We have tools to obtain rental history to help with your selection.
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Q: What upgrades should I choose?
A: At a minimum, you should require a fenced yard that has been landscaped and sodded on all four sides; it should include an automatic lawn irrigation sprinkler system. Interior should include ceramic tile floors and upgraded carpet pad for durability, also ceiling fans for comfort. Such upgrades will help preserve the quality of your investment and make it easier to rent. We have negotiated special upgrade packages for our investors so that the home is turnkey ready for rental and move in the day of closing.
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Q: How do I choose a lender?
A: Three basic choices: Local Austin lender, builder's preferred lender and your existing lender (if you have one.)
     I am authorized and able to answer most of your mortgage questions. I am a current Texas Mortgage Broker and have been providing mortgage loans for over 8 years. I also have a preferred mortgage lender that can provide you with mortgage related information and mortgage financing. I personally use and recommend Doug Smithe, you can contact him here www.pinnaclefinancial.com/dsmithe
     Most homebuilders have a business relationship with a local lender. Larger builders actually own lending institutions that make them money. Builders sometimes offer incentives for you to use their preferred lender. If you choose to go this route, you might consider getting a quote from another
lender to satisfy yourself that your rate and fees are acceptable.
     Your existing lender: There may be some overhead here, as an out-of- state lender who does not regularly loan in Texas may have difficulty getting you the best financing. They also don't know who the best and fastest appraisers are and don't have relationships with the local title companies, which can cost you. If you like your existing lender, I would encourage you at a minimum to compare good faith settlement estimates between them and at least one of the above two lenders to help ensure you are getting the best rate and terms.

     Be sure to discuss insurance requirements with your lender. Some lenders require loss of rent coverage in case property damage forces the tenant to vacate. Such coverage can substantially raise the cost of insurance.
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Q: Can other investors go in with me to buy the same property?
A: Yes. You will need to meet your lender's requirements. You should consider entering into some sort of a partnership agreement. These can get sticky: I recommend legal counsel by a Texas lawyer.
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Q: What about LLC (limited liability corporation)
A: My understanding is that an LLC must have income and assets in order to qualify for a loan. Some investors have attempted to personally qualify and then put the property into an LLC after closing. I don't know if anyone has been successful. One lender told me that title transfer into an LLC requires the named insured to change; when the lender discovers this, it can trigger the due-on-sale clause in the deed of trust, resulting in foreclosure proceedings even if payments are current. I don't know if this is true, but the point is, there can be pitfalls. Before entering into a contract, you should consult with your lender and a Texas lawyer.
     In addition, Texas has specific requirements (such as franchise tax requirements) that I'm not qualified to discuss. If liability is a concern to you and LLC turns out to be too cumbersome, attorneys can inform you on the nature of liability with respect to Texas law and perhaps suggest alternatives to satisfy your concern. I recommend legal counsel by a Texas lawyer, such as H a n c o c k - M c G i l l ( 512-459-6010)
or R o d n e y S h e p p a r d (512-472-3966).
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Q: How do I find a good tenant?
A: You want to get a lot of exposure so that you can attract the best tenants. You get the most exposure utilizing the Austin Multiple Listing Service (ACTRIS). Your property manager should be an ACTRIS subscriber.
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Q: How long does it take to find a tenant?
A: As of September 2005, Austin area lease homes averaged 62 days on market. There was a 27% increase in numbers of leases from a year ago, with an average lease price of $1100/mo., 2% higher than a year ago. Anecdotal evidence shows that the majority of lease applications are from folks moving to Austin. This is quite different from just a couple of years ago, when most leases were to Austin tenants moving within the area.
    When reviewing such statistics, keep in mind that averages don't tell the whole story. The rental market is affected by regular seasonal changes as well as with less predictable economic factors. Factors such as local neighborhood supply and demand can affect both how long it takes to lease and how much you get. It's possible that you may have to lower the rental offering price below your expectations and/or offer incentives. Although the market shows impressive signs of strengthening, you need to have enough money in reserve for weak markets. Also, it's a good idea to develop and maintain a relationship with a competent and busy property manager to help stay up-to-date on the rental market.

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Q: Who manages the property?
A: I like the old saying, " You never really know someone unless you're married to them or rent to them." If you are not interested in handling maintenance calls day in and day out, you might consider hiring a professional property manager. Property managers charge 7-10% of the monthly rents for management and a percentage of the first month's rent to lease the property. We've been referring tenants to Austin Landmark Property Services (Rick and Karen Ebert) at 512-794-8171. Click on their website.
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Q: Is an inspection really necessary on a new home? Should I use the builder's inspector?
A: Good question. Two case histories, you decide:
     1. I represented a seller who, before I met them, had bought a new home from a reputable builder. After 2 1/2 years living there, they asked me to help them sell the house. After we got a contract, the normal buyer's inspections revealed some electric outlets had reversed wiring and the exterior windows were installed inside out. The seller contacted the builder to correct the problems. The builder declined, saying they would not have made mistakes like that, saying the seller must have altered the home, and saying anyway it was out of warranty. Repairs were in the hundreds of dollars, and the seller, not the builder had to pay.
     2. I represented a buyer who bought a new home from a reputable builder. This buyer had inspections, which revealed the water heater installation did not meet code and presented a safety hazard. The builder begged to differ, but upon checking, found that the inspector was right. Consequently the builder moved the water heater, and felt obligated to correct other similar installations in the subdivision. Had this one inspection not been performed, not only my buyer, but all similar homeowners would eventually have been presented with similar inspection reports, likely long after warranties expired, and probably having to foot the bill to correct the hazard.

     Texas law prohibits real estate agents from performing home inspections. The most thorough home inspectors are licensed by the State. I recommend that you have a professional inspection performed to protect your investment.
     If you choose to have an inspection done, there are dozens of licensed inspectors in Austin.   Technically, it is your choice and your responsibility to choose and retain an inspector. Because you are probably not an Austin resident, I can help you set up inspections. I've negotiated a discount for our investors with one inspector. If you are interested in this, let's discuss it.
     Builders sometimes provide inspectors for free. In my experience, these inspectors' scopes are determined by the builder and with emphasis on cosmetic issues. Such an inspection is most often not as thorough as one you would get with an independent inspector.
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Q: What should I do about insurance?
A: You need to discuss desired coverages with your insurance agent as soon as you have contracted to purchase your property. Because of recent substantial changes in insurance policies, procedures, and costs, it will serve you well to sustain a relationship with a knowledgeable and involved insurance agent. One such agent is Ray Garner of G-N-S Insurance Services, Austin, Texas. Ray's phone number is 512-339-9701.

     Be sure to discuss insurance requirements with your lender. Some lenders require loss of rent coverage in case property damage forces the tenant to vacate. Such coverage can substantially raise the cost of insurance.
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Q: What do I get when I work through you?
A: You get caring and knowledgeable service. If I represent you, you get advice and counsel beyond information. I would hope that if you've read the above and reviewed the rest of this website, you'll conclude that no one is more qualified and no one works more enthusiastically to provide you with accurate and meaningful information.

Contact me today by phone or email and start investing in what I consider the best real estate market in the country!
512-680-9906
Disclaimer: All information is deemed reliable but not guaranteed and should be independently verified.   Listing broker shall be responsible for any typographical errors, misinformation, misprints and shall be held totally harmless.

$500 million upgrade at Austin chip plant will boost production, add tech workers

Back to FAQ Topics

Q: How do I find a good builder?
A: We can help with this. We know who has track records of quality and service. Plus we've actually negotiated discounts with builders strictly for our investors.

Q: How do I know a neighborhood is good for investment?
A: If a neighborhood has good access to shopping, schools, and if it looks nice, it can be a good candidate. The rents must support the sales price. We have tools to obtain rental history to help with your selection.

Back to FAQ Topics

Back to FAQ Topics

Q: How do I choose a lender?
A: Three basic choices: Local Austin lender, builder's preferred lender and your existing lender (if you have one.)

Most homebuilders have a business relationship with a local lender. Larger builders actually own lending institutions that make them money. Builders sometimes offer incentives for you to use their preferred lender. If you choose to go this route, you might consider getting a quote from another

lender to satisfy yourself that your rate and fees are acceptable.

Be sure to discuss insurance requirements with your lender. Some lenders require loss of rent coverage in case property damage forces the tenant to vacate. Such coverage can substantially raise the cost of insurance.

Back to FAQ Topics

Q: Can other investors go in with me to buy the same property?
A: Yes. You will need to meet your lender's requirements. You should consider entering into some sort of a partnership agreement. These can get sticky: I recommend legal counsel by a Texas lawyer.
Back to FAQ Topics

Back to FAQ Topics

Back to FAQ Topics

Q: How do I find a good tenant?
A: You want to get a lot of exposure so that you can attract the best tenants. You get the most exposure utilizing the Austin Multiple Listing Service (ACTRIS). Your property manager should be an ACTRIS subscriber.
Back to FAQ Topics

Back to FAQ Topics

Back to FAQ Topics

Back to FAQ Topics

Be sure to discuss insurance requirements with your lender. Some lenders require loss of rent coverage in case property damage forces the tenant to vacate. Such coverage can substantially raise the cost of insurance.

Back to FAQ Topics

Disclaimer: All information is deemed reliable but not guaranteed and should be independently verified. Listing broker shall be responsible for any typographical errors, misinformation, misprints and shall be held totally harmless.

Please use our contact form or call us direct at:

(512) 680-9906

mailto:tony@evelynlanier.com

$500 million upgrade at Austin chip plant will boost production, add tech workers

Q: How do I find a good builder? A: We can help with this. We know who has track records of quality and service. Plus we've actually negotiated discounts with builders strictly for our investors.

Q: How do I know a neighborhood is good for investment? A: If a neighborhood has good access to shopping, schools, and if it looks nice, it can be a good candidate. The rents must support the sales price. We have tools to obtain rental history to help with your selection.

Most homebuilders have a business relationship with a local lender. Larger builders actually own lending institutions that make them money. Builders sometimes offer incentives for you to use their preferred lender. If you choose to go this route, you might consider getting a quote from another

lender to satisfy yourself that your rate and fees are acceptable.

Be sure to discuss insurance requirements with your lender. Some lenders require loss of rent coverage in case property damage forces the tenant to vacate. Such coverage can substantially raise the cost of insurance.

Be sure to discuss insurance requirements with your lender. Some lenders require loss of rent coverage in case property damage forces the tenant to vacate. Such coverage can substantially raise the cost of insurance.

Disclaimer: All information is deemed reliable but not guaranteed and should be independently verified. Listing broker shall be responsible for any typographical errors, misinformation, misprints and shall be held totally harmless.

Please use our contact form or call us direct at: (512) 680-9906

Q: How do I find a good builder?
A: We can help with this. We know who has track records of quality and service. Plus we've actually negotiated discounts with builders strictly for our investors.

Q: How do I know a neighborhood is good for investment?
A: If a neighborhood has good access to shopping, schools, and if it looks nice, it can be a good candidate. The rents must support the sales price. We have tools to obtain rental history to help with your selection.

Please use our contact form or call us direct at:

(512) 680-9906