Buying a home the smart way! (cont.)

Welcome to City Park!

Continuing our theme of buying a home the smart way, I would like to highlight a great new community being built out presently here in South Houston called City Park! Located off highway 288 less than a mile before beltway 8, you will find one of the most affordable new home communities in South Houston!

Referred to as the last frontier by some, because of the lack of development in the area, the southern corridor of Houston, near Pearland has quickly become a hotbed of activity with the development of Pearland and the surrounding areas. At the intersection of Bwy 8 & 288 there is presently a huge retail development under construction with the first store being the Bass Pro Shop! This huge, big box retailer is the first in many stores to come to this area and eventually this will be one of the open air pedestrian friendly malls that has become ever so popular lately!

City Park is not a master planned community but it is the closest affordable planned community in the area and with homes starting as low as $100k, the potential for great appreciation going forward looks very good! (The average home in Houston is around $170k!)

Presently there are (3) builders with product in City Park, K. Hovnanian, Gehan Homes & Legend Homes! When I drove the area last week, there was plenty of activity going on with construction crews everywhere building as fast as possible and after talking with the sales reps from the builders and walking through the models, I definitely believe this is a great place to buy for those families wanting a suburban community feel within the city limits while being close to downtown & the Med Center! In fact, I would estimate the average driving time to the Med Ctr. at probably 20-25 minutes during early morning traffic and less than that during the non-traffic hours!

In the photo above is the Site Plan for the entire community which features over 650 residential homes, 3 luxury rental home communities and pad sites for several retail & office commercial buildings!

In my research, I have found that new communities in quickly developing areas like this that are still in the beginning stages of development represent great opportunities for appreciation as most of the price increases are yet to come. As the big box retailers complete and open their stores along with more of the homes being built out, the prices will continue to rise; therefore the sooner you reserve and/or purchase in an area like this, the more gains you are able to lock in!

Thanks for reading and please feel free to comment with any questions or comments regarding the blog!

Thanks

Tyron C. McDaniel, Real Estate Expert

tyron@tyronknowsrealestate.com

Buying a home in Houston! (The smart-way!) - Part II

In my last blog post, I talked somewhat about the city and how it's past has impacted the present development of the city along with some very helpful information on how the city is laid out. I now want to dig deeper and discuss more of the opportunities in this market.

Growing up as a child in the shadows of downtown Houston, in the then notorious 5th Ward, I used to sit on top of my house looking at the skyline! After the oil bust in the 80's Houston's downtown development came to a screeching halt and over the next several years the surrounding communities began to suffer as the oil companies floundered while new businesses began to establish themselves in the outskirts of town in areas like Clear Lake, Sugarland and the Woodlands among others!

There are communities built in the early to mid 80's like Quail Valley in Sugarland, Memorial Northwest and others that were built during this era and oddly enough, the price you paid for a 4 bedroom 2.5 bath home back in the 80's is about the same price you would pay for a home today! On the flip side, there are houses in the inner city that as recent as say 3 years ago you could have purchased for $100k and they are now worth $200k!

Take the above photo... it's not perfectly clear but there are (3) little ole' shotgun houses on that lot and there is a vacant lot behind them. A little over a year ago you could have purchased this property for a little over $100k with existing tenants paying in excess of $1300 a month, which means you have roughly $300 after paying your mortgage, taxes & insurance! Not too shabby...


At this time, obviously the townhomes you see in the photo were not built nor were they even under construction yet, in fact, that lot where you see the townhomes was simply a vacant lot with tall weeds! But shortly after these units were sold a large local developer began building these units; since that time the shotgun houses have been sold again and they are presently on the market with several other properties in this area and they asking price for the entire package of land is somewhere in the $700's!


What does this say... several things: for starters, inner city Houston as a whole looks nothing today like it will in the next 3-5 years so know that what you see today in most areas, the vacant lots, old crack-houses and closed liquor stores and cafes will in short order be tomorrows contemporary 3 story townhome with granite countertops and hardwood floors!


Let's dig deeper...


Houston leads the nation in average commute time to work, unlike most major metropolitan cities we have long-fought the advancement of our mass transit system until recently so YOU MUST HAVE A CAR IN HOUSTON! This is not a city where you can ride the public transit and get to where you want to go because of how stretched out the city is. Presently the buzz phrase is urban friendly development, which speaks to being able to live in a setting where you can walk or ride your bike to the park, store and entertainment venues you frequent. This national trend will greatly impact Houston especially as we see higher gas prices. More people are moving closer to the inner city than ever before and developers are clamoring to prepare and purchase as much land as possible.

Secondly, because Houston is 15% less expensive than the 10 largest cities in the nation and 30% less expensive to live in than the top 5, one can only imagine that overall our home prices can only go upward from here especially seeing as how our market has been a turtle of sorts over the last several years only garnering average appreciation rates of 2-4% a year! (While most metro areas were seeing numbers like 10-15% gains!) Now quiet as kept, there are pockets of opportunity all around the city where over the last few years, local Houstonians have been mirroring the appreciation increases only enjoyed by those on the east & west coasts! (see the above photo)

Depending on whose poll you believe, the average home in Houston hovers around $170k which buys a lot! For those wanting to live in inner city Houston, you will be hard-pressed to find any new construction less than $230k with most of the other properties predominantly being old bungalows or shotgun rental housing that you would buy, hold and develop somewhere in the near to distant future.


$350k in Houston will buy you a nice tri-level townhome with great downtown views, granite counters, hardwood floors, Travertine showers and backsplash and plenty of parks, shopping and dog trails all within walking distance of your home. Most inner city construction is 2 or 3 floor townhomes, all with the same basic floorplan which consists of a garage and bedroom on the 1st floor, the kitchen and Master Bedroom on the 2nd and additional bedrooms and/or media room on th 3rd level with a possible observation deck depending on the view!

For those wanting a more conventional home and not a townhome, in areas like the Heights you can purchase a more traditional 2 story home most with Victorian architecture and/or themes with some Mediterranean (stucco) and Art-Deco styles. In my opinion there isn't enough diversity in the design of many of these properties as most developers are content with copying each other instead of catering more closely to wants and needs of the buyers!

Most townhomes are designed to minimize the footprint of the unit to insure that the developers get as many units on the parcel of land as possible so in the end profitability prevails over function and good design! That is my biggest gripe with most new construction but therein lies a tremendous opportunity for investors and developers to build a product more in line with the needs of the market.

Hopefully this in-depth view at the Houston real estate market educates and empowers you so that you can accurately determine how you want to proceed with your real estate purchase in Houston, whether buying your first home or buying an investment property!

In our next installment I will discuss some of the hottest areas to look for in the Houston market. There are several hot areas in Houston whether you are looking to be in the inner city or suburbs, so we will discuss some of those areas!

Please feel free to comment, give feedback or suggestions! Thanks

Tyron C. McDaniel, Real Estate Expert
tyron@tyronknowsrealestate.com

Buying a home in Houston! (The smart-way) - Part I

A thorough semi-analytical view of the Houston real estate market!

As the 4th largest city in the nation, Houston represents one of the best places in the nation to purchase real estate whether for investment, a 2nd home or for your primary residence! A strong and stable yet growing job market, a diverse business environment, good weather and above all else cheap real estate and land prices all combine here to create a great area to invest.

Practicing real estate since 1999, I have watched intimately the city of Houston grow and evolve and I am excited about its prospects for the future!

Stretching over more than 600 square miles the city of Houston was made famous in real estate circles by George Mitchell, the developer of the Woodlands which was America's first master planned community! A master planned community is a community where every aspect of the eventual development is planned out from different styles and price points of the housing to the number of elementary, middle & high schools to the stores, apartments and office complexes that are to be part of the community! In essence, these communities become sub-cities that allow you to have everything you need without having to leave your community!

The popularity of this as a concept in Houston and nationwide is evident, with Houston becoming a city known for it's suburban communities, like Sugarland (ranked the 3rd best place to live in America in 2006 by Newsweek), Kingwood, Pearland (Silverlake & Shadow Creek Ranch), Telfair and Coles Crossing to name a few!

For those wanting a more urban approach, Houston like most major metropolitan cities is seeing a renaissance of sorts occur within it's inner city core! The re-development and gentrification of these urban communities is fastly changing the landscape of what was once considered a 5 gallon hat, sleepy cowboy town into an urban metropolis!

The change is evident as you drive the streets of Midtown (formerly 4th & 3rd Ward) with the construction of new 3 story townhomes with their 3rd & 4th floor observation decks. Neighborhoods that were formerly known for their crime rates like 5th Ward (east of downtown Houston, on I-10) are now the next hottest thing, while the East End (southeast of downtown) is undergoing a transformation as people restore and give the old bungalows in these areas a healthy dosage of HGTV personalization!

Click here http://tinyurl.com/yohbng to see a map of Houston so that you get a visual picture for how the city is laid out! Houston's growth can be traced by the huge circular loops that make up a large part of our highway system; from downtown Houston, the inner city core is located within the ever-famous 610 loop, then you have Beltway 8, FM1960 in North Houston and Hwy. 6 is South/Southwest Houston, and presently we have Hwy. 99 in Southwest Houston & Katy which is progressively expanding going north and the next eventual loop to go around the city will be the Prairie Hwy which go out as far as the Prairie View area.

With just this knowledge alone as a basis, you could make a huge sum of money simply investing the land along these corridors during the various stages of their development.

In the next installment, I will build upon this foundation by identifying trends and market conditions in some of the above mentioned areas along with more detailed analysis of the overall Houston market!

Thanks for tuning in, PLEASE COMMENT with any questions or remarks!

Tyron C. McDaniel, Real Estate Expert

tyron@tyronknowsrealestate.com

You know, you simply gotta love real estate...I mean really, let me explain....

3 Years ago, I began an in-depth study on real estate located within the 610 loop, and I mean in-depth for real, for real...to the degree, that in many neighborhoods I literally drove every street to see exactly what was going on in every square inch of these areas. You see it finally begin to sink in my head that you have to become an expert in a given discipline, or since we are talking real estate, a particular area or region to really understand everything that is going on.

Many people have a very scattered approach and they try and do everything and buy in every area, however I have found that being an expert in an area has tremendous advantages. For one, if you focus in on an area you will quickly become a living inventory that intimately knows that market, so that you can instantly look at a property and know the right price to pay.

Well as I was driving in a neighborhood where I plan to build and develop several affordable houses and rental units and I came across the lot you see above in the photo and it was listed for $9500. In an instant, I knew this was a deal, without having to go home and look it up on the internet or consulting anyone, simply because over a period of time I had become a real expert on land prices in the area. Well, I immediately phoned the agent, and began to identify the motivation level of the seller and without insulting the agent or her client I negotiated to buy this lot for $8500.

Knowing that I had found a good one, I eagerly ran home and shared the good news with my wife who oddly enough didn't seem to share my excitement; though she had good reason, but we will save that for another post...

After checking with the city of Houston and looking at the title to verify that there were no weird restrictions or title issues, we closed in June 2005. Now because of the amount of research I had done, I felt very comfortable that this would prove to be a good purchase, however at the time I didn't think it was going to get as good as it eventually did...

Fast-forward 12 months later and I find myself in quietly one of the hottest markets in the city and my little ole' lot is now worth at least double what I paid for it. That's right, my $8500 investment, in 12 months or so had turned into $17000 without my ever lifting a finger. Let me explain a few things; with most investment properties if it is a rental property then you will have repairs to get fixed, tenants to manage (an occassional eviction), mortgage payments to make and a host of other nuances that are all part of the real estate investor equation. Well the beauty in this investment was that it was a vacant lot so I had NO TENANTS, NO EVICTIONS, NO REPAIRS, NO MORTGAGE heck, I didn't even have to pay for insurance. And if you look real closely you will see that I have never even cut the grass...

This is AMAZING... I had a 100% unrealized gain without having to do any work whatsoever after having purchased the lot and this was a true EYE OPENER. I knew that I was on to something.

Now what does this mean for you, the average investor reading this... one primary thing

#1 - Focus your efforts in area or niche so that you become an expert

This property had been for sale for some time when I found it and I am sure that countless investors simply overlooked it or didn't know the potential that land in this area possessed. Becoming an expert in an area or particular type of investing will pay HUGE dividends and create substantial short and long term wealth for the savvy investor.

There are so many ways to make money investing in real estate that it is real easy to get caught up trying to do everything that you see but I suggest you focus on an area or niche market that you can master and become the expert. Don't be swayed by others, but stay in your lane and as you do this over a period of time you will easily begin to identify great deals that other investors will simply overlook because they won't understand or possess the insight you will have in that area.

Today I have planned to build the home you see below on this lot and I expect to start construction on this unit mid to late January. I have been tempted to sell this lot and take my money and run however the initial goal was to build on this lot, so in late January I expect construction to start.

This is yet another examply of low-risk real estate investing because the more you know about a particular thing the better equipped you are and you increase your ability to be successful with the investment. So if you would like to earn 100% or better returns, start with focusing on an area and do extensive research and lastly when you come across a deal, ACT.

Until our next installment, I wish you much success in all that you do and I trust that you only invest in low risk deals; and this deal is evidence that low risk does not mean low-profits. Oh, last thing, once I complete the construction and sale of this property, my overall return will be somewhere in the range of a 350% return... Believe it or not....

SEE YOU AT THE TOP

Tyron C. McDaniel, Real Estate Developer & Investor

RE/MAX

In today's post I want to continue educating you on exactly what low-risk real estate investing is all about and it's importance to your having a long-lasting real estate investing career that is profitable!

Contrary to what you see on the reality tv shows on real estate investing like "Flip this House" and "Property Ladder" - I love those shows by the way - the business of real estate is a little more complex than what is conveyed on these shows! For starters, it is funny to me that many of the people do not follow the advice of their real estate agent, and in more cases than not this ends up being a HUGE mistake almost every time! One of the major tenets of Low-Risk Real Estate Investing is leveraging the knowledge and expertise of mentors or seasoned professionals to insure your success and to mitigate and/or eliminate your risk! In real estate, a hard head, eventually equals a failed deal in many cases....

For example, the BIGGEST MISTAKE I see commonly made by new & experienced investors is having a sales price that is too high and their logic is we can always negotiate and/or lower the price when people inquire! What they don't realize is that 79% of all people who buy a home start their search on the internet and when they are viewing properties many get eliminated by price before they even view the details of the property! So that means that even though you have the nicest floorplan on the market, a huge master bedroom ya-da ya-da ya-da.... they never even see this stuff because they eliminated or didn't look at your property because the price was above what the market says it should be! The bottom line when you are selling ANYTHING is that price is usually the most dominant factor and if you get that wrong you may be doomed from the start!

The other aspect of pricing the property wrong, is that many people wait far too long before lowering the price which costs them time and plenty of money in holding costs (interest payments to the bank!) only to lower the price anyway and in many cases they end up with a sales price much lower than what they could have sold the property for had they initially priced the property right from the start. My philosophy on pricing is simple, don't ever be the highest or the lowest but instead you want to price yourself right in the medium range of where most of the homes in the area are selling! ANYTHING WILL SELL FOR THE RIGHT PRICE!

Well this concludes part 2 of What is Low Risk Real Estate Investing and I trust that you will have a safe and warm weekend. Be profitable in all that you do!

Another tenet of Low Risk Real Estate Investing is knowing when to bring in cash partners to properly finance your deal! I can recall a few deals that I did, where if I would have brought on cash partners it would have actually enhanced my profit, eliminated some head-ache and allowed me to finish the deal much faster. In many cases, the reason people don't do this is because they are being greedy and do not want to share the proceeds of the deal however that kind of thinking can prove to be fatal to your investing career! Always, make sure you have access to more than enough money to complete your deal!

For many of you, these may seem to be very elementary topics however I can assure you that it is the application of this type of simple wisdom that seperates the really successful investors from those who are mediocre! In fact, when I think of some of the most successful investors I know, they were all very simple people who had 1 or 2 basic strategies that they employed and they did the same thing over and over again. Ever heard of the KISS system? Keep It Simple Stupid! I can assure you that if you follow and employ the KISS system in your investing business it will reap huge long term rewards for you.

Another aspect of Low Risk Real Estate Investing is taking the time to create a plan based on what your goals are for your investments in real estate! In every book that any of us have read on self improvement, they all say to have a written goal and plan to make that goal come to pass, however most of us (including myself) forsake this principle! Maybe your goal is to pay for your kids retirement via real estate or possibly you want to retire in the next 5 years; whatever it is, write it down and make it a conservative goal for now! As you consult with your mentor they can assist you with crafting a plan to make that goal a reality.

In yesterdays blog, I highlighted a great deal we are presently wrapping up that personifies all of the tenets of low risk real estate investing. I promised that I would highlight a development project that we are presently working on that will simply blow your socks off....
however I don't want to take you too fast as developing is for those who are accredited and/or educated investors who have the assets and capital to employ so before shooting for the stars, I think it is important that we cover the proper mindset and insure you understand.

Having this solid educational foundation will allow you to understand completely and be able to follow the train of thought as we discuss and highlight the virtues of low risk real estate investing.

In the present real estate environment we live in, it is common in many breakrooms, cafeterias golf courses (or other venues where people gather) across America to hear co-workers,friends, bosses, neighbors and your local little league coach extolling the virtues of real estate investing! Many will openly tell you they are beginning or new investors and they are mostly interested in finding a "quick flip" property that they can buy cheap, rehab inexpensively and sell for the "ever-popular" quick profit of $25k to $35k or more! Most then go on to say that after doing a few of these they will then look to buy some rental property to build up there passive income and/or other goals!

Like nearly everything in life, this is much easier said than done...just ask any real investor (one who tells the truth...) and they will tell you how difficult this can be. The reality tv-shows on the Bravo channel give you a glimpse into what happens however none of the shows I have seen show when the investor loses money.....or lot's of money.....

OH... You didn't that know real estate investors in some cases lose MONEY! That is a foreign concept to many however the reality as that it can happen to any of us and it does happen so a smart investor is one who looks to lower the risks such that the investment becomes a No-Brainer!

I personally recommend that a beginning investor do (2) things when getting started in real estate investing:

#1 - Consult with and PAY for an experienced Mentor - Most reading this will not follow this simple truth and ultimately it will probably be the largest mistake one can make before even getting their investing career started! The average common person simply does not comprehend easily why they should pay for a mentor, although in my opinion they are actually paying a much higher price by not being educated!

#2 - Read and study your craft - I see it all the time a person just getting into real estate investing thinking they will make $100k in the next year however they know little to nothing about the business and they have spent no real time studying the business by reading books, attending FREE & paid seminars and networking. You will have to study and spend time on this if you expect success and it is a real business that requires skill and dexterity.

After doing the above (2) tasks, a couple things will become clear or apparent; for starters a good mentor will be able to identify the next big area or niche that you should be considering and they will also be able to supply with the names of several books and/or courses that should be of interest to you. One of the benefits of a mentor is they will save you time because in conversation they can explain or tell you something that saves you countless hours on the internet or in the bookstore researching, they can literally give you the directions straight to the well(s) of knowledge that you will need.

If the mentor is worth their salt and have been in the game for a while, they will give you tips as to where you can begin looking for opportunity. Personally I have been consulting with my clients and partners who are starting out to keep their eyes out for (2) distinct trends that pose tremendous opportunity for investors:

#1 - the Pre-foreclosure market - the rate of foreclosures continues to increase every month and there is no end in sight. It has gotten so bad because the market is being inundated with existing homes at an alarming rate while builders are opening new communities like crazy so it makes it harder for the desperate sellers to sell these homes before being foreclosed on! That spell O-P-P-O-R-T-U-N-I-T-Y because we are in the home-buying business.

#2 - Small multi family properties - i have purchased numerous houses over the last 8 years however one of my favorite & most profitable deals was a nice little 2 unit duplex. I love duplex, triplex & 4 plex properties because you have anywhere from (2) to several people all getting together every single month to pay your mortgage and because there is more than (1) person paying it is hard for you to ever have to worry about having to pay the mortgage if you have a vacancy because you should never have all units vacant unless you have done something drastically wrong! In areas like Houston where the rental market is strong, there is plenty of money to be made owning these types of properties!

With tomorrow being Thanksgiving I am not sure if I will be able to get the laptop over my belly to do an entry tomorrow however I will be back in the saddle on Friday to complete Part 2 of this Low Risk Real Estate Investing blog! Until then, have a great Thanksgiving and be sure to let the people who mean the most to you know that you care about them and are thankful for having them in your life, talk with you soon!

SEE YOU AT THE TOP!

Tyron C. McDaniel

With real estate being so popular there is an ever-growing amount of books, study courses and really expensive seminars that one can purchase to learn about this tremendous business we call real estate! In this blog, I hope to shed light and educate you on a low-risk alternative to a lot of the hype and smoke & mirrors schemes and strategies that you may hear!

In the photo above, you will find my latest gem of a discovery; this 4 unit multi family rental property is located on a corner lot right by the 2 major highways and is less than 3 minutes from downtown Houston and it is located on the busline. We conservatively estimate the 2-bedroom units will rent for $450 per month unfurnished and $550 for the furnished unit! With all 4 units rented at an average say $500 per unit, that is $2000 per month gross rents and our negotiated price is about $108k.

As part of the financing arrangement and negotiations, I will add about $9k for repairs to bring the property up to the best of class status that we seek on all of our investment properties as this assists in our getting the best qualified tenants available and allows us to command the best rental rates! Even after adding the repairs and upgrades allowance, the estimated mortgage payment with insurance and taxes will be $1200 per month, with gross rents of $2000 per month, that will leave $800 or so in free cash-flow per month! $9600 per year, in addition to that since we will most likely do a 10% down payment (12,000) we will probably have an unrealized cash on cash gain of 200% the day we fully rent the property!

In other words, the 10% down payment we will be paying at the closing table, we will more than double that amount in equity that we gain once the property has been renovated and completely rented out and this will all occur within 75 days after closing! So that is about $800 per month in cash flow and somewhere in the range of $40-45k equity the day we get all of the units rented out! Now here lies the whole essence of this blog, Low Risk Real Estate Investing & Development opportunities.....

Let me explain why this is considered a Low Risk Investment! For starters, the return or instant security of the monies invested is paramount, hence that is why we always buy one of two things when purchasing rental property: equity or cash-flow. Let me explain, you see on this property we are buying equity because it is presently undervalued and we have an instant equity position. Now if the property were already rented out producing a monthly cash flow of say $650 a month, then in that case we would be buying cash-flow!

Now even after re-couping our initial investment, we will still have a positive monthly cashflow after paying all expenses and because of the location of this unit our equity position will be enhanced every day that we own it as there is plenty of New Construction development in the area and within the next 6 months at least 14 units of high end townhomes will begin construction, all of these things will further enhance the value of the land this property sits on! In fact, this property has great re-development potential as a mixed used office building so again, there is another level of protection that further mitigates our risk and makes this deal a NO BRAINER!

There is last aspect of this deal that enhances our investment potential as well; because the free cashflow estimates look so promising, I anticipate renting this property completely out and then listing it for sell for somewhere in the range of $165k, which will produce a gross profit somewhere in the range of $45k or so! Not bad for a Low Risk Real Estate Investment! In the next post I will discuss a recent property that we are presently developing that you will simply not believe the profit potential it has, somewhere in the range of 500% profit!

Talk to you soon!