Investing Architect

Category: Market Stats

  • Cranes, nail guns and the real estate investing market

    Cranes, nail guns and the real estate investing market

    There’s lies, damned lies and statistics. With all the misinformation and spin that surrounds every release of statistical real estate data, it can be hard to tell how the real estate market is really doing. But every long term real estate investor needs to have a good understanding of where the market is at any point in time since this deeply impacts the decisions and choices she makes going forward.

    Case and point: Is the Houston real estate market currently in a real expansion or is what you’ve been hearing more fluff from cheer leading real estate agents? The latest reports on real estate sales in the area show both prices and sales going up double digits year over year. But  I also remember reading articles on how well the real estate market in Houston was doing right in the middle of 24 months of declining sales. Sure, we did a hell of a lot better than most other parts of the country but in the kingdom of the blind, the king has one eye.

    So if you can’t trust the data interpretation, how can you tell how the market is really doing? I’ll tell you about a proven indicator that you can see for yourself today. Time for a mini road trip. Hop in your car, drive to a new home  subdivision after lunchtime, and listen. Do you hear the sound of nail guns and hammers? Are construction workers framing up spec home after spec home? If it’s silence you hear, the market may be recovering from a recession but it’s not expanding yet.

    Take a look at the four real estate market cycles graph below. It describes  the Recession, Recovery, Expansion and Hypersupply stages that commercial real estate goes through but the principles hold true for residential real estate as well.

    Remember this: There’s no expansion without new construction. Builders don’t start building again until they see real demand pick up.  Take that one further: Drive around the Galleria or Midtown or Downtown? Do you see cranes? Are developers building more office buildings and luxury apartment complexes? Imagine the level of investment that Gables puts into building a new 600 unit luxury apartment complex. How much do you think they paid for that land in the Galleria? They have to know with reasonable certainty that demand for their units will be there when they’re complete or they don’t pull the trigger on the project.

    That drive through Houston’s city centers or new construction subdivisions today will tell you that the real estate market in Houston has truly turned the corner. And you don’t have to take my word for it. You can see for yourself.

     

    Photo Credit: José Manuel Ríos Valiente via Compfight

     

  • Cranes, nail guns and the real estate investing market

    Cranes, nail guns and the real estate investing market

    There’s lies, damned lies and statistics. With all the misinformation and spin that surrounds every release of statistical real estate data, it can be hard to tell how the real estate market is really doing. But every long term real estate investor needs to have a good understanding of where the market is at any point in time since this deeply impacts the decisions and choices she makes going forward.

    Case and point: Is the Houston real estate market currently in a real expansion or is what you’ve been hearing more fluff from cheer leading real estate agents? The latest reports on real estate sales in the area show both prices and sales going up double digits year over year. But  I also remember reading articles on how well the real estate market in Houston was doing right in the middle of 24 months of declining sales. Sure, we did a hell of a lot better than most other parts of the country but in the kingdom of the blind, the king has one eye.

    So if you can’t trust the data interpretation, how can you tell how the market is really doing? I’ll tell you about a proven indicator that you can see for yourself today. Time for a mini road trip. Hop in your car, drive to a new home  subdivision after lunchtime, and listen. Do you hear the sound of nail guns and hammers? Are construction workers framing up spec home after spec home? If it’s silence you hear, the market may be recovering from a recession but it’s not expanding yet.

    Take a look at the four real estate market cycles graph below. It describes  the Recession, Recovery, Expansion and Hypersupply stages that commercial real estate goes through but the principles hold true for residential real estate as well.

    Remember this: There’s no expansion without new construction. Builders don’t start building again until they see real demand pick up.  Take that one further: Drive around the Galleria or Midtown or Downtown? Do you see cranes? Are developers building more office buildings and luxury apartment complexes? Imagine the level of investment that Gables puts into building a new 600 unit luxury apartment complex. How much do you think they paid for that land in the Galleria? They have to know with reasonable certainty that demand for their units will be there when they’re complete or they don’t pull the trigger on the project.

    That drive through Houston’s city centers or new construction subdivisions today will tell you that the real estate market in Houston has truly turned the corner. And you don’t have to take my word for it. You can see for yourself.

     

    Photo Credit: José Manuel Ríos Valiente via Compfight

     

  • The answer to THE most frequently asked question by real estate investors

    The answer to THE most frequently asked question by real estate investors

    Today I want to start by making a statement that’s as powerful as it is obvious. The critical foundation for any long term investment strategy is incoming rent. Without it, all projections fall apart, all returns vanish. Earth shattering, I know. But obvious as it is, is it any surprise that THE most frequently asked question I get from all real estate investors without exception is: How do I know that the property will rent quickly and stay rented? This question deserves an answer that’s better than just encouragement: It deserves solid facts.

    The experiment

    So facts I went chasing to provide an answer that will show how the Houston rental market actually performed in 2011. I analyzed all rented properties that closed in 2011 that fit the property profile we recommend: Built after 2003, Minimum 3 bedroom 2 bath 2 car garage and at least 1600 SF zoned to the best school districts in the city for the money. The results themselves didn’t stun me as I see them in action in my business every day. Their consistency across the board however, really did. Take a look for yourself:

    As you can see, the average time it took for properties in that category to get a tenant was between 33-48 days. When you consider that after closing on an investment property the first mortgage payment isn’t for at least another 30 days that ought to put a smile on your face. And when you add to it that the average days on market for the properties we listed for lease in 2001 was 24 days, that’s even more cause for comfort.

    But days on market are just part of the puzzle. What if you’re getting your properties rented out quickly but you’re having to sacrifice large discounts off your asking price? That wouldn’t be good. Well, the data shows that the average sold to list price in all the school districts we analyzed was 99%! To put that in perspective, if you had an investment property and were asking $1200/mo in rent, the average discount in 2011 was $12. In our business we price the properties right from the beginning and always get our asking price or higher.

    The Answer to the most FAQ

    So how do you know if the investment property you acquire will get and stay rented? First and foremost you must not forget that it’s the right property that attracts the right tenants quickly. If your property selection is poor, getting the property rented and especially, keeping it rented will be more challenging. That’s why we remind our clients that numbers often lie and high returns can cloud your better judgment. Although chasing cheap properties in inferior neighborhoods with seemingly great rates of return may seem like a good way to score a great deal, those returns vanish if your turnover rates and maintenance costs are high. So, select the right property in the right neighborhood and finding and keeping tenants will be the least of  your concerns. But you don’t have to believe me. The market told you so.

    Do you have a real estate investing Blueprint yet?