Why Texas Real Estate
By: Brandon Clay
Image Credit: Texas Demographic Center / Office of the State Demographer (source)
How new Texas residents need a place to stay, my personal shift to real estate investing, and how you can profit from real estate investing in Texas.
Texas is booming.
In 2015, Texas welcomed almost half a million new residents. According to the Houston Chronicle, “Texas brought in 432,957 net new people, far more than California, Florida, and Washington, the next fastest-gaining states.”
The gains continued last year. In 2016, Texas boasted 5 of the top 11 fastest growing cities in the United States (census.gov). No other state in the country has the same kind of uptrending population. Growth is not just happening in the those 5 cities, but all across a giant triangle in the middle and eastern part of the state. That “Texas Triangle” includes Houston, the Dallas Metroplex, Austin and San Antonio.
New Texas Residents Need To Live Somewhere
All these extra Texas residents need to live somewhere. Texas Monthly has reported the jump in single family residential housing prices in 2015…
It’s not just Houston, of course. The same high prices prevail in San Antonio, Dallas–Fort Worth, and Austin. All summer long the headlines rolled in: “San Antonio Home Prices Pass $200,000 Landmark,” “Home Prices as High as the Temperature in Dallas,” “Austin Home Prices Hit All-Time High,” and “Houston Home Prices Heat Up, but Future Looks Shaky.”
The Houston market of single family residential sales has cooled since 2015 due to lagging oil prices (the Houston economy is driven by oil). But the rest of the Texas Triangle has not slowed down. For two reasons:
- More Texas residents need to live somewhere.
- The law of supply and demand still works in Texas.
(Less housing supply leads to higher real estate prices.)
A Personal Shift: Financial Markets > Texas Real Estate
I’m now sold on Texas real estate. But it wasn’t always that way.
In 2015, I launched a podcast called Trading Story. In the podcast, I interviewed experienced traders in everything from stocks, to options, to commodities, and foreign currencies (FX). The podcast garnered some attention and we surpassed 300,000+ listens in 2017. Personally, I traded FX and futures. I studied charts, reviewed multiple markets, and learned much from the experience. Trading is fun.
But I could not remain consistent.
I would win some then lose all my gains in trading. After trading multiple markets over a year and working on the podcast for nearly two years, I shifted my focus to real estate in late 2016. And I have finally found a home. Except this market doesn’t involve currencies or futures contracts; it’s about property. It’s real estate.
Texas real estate.
Why Real Estate Investing?
You may have heard that more millionaires are made through real estate than any other financial instrument. Statistics vary, but up to 90% of all millionaires come through the ranks of real estate investing (Financial Uproar). There’s a reason why.
Compared to the traditional financial markets, real estate has several distinct advantages. Special shout-out to Lifestyles Unlimited for the info…
- Cash flow: Real estate provides cash flow. When you buy an ounce of gold, it doesn’t pay you anything. In fact, it costs you money to store it. When you buy a house and put it up for rent, you collect rental income as long as you own the house and have a tenant.
- Equity capture: Equity capture is when you buy an asset (house, apartment, etc.) for less than it’s worth. For instance, when you buy a house in a $150K neighborhood for $75K, fix it up for $25K and you’re “all in” for $100K. That gives you $50K in equity capture.
- Appreciation: In general, real estate doubles in value every twenty years. It is forced to rise over the long term with inflation of building materials, labor, and scarcity of land. There can be short-term fluctuations, but real estate generally appreciates.
- Principal Pay Down: When you buy a house, you usually take out a loan. With residential real estate, your tenants pay off the loan giving you a natural equity accumulation through principal pay down.
- Tax advantages: Lawmakers write laws for themselves. And most lawmakers are real estate investors. That’s why real estate capital gains taxes are reasonable (15%) and sometimes even income tax deferred indefinitely through 1031 exchanges. Note: I am NOT an attorney or CPA – check with your tax professional for the best advice.
Whereas trading the S&P 500 Emini may be interesting and fun, it does not have the same kind of natural advantages real estate enjoys. It doesn’t cash flow, can’t be bought for less than it’s worth, doesn’t appreciate, other people don’t pay down the loan principal, and does not have natural tax advantages like real estate.
In short, real estate investing beats most other investing hands down.
What About the Next Real Estate Bubble in Texas?
So real estate may be great, but doesn’t real estate go down?
Yes. Anyone familiar with the 2008 financial meltdown knows that condo prices don’t rise indefinitely in Miami and land speculation in Nevada is not for the faint at heart. Real estate prices do depreciate. Often rapidly.
Am I worried about the next real estate bubble? In 2017, are we in a real estate bubble?
I am worried about a real estate bubble, but I don’t know if we’re in one right now. Professionally, I’ve been covering financial markets off and on for 10+ years. All markets go through cycles, including real estate.
The recent US real estate boom started in 2012 and has been going for about 5 years. As of 2017 it’s not done yet. In fact, as late as April 2016, Billionaire investor Warren Buffett said to his Berkshire shareholders (Fortune), “I don’t see a nationwide bubble in real estate right now at all,”
Will the real estate market correct? Yes.
When will it correct? I don’t know.
What I do know is you can be prepared for the next correction by being smart about your real estate investing. You can buy houses and apartments under market value now! That gives you a natural advantage to those who buy at the market. In addition, you can put enough down to give you a cushion for when the correction happens. If you have renters to support your note and you’ve taken the right precautions, you should be able to weather the storm.
So long as you don’t sell during the correction (assuming it comes back – and it always has), then you don’t lose money. Note: this is not a guarantee – all investing, including real estate has risks.
How To Profit From Texas Real Estate Investing?
I expect that many people will stumble upon this podcast and website from Texas. For those who live in Texas, especially in the Texas Triangle, it’s easier to jump into real estate. Depending on your level or experience and financial means, there are several ways to invest living in the Lone Star State.
- Residential: houses, apartments, townhouses, vacation homes.
- Commercial: office buildings, individual offices.
- Industrial: warehouses, car washes, storage units.
- Retail: shopping malls, strip malls, storefronts.
- Mixed-use: retail, commercial, residential.
Before you plunk down $30K for your first single family rental down payment, there are two things you need:
1. Get Educated
That’s what you’re doing right now.
You’re learning more about real estate investing so keep going. Learn about the market you’re interested in (Texas, etc.). Learn about the type of investing you want to do (single family, apartments, etc.). There’s a ton of free content out there with websites, forums, podcasts, and YouTube channels. No need to plunk down big dollars for a coaching program yet – learn as much as you can from the free stuff first. Then later it might make sense to buy into a service or program.
2. Get A Good Team
Second, assemble your real estate investing team. Start with a good lender. After that, find a good realtor (or more) or wholesaler for residential real estate investing. Commercial real estate requires an experienced broker. You’ll probably need to rehabber or general contractor to get your property move-in ready. A property manager will be helpful to collect rents and make sure you’re a legal landlord. Finally, the additional pieces like an insurance agent, CPA, and real estate attorney will help protect your assets.
But I Don’t Live In Texas OR I Don’t Want All The Hassle
Hands-on real estate investing can be challenging.
Dealing with tenants and contractors may not be what you want to do with your time even if you live down the street from your rental. Or maybe you don’t live in Texas and you can’t check-up on your property like you want.
There are a couple of ways to invest in Texas real estate without the hassle of hands-on investing. It usually requires a capital contribution, but experience can be used as well.
- Texas REITs
A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. Similar to mutual funds, REITs are pools of capital expressly created for real estate. As the real estate market rises, REITs tend to do well. As the market falls, REITs tend to struggle. Some REITs specialize in both residential and commercial Texas real estate.If you want to invest in Texas real estate with virtually no hassle and moderate gains and risk, look into a Texas-specific REIT. Check with your financial planner for details.
Partnerships are another way to invest in Texas real estate. There are many types of real estate partnerships: sometimes it’s just two investors and at other times it’s multiple parties. With a real estate partnership, you don’t need to be located in Texas but you can be. One partner can be boots on the ground while the other party (or parties) can be across the ocean so long as they are bringing some value to the relationship. Most of the time partners contribute capital, but they can also bring market specific experience and time.If you want to invest in Texas real estate with the most potential for returns and risk, checkout real estate partners.
Summing Up: Profit from the Texas Real Estate Boom
You can’t profit by sitting on the sidelines.
Every day 345 people move into Texas (Texas Tribune: 2016). Those people need a place to live. Housing supply is not keeping up with demand and prices are rising. But you can’t participate in the market by watching. You have to take action.
Whether it’s starting a real estate investing business in Texas, investing in Texas REITs, or developing good partnerships, start the journey today. Texas has minted thousands of millionaires through real estate.
You could be the next one.
Want to work with me on Texas Real Estate?
Contact me today to see how.