Property Tax Assessments to Increase 16%!

I wrote about this back in February, and today's front-page headline in the Austin-American Statesman solidifies the story:

Travis Home Appraisals Balloon 16%
Increase even higher for commercial, multifamily properties;
Williamson homeowners can expect 5-12% rise.

It said the average for Travis County (i.e., Austin) will be 16% from last year, however, homeowners whose values last year were <$400k will likely see rate increases of 14% or less. They also had a graph in the article that showed the average home price in Travis County in 2000 was $153,668. This year, the average has skyrocketed to $236,559 - an increase of almost 54% in five years (or an average of 9% per year). Astounding.

Also worth noting is that the big news in Texas politics right now is the Governors plan to reduce homeowner property taxes statewide. This - along with school financing - has been a hot topic for the past several years. The Governors plan, though, will only reduce the homeowners bill by some meager amount (i.e., <10%, if I recall), so any gains made by the passing of Rick Perry's plan will be more than offset by the rising appraisal values this year.

Of course the bad news is that if you own property in Travis and/or Williamson counties, expect sticker shock when you open your tax bill for this year in the coming weeks. Likewise, I expect to start seeing an increase in foreclosures - or, at least, more tax leins. Texas is already the leading state in foreclosures, and I believe it will only increase more with all these happenings.

Stay tuned.

Edit: Bah! I found the story on A-AS's website after posting this, so everyone can read the bad/good news. You can read the story here (note: you will need to remove all cookies from www.statesman.com in order to read this story.)

Falling Behind

My wife said something to me yesterday that really got me thinking. She said that this Saturday will be one year since we closed on House #1.

Later, I recanted what she had said and reflected on what I had accomplished in the last year regarding REI. The result? I haven't done enough to keep the business moving forward. Yes, I managed to get tenants in House #1 that provide us with a little positive cashflow each month. Yes, I would go out and hang bandit signs up every Friday night (or Saturday morning). Yes, I'd get calls (albeit, few and far between) and talk to a wide range of sellers, which produced no deals. It's not that I haven't done anything, it's just that my efforts have not produced anything. So, for a full year now, I've gotten -0- deals, and tat has to change.

I've decided that in order to get the ball rolling, I need to be more proactive. I've slacked off almost totally in marketing, and sat spinning my wheels on that 12-property "deal" that never materialized. In order to move my business forward, I need to not only elevate my marketing, but also introduce systems that will enable me to turnover deals more quickly.

After talking with my wife, briefly, about this over the past weekend, these are my new to-do items:

Create an LLC - My wife and I agreed that "MNS Real Estate Solutions" is a bit ... I don't know how to say it, really ... complex? long? Just not right. We have decided on a different name, but I'll need to contact my CPA to get the thing set up. I've also been doing some reading of late on various REI message boards, and am split between using land trusts or not. For legal purposes, I've heard they are better for Sub2 as they do not violate the federal law that gives lenders the option of calling a loan due (i.e., the Due-on-Sale clause). However, they also seem like an extra layer of complexity. The jury is still out on using them or not for now. I also read that people prefer setting up an LLC for each individual property they have. For instance, if a property has an address of 123 Main St., they'll create an LLC called 123 Main, LLC (or similar derivative). This can get costly (Texas now charges $300 to set up an LLC, plus the $50+ my CPA will add), but probably just peanuts in the whole scheme of things. Also, in Texas, the state charges a franchise tax on LLC's with over $150k(?) in assets (or is it revenue? or profit?). Therefore, having individual ones may make even more sense in my case.

House #1 in Land Trust? - As I just mentioned, I'm still weighing the pros and cons of using land trusts. What I may end up doing is moving ownership of House #1 into a land trust for practice. I'd get a competant RE attorney to do this for me (read: $$$), and eventually have our new LLC as the beneficiary. If it isn't too much of a headache, I'll probably start using land trusts for now on. We'll see.

Marketing - Wow, where has the time gone. Back in late February, I created a list of targeted homeowners to do mailouts. I had fully intended to start my mailouts starting March 1st. Geez Luoise. Here it is nearing the end of April, and I haven't done a thing. Instead of going back and updating the lists, I'll just use what I had before and start mailing out my postcards. I may not send out as much as I had initially wanted due to various reasons (cost and some areas are depreciating in value), but I'll still reach a good many people each month, hopefully. It's a numbers game, and I'll see what kind of response rate I'll get with the first mailout. If it's low, I'll mail more out - if it's high, I'll cut back some.

Personal Issues - The main reason my business has suffered is because of personal issues. Mainly the twins. My wife and I had such high hopes on using my bonus and tax refund for investment purposes, but that has fallen throught he floor. Neither of us could even comprehend late last year how much the two newborns would cost as as far as medical bills. Holy cow. It has not only taken my bonus and our tax refund, but also some savings to pay for all these bills. I am truly baffled as to how people who have newborns and make half as much money as us do it. They must have to make monthly payments, like a mortgage, or something. IMHO, either the loss of foreign investments or higher health costs (or both) will eventually do this country in.

Networking - I managed to meet with the birddog, who gave me the lead on those 12 properties, last week for lunch. Turns out he his a 23yr-old recent college graduate who works right across the street from me. He seems to have his head on straight and knows exactly what he wants to do with his life: invest in real estate. He also came from San Antonio a few years ago, and has strong REI connections there, so not only can he be an asset for me finding properties, but he also has some conections I may be able to use as well. We agreed to meet for lunch every few weeks to touch base. I also met another investor online who lives/works in Fort Worth, but has family and REI connections in my area. He also gave me some names of other investors he knows and said we should all meet for lunch one day. Besides marketing, my weakest pipeline right now in my business is networking. Hopefully, I can start building up a good list of contacts that I can fall back on if I ever need.

Foreclosure fraud a growing threat

I read the following article (note: you'll need to remove the cookies from www.statesman.com in order to view it more than one time) the other day in the local newspaper about foreclosure fraud. Specifically, it talks about homeowners that are behind on their mortgage payments, seek help from strangers who claim they can help, and then get scammed. Basically, it's the same old article that paints real estate investing as an industry full of scammers. While I think it is prudent homeowners should know about these things, I hate it when they only give ONE side - the BAD side - of the story.

Unfortunately, the BAD side of the story is the one that gets magnified by the media (heck, who wants to hear about someone actually helping his fellow man anyway?). Here is one troubling paragraph that has me a bit peeved and worried at the same time:

Across the country, law enforcement officials also are grappling with increasing numbers of foreclosure fraud cases. Colorado's attorney general, John Suthers, is pushing a law that would tighten rules for brokers after a rash of scams in that state. Minnesota passed new rules in 2004, Maryland in 2005.

I knew about Maryland's recent legislation that puts a stranglehold on wholesalers, but didn't know about Minnesota's law(s). Here in Texas, lobbying groups are hitting elected officials hard, and are the main reason Lease Options were outlawed here starting last year.

It's truly unfortunate.

BTW, I urge all real estate investors to join their state REI associations. It's only through numbers are we able to have a voice. Individual letters and emails to our elected officials go unanswered for the most part - especially against existing, strongly-funded lobbying groups. We need the power that state- and national-level groups can give all of us.

Commerical Land?

I drive by this small strip of frontage land that is mixed use every day going to and coming from work. There are about 10 lots - some with single business buildings, and a few with residential housing units. The single business buildings are all rented out, and usually the business only lasts a year or two, before you see a "For Rent" on the property again. about 4-5 moonths ago, I noticed the two residential properties had an agent's "For Sale" sign in the yard. The buildings were in bad, but livable shape, and I never really thought much more about them. About a month ago, I'd say, I noticed an auction sign in the front of the properties. Again, I thought nothing about it. Within the last couple of weeks, I've noticed a hand-made "For Sale" sign in the front yard. At first, the sign said "$205,000", and then "$198,000", and kept dropping. Driving home yesterday, I noticed the price had dropped to $169,000", which finally caught my attention.

I did some research and found out that the property consists of 4 total lots - three of which front the main road, and one is to the rear of one of the others. This has really piqued my interest now as the zoning for the property is Real/Commercial. Like I said earlier, the buildings themselves are in bad shape, and I would definately tear them down if I were to ever buy the package deal. This led me to research the value on the land itself. It turns out that all four lots, collectively, were assessed at $204,000 (with the lot in the rear being the least valuable, of course). My initial thought was to buy the land, tear down the 2-3 buildings, put in a small office complex (1- or 2-story) with 5-15 "units" total, and rent the space out.

At this point, I would still need to find out who the owner was and if I could first negotiate th terms and/or price to help accomodate my future plans. I would also need to find out if the zoning would allow for what I would want to do. On top of all that, I would also need to find out how much demolition would cost as well as the costs involved to make the necessary improvements (i.e., water/sewer lines, other utilities, actual building costs, etc.).

The lots are in a prime location not too far from a brand new major shopping complex, which would make them ideal for this situation. I'd just need to do a lot more research before jumping in, though. What I'd like to be able to do is try to buy the land with great initial terms that graduate with time, or cut the owner in on some of the future profits.

Lot's to think about.

OT: Managing Blog Feeds

I stumbled across a great RSS/Atom feed reader called Sage an extension exclusively for the Mozilla Firefox web browser. It allows you to click a button, and instantly see which blogs you are watching have gotten updated (along with viewing the content). Since my area's REI club has a group account on Yahoo!, I can also view updates to the message board there as well. Pretty neat! Saves me the trouble of going to each web site independently and looking to see what content has been updated. The only drawback I see at the moment is the fact it doesn't view a blog as being updated when new comments are added.

Real Estate Trends

I was perusing a REI message board recently, and came across the following report which tries to show what real estate markets have done and will do ...

http://www.pmigroup.com/lenders/eret.html

Mums The Word

Well, it looks as though this latest deal isn't going to happen. Yesterday morning, I sent the owner a detailed list of questions I needed answered ASAP. Here it is Wednesday morning, and I haven't gotten anything from him. That's not to say he won't send me an email at the 11th hour, but I'm about a hair's width away from not doing the deal no matter what happens now. On to the next one ...

12, 8, 6, ... 4?, 3?, 2?, 1?, none?

In the wake of events these last 24 hours, I decided to cut down on the number of properties I would take (IF I end up taking any of them) from this latest deal. While the initial quantity really attracted my interest, I quickly realized it would not be feasible to take all 12 properties. After that, I narrowed the list from 12 to 8. Even then, I would be taking on a huge amount of debt (and risk) even though I would conceivable make a nice profit in the end. However, given the circumstances and more analysis, even the 8 properties wouldn't work for me. So, I then tried 6 properties, and again even though they produced nice income at the end, the risk, time, and upfront debt was just too much resources to endure at this time. Plus, given the procrastination and non-disclosure of required information from the seller, I have narrowed the list down even further: 4 properties. The four properties in question would collectively give me an average $3,500/mo cashflow (after enduring some upfront risk/debt) over the course the properties would be owned and/or controlled by me. It was after making this analysis that I decided to just go ahead and break the 4 properties down to 3, then 2, and finally 1. The following table shows the resultant figures of my analysis if I were to keep just the best property, then the two best properties, then the top-3 properties, and finally all four properties:

	Keep 1	Keep 2(a)	Keep 2(b)	Keep 3	Keep 4
Initial Investment	$8,750	$13,750	$17,500	$22,000	$29,500
Net Profit	$49,024	$91,769	$78,603	$121,982	$143,647
COCR:	460%	567%	349%	454%	387%
COCR Annualized	115%	74%	95%	65%	59%
Average Cashflow (Monthly)	$1,816	$2,238	$2,911	$2,975	$3,504
Average Cashflow (Yearly)	$21,789	$26,859	$34,934	$35,702	$42,043

Looking over the figures, I am leaning towards just keeping the one property, or the two properties under the heading "Keep 2b". These appear to give me the best bang for the buck in the shortest time possible. Now, will I even get any of them is the question. :-|

Unbelievable

That's what came out of my mouth when I opened my email this morning and read a response from the owner of the 12 properties. In it, he asked for two things: proof that I have the financial means to pay for the carrying costs on his properties, and his wanting a clause in the agreements I sent that protect him financially in case I default on my end by not paying his mortgages, taxes, etc. That was it.

WTH?!?!?!

Where is the information I've been waiting for for over a week now? Where is the specific information I requested regarding exactly what he pays each month and to whom? Where is the information from his property management company about the leases and when they expire? ARGH!!!!

I then took a 20 minute recess from the whole situation to calm down, and wrote him back. I included a screen shot of my 401(k) and checking account (minus any account details), showing my ability to more than cover the carrying costs on at least six of his properties for several months. I also told him that I have been waiting - patiently - for well over a week now on information from his end, which I need in order to accurately diagnose which properties, if any, I can purchase from him. In addition, I asked him what specific clause he would like for me to include in the agreements that would satisfy him. And, lastly, I told him that my Wed deadline is still in affect, and that if I did not have the information I needed by the EOB on Wed, I would have no other choice but to pass on the deal.

Am I being too forgiving here? :-)

An Exercise in Futility

I have just about given up on this latest deal involving the 12 properties. Last Friday, I went ahead and emailed the owner contracts on two of the 12 properties. I told him to contact me ASAP once he decides what he wants to do. Here it is Monday morning, and not a peep from him.

Originally, I had sent him a contract giving him a 3-day window to respond. During that brief window is when we talked with one another on the phone, and I thought for sure he would have not thought twice about signing over the properties to me. I then revised the contract and added an additional one for another of his properties, thinking that I'd get some kind of response Friday evening at the latest, but nothing.

Maybe I'm just being impatient, but I seriously doubt it. My gut feel says he either has/had another offer he is considering, or his whole situation is a fantasy he concocted in order to get someone to buy his properties for retail price. Regardless, I've put the rest of my business on hold since I first heard about this deal on March 20th, and I can't afford to spend any more time on it.