Opportunistic Fund Basics: How to flip a house at trustee sale (foreclosure)


I would say the number one question asked at trustee sales is: “How does this work?” So I figured I would share how this works.

Let me first say that this is specific information for particular markets I have worked in, all markets and locales have slight variations and different legal requirements. So consult professionals in your local area (attorney’s, title companies, etc.)

Most of the time you will need cash or cash equivalent (cashier’s checks) to bid at trustee sale auctions, some states like Arizona allow you to bid with a deposit amount of $10,000 and pay the balance before 5:00 pm the following day. However, most of the time you pay all of it up front as you finish bidding on the property.

Step 1: Get the List

Get a list of foreclosures for the upcoming day, week or month (several sources for this list exist most of the good ones you have to pay for access). Once you have the list which comes in the form of a spreadsheet, you will then begin to shift through the information. A starting point you may want only to try and bid on houses with an assessed value of $100,000 to $150,000, built in 2000 to 2010.


Step 2:    Drive the property


Once you have the list, you can go and physically drive the houses. Many of the houses will be occupied, and you won’t be able to see the insides, but you can now determine the condition of the house from the exterior and the neighborhood feel. Unless you are a weirdo like me, you probably don’t go out for drives and drive random neighborhoods on the weekends. The feel of a neighborhood is important when you comp (come up with a market value) of the house later. Make sure to take notes of the houses and take pictures of the houses. Why you need to drive the houses it the house could have burnt down and is now just a concrete slab, or maybe it’s vacant but they previous owners tore all the windows and doors out of the house and jackhammered up the driveway. (Yes we’ve had those things happen)

*hint takes a picture of the numerical address before taking pics of the house, so you know when one house stops and the next begins in your camera later.

Step 3:    Title Search

Depending on your relationship with your county clerk or your title company you may be able to do this before step 2 but to depend on your size of operations you will need to pay for a title search. So that’s why I suggest driving the list of houses first and then whittling down your list further before you start to research chain of title or pay for title searches. This is one of the most important steps in the entire process just as it is important to know that the house physically exists you are only buying a lien position at the trustee sale. So you could be buying a 2nd or 3rd position lien and have hundreds of thousands in a senior position. (I have seen people do this and lose several hundred thousand dollars in a couple of seconds, and it is very cutthroat but most of the fellow bidders will not stop you because they know your lose is their gain) Or you may encounter tax liens, or judgments against the property. The previous owner could have had solar panels or new windows installed, and they recorded a fixture lien on the property till they were paid off, which means you might be stuck paying for it on top of your bid. Do your homework on this part of the process or pay for a title search.

Step 4:    Comp

This is the step that separates the pros and amateurs. As this is both an art and science. This is going to ruffle some feathers, but 99% of realtors out there are terrible at this part, and I know realtors are going to flip out, but it’s true. Realtors like to use CMA (comparable market analysis) and give you a price per square foot. They will run the comps like 123 Main St is 3-2 1200 sq. ft. so search for 3-2 1000 – 1400 sq. ft. within a ½ mile radius and then they go through the list and use those as comps. I suggest using programs like Redfin, or Zillow to see active and sold listings. What the CMA does not take into account is your half mile radius might be a completely different subdivision or cross over a highway. Of course, a realtor can refine the CMA, but it is a very cumbersome process. I have found appraisers are much better at comping compared to realtors. Appraisers look at houses with pluses and minuses. That 3-2 1200 sq. ft. house might be a 2 story and the comps on 2 stories are 20% less than 1 stories. Ultimately you can spend years on doing this and never be 100% accurate.

But I digress your goal in this step is to come up with your ARV (After Repair Value) or market value of course this can fluctuate as well as you could do a full interior and exterior remodel on the house and shoot for a much higher price. This market value price will then help you determine additional fees associated with selling the property. (We budget 6-8% in closing fees, this consist of realtor fees, title fees, home warranties, property taxes, hoa fees, utilities amongst others.)

Step 5:    Remodel Budget

This step corresponds to the comp step but is separate as you need to know what market value is and then what your budget is for remodeling. For us we look at it is basic remodels (paint, carpet, flooring, appliances, landscape and maybe a few upgrades like granite or nicer light fixtures) this can fluctuate as we look at the house and the age of the house or the neighborhood. Higher end neighborhoods will require higher end remodels. This part of the equation then will allow you to know what your max that you would pay for a house given your required rate or amount needed.

For instance, I want to make 10% return on $200,000 property ($20k profit). Start with 200k market value deduct my 6% in selling and holding fees (200k-12K = 188k); then I deduct my $15k remodel budget (188K- 15k= $173k) then I deduct the profit I need to make (173k-20k= 153k). That then gives me my max bid price on the property given my required rate of return. Now do that for every house you drove that had a clean title report and get ready for the live auction.

Step 6:    Live Auction

You should now have your cashier’s checks made out to yourself and you are armed with your list of properties that you have driven, done title searches on, come up with your comp for market price and have your max bid.  Now it is time for the live auction; this will be a little nerve wracking depending on your current area this could range from 6-10 auction cryers auctioning off properties simultaneously with hundreds of other bidders. Alternatively, it could be one auctioneer and a couple of bidders. The bummer is that all those houses you drove and did research on 90% of them will postpone or cancel, and that is why you need to drive so many potential houses just to buy one.

Now let’s say that the trustee/auctioneer does start to cry one on your list then you have to wait to see what the opening bid is and if it is below your max bid. Most of the time you will just yell out the amount over the bid. So if the bid is $50k you can just bid $50,001 if no one else bids you win that auction and turn over your cashier’s checks and sign the receipt. I must caution that most of the time if your max bid was 153k and the bid is 50k you will have competition. They may bid it up 10k a time up to 110k and then drop down to 5k at a time till 135k and then slow down bidding to 1k at a time. However, this is completely dependent on the other people there, and this too can be an art of bidding. Waiting until it gets to going once, going twice and then bid, or you could wait till the bidding has slowed down to the final bit before you jump in, or you can be super aggressive and jump the bid to your max right away. This part is kind of like poker and is about reading the other bidders.

Step 7: Possession

Say you did win the bid at 145k (8K below your max) then you start the possession process. If vacant, then woo-hoo good job change out the locks and the house is yours to start to remodel. Note of caution it may take the trustee a couple of weeks to get you your executed deed which officially transfer ownership to you and there are times in those two weeks that a person could circumvent the sale, and the trustee will simply send you back your cashier’s checks. Which if you spent money on the remodel you may be at a loss for that remodel cost. That is rare on a vacant house but has happened before so proceed with caution. Or in some states like Michigan there is a Six-month redemption period of mortgage foreclosure sales, again proceed with caution on your area.

If the property is occupied, then you need to start the legal proceedings to gain possession. This is very different from state to state so consult an attorney. Tenants (renters) have more rights typically than former homeowners (occupants) since they have been given a lot more legal notice of the process.

Step 8:    Remodel

Get your contractor or do the work yourself, that is more up to how many houses you are doing and how skilled you are in doing the remodels. I suggest hiring a contractor and getting multiple bids, as a contractor needs to balance how much can they charge to make a profit but little enough to still get the job. Keep in mind your budget that you established when you bought the house and hopefully, you can get the scope of work done within your budget.

Step 9:    Sell Baby, Sell!!

The rubber meets the road here, now that the remodel is done and you are ready to sell the house redo your comps and hopefully there haven't been any crappy comps come on the market since you bought it and then have your realtor list the house. Hopefully, you stuck to your remodel budget of 15k, you comp value stayed true at 200k, and you list it and go into contract at your list price.

Step 10: Collect your money & Repeat

Close the transaction, collect your money, rinse and repeat the process hopefully 20k richer.
All in all that is a much more detailed answer to the question how does this all work, but also still just scratching the surface of the nuances of this process. If you want more information, please feel free to contact our office for our newsletter or detailed information on how to do this at scale.


Cheers and Happy Taco Tuesday,

 

ERISA: The Rise of the Institutional Capital and How It’s Changing Real Estate Today

The collapse and fall of Studebaker Corp in 1963 left 10,000+ employees holding their collective breath as their poorly funded pension fund was divvied up. 4000 workers received 15% of their value, and 2900 workers received no benefit. This significant event of an underfunded pension ultimately led to the Employee Retirement Income Securities Act (ERISA) of 1974. ERISA is a federal law that establishes the minimum standards for a pension plan in the private industry.

“The most powerful force in the universe is compound interest” – Albert Einstein

Compound interest

Before ERISA, very few private pension plans existed and of those that did exist few were properly funded to meet their unfunded liabilities (future payouts to employees). However, since ERISA companies have been forced to comply with certain requirements of funding. In simple terms, a company can achieve those minimum requirements by contributions (cash in) or through returns (interest). As pension funds began to grow slowly in contributions through the 70s and into the 1980s, the effects of compounding interest began to make for more significant amounts of capital. Now 40+ years later the compounded interest on pension funds has grown into a very substantial amount of capital.

To try and give an example of this I will use a simple example to try and give an understanding of this concept if private pension funds as a whole contributed $1M/year and received an average of 5% return over 40 years it would be worth over $120M. That is, of course, a simple breakdown, but the fact of the matter is that Morgan Stanley estimates that pension funds worldwide hold over $20Trillion in assets. Yes, that is a T as in Trillions. Which puts the pension funds as the largest category of investors ahead of mutual funds, insurance companies, currency reserves, sovereign wealth funds (SWF), hedge funds and private equity (PE).

Real Estate

In the example above I used a very simple breakdown and a straight 5% return over 40 years. If I had a crystal ball and could consistently deliver 5% returns risk-free, I would likely manage the vast majority of capital in the world. But alas, I don’t have a crystal ball nor do I manage most of the capital in the world. Since there is a risk in almost every investment in the world. Pension funds have devised a way in which they can help to hedge risk and still deliver their required rate of return. I have covered this before but as a refresher, this is achieved by diversifying their investments into four main categories: Equity, Fixed Income, Cash and Alternatives.

Equity = stocks, Fixed income = bonds, Cash = $$, Alternatives = Private Equity, Real Estate, Venture Capital.

As you can see from this chart from Pensions & Investments the alternatives segment of diversification has been on a steady growth rate over the last 40 years. Pension funds are finding that alternatives are proving to consistently deliver better returns. As pension funds have been growing exponentially in capital size and paired with the substantial increase in allocations towards alternatives we have seen a fundamental shift in the real estate capital markets.

As I talked about in the previous blog, institutional investors favor core/growth markets (SF, LA, NYC, London, Paris, etc.) at nearly an 8 to 1 ratio. The risk to these institutional investors is that they are growing by the day thanks to compounding interest and with higher allocations towards alternatives, they are all chasing the same core markets. The chase of these core markets then leads to institutional investors forced into overpaying for assets. As those assets then fail to perform as expected because of the higher purchase price the subsequent downturn in the cycle ensues, this is especially exaggerated in these core markets.  Or this forces the institutional investor into other non-core markets.

Take Away

The take away from this blog post is that pension funds and institutional funds are slowly beginning to take over the vast majority of real estate holdings and investments in all core markets the world over. As I don’t see the amount of capital slowing down (compounding interest and more allocations) anytime in the future, I am predicting that institutional investors will begin to pivot. As they pivot, they will start engaging in value markets. Today marks a fascinating period in which technology is increasing allowing more access to information; that was limited only to local players. An example is that it is just as easy for me to look at a property down the street as it is for me to research one 1500 miles away. Combine this with the fact that I believe value markets are trading at a discount from their true value. Over the next 10-20 years, I predict the value and second tier cities will see a wave of institutional investors pour money into urban core centers and redefine and reinvent the majority of American cities. Ultimately making the real estate markets more efficient.

 

GROWTH vs. VALUE

Most people are familiar with the concept of Growth Investing and Value investing regarding stocks. However, not everyone is familiar with those concepts regarding Real Estate.

Most investors have a target rate of return that they are trying to achieve over a certain period. A pension fund might need to make 7% annually over a 10-year period. Or you figure out to hit the level income you need to sustain for retirement you need 10% annually over the next five years. Then from that point, you should approach an investment that will deliver returns greater than your required rate of return.

The most common ways to achieve returns are with growth or value investing. 

GROWTH INVESTING

In real estate terms growth investing is often associated with markets that are projected to see better or GROWTH of appreciation over inflationary indexes. For instance, these are considered CORE markets these key markets are the likes of San Francisco, NYC, Miami, LA, Seattle and on and on. The thought process is that your “going-in” rate of return will be lower than your required rate however over the term of your investment you will see appreciation that will deliver an amount that exceeds your benchmark.

An example of this we will use a pension fund with a 7% required annual return over the next ten years. They buy into a building with a 5% CAP rate in a CORE/GROWTH market. As we know from the Fed, the projected inflation is to be right about 2% annually over the next decade. We would factor the GROWTH appreciation of the property around 4-5% annually or the specifics of that particular city.

Then your CAP rate + Growth over inflation delivers or exceeds your required rate of return.

VALUE INVESTING

In value investing an investor is not anticipating appreciation growth rates to exceed inflation. Therefore, to receive their required rate of return they are looking for a better “going-in” rate of return. These value markets are called second tier or B & C markets. Think of cities like Cincinnati, Atlanta, Salt Lake City, and many other middle of America cities.

The example of this will be a high net worth individual investor has a required rate of 10% annually over the next five years. This investor buys into a property with a 10% CAP rate in Nashville TN. As you might expect in the value investing market like Nashville would only expect to appreciate in line with inflationary indexes. So annually you would only expect around 2% appreciation and after backing out inflation, it would be a net zero.

Your return would be directly from the CAP rate, and appreciation would not be part of your expected return.

GROWTH vs. VALUE

The question then is then you a growth or value investor?

One of the ways to approach the question is to create a benchmark for all markets. I sit down and come up with a theoretical “apples to apples” comparison of growth and value markets. So for instance, a property that is $100,000 in a growth market would then be worth less in a value market. The comparison is that similar property would sell for $80,000 in a value market. Which makes sense you need to discount the value market a certain amount.

However, the research is that the vast majority (approx. 85%) of institutional investors and capital (pension funds, REITs, PE firms) are focused on growth/core markets. So even though a property in a value market should trade at $80,000 given the lack of competition, the reality is those properties are trading at a discount of $65,000 or $70,000.

CONCLUSION

Professional real estate investing has only been studied on an academic level for the last 20-25 years. Given that and a variety of other reasons, there is a tremendous amount of inefficiencies in real estate investing. Even though we can identify the fact that the vast majority of institutional investors are investing in core markets and that value markets are trading at prices below their theoretical value. That doesn’t directly equate to buy anything in value markets and receive the best of both worlds.

However, armed with this information, the advancement of technology, and cheap travel we have found that there are opportunities in value markets that the majority of investors are missing by trying to be SAFE and just investing in growth/core markets. So we are value investors, and in fact, take it to another level and use our opportunistic approach to value investing.

Cheers,

 

Siesmic shift in Real Estate

“Get ready for a new asset class: real estate. It’s set to break out from under the guise of financials into a separate category… first since 1999.”

Real estate has been in the shadows of the financial sector for long enough. In the article in Investor’s Business Daily (http://www.investors.com/news/management/financial-advisor-briefing/note-to-advisors-prepare-to-give-reits-a-second-look/) specifically addresses the increase of capital flowing into REITs and other Real Estate assets. This shift of pushing real estate into its own category will allow more pension funds, endowments and advisors the opportunity to diversify their holdings.

Something to note is that REITs are somewhat related to real estate, however, they have a lot of exposure to interest rates as well as the general stock market conditions overall. Traditional real estate investments have little correlation to the stock market. With this new category of real estate make sure your advisor is up to date on not only REITs but also how real estate can help deliver returns outside of a volatile stock market.

 
 


Bear Market...

Are you ready for a bear market? The first question I am asking people these days is how diversified are your holdings? As a result of the last couple of weeks of the stock market I am reposting a Barron’s article that appeared online on September 1, 2015. It goes into detail about the best hedge against bear markets.


As Stocks Fall, Real Estate May Be the Best Defense

By Mark Hulbert

Pencils ready? Here’s today’s investment pop quiz.

Which asset class has performed as well as bonds during U.S. equity bear markets of the past 60 years?

The answer, perhaps surprisingly, is residential real estate. During the Great Recession, of course, the real estate market collapsed along with stocks. But residential real estate’s performance during the 2007-2009 bear market was anomalous, according to data from Yale University’s Robert Shiller, winner of last year’s Nobel Prize in economics and the co-creator of the Case-Shiller Home-Price Index. 

In 14 of the 15 previous U.S. equity bear markets, going back to 1956, the home-price index rose. And in that lone bear market prior to 2007 in which home prices did fall, they did so by just 0.4%.

Besides bonds, no other asset class comes close to this good a track record during bear markets.

Residential real estate’s ability to hedge equity bear markets is of more than just historical curiosity, of course. The stock market recently experienced a full-scale correction, and it’s possible that we are already in a new bear market. And even if we’re not, a 20% or greater decline will happen sooner or later.

Residential real estate might even be a superior hedge than bonds in the next equity bear market. While real estate historically has risen along with inflation (positive correlation), bonds have been inversely correlated, tending to fall when inflation rises. If inflation were to heat up during the next bear market — as it did during the stagflation era of the 1970s, for example — bonds would be battling stiff headwinds.

The $64,000 question for investors seeking a hedge: Was residential real estate’s crash during the 2007-2009 equity bear market an anomalous event?

Professor Shiller’s response, when I put that question to him, was “To some extent, it must be… Overall there just isn’t much correlation of home prices with the stock market. So it [what happened in 2007-2009] looks like just chance.”

He added that residential real estate’s terrible performance during the Great Recession was in no small part caused by idiosyncratic developments such as “subprime mortgages, securitized in tranches, and dubious innovations, [as well as] liars loans.” Those developments are unlikely to play as big a role in the future, due to the greater “vigilance” that regulators now exercise over the real estate market — such as the Dodd-Frank act, which became law in 2010. 

All of this suggests that investors should consider the possibility of hedging their equity portfolios with an allocation to residential real estate. Unfortunately, however, as Professor Shiller hastens to point out, that’s easier said than done. Many of the obvious investment vehicles don’t actually provide genuine exposure to home prices.

Take your home, for example, or investments in any other individual properties, for that matter. Idiosyncratic factors that are unique to each property will cause its investment return to diverge widely from that of the residential asset class as a whole. In addition, the market for physical real estate is relatively illiquid and transaction costs are high.

Real estate investment trusts (REITs) have a different set of drawbacks as a hedge. Though the market for them is quite liquid, they tend to “pretty much track the stock market” rather than the average price of residential real estate, according to Professor Schiller.

The same goes for stocks of home construction companies. Over the past two decades, for example, there has been a statistically insignificant correlation between the S&P 1500 Homebuilding index and the Case-Shiller Home Price Index. In contrast, those home building company stocks have been highly correlated with the overall stock market.

It is difficult to construct an exchange-traded fund pegged to the Case-Shiller Home Price Index – in fact the one ETF that attempted to do shut down just a year after it was established.

That leaves the futures market. Investors can bet on the performance of residential real estate via futures on the Chicago Mercantile Exchange that are tied to the Case Shiller Home Price Indices. But the market for these contracts is relatively illiquid, so even this alternative is not ideal. If you do invest in these futures contracts, be sure to use limit orders rather than market orders to buy and sell.

If you were convinced that a bear market in stocks had begun, you could hedge your equity holdings with an investment in residential real estate by allocating a small portion of your portfolio to these futures. You would pick a contract with a long-enough maturity to encompass the likely length of the bear market.

According Ned Davis Research, the average bear market of the past century lasted 13 months — and no bear market since the Great Depression has lasted two years.

Many individual investors have an aversion to playing the futures market on the grounds that they are too risky or hard to trade. But what makes futures risky is the leverage that traders employ, not the contracts themselves. The standard deviation of the Case-Shiller index’s annual returns, for example, is less than half that of the S&P 500 — and even more than a third less than that of long-term U.S. Treasuries.

Furthermore, most of the largest discount brokerage firms now allow you to trade futures as easily as you would an individual stock or ETF. So the aversion to futures may be a legacy of days of old when you had to jump through a lot of hoops to trade.

Investors with no experience trading futures would be advised to consult a financial advisor before doing so. If residential real estate performs as well in the next equity bear market as it has in most declines over the past half century, you will be glad you included it in your portfolio.


If you have any questions about real estate investing, how to diversify your holdings feel free to reach out for plenty of help and advice as we love to talk about real estate.

Happy and Prosperous Investing,

 


Rough Seas Ahead

If you haven’t been living under a rock you probably noticed the stock market volatility and the wild swings both up and down but most notable darling stocks like Apple (AAPL) taking a 20-30% haircut in value over the last week. (As of this morning it is up 5.9% gaining back some of the losses.

Of course, there is the adage of investing in stocks is to play the long game and not get caught up in the day to day movement of your positions. However, after a 5-6 year run up in value with no corrections in the market many experts have been predicting a sizable correction. That should then lead to a few other questions. Given a five-year run up on value what gains are worth taking off the table and what are worth holding out for the long term? Also, the other most significant question is how diversified are you in your investments?

By diversity, I don't just mean tech, emerging markets, healthcare, large cap, small cap, etc. What I am talking about is equities (stocks), fixed income (bonds), cash, and alternative investments (real estate).

When we meet with clients, the #1 concern by a long shot is CAPITAL PRESERVATION, “I don’t want to make my money again”. Sounds familiar yes?

Most people that have investments are most typically invested in IRAs, 401Ks and individual accounts that are managed by a financial/wealth manager. The issue is that a significant portion of those holdings is all in 1 bucket (equities). So a volatile stock market puts them at a much greater risk of losing capital.

Of course with us being a private equity real estate firm you know we are going to pimp the virtues of real estate. As real estate is a very nice alternative investment bucket to equities as it can be touched, finessed, leveraged, value-added or simply just acquired at below market values. All of which give it a much more consistent and reliable platform to preserve and grow capital.

What does this mean for you?

We are predicting the continued wild up and down swings in the stock market for the remaining of 2015. So, it might be a good time to start looking at your positions and evaluating how much exposure that you have to each of the different asset classes.

Also, note as we are big cheerleaders of real estate we are coming out with a few free informational post and segments about how people can invest their IRA and 401k into real estate.

Happy Investing,

 


Sunglo Gas Station Transforms into Sunglo Urban Homes

 Sunglo Urban Homes (Coming soon - 2016)

Sunglo Urban Homes (Coming soon - 2016)

Below is a link to a project featured in the San Antonio Business Journal. It has a brief mention of Harris Bay as we have come in as a JV partner in the project with the lead developer Efraim Varga of Varga Endeavors.

At Harris Bay, we have several ways in which we approach investing. This development opportunity allows us to leverage the experience of a local developer with an existing project and deliver quality returns to clients and investors.

http://www.bizjournals.com/sanantonio/news/2015/08/18/former-southtown-gas-station-becoming-for-sale.html

San Antonio is a market we see a lot of upward momentum. Austin might get a lot of the national media coverage for its explosive growth. San Antonio is not far off from Austin in growth and getting a lot of attention from local and Texas-based investment groups.

Cheers,

 


TOP 25 JOB MARKETS

Glassdoor.com helps people find jobs that they love, and informs them on the benefits and pay of those jobs on average. Glassdoor.com recently released an article on the top 25 job market cities according to three levels of criteria: Ease of getting a new job (hiring opportunity), how affordable it is to live there (cost of living), and how satisfied employees are with their work (job satisfaction).

The key takeaway from the article was that all of the 4 major markets in Texas (Austin #4, San Antonio #9, Dallas #14, and Houston #21) were named in this survey of top Job markets in the US.

Glassdoor.com Best Cities               

At Harris Bay we have found that Jobs are probably the single largest factor for stable housing prices and often times fuel growth within a market, especially when you factor in affordability into that mix. This data is what led us to Texas in the first place. As we make our investment decision based on numbers we too let the data help direct us into what markets will give us the best and safest returns.

We are also interested in several other markets on this list but given the fact that Texas has this concentration of 4 of the top 25 markets it makes a lot of financial sense to direct much of our operational strength to the state of Texas vs 4 other markets across 4 different states.

Overall we are very bullish on Texas and cheerleading their ability to create high paying jobs, that employees are satisfied with and in affordable areas. Even though we had much of this data about jobs in Texas it is nice to see others like glassdoor.com coming up with the same statistical information.

God Bless,

 


Austin: One of the Hottest investment markets in the US

Austin, TX

The next market we are featuring is that of Austin, TX. We are very excited about Austin for several reasons but thought we could share some of the numbers, descriptions and pictures to help illustrate the city as we view it from an investment standpoint.  

 

Profile: The city is home to development centers and headquarters for many technology corporations, adopting the nickname Silicon Hills in the 1990s. Recently, however, the current official slogan promotes Austin as The Live Music Capital of the World, a reference to the many musicians and live music venues within the area. One major event, South by Southwest, is one of the largest music festivals in the U.S., with more than 2,000 performers playing in more than 90 venues around Downtown Austin over four days every March. Austin is home to the University of Texas at Austin, the flagship institution of the University of Texas System. (Forbes Best Places for Business and Careers)

 

Market Analysis:

Austin has experienced some of the most explosive growth in the US over the last several decades. From 1990 to 2000 they increased 47.7% and from 2000 to 2010 an additional 37.3%. The greater Austin metropolitan population is now sitting at 1.9M. These increases are nearly double that of Texas and 4 times that of the US. Also factoring in that Austin is a major education hub, with 14 colleges and universities in the Austin area educating 183,598 students, we can see why their college education attainment rate is at better than 40%.

 2003-2013

2003-2013

Just to illustrate the growth we felt pictures could do more to tell the story than percentages.

Austin 1997

 Skyline 1997

Skyline 1997

Austin 2012

 Skyline 2012

Skyline 2012

What is exciting about Austin is that those changes are just a fraction of what the skyline will be in another 5-10 years with more than 50 new projects under construction and in planning.

 Under Construction and Planned 2014

Under Construction and Planned 2014

Here are a few of the projects under construction or recently finished. To check out more of the numerous projects go to: http://www.downtownaustin.com/business/emergingprojects

 JW Marroitt

JW Marroitt

 Fairmount

Fairmount

 Westin

Westin

 Colorado Tower

Colorado Tower

Recently completed and under construction is the new Dell Medical Center and UT Medical School

 Dell Medical Center Rendering (Opening 2016)

Dell Medical Center Rendering (Opening 2016)

 $335M UT Med School and Dell Medical Center

$335M UT Med School and Dell Medical Center

 Dell Children's Hospital

Dell Children's Hospital

Overall, we are very bullish on Austin for many reasons. Primarily is the fact that an explosive population growth has caused a strain on housing supply, which has driven prices up in equal portions. However, the caveat that makes this fact so financially lucrative is the fact that Austin is still one of the most affordable major metropolitan cities in the US, which bodes well for future growth.

The second reason is the employment demographics of Austin. Some markets in Texas are more inundated with the energy markets, but Austin is not one of them. Austin’s job base, however, is made up of first and foremost government, education and tourism. These three sectors equate to nearly half of their entire employment base. Our analysis shows that those jobs are very recession proof. Government cut backs rarely occur and their workers are typically very secure in their jobs, even in Texas.

Then then next largest employment segments after these three are healthcare and technology. The healthcare industry looks to remain strong in the Austin area with the new $335 million dollar University of Texas at Austin medical school and Dell Medical center which is scheduled to open in 2016.

The job sector in Austin most vulnerable to negatives and fluctuations in the stock market is the tech industry. As you have might recall, we have made some predictions about significant volatility in the stock market and the potential for a major correction, we therefore made a deeper analysis on what that means for Austin’s tech employment segments. Our research shows that the tech companies who are now based in the Austin area are some of the heavy hitters in the tech world (AMD, Apple, Dell, Google and IBM to name a few) these companies obviously care about their company valuations but as some of the most cash rich and profitable companies in the world, we believe they could sustain most of their employment forces given a significant correction in the stock market.

The last reason we are very excited about Austin is the overall demographics. Austin is the young (median age 29.6), vibrant (live music capital of the world) and educated center of Texas. There is strong demand for employers and tourism, and given the affordability of this exciting city we see Austin as another market that is one of the most fundamentally sound investments in not only Texas but in the United States.

God Bless and Happy Investing,