Wondering where to invest in real estate in 2018? How about the Texas real estate market? With its vast options and opportunities, Texas offers something for every savvy real estate investor. We at Mashvisor interviewed real estate agent Jenna Hernandez, an expert on the Texas real estate market, and provide you with her profound knowledge and understanding of the trends and dynamics of Texas real estate.
Jenna Hernandez is the Chief Investment Officer for The SEAL Group at Exp Realty. She founded a group of investor-agents focused on presenting clients with options, transparency, and solutions for their most urgent real estate problems or most aggressive REI goals. After 200+ investment transactions and 15,000+ assessed investments, she became an advocate for education and data transparency in an industry that is in dire need of it… and this is how she befriended Mashvisor!
Jenna, how did the Texas real estate market perform in 2017?
The Texas market was on fire in 2017. Within the major city centers of Dallas-Fort Worth, Austin, San Antonio, and Houston, we saw “good” deals under 500k go in 24-72 hours over asking price with sometimes upwards of 30+ offers, many of those all cash.
What were the most important real estate trends in Texas last year?
First and foremost, buy and hold investors started jumping into multi family properties more aggressively as single family “fix and flip” investors began to overpay for single family homes, and push prices past the brink of cash flow positive.
In addition, investors from California, New York State, Washington State, and Oregon as well as foreign real estate investors turned to Texas in 2016 to 2017 more than ever as their local economies began seeing lower and lower cap rates, increased taxes, regulations, and expenses on real estate.
Short-term rentals saw some challenges in Austin and Fort Worth, but the majority of the State voted in favor of “business” friendly short-term rentals laws and regulations. Short-term rentals are the sexy-side of real estate, but you do have to stay savvy on the regulations. Best bet: Buy in areas that will double.
“Appreciation Press” is a major factor: A NEVER discussed trend in Texas, which we educate our clients on, is the fact that we simply have higher property taxes here. In light of that, we are seeing a collision between Texas sellers and buy and hold investors who are leveraging financing. Sellers are pressing for top dollar having experienced drastic appreciation rates in and around major cities. While sellers press, investors’ cash flow is heavily influenced by the higher tax rates at the higher price. This is causing some investors slightly lower margins for the first few years invested and/or only leaving room for cash-only buyers.
How do you still win in these scenarios as the investor?
First, be smart and don’t overpay. Overestimate for taxes in preliminary calculations. This is what The SEAL Group does for our clients.
Second, value add is GOLD. Buy in places where the rents can be increased at higher increments. Usually this is found in properties that need a little “love”, aka work.
Third, buy outside the major cities. There are dozens upon dozens of cities which are seeing major growth and are economically thriving where real estate investors need to jump in NOW. Don’t be afraid to buy in the up and coming ‘burbs or surrounding areas. You can strike gold.
Fourth, find a real estate agent who’s a master negotiator. I can’t tell you the number of times we’ve gotten properties for our clients based off of being the first OR being the last. Being first means being aggressive and allowing the agent to know we are legitimate agents with legitimate buyers who CLOSE. Real estate agents know that more than half of the offers they get are phony wholesalers with phony pre-qualification letters. Being last is also best. Why? We know when investors overpay, that the next 3-7 buyers will do the same. Once the seller is down to reality and finally ready to sell, we have been in touch with the agent the whole time, sometimes for months. We present the original offer again, we win for our clients.
Fifth, know your numbers!
What else should real estate investors know about the Texas market of 2017?
Demand is far outpacing supply. Builders, rehabbers, and developers are turning their eyes to undeveloped OR underdeveloped areas and they are making bank.
Appreciation rates are still climbing. The only area that has slowed is Austin. This can be attributed to many factors, but mostly because it was first. It was one of the first “big ones” in Texas, where people saw skyrocketing appreciation, prices, and population growth. For cash flow investments right now with financing being leveraged, people are seeing really tight numbers. It is time to turn the eyes of Austin-lovers to the north and south areas of Austin. And get intimately familiar with the remaining pockets that need to be developed.
Was the Texas real estate market a buyer’s market or a seller’s market in 2017?
A 100% seller’s market!
What was the most traded property type in the local housing market last year?
Single family homes.
Which cities did the best in 2017?
For investment: Dallas, Fort Worth, San Antonio, and Houston. However, note that we Texans use those terms loosely. The ‘burbs and surrounding economies are just as on fire!
How does the Texas real estate market look like for 2018? What are the major changes from last year?
We have to go back to “Appreciation Press”: Investors will need to have a savvy navigator to make sure they scope out “real numbers” when assessing cash flow.
In 2018 more real estate investors will be branching out to surrounding cities.
Fix and flip investors who overpaid last year are selling off this year. This can create some opportunity to swipe some deals for buy and hold that are fully renovated! Fix and flip investors are being crowded out by buy and hold investors in price ranges under 300k. They are having to risk more, aka higher price points, in order to stay in the game.
We are seeing the greatest profit potential for traditional rentals under 300k acquisitions price for single family homes, and under 700k for short term rentals. Multi family continues to vary widely and case by case.
Houston and San Antonio are becoming increasingly “educated” and white collar. This is resulting in tremendous opportunities to get in now, while property prices are low and ride the appreciation that is coming. San Antonio in particular is seeing a complete downtown revitalization. Google the Pearl Brewery and/or the Pearl District! This is an example of what’s to come.
Which property type is dominating the local housing market this year?
Still existing single family home sales.
Which cities should real estate investors focus on for residential properties?
For residential real estate investing, the focus is definitely on Houston, San Antonio, Dallas, Fort Worth, and the areas surrounding Austin proper like Georgetown, Killeen, etc.
Which cities in Texas are hot real estate markets at the moment?
Oh my… so many. I sound like a broken record, but we chose to develop teams in the four major markets for good reason: Dallas-Fort Worth Metroplex, San Antonio, Houston, Austin… AND surrounding, of course.
In Travis, Tarrant, Dallas, and Collin counties, be prepared for higher taxes and get ready to FIGHT for deals. You have to navigate gingerly. The sweet spot is to offer on properties that need minor repairs, but seem “ugly” to “regular” buyers. You can be cash flow positive and investor-offers are attractive to sellers due to the more aggressive terms, less pickiness about repairs, and more solidarity of the close occurring.
Are there any specific laws and regulations which home buyers, real estate investors, and/or landlords should have in mind when they approach the Texas real estate market?
Yes, Austin and Fort Worth do NOT allow short-term rentals for non-owner occupants. You will need to apply for a short-term rental license in almost any city, so talk with your SEAL Group expert to get the nitty-gritty.
What’s the most popular investment property financing option in the local housing market?
For buy and hold investments, it is conventional financing or portfolio lending. For fix and flips, it is hard money, lines of credit, or privately raised capital.
What interest rates do local mortgage providers offer in the Texas real estate market?
Anywhere from 4.25-5.5% is what we see most commonly. Anything over 5 units is commercial, so you will have higher interest rates. In the “5s”.
Why is now the right time to invest in a real estate property in the Texas housing market? Which cities should real estate investors go for?
All economic factors are pointing to continued job growth and expansion. We also are on the list of states for emerging markets like tech. Look at Austin! The Texas Silicon Valley, some people call it. We are on the nation’s list as having weathered the last “dip” the very best. We attribute this to our varied and diverse economy, affordable housing, increasingly educated populace, and very business friendly laws, among other things. Don’t be the investor that WAITS and rides the tail-end of the rise, like someone who just now wants to buy in Austin. Get in while these other areas are trending upward and can sustain the trend!
I am focusing on the outskirts of Fort Worth, San Antonio proper, and Houston proper, personally. Houston has experienced some hard times, and yes the risk factors there are higher due to natural disasters. However, keeping a diversified portfolio is clearly advantageous both economically and geographically. While some investors stay afraid, others will be making money in Houston.
What are your forecasts for the local real estate market? How will Texas perform in the next 2-3 years?
I think we will see investors slow in Austin as the cap rates get lower. Residential real estate investors will push to the surrounding cities and economies.
San Antonio is RIPE. Get in there! PS: San Antonio NEEDS 28,000+ multi family units in the next few years. What did I tell ya? GROWTH.
DFW is getting crowded in Tarrant and Dallas counties for buyers leveraging financing, I would foresee investors having higher profit potential in the surrounding economies.
Houston is a beast due to very little zoning regulations. But I see massive potential there long term. With a population that’s trending more and more white collar, I think we will see new economic drivers emerge, and I think it will remain one of the most solid rental-cities in Texas coupled with low acquisition prices.
Overall, property prices will go up, driven by high demand and low supply.
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