Texstar Austin Realty specializes in two different types of investment opportunities: flipping houses for quick profit, and holding properties as part of a rental portfolio for long term gain. Both are equally great opportunities to create wealth through real estate investing but are very different in obvious ways. We feel that all investors should keep a portfolio consisting of both quick flips and some income producing rentals. There are benefits to both, as you will see below, but we feel the best decision is to combine the two methods to keep a balanced investment portfolio.
For both types of real estate investments we concentrate on three different primary factors in order to analyze the potential investment. Of course there are other factors considered, but these are the most important and best indicators of the current market. We will break down the factors for both flips and rentals in the chart below.
Quick Flipping
The key factors that should be considered when flipping a house are: PRICE, REPAIR COST, and AFTER REPAIR VALUE (ARV). If you carefully analyze these three amounts, it is virtually impossible not to make money through investing in real estate.
The first is simple, PRICE. This is merely the price it will cost to purchase the property. While all three factors are very important, we believe Price is the most important. The price that an investor should pay for a property is actually determined by the other two factors. Regardless of what the numbers are on the other two factors, a profit can always be made if you are buying at the correct price. With Texstar Austin Realty, the price has already been determined and negotiated based on the Repair Cost and ARV, so it’s one less thing for our investors to worry about.
The second is REPAIR COST. This can be determined by getting repair quotes from contractors and handymen to figure out just what the costs will be. Texstar Austin Realty always does a preliminary inspection of the property to set an estimated repair cost for their investors. A Texstar associate will always be available to walk through the house with an investor and explain how the estimate was derived. It is always encouraged that an investor orders their own quotes as well so they know exactly what it will cost to do the repairs as well as getting a head start on the project. We are constantly in contact with different service providers (roofers, plumbers, painters, etc.) and can always help our investors get a quote for any type of repair work.
The final factor is After Repair Value (ARV). Texstar Austin Realty will always provide the same comparable sales they used to determine the ARV. We only use comparable sales within .25 miles of the subject property. A licensed appraiser can go up to 1 mile for comparable sales, but we feel that ¼ mile is more realistic as to the true value of the property when numerous sales are available. We always look for houses that are similar in age, size, and style to ensure we are coming up with the closest realistic values for our investors. Every house we sell will include detailed information on recent sales including when the house sold, how much it sold for, and the exact address so the investor can physically drive by the property to see how it compares to the subject property.
Renting
The other type of real estate investing that our company specializes in is helping investors acquire a portfolio of rental properties. We feel that this is truly the best way to accumulate wealth through real estate investments no matter what the market is currently doing. We have access to current market rents and we sell properties specifically geared towards rental investors. Some of the houses will be priced at 80% of value while needing zero repairs. An investor can simply place a tenant in the property without doing any repairs and start cash flowing immediately. If an investor buys a property at the right price, he/she can have someone else pay off their entire mortgage while also putting some money in their pocket each month. When the term of the loan is up, the house will have most likely doubled in value and the owner owes nothing. The property is now cash flowing to the maximum and the investor has built up a large nest egg with 100% equity in each property. The goal should be to get as many of these as possible.
-For example, if an investor buys only 2 rentals per year over just a 5-year period, they will have 10 properties in total. If they have taken out 20-year mortgages on each property it will take 25 years to have the last of the properties paid off. If you assume an average of just 3% appreciation per year over the course of the 25 years, with an average purchase price of $100,00 per property, then you will have built a nest egg of roughly $1,690,000. Not a bad retirement! Keep in mind this does not take into consideration all the positive cash flow you have already taken in during the course of 25 years.
Texstar Austin Realty is also very aware of the current market trends across the United States and the condition of the market. We have seen the best market in history in Florida and then saw it shrink back down to normal before our very eyes. Although Texas did not see the same growth that most of the rest of the country has in the past few years, it is still a buyer’s market right now. That means the deals are better than ever and it’s prime time to acquire rental properties. So when the market turns back over to a seller’s market, our investors will have a portfolio stacked with great investments. The beautiful thing about these properties is they cost investors nothing more than their down payment if they buy right and the properties are cash flowing, or at least breaking even each month.
-For example, if it takes 5 years for the market to turn, and one of our investors purchases just 2 house per year, they will have 10 houses to sell when the market straightens back out. With a minimum of 20% equity in each house (assuming zero appreciation over the course of 5 years), and an average price of $100,000, that’s a potential gain of $200,000 in profit. Not bad for a part time job!
