| Copyright 2006 Have you ever seen such a | | | | Texas which is located about 45 minutes west |
| crazy real estate market? Depending upon | | | | of Austin, Texas. The major attraction to |
| where you live, you may be saying this is the | | | | the area is that the Colorado river is damned |
| worst real estate market in 20 years or you | | | | into LBJ lake that then allows very nice lake |
| may be saying let the good times roll. Talk | | | | homes to be built on its shores. In |
| about a real split personality situation. | | | | addition, there is a tremendous amount of |
| | | | golf (5 courses) in the area with a total |
| Dont despair. No, the sky is not falling and | | | | permanent population of around 5,000. After |
| actually what is going has been quite | | | | driving through hot Texas for hours, this |
| predictable by many. When you go to real | | | | location was truly an oasis. |
| estate markets that were hot 18 months ago, | | | | |
| the savvy investors are laughing all the way | | | | Even more interesting to me is the tremendous |
| to the bank since they got out before it went | | | | growth that is going on in employment, |
| soft. These investors have absolutely no | | | | population, press popularity, etc in the |
| interest in buying in their local market | | | | area. In fact, Money magazine just ranked |
| unless someone makes them a deal that they | | | | Austin #2 in best places to live and the area |
| just cannot refuse. | | | | always ranks very high on job growth since |
| | | | Texas is still very aggressive in corporate |
| In other markets, you have savvy investors | | | | relocations. Huge companies are moving to |
| buying everything that makes sense. In fact, | | | | the area on a regular basis due to low land |
| there are some markets out there RIGHT NOW | | | | costs and a very favorable tax situation. |
| where the real investors expect nothing but | | | | |
| growth for 3-5 years. And this is coming | | | | When you look inside Marble Hills, it really |
| from the mouths of very experienced (20+ | | | | is just a tiny town that for the most part, |
| year) investors who are actually putting | | | | services and survives off of the resort area. |
| their money in harms way. For the average | | | | Like many resort locations, a lot of |
| Joe, how can you possibly sort out if you are | | | | employment gets created however it is not |
| dealing with a Dr. Jekyll or a Mr. Hyde when | | | | high paying; if you look at most resort |
| you are considering a new real estate | | | | locations that have experienced growth, lower |
| purchase? Its simple. Look at the | | | | end property has become in extreme demand for |
| fundamentals. | | | | affordable housing for workers. Given the |
| | | | growth of the surrounding area, the high |
| This last week, I was in two resort markets; | | | | dollar value of the resort type homes, and |
| Cape San Blas, Florida and in Marble Falls, | | | | the lack of many true resorts in Texas, it is |
| Texas. In this weeks article, we are going | | | | reasonable to expect Marble Falls to follow |
| to compare two example properties to show how | | | | the same path. |
| working in this (or any) real estate market | | | | |
| is quite simple if you follow the | | | | In addition, when you go into Marble Falls, |
| fundamentals. | | | | you see something very, very strange. For a |
| | | | town of such a small population, you see |
| Cape San Blas, Florida Have you ever heard of | | | | essentially a new Home Depot, and a new |
| this awesome beach location? If not, you are | | | | Office Depot, and lots of signs of new |
| in the majority because even in Destin, which | | | | growth. Hmmmmm. Knowing that firms like |
| is about 90 miles to the east, very few | | | | Home Depot rarely miss on their analysis of |
| people know about its appeal. Over the Labor | | | | future growth, that is really interesting to |
| day weekend, we returned to this beach | | | | me. |
| location that has been one of our personal | | | | |
| favorites for over 20 years. The appeal of | | | | So now, lets look at some numbers. We are |
| this location, at least to us, is that you | | | | working on a duplex project that we hope to |
| can rent a beach house on some of the | | | | bring to our group over the next week. Here |
| prettiest, but yet most desolate beaches that | | | | are the rough numbers with a purchase price |
| Florida has to offer. The first night we | | | | of approximately $200,000 ($100,000 per side |
| were there is pretty typical; as far as the | | | | of the duplex). |
| eye could see down the beach, in either | | | | |
| direction, and not a soul was to be found. | | | | Net Income After Property Management: |
| | | | $20,000 (We believe this to be conservative) |
| In fact, when you go on the Cape, you better | | | | |
| be prepared to be self sufficient since the | | | | Estimated Insurance: |
| closest restaurants are 15+ miles away. Ever | | | | - $1,000 Estimated Taxes: |
| since we have been going to the area, there | | | | - $5,000 |
| has been a moratorium on commercial | | | | Interest Only (20% Down, 7.5%) |
| development. Lots of beach houses (but not | | | | -$12,000 |
| condos) dot the beach view so it makes for a | | | | |
| nice get away. | | | | Net Annual Cashflow: |
| | | | +$2,000 |
| Now, from the investment side. It used to be | | | | |
| that the Cape was undervalued beachfront | | | | ** Note: Most people are choosing to finance |
| property. Even today, it is priced MUCH | | | | with 10% down thus changing to a near neutral |
| less than Destin beach front. Cape San Blas | | | | cashflow position at current rents. |
| was a location where someone with reasonable | | | | |
| resources could actually afford to own a | | | | While these are just preliminary numbers, |
| beach front home and rent it out. Boy has | | | | they clearly show a night and day difference |
| that changed recently. | | | | with the numbers in Cape San Blas. Also, |
| | | | when you visit, you find out there is very |
| The house next to ours was listed for | | | | little property for sale and very little for |
| sale.AND SO WERE OVER THE PROPERTIES ON THE | | | | rent. That is a good combination in my |
| CAPE. It looked like a very nice beach home, | | | | opinion. |
| 3200 square feet, 0.7 Acres, with a price tag | | | | |
| of 1.99 Million Dollars. A friend of ours | | | | Comparison Of Fundamentals For educational |
| went with us and he and I have done a lot of | | | | purposes, lets just look at the course |
| investments together so we started doing the | | | | fundamentals. Literally, you could put |
| math. Without officially verifying the | | | | together this information based on just a |
| numbers, here is what we came up with on an | | | | couple of phone calls to people in the area. |
| annual basis. | | | | |
| | | | Cape San Blas Annual Cashflow -$146,000 |
| Net Income After Property Management: | | | | Net Rent Multiplier ($1.99M/$25K) 79.6 |
| $25,000 (that is being generous) | | | | Inventory On Market Substantial New |
| | | | Commercial Growth Zero New Job Growth |
| Estimated Insurance: | | | | Zero |
| -$25,000 Estimated Taxes: | | | | |
| -$13,000 | | | | Marble Falls Annual Cashflow +$2,000 |
| Principle + Interest (20% Down, 7.5%) | | | | Gross Rent Multiplier ($200K/$19.4K) 10.0 |
| -$133,000 | | | | Inventory On Market Negligible New |
| | | | Commercial Growth Substantial New Job |
| Net Annual Cashflow: | | | | Growth Substantial |
| -$146,000 | | | | |
| | | | Even though I would consider this at best a |
| Oh boy, where do I sign up? Notice that | | | | first level analysis, I can tell you |
| even if you paid CASH, the property would not | | | | immediately that I would have no interest in |
| have a positive cashflow, especially if you | | | | the Cape San Blas property and I would be |
| factored in maintenance. Sadly, we literally | | | | very interested in the Marble Falls property. |
| saw hundreds of for sale signs on the Cape. | | | | Why? Simple real estate fundamentals. |
| I wish them luck in trying to sell because I | | | | |
| dont believe there will be many buyers for | | | | While there is lots of gloom & doom press out |
| those fundamentals for a long time. | | | | there about the real estate market, and some |
| | | | of it is actually true, never forget that |
| Marble Falls, Texas (Note: This article was | | | | real estate markets are not coupled. That is, |
| intended to be before our property release | | | | you can have a Mr. Hyde in one location and |
| but had to be delayed) | | | | at the same have a very interesting Dr. |
| | | | Jekyll in another. To sort them out, simply |
| Like the resort market above, many of you | | | | do the math. |
| have probably never heard of Marble Falls, | | | | |