Monthly Archives: June 2014

Check Us Out On TREC! By Jeff Stewart, CCIM

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    When I began my career in real estate almost forty years ago, it was a retiree’s game . . . at least in Austin.  Most of the agents were in a second career.  Many were retired military or retired school teachers.  Even today, I think the national average age for REALTORs is somewhere north of fifty . . . probably closer to sixty.  It was a very difficult path to begin selling residential real estate at the ripe old age of 22.  Potential clients were understandably concern that I had little to no real world experience.  In fact, ALL of my clients had bought and sold more properties than I had.  It was not until I became a homebuilder at the age of 24 that those concerns seemed to dissipate.

 

Today we have record numbers of young people entering the business, and that is a great thing.  I think in many ways they are better equipped as beginners than I was at that age due to technology.  In the 70s, we had no computer data base, no on-line tax records, no digital maps, and no financial calculators.  We had to actually drive neighborhoods to learn them.  Today we are able to make a few keystrokes and know a great deal about any property and the surrounding area.  Technology has been a great equalizer for the inexperienced. In fact, the younger generation probably has a substantial edge over the older agents when it comes to mining data and preparing digital marketing materials.  That is the good news for young agents and their clients.  The bad news is that there is no substitute for education and experience.

 

The old saying, “You don’t know what you don’t know.” is completely on the mark when talking about real estate and the stakes are quite high considering the dollars involved..  There is no substitute for education and experience.  Technology cannot replace judgment that has been tested and seasoned with years of various transactions and past problems. Even with education, it is difficult to teach wisdom.

 

So how can a prospective buyer or seller check out an agent before committing to them? First and foremost, I would suggest personal referrals.  Second, I would consult the Texas Real Estate Commission (TREC) website – trec.state.tx.us .  The public search for any licensed agent in Texas and find information about when we were licensed (our license number) and what educational classes we have taken in past years.  Feel free to look me up – 207762.  You will see that the records only go back to 1991, but mine shows I have taken approximately 70 classes for about 225 classroom hours.  In my case, that is just a fraction of my education hours.  It does not include all my undergraduate real estate related course, graduate hours in ethics, nor all of my CCIM coursework which are graduate level real estate analysis courses. There are other real estate classes as well where I did not need the credit, so I did not apply the hours.

 

Obviously I bring this up for a reason.  Recently a family member used a rookie agent in another town.  When I learned of some of the contract mistakes, I researched the agent on the TREC website.  The agent had only been licensed a short time and his only courses were titled as “Introduction to  . . . .”  Again, it is hard to know what you do not know.  If you are not certain of your real estate agent’s experience and skills, I urge you to check them out at the TREC site . . . me included.

 

Jeff Stewart, CCIM Broker Associate   jstewart@stanberry.com

 

Stanberry & Associates

 

Protesting Tax Values by Jeff Stewart, CCIM

Taxes

Protesting Tax Values  by Jeff Stewart, CCIM

 

The hot topic of conversation in Austin and Central Texas these days seems to begin and end with property taxes.  The largest single increase in appraisal values that I can remember in the last four decades. Increases of more than 100% are not unusual . . . I know . . . unfortunately we had a property that jumped 110% according to the County Appraiser.

 

So how does a taxpayer make the case for a lesser tax value?  Well, first the taxpayer needed to file the completed protest form by May 31 (or by the day indicated by the Appraisal District. The Appraisal District will contact the taxpayer for an informal meeting to discuss why the appraisal might be in error. It is important to have supporting documentation in this meeting.  Complaining about the high cost of the government and the over-whelming growth in Austin will accomplish nothing. Having been once a property tax agent, I can offer some simple suggestions to anyone planning to protest.

 

First, you must have documentation.  Hearsay is worthless.  Photos, recent appraisals, MLS sold comps, engineers’ reports, etc. are necessary to back up your argument. If you do not have MLS data, seek out an agent who is willing to help.  If the house is now in the 100-year flood plain, take a elevation certificate.  If the slab has totally failed, take photos and an engineer’s report to prove it.

 

Second, understand that the appraisers have been tasked with making all evaluations “equitable”.  In other words, it is difficult to appeal a lot value of $50,000 if all the other similar lots on the street are also valued at $50,000.  If the Appraiser were to drop your value $10,000, he would arguably have to drop all the lots in your area by the same $10,000.  This is not likely.  It is possible to argue value however, when the lot is next to a detention pond, busy intersection, commercial building, etc.

 

Third, seek out the quality rating of the subject property.  If the subject property is almost identical to the surrounding homes, but has a higher quality rating, point out that the difference is not equitable.  Reducing the quality rating is a savings that should remain with the property  . . . at least until a building permit is taken out, which may trigger a second look.

 

Finally, confirm that the tax office has the correct footage.  I see mistakes all the time.  In fact, I once found a street where everyone had been taxed on the neighbors’ house to the right.  Clearly someone had bumped a column down a cell when working in a spreadsheet.  You can do this with old mortgage appraisals and possibly even an old survey.

 

Yet, the best advice I can offer is not to lose your composure.  If the informal meeting does not go well, you can always make your case to the appraisal review board.

 

 Jeff Stewart, CCIM

 

Broker Associate

 

jstewart@stanberry.com

 

Stanberry & Associates

 

Commercial Leasing Fact Sheet for New Austin Entrepreneurs By Jeff Stewart, CCIM

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Commercial Leasing Fact Sheet for New Austin Entrepreneurs         By Jeff Stewart, CCIM

The Austin Metro area has been creating a “buzz” that continually attracts people from all over the world with entrepreneurial aspirations.  Many of these newcomers hope to begin their own business in the Austin area.  As a commercial broker and tenant representative, I field their inquiries regularly.  Many of these newly-minted business people have never leased commercial space before and it takes some time to get them up to speed.  The purpose of this article is to give a basic outline of what a first-time commercial tenant needs to do and what type of leases might one encounter.

First and foremost, it is imperative that prospective tenants understand that most commercial leases require personal guarantees.  In the event that the tenant defaults on the lease, the landlord may pursue the tenant personally for the rent and any losses suffered by the landlord. Depending upon the size of the lease, this can be sizable!

Second, in the event of a new “start-up” company, the landlords want to see a well-written business plan.  I find that this is a stumbling block for many new entrepreneurs who do not have business degrees. The SBA has offices in downtown Austin where new business people can find help with developing a sound plan.  Often the initial dreams go out the window when a want-to-be, fledgling business person puts a pencil to paper and discovers just how difficult it will be to turn a profit.  The business plan should come first in the process.

Third, prospective tenants need to understand the different types of commercial leases.  Roughly, they fall in the following categories:

Full Service – A full service lease, typically for office space, is largely an all-included situation.  The tenant simply pays the monthly rent and the landlord pays for utilities, taxes, janitorial, and maintenance.

Triple Net (NNN) – Triple net means that the tenant is responsible for virtually all expenses.  The tenant pays the landlord what amounts to pure profit and the tenant is responsible for taxes, utilities, common area maintenance, janitorial, etc. To put it in simple terms, it is almost as if the tenant has bought the building for a specific period of years.  A good example would be a Walgreen’s Pharmacy on a 20-year lease.

Modified Gross – A modified gross is similar to renting a house.  The tenant typically keeps up the grounds and pays for the janitorial and utilities.  The landlord pays the taxes and usually maintains the structure.  This is common in small office warehouse situations.

In my next blog, I will explain what service a tenant rep provides.

Jeff Stewart, CCIM

Broker Associate

@stanberry.com

Stanberry & Associates

 

Have You Considered a Duplex? by Jeff Stewart, CCIM

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Have You Considered a Duplex?

 

By Jeff Stewart, CCIM 

 

One of the best strategies for young people to begin in real estate is with a duplex.  We bought our first one almost forty years ago for our first home in Austin, Texas.  I often encourage young people to consider starting home ownership with a duplex for several reasons.

 

First, the most obvious reason is to have someone else help make the payment.  Second, and this is no small thing, it provides valuable property management experience in a low-risk environment.  Management hassles are much easier to deal with when the owner lives on-site.  Third, it paves the way for future rental acquisitions.  Lenders prefer investors to have property management experience.  By renting out the other side of a duplex for a few years, should satisfy that requirement. Lastly, owner-occupied financing is generally easier to obtain and has slightly better terms.  By purchasing a duplex for a personal residence, a novice investor is able to obtain financing that most of us established investors canl not.  Later, the duplex owner can purchase a regular house for their next home and keep the duplex for investment income.

 

People often ask what I look for in a duplex. I admit I am very picky.  I love those areas of well-maintained duplexes where they are managed as one complex.  Conversely, few things are as disappointing as those same areas once the ownership has been split up and each duplex has different management.   These situations generally slowly degenerate.  The far south end of Westgate Boulevard in South Austin comes to mind.  My preference is a random duplex or two surrounded by single family homes.  Of course, that means that the duplexes must be well-kept in order to not be an unwelcome sight in the neighborhood.

 

In addition, I look for structures which were built to be low maintenance.  Materials such as the old Masonite are common on most duplexes and there are only two types of Masonite . . . that which has rotted and that which is going to eventually rot.  Also, I prefer hip roofs to gable roofs for the longevity of the paint job and the energy efficiency.  It is not a huge consideration, but I also watch out for problem areas like thin-set tub enclosures and previous code violations.

 

So how does a novice determine the value?  Well, it is not simply a positive cash flow as some residential agents like to advertise.   For many years we used a gross rent multiplier of 100.  It made for simple math.  $500 rent on each side totaled $1000.  $1000 x 100 = $100,000.  While no substitute for a profit and loss statement, this provided a quick acid test.  More recently as returns on most investments have trended downward, we have seen the gross rent multipliers increase to something more like 114 -120.   We have also seen the prices on duplexes climb for the very reason I am advocating here . . . homebuyers are now largely driving the market and unlike pure investors, they are not as focused on return on investment.

 

So what are the caveats? Primarily, legal pitfalls and liability are where beginning landlords run into trouble.  New landlords need to make every effort to educate themselves about fair housing laws, insurance needs, and lease contracts.  There is a lot to learn.  In the past, I have suggested that some of my clients consider joining the Austin Apartment Association.  They do a great job of educating their members and keeping them abreast of legal changes.

 

In closing, duplexes are a reasonable way to start investing and a sensible way to make homeownership affordable.  A duplex was the first thing I built when I launched my building career in 1978.  We still have it and I have no idea how many times it has paid for itself . . . a lot.  If you have questions about duplexes or other residential properties, feel free to contact me.

 

Jeff Stewart, CCIM   speakingofaustinrealestate.com

 

jstewart@stanberry.com   Stanberry Commercial

 

Time for Property Tax Reform by Jeff Stewart, CCIM

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Time for Property Tax Reform by Jeff Stewart, CCIM

It is time to rethink property taxes. The current laws are finally placing an unfair burden on the shoulders of Texas homeowners. I have been slow to come around to this point of view, but the time has come to get a new perspective.

As a longtime builder/REALTOR and property owner, I have backed the industry line about property taxes.  As a board member of several local and national trade organizations, I have lobbied for the system to remain the same.  It now occurs to me that I was part of the problem and now it is time to look for new solutions.

As a Texan, I have always agreed with the privacy component of our State’s real estate law.  Many other states require full disclosure of sales prices, but not Texas.  We proudly argue that we are defending the privacy of property owners, when in reality we know that we are trying to keep actual sales figures out of the hands of the local county tax appraiser. So which is it really . . . privacy or tax values?  Some of both, but the time may have come to give up a bit more privacy in the name of equitable taxation.

The cornerstone of property taxes is that the values be equitable.  This is where I think we have failed.  The Austin American Statesman and the Austin Business Journal routinely publish articles about multimillion dollar buildings that have sold.  Occasionally the sale prices are made public because of the institutional buyer or seller. I have seen numerous cases where the sellers had recently gone to court to get a jury to lower the county appraised value . . . much lower than what they listed the property for when they were ready to sell.  This is where the system is broken.

Recently property owners across Central Texas have been up in arms about the new appraised values.  While the Travis County Appraiser told the Travis County Commissioners that values had increased an average of 16%, I can provide numerous examples of increases of more than 100%!  Some may be accurate and some may not.  That is where I see the main problem.

Thousands of taxpayers will no doubt protest the recent appraised values.  Some may get satisfaction in the preliminary informal meeting with the tax office personnel.  Others will continue on and present their case to the appraisal review board (ARB).  Most homeowners will represent themselves and grudgingly accept the final ruling of the ARB because they cannot afford to do anything else. The large, well-represented, institutional investors, however, have the financial wherewithal to take the next step and go to court with hired guns and appeal to a jury.  Almost no homeowner in our area can afford the expense of suing in District Court.  That in of itself causes and inequity in the system. Realistically, small property owners do not have the same recourse.

 As a commercial and residential broker, I regularly have out of state clients express shock at our property taxes.  While we are attractive to outsiders for not having a state income tax, we are also getting a reputation for outrageous property taxes.  We have largely done this to ourselves.  The last few years almost every ballot has had some sort of property tax benefit for some special property owner: wildlife valuation, historical, family farm, retirees, wounded veterans, and so the list goes. No doubt, all have some good reason for our support; but the rest of us have to pick up the slack.

The time has come for more public discourse regarding a more equitable form of supporting our schools and local government lest we increase taxes to the point that some people cannot afford their current homes.  Do not misunderstand . . . I do not have all the answers. I do think, however, that the first step should be full disclosure of sales prices. The next step would be to seek an additional form of revenue that is more broad-based and could provide some property tax relief, but does not create another expensive bureaucracy.  Any such movement will have to come from the public.  With the current political mindset of “no new taxes,” politicians are all too happy to proclaim that they have “held the line on taxes” knowing full well that increasing property values have increased taxes while giving them political cover.

Let the discussion begin!

Jeff Stewart, CCIM     Broker / Associate

jstewart@stanberry.com

Stanberry Commercial