Thinking of Being a Landlord? By Jeff Stewart, CCIM

WANT TO BE A LANDLORD?  

    The HGTV channel continues to excite people’s interest owning residential real estate, including rental property. I have seen more interest the past few years than in several decades.  The biggest development in home rentals (besides Airbnb, which is huge in itself) has been the national firms buying and leasing single family homes. In addition to that we now have what I believe is our first completely new single family rental subdivision in Southeast Austin. (More on this later.) All this competition has to make it more difficult for the small investor to find deals . . . not impossible, just more challenging.

It is one thing to find a good rental property to buy, but another thing entirely to secure financing. Now most lenders require landlords pay 25% down, as well as charge approximately ¼% more than the going rate for homeowner occupied loans. Most lenders also require a valid signed lease prior to closing, which can prove challenging. On top of that, most lenders limit small investors to no more than four investment property mortgages.

Despite all financing challenges, I am still a strong proponent of owning a rent property or two.  In fact, I often suggest that young people consider purchasing their first home with the ultimate goal of moving in a few years and converting the initial homestead into a rental unit.  It is a reasonable way to begin investing with more advantageous financing. While very difficult to find in this market, a duplex is usually a great choice for a first home.  The other side provides an income and the duplex homeowner gets the important hands-on experience of dealing with a tenant and property ownership. That is exactly how we learned the landlord business.

Yet, I should qualify all of this by stating the obvious: not everyone should be a landlord. And for those folks who have an interest in real estate but no spare time, they can still successfully own rental property, but they probably should engage a professional property management company.  Needless to say, good property management comes at a cost.

As for the owners wishing to personally manage their rental property, I tell my clients they should know several things upfront. First, it can be time consuming.  I may go several months without a problem, but dealing with vacancies and make-readies can take time.  Sometimes it seems that air conditioners are almost guaranteed to go out while you are on vacation! You have to have contractors you can truly trust.

Second, landlords need some degree of “do-it-yourself” ability.  I still try to personally see any problems in order to understand the scope and severity before calling out service people. Often, the tenants are mistaken about what is a problem really is.

Third, it helps to be a people person. Landlords are in the service business. Renters are our customers and it is expensive to lose them. Successful landlords are fair, but firm.  I believe in clearly setting expectations before tenants move-in.

Finally, I recommend to my clients that they strongly adhere to a policy of requiring excellent credit.  People with near perfect credit conduct their lives responsibly.  They pay their bills, they follow the rules, and they do what they say they will do.  Admittedly this policy can lead to a longer marketing time, but I find it is worth it in the long run. A number of companies make screening tenants much easier now.  National Tenant Network is a long-established firm that researches my applicants.  A newer, on-line company, Cozy (Cozy.co), does screening, payment processing and much more.

Rent property is truly a path to financial freedom for the people who are willing to put in the effort.  It is like a combination of a monthly savings account and an appreciating asset.  In essence, the goal is to buy something with borrowed money and let the tenants pay it off.

I looked back and in December 2009, I wrote an article suggesting it was a great time to buy a rent house.  In that same newsletter, I wrote that the median price house in Northwest Hills was $258,333!  What will it be in another ten years?

     If you have an interest, give me a call and I will be glad to help you decide if this is for you. 

    Jeff Stewart, CCIM

Broker Associate

Stanberry REALTORS

AUSTIN SEPTEMBER MLS SALES By Jeff Stewart, CCIM, SRES

The MLS data for September is out and late summer sales were very strong.  Sales, compared to one year ago, were up in four of the five counties of the Austin MSA.  Only Bastrop saw a drop-off in transactions, but median sales prices were up across the board. Median sales prices were as follows:

City of Austin Median Price                $406,000             Up 11.9% From Sept 2018

Austin – RR MSA Median Price           $320,000              Up 6.7% From Sept 2018

Williamson Co. Median Price            $ 295,000              Up 6.1% From Sept 2018

Hays Co. Median Price                      $ 269,950               Up 5.2% From Sept 2018

Bastrop Co. Median Price                 $ 258,000               Up 11.2% From Sept 2018

Caldwell Co. Median Price                $ 206,930               Up 6.1% From Sept 2018

Landowner Bill of Rights By Jeff Stewart, CCIM

As one would expect, Texas is a strong property rights state in every meaning of the term. Yet, I can guarantee that almost no Texans are aware that the State of Texas has a Landowner’s Bill of Rights. I was recently given a copy which was prepared by the office of the Attorney General of Texas. These rights pertain to any attempt by a government or private entity to take a landowner’s property.  The ten specific rights according to the Attorney General are:

  1. You are entitled to receive adequate compensation if your property is taken for a public use.
  2. Your property can only be taken for a public use.
  3. Your property can only be taken by a governmental entity or private entity authorized by law to do so.
  4. The entity that wants to take your property must notify you that it wants to take your property.
  5. The entity proposing to take your property must provide you with a written appraisal from a certified appraiser detailing the adequate compensation you are owed for your property.
  6. The entity proposing to take your property must make a bona fide offer to buy the property before it files a lawsuit to condemn the property – which means the condemning entity must make a good faith offer that conforms with Chapter 21 of the Texas Property Code.
  7. You may hire an appraiser or other professional to determine the value of your property or to assist you in any condemnation proceeding.
  8. You may hire an attorney to negotiate with the condemning entity and to represent you in any legal proceedings involving the condemnation.
  9. Before your property is condemned, you are entitled to a hearing before a court appointed panel that includes three special commissioners. The special commissioners must determine the amount of compensation the condemning entity owes for the taking of your property. The commissioners must also determine what compensation, if any, you are entitled to receive for any reduction in value of your remaining property.
  10. If you are unsatisfied with the compensation awarded by the special commissioners, or f you question whether the taking of your property was proper, you have the right to a trial by judge or jury. If you are dissatisfied with the trial court’s judgement, you may appeal that decision.

Landowners in Hays County have been learning the hard way about the ins and outs of condemnation as many have been fighting the recent pipeline. Before that, landowners were incensed across the state as LCRA erected transmission lines to reach the wind turbine installations. In my limited experience with condemnation proceeding, I can honestly say that I have seen very few landowners get full value without the assistance of professionals.

Seasonal slowdown, or just priced too high? By Jeff Stewart, CCIM

Football practice, back-to-school nights, homework and more early morning traffic.  It is that time again. Once the opening day of school looms near, the annual housing market slow down begins.  Actually, a fellow Stanberry broker did the numbers and found that the seasonal slowdown actually started just after July 4th.  The good news for sellers is that the while demand slows as school begins, so does the amount of competition. New listings drop off considerably.

On the other hand, buyers are more likely to find a deal.  For the last several weeks, the number of new listings has been exceeded by the number of price reductions on existing listings.

So that begs the question, is the market slipping or did that many sellers over-price their properties? I would say it is the latter.  In the spring and early summer, more than 50% of the new listings in the entire MLS sold in two weeks or less.  Demand was red hot for competitively priced homes . . . over-priced, not so much.

For decades, I told my sellers that we needed to revisit the asking price if we did not sell in thirty days.  That is no longer good advice.  With the advances in online sales marketing and instant notification of new listings, we agents usually know within ten to fourteen days if the market has determined we are too high.  Too many days on market hurts a property more than most sellers realize.  I tell my sellers that the two questions my buyer clients ask first are, “How much is this house?” and “How long has this been on the market?” With the ability to receive near instant notification of new listings, and almost unlimited photos, buyers often know all there is to know in the first twenty four hours. Sellers have to realize this and act quickly if it appears they missed the market.

The CCIM Designation

WHAT IS A CCIM?

CCIM stands for Certified Commercial Investment Member.  Members are awarded the designation and allowed to wear the CCIM pin once they have completed an extensive regime of graduate level course work and demonstrated an extensive level of experience in the commercial real estate industry.

 

CCIM stands for Certified Commercial Investment Member. The CCIM lapel pin denotes that the wearer has completed advanced coursework in financial and market analysis, and demonstrated extensive experience in the commercial real estate industry. CCIM designees are recognized as leading experts in commercial investment real estate.

ATLAS 14 Changes Flood Maps By Jeff Stewart, CCIM

Friends, I hope that you escaped the flooding over the past few weeks. The question is can you avoid the next flood?  You may not have heard of the Atlas 14 study, but you should – and soon. The National Weather Service recently released a new study (Atlas 14) and the conclusions were stunning. New data indicates that many of the current flood zones are not accurate. The current local 100-year flood plain is based on a 1% chance that Austin would receive a 10.2 inch rainfall in a 24-hour period. The new study indicates that a 1% chance would actually be more likely to be 13 inches. So what does this mean? In short, this would roughly make the 500-year flood zone the new 100-year flood zone.

The City of Austin is taking this seriously and is in the process of adopting new interim flood zones until flood maps are redrawn.  Changing the 500-year zone to the 100-year zone will affect approximately 3,600 structures. Most of these structures are likely homes with mortgages and will now require flood insurance per the terms of their mortgage.  If your property is in question, you should check the City flood map at ATX Flood PRO.  If you need help with this or just want to discuss your options, please feel free to call me. I can help.

JEFF STEWART,CCIM

STANBERRY & ASSOCIATES

jstewart@stanberry.com

AGRITOURISM- What You Need To know To Protect Yourself By Jeff Stewart, CCIM

Fall is upon us in Central Texas, and that means more outdoor activates. Part of the joy of owning a ranch place is sharing it with friends and family who like to hunt, fish, and camp . . . but such activities do not come without some risks of liability to the landowner.

The Texas Legislature addressed this very real concern in 2015 by passing the Texas Agritourism Act. The Act provides two mechanisms for landowners to protect themselves in the event that an agritourism participant is injured or suffers damages while engaged in an activity on agricultural land.  It makes no difference what compensation the landowner receives from the person engaged in the “agritourism” activity.

The Act calls for either specifically worded posted signs at the property or written use agreements with legally mandated wording.  The sign above, which I have posted at our property, has the precise wording as required by the Act. It is important to note that the sign is not sufficient notice in the case of minors . . . that would require a correctly written and signed use agreement.

While the Act provides a much better degree of protection to landowners compared to what we once had, it still has some other exceptions.  For instance, it does not exempt the owner if an employee is injured or if the owner is deemed negligent. Of course, nothing can keep an injured party from filing suit.  The Act just provides a legal defense.

If you need more information regarding this subject, please email me and I will send you a link.

Jeff Stewart, CCIM

Broker Associate

jstewart@stanberry.com

Slab Repairs & Leak Testing By Jeff Stewart, CCIM

Remember when owning a home with a “cracked slab” was seen as financially devastating? In the 1970s and 1980s, numerous lawsuits were filed over homes with settling problems. That is almost unheard of today.  Clearly the public has come to terms with the idea that      Foundation repairs are now so common that most people have some basic understanding of the concept of installing corrective piers.

What is less understood is the plumbing aspect of the equation.  In some cases, the foundation movement may have been caused by undiscovered plumbing leaks.  More commonly, plumbing leaks are caused by the slab repair.  This is especially true in the case of cast iron drain pipes or when the slab is lifted several inches.

Most slab warranties state that they are void in the event of water or sewer leaks.  Some slab repair companies provide leak testing upon completion and some make it the homeowner’s responsibility. Let’s take a look at the terms.

A hydrostatic test is a pressure test that is performed on the supply lines.  You have probably seen a pressure gauge on a hose bib at a new house awaiting the inspector.  Some inspectors allow thirty minutes for the test, others longer.

A static test is a test of the sewer lines. A test bladder is placed at the clean out and a toilet is removed.  The sewer lines are completely fill with water and the level is observed for some adequate period of time.  Both tests are critical on any home where the foundation has been leveled.  In fact, most homes built prior to the 1970s have cast iron sewer pipes which are reaching the end of their functional life.

Buyers need to be well informed before purchasing a home that has had foundation repairs or cast iron pipes.  Unfortunately these tests are not exactly passive and can result in very expensive damages.  The Texas Real Estate Commission has taken note and furnished us with an addendum to cover this issue. The Addendum for Authorizing Hydrostatic Testing requires the owner’s written permission to do the test and clearly states who is legally liable for any damages as a result of the test.

Jeff Stewart, CCIM

Broker Associate

Stanberry & Associates

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) to prospective buyers, tenants, sellers and landlords. Please see the link above.

 

OUTDOORS TAX BREAK By JEFF STEWART, CCIM, SRES

FISHING PIER ON PRIVATE RANCH LAKE

If you are like a lot of my friends who have long saved for a vacation place at the coast or on the lake, soaring property taxes may have just about put that dream place out of reach. While I do not have a solution for high property taxes, I might have a suggestion that would fit the lifestyles of a lot of my outdoorsy friends and clients. Let me introduce you to cows and bees! In Texas we are fortunate that the State of Texas loves cows, bees, song birds and deer and taxes land accordingly.  All of which can play into a legitimate strategy for Texans to enjoy and invest in their own piece of the great outdoors without being taxed to the breaking point.

Whenever I mention the benefits of agriculture (AG) valuation to clients, most are quick to inform me that they are not raising cows, hay, or bees.  Fair enough, but leasing the grazing rights for a property qualifies and requires very little effort on the owner’s end.  I have yet to do it, but I understand that having bee hives also qualifies as AG on tracts up to twenty acres or so.

Of course, the other option is to secure a wildlife exemption.  This is much more technical, but my friends who have done it found it to be educational and interesting. Hunting and livestock are both allowed.  It is my understanding that the land must have had an AG valuation for the preceding two years to be accepted into the wildlife program.

So, why consider any of this? First as an example, besides farm and ranch land, what other $650,000 real estate investment (with no residence) is only taxed $175 in property taxes?   As a comparison, I looked up a lake house that recently sold on Lake Travis.  The tax appraiser put the value at $653,000 and the taxes were a whopping $10,116 per year.  In another year or two, the taxes may be $1,000 per month . . . for a weekend lake place!

Another thought is the ability to utilize a 1031 IRS tax deferred exchange.  Have a large capital gain in a problem rental property? A 1031 exchange would allow you to sell the rental and roll the proceeds tax-free into a recreational / investment property that is suitable for hunting, fishing, or camping trips.

If you would like more details on AG or wildlife exemptions do not hesitate to call me.

nformation About Brokerage Services (IABS) 

Jeff Stewart, CCIM, SRES  Broker Associate

jstewart@stanberry.com

Stanberry Realtors