If we had been having this conversation 3 or 4 years ago, I'd have said run -- don't walk -- but do whatever you have to do to stay away from all of the new subdivisions exploding in and around the Austin Area. I've changed my mind and I'm sorry to say that change is based on other people's misfortunes.

Subdivision foreclosures and short sales have created a gold mine for real estate investors.

During those "gold rush" years of the Austin real estate boom, new subdivisions were springing up all around the outskirts of the central part of the city and anyone who could fog a mirror was able to purchase them. There was a flood of new construction. Builders were putting up billboards saying "Why Rent, When You Can Own" and of course they were right. Not to mention the "new" was cheaper and there was a sort of "keeping up with the Jones" air to the whole thing. These were, in many ways, status purchases.

Now, after the recession and the crisis in the real estate market, those same houses are in a short-sale or foreclosure. Interest rates are down and essentially, you're buying at wholesale. A house that cost $150,000 in 2006 or 2007 can be easily picked up for $100,000 or less today.

Case in point. Just the other day I was checking out a subdivision in S.E. Austin near where the F-1 Track is going in, looking at some foreclosures. These were nice little 1300-1600 sq. ft. homes. Three bedrooms, 2 bath, 2 car garage. They were priced at $70,000. That's in the range of $47 to $50 per square foot. These homes originally went for double that price!

So, as a real estate investor, you're looking at some pluses that are just impossible to ignore:

- Wholesale prices.
- Low interest rates.
- Everything family tenants want. (Principally, and desirable location adjacent to good schools.)

In terms of what to look for, I'd recommend:

- Staying in the 1300-1800 sq. ft. range.
- Buying single level.
- If you buy a two-story, make sure the master is down. (Families with small children don't want to leave the kids upstairs unattended.)
- Zero in on the communities with good school districts.
- Stick with newer properties with newer equipment.
- Avoid properties with the old press board siding in favor of cement fiber board.

One of the great advantages of buying these types of homes is cheap make-ready and low maintenance costs over a long-hold position. One thing to keep in mind, these properties are long term buy and hold, with slower appreciation growth than in the central city.

Remember, you're fishing for a family-oriented tenant base:

- They want the area.
- They can't afford to buy.
- They'll be in the rental long-term.
- They'll be more willing to accept gradual rent increases.

Bottom line. If you go into a subdivision and you're not getting a substantial discount -- a discount to the point of a "steal"-- move on down the street. There's another subdivision ready and waiting.

And these kinds of homes are steals if you stick to the construction guidelines and get the rock bottom prices. With the rental market in such high demand right now, there's just no way you're not going to get a return on your investment!

 

Posted by Monte Davis on
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