Our CFO, Stephen Preston, was just featured in an article for Canadian Real Estate Magazine.
Check it out:
Sarah Megginson Article
[subhead] 5. Austin, Texas
[body] If doing some quick flips to draw out immediate profits from a property deal is your aim, then buying at tax deed auctions in Texas is a strategy you could investigate.
“Not many people know that some markets in the US are appreciating even through the economic downturn. Austin, Texas is a perfect example of such a market,” says Stephen Preston from www.TaxLienTraining.com and USproperty.ca.
If you have the risk appetite to navigate the process of purchasing tax deed properties at auction, Austin could be your perfect property match. It’s quite a complex strategy but essentially, it allows you to pay cents on the dollar for a “tax deed”, rather than paying for a property itself.
Every homeowner is required to pay some sort of real estate tax to the government. If they fail to pay their property taxes, after multiple warnings, the county will put the property up for sale to investors, often for as little as the taxes, penalties and fees that are owed.
At a tax deed auction, the winning bidder receives the deed to the property. In some cases, the original property owner may still have a short time to redeem after the sale; otherwise, the investor becomes the legal owner of the property, having paid as little as a few thousand dollars.
“At tax deed auctions, we are buying property for 10-65 cents on the dollar, and flipping them back to locals for 80 cents on the dollar,” he says.
Not for the feint-hearted, the process is quite complicated and there are risks involved. As a result Preston recommends against going it alone. “I would also caution against over extending yourself too quickly,” he adds. “You need to ensure you have surrounded yourself with an excellent team, as this in my opinion is one of the biggest factors leading to investing success or failure.”
Capital appreciation estimates: Preston points to Texas’s stable housing market as being one of the region’s primary drawcards. “I believe we have seen the bottom in most of the Texas city markets and we will see an appreciation of between 3 and 7% in the next few years,” he says.
Rental return estimates: 7-10%
[subhead] What is driving property prices higher? Due to the strong economy, coupled with population and job growth, Preston has earmarked Texas as a standout location to invest in for the next 5 to 10 years. “I like to invest based on economic fundamentals and Texas has all those, including creating over 50% of all new jobs that are being created in the U.S. over the last few years,” Preston explains. “They are forecasting huge population growth in the next years ahead.”
[subhead] What is driving rental returns higher? Rents increased by 20% throughout 2011 and all of the same factors that will drive property prices up and expected to have a similar effect on rental returns. Currently, yields in the region of 7-10%-plus are readily achievable in Austin.
[subhead] Ideal property investment? Go for condos, single family homes and duplex’s, Preston says, and don’t be afraid to branch outside of Austin for the right opportunity. “In my opinion, you can’t go wrong with certain areas in Houston, Dallas Fort Worth, Austin and San Antonio. Just don’t expect rapid appreciation.”
[subhead] 6. Phoenix, Arizona
[body] Home to almost 1.5 million people, Phoenix’s real estate market was one of the biggest victims of the credit crunch, with property prices slumping to less than half their replacement value.
But while this has spelt financial heartbreak for existing property owners, it has also created some incredible opportunities for investors to nab a bargain.
With three bedroom, two bathroom, double garage houses selling for less than $100,000, it’s clear that there are some fantastic deals to be made in Phoenix. The city is on Preston’s radar because he believes the market well and truly overcorrected, and as a result, “I expect faster appreciation in a market like Phoenix,” he says.
Preston is so convinced of the value on offer in Phoenix that his company USproperty.ca buys an average of a dozen properties in the city every single month. In recent months, he has seen property prices creep up in value by roughly 30%.
“We are able to get excellent deals from the bank, because we have a staff member whose sole job is to write hundreds of offers on shortsales every month,” he explains.
“These typically take three to eight months before we know if the bank will accept our offers or not, but we have been doing this for some time now and we end up getting around 12 properties a month. Some we sell, some we keep. But we have seen prices rising in Phoenix since the summer; houses that we were getting for $50,000 are now going for around $65,000.”
[box out] Real life buy:
“I just bought a house for $62,000 a few weeks ago. I needed to insure for $130,000, more than double what I paid, because if the house were to burn down today the cost just to rebuild it – not including the land – would be that much.”
Capital appreciation estimates: Preston has witnessed property increase 30% since June of 2011, with homes selling for an average of $15,000 more than they were six months earlier. He believes there’s more price appreciation to come, as “competition is getting fiercer.”
Rental return estimates: 10% +
[subhead] What is driving property prices higher? The market is slowly returning to a level that is still affordable, but that is in line with each property’s actual intrinsic value – as in, the cost of materials and labour to replace the building structure if required. “I see an overcorrection in the market; prices just dropped too low, too fast,” Preston says. Now, competition between buyers is ramping up and it is having the impact of lifting property prices higher.
[subhead] What is driving rental returns higher? Returns of around $500 free and clear, after all expenses have been paid, are de rigueur in Phoenix, and will be for some time, according to Preston. “We are buying single family houses built in 2000 or newer for around $50,000 to $65,000, that cashflow over $550 a month,” Preston says. “I love those numbers!”
[subhead] Ideal property investment? You’re spoilt for choice in Phoenix, where a multitude of properties are continually in demand with tenants. Single-family homes, condos and also multi family apartments are worth investigating.