Why Texas?

When we start to look at an area we want to invest in, we always start with the economic fundamentals. We have looked at some of the most popular states (Arizona, Florida, Las Vegas etc). To be honest, we didn’t really like what we were seeing until one day a colleague of ours told me some fascinating facts about the Texas Economy.

Being Canadian, we never really considered Texas as a “hot real estate market” therefore; it was never really on our radar. Just thinking of Texas one could only conjure up pictures of cowboys, Oil Fields and of course football.

Boy were we wrong!

We decided to dig deeper into the economic fundamentals and was fascinated by what we saw. In our research we came across some excellent videos, which were created by Dave Winans on the Texas economy.

Now we were really impressed!

We never buy property “just because it’s cheap” that in our opinion is an ineffective strategy” to investing in real estate. What excites us about investing is taking a step back, looking at a market and determining whether it’s on the decline, has stabilized or is on an upswing. After reviewing the facts it became very clear to us that Texas was on an upswing and would be for some time to come.

Armed with a lot of information we decided to take a flight down to Houston, Texas to check things out first hand. When we arrived in Houston we were absolutely blown away by the quality of the infrastructure. The roads were in terrific shape and there were overpasses upon overpasses- something we can never seem to get done in Canada! We had just been to California the week before and was startled to see the condition of some of the roads in Los Angeles (a state that is almost broke).

The downtown skyline was also quite remarkable. Visiting some excellent restaurants we couldn’t believe how full they all seemed to be. We also noticed A LOT of businesses with “now hiring signs” and there was a decent amount of new construction around the city as well. All in all, we came away from the Houston trip very intrigued and eager to begin seriously identifying investment strategies that would work in this market.

What we look for in a market

MARKET INDICATORS

When investing in a new market we want to make sure that we’re buying into a market that stable and on the upswing and not in decline. There are some key market indicators that can give us an idea of the current market condition and which direction is heading.

Here are some key indicators:

Population/demographics

It is usually not a good idea to invest in an area where the population is decreasing. Detroit is a perfect example of this. Some areas of Detroit have turned into ghost towns in fact you can buy property in these areas for as little as one dollar per house! Now you might be thinking to yourself hey I got 100 bucks of my bank to go by 100 houses in Detroit. The problem with this is now you owe property taxes on 100 properties and you bought 100 homes in an area riddled with crime that no one would pay rent to live in.

We want to buy in cities where the population is increasing thus demand for homes and rental properties are increasing.

Construction

New housing construction is a great indicator of the health of a market. You also want to ensure that an area is not being overbuilt (see certain areas in Las Vegas and Phoenix) as sometimes this can lead to an increase in the vacancy rate as there are more properties on the rental market than there are renters. You also do not really want to buy into a market where the housing construction are at an all-time low as this doesn’t really point in the direction of growth.

Homebuilders for the most part are privy to all kinds of economic data and if they begin building new projects it is sometimes a good idea to follow along in their footsteps.

A good resource for construction information is to call the City Hall or County planning office. They can tell you how many building permits have been issued by year. It’s also a good idea to get the cities building plans. We as investors love to buy property in the path of progress and watch appreciation skyrocket as construction adds to the value of our property.

Job Growth

Job Growth is a economic indicator that represents the number of new jobs created in a given month. People follow jobs, plain and simple.

Vacancy Rates

The vacancy rate is a numerical value calculated as the percentage of all available units in a rental property, such as a hotel or apartment complex, that are vacant or unoccupied at a particular time. It is the opposite of the occupancy rate, which is a calculation based on the percentage of units in a rental property that are occupied.

Knowing this, typically a vacancy rate under 5 is good while a vacancy rate of 3 or less means there is very high demand for rentals in the area. Why are vacancy rates an important indicator? If you own rental property you want to ensure that there is a demand for rentals in your area thus allowing you to collect those ever important cash flow cheques.

As real estate investors the #1 thing we care about when investing in a property is: how much will this property put in my pocket every month? IE: how much does it cash flow? We also want to ensure that the area we are investing in is either stable or on the rise. We don’t want to worry about rents declining and we can also take advantage of appreciation that comes along with a thriving market.

Some of the biggest factors we look at when determining whether an area is posed for strong or weak growth is:

• How many new housing constructions
• Job Creation / Growth
• Population growth

When it came to these three key indicators, Texas’s main cities (San Antonio, Houston, Dallas Fortworth and Austin) all ranked very favorably. Each of these four cities is considered to be one of United States fastest growing cities. People follow jobs and there was definitely no shortage of jobs and job growth in Texas. While the United States lost over a million jobs in the last few years, Texas actually CREATED over a million jobs. In fact, Texas created over 50% of all new jobs created in the entire United States of America in the last few years.

That fact deserves to be stated again: Texas created over 50% of all new jobs in the United States in the last few years!!

Remarkable!

People from all over the United States are moving to Texas to follow the jobs and this trend is not going to stop anytime soon. In fact, the population within the “Texa Plex” area is set to increase by almost 14 million people by 2030! That is a REMARKABLE statistic and one that will lead to substantial growth and opportunity in Texas (more on this in a bit).

The population of Texas is approximately 24 million and contains 215 cities with a population of 10,000 or more. It has the largest population growth rate of any state and is growing by over 1000 people per day. Dallas, Houston, Austin and San Antonio are all on the list of the 10 fastest-growing cities in the nation.

STABLE HOUSING MARKET

In Texas, the foreclosure crisis wasn’t nearly as bad as in other states such as: Nevada, Arizona and Florida. One of the things that we really love about Texas, when we buy properties at a tax auction after a mandatory six-month redemption period has passed, we can use our realtor and as long as we price the property reasonably, we can expect to sell it in a short period of time to locals. You cannot do this typically in markets like Florida where you’re main pool of buyers are foreign investors.

If Texas were a country it would have the 12th largest economy according to GDP (gross domestic product) ahead of: Russia, India and Mexico. Texas would also be the 5th largest oil and gas-producing nation in the world.

It is home to some of the largest and best universities in the United States including:

• The University of Texas
• Baylor University
• Texas A and M
• Rice University
• Southern Methodist University

BUSINESS AND INVESTOR FRIENDLY

Texas is what we call a landlord friendly state. What this means is that eviction law tends to side with the landlord and make it easier for real estate investors to manage their property. If you wanted an example of a place that is the opposite of investor friendly think of Ontario.

Texas is such a pro-business state; it has attracted some of the largest companies in the world who call Texas home. In fact, Texas is home to more Fortune 500 companies than any other state in the United States of America.

Coined by David Winans, the “Texaplex” is a triangular region in Texas. The triangle is composed of Texas’s most populated cities. At the top of the triangle you have Dallas Fort Worth. On the left of the triangle you have San Antonio and Austin and on the right you have Houston. We have driven from city to city within the “Texaplex” and just to give you a general idea it is about 2-3 hours by road to any one point on the triangle. The cities are all connected by a very well maintained super highway that is pretty fun to drive.

18 million people or 4/5 of the entire Texas population lives within the “Texaplex”. As mentioned earlier the population within this area is supposed to increase by 14 million people by 2030. That phenomenal growth is equivalent to adding another Dallas Fort Worth another Houston and another Austin into this area! It’s not hard to see why these cities among the “Texaplex” usually lead the nation in new housing starts.

It’s an old real estate investors saying, in rising markets even fools will make money, simply because they bought at the right time (unbeknownst to them). While we don’t ever like to buy like a fool, we truly believe that Texas is THE best state to invest in real estate right now and as long as you do your research and buy quality properties in the path of progress, you stand to make reliable returns for years.