Comparing Regions — The Tipping Point Isn’t Always Obvious — Purposeful Planning

Posted @ 7:07 pm - Filed under Real Estate Investing, Purposeful Planning, Boise, Financing, San Diego Property Owners, Real Estate Markets, Retirement Income, Builders, Buying Income Property, Market Correction, Leverage, Capital Growth, Dallas, Austin, Kansas City

As Josh and I go from region to region we’re able to meet current and beginning investors. Depending upon the city and the host, we speak to 2-4 seminar groups averaging 10-15 ‘entities’. (Single, married, or partnership investors.) An ‘A’ list of questions has emerged as a common thread, no matter where we speak.

Why is (fill in region) better than ours?

If their taxes are so much higher than ours, why is the price the same?

Should we fly to (fill in region) to see the properties & the management?

Why is (Dallas, Boise, Denver, Austin, Kansas City) better than our city?

Generally speaking it may not be. If you’re from Detroit, (and with apologies and sympathy) pretty much everywhere is a better destination for your investment capital. Every region is different and will have its own set of pros and cons.

Let’s review some of the pros & cons first.

Wanna go to one of the great investment spots in Texas? Be prepared for abject terror when you see what they charge for real estate taxes. It’s just silly. Don’t bias yourself against a local market by overlaying a statewide factor. It’s only one factor — use it but don’t endow with power it may not have. You’ll miss some great opportunities.

Wanna go to Boise?

CON — Due to the current market correction, things change there in real time faster than you can recognize the change. I’m convinced there were more wannabe investors per capita in Boise than even Las Vegas or Phoenix. They’ve learned to walk on their hands by watching all the upside down investors move around town. I’ve already seen vacancy rates go from over 10% to under 4% to “Why isn’t my dang unit rented yet?” And all that took place in far less than 12 months. Rent/price ratios don’t allow levels of leverage available in other solid markets.

PRO — Nobody doesn’t like Boise! Four seasons, none of which are extreme. Demographics studies all showing a doubling of their population by around 2021. A culture more reminiscent of Mayberry than a typical half million population area. Virtually unlimited outdoor recreation — 20 minutes to 2 hours drive away. Family oriented lifestyle — see Mayberry reference. Job producer. Growing job market. It’s also the state capital, almost always a positive.

Like Austin do ya?

CON — Been there a few times now, and it so reminds me of San Diego sans beaches. I love Austin because it has such a young and educated population. This bodes well for the future. Duh. Still, though rents are rising as we watch, surely a good thing, downtown is about to drown in new condos. Apparently they didn’t watch the movie — Downtown San Diego Condos Slump. It was in all the theatres.

PRO — Austin rocks! Every possible type neighborhood is there. GenX, Y, Boomer, hi-tech, and it’s all green. They’re maniacal about preserving open space. The prices start below the affordable line. No matter what you want there, it’s probably lower priced than almost anywhere else you’ll look — as long as the area is actually comparable. Remember, I’ve likened Austin to San Diego, so the standard is high. Their rents are on an upward swing, which should be a trend. The job market is fabulous and you can’t swing a dead cat without running into a college or university. It’s the state capital which never hurts. They’re possibly the youngest city of their size in the country — a plus.

You a Rocky Mountain fan?

CON — The problem? It takes more down payment to make things work ‘cuz the rents aren’t as high as other areas. For those wanting better leverage this means adjustable rate loans, which these days are wicked on the margin — as opposed to the good ol’ days. Where I once used neg-am loans, I now avoid them with rare exception. They’ve morphed from a tool in our financing quiver to a bad apple.

PRO — Denver is awesome. Did you realize much of the California brain drain ended up there? Yep, a whole bunch. It’s already showing. They’ve already voted in a new rapid transit light rail system, which will be ready in 4-5 years. There are current and planned projects all along the route. Every pro with whom I’ve spoken says the same thing — Denver is gonna blow up in a very positive way.

Yer a good ol’ boy who’s always liked Dallas?

CON — Understand though the metroplex is huge, it’s a double edged sword of sorts. Mostly it’s a good thing, but for those who are allergic to the whole metropolis thing, you may want to go elsewhere. Of course, we’re staying on the edges, avoiding the noise. Still, at 6.5 million people and counting, it’s already more than the combined population of San Diego and Phoenix. (county populations) (Picture is Mansfield, TX)

PRO — I can’t get enough of the Dallas area myself. Again, we’re goin’ to the growth paths, planning to cross our capital with the inevitable economic growth. What we’ve seen many times there is a hospital rising 2-4 stories with an adjoining medical clinic. Hospitals are for-profit operations, but they’re very risk averse. If they’re planting roots in a new area, we pay attention. They know something very cool about the area, and it ain’t how good the BBQ is.

Is the land of BBQ, Kansas City your preference?

CON — For the same money per unit their annual rents are lower than some areas mentioned here. Also, the city is bipolar for Heaven’s sake. Pick a state, wouldya? As others with predictably cold snowy winters, their rental markets kinda sorta blow chunks when potential renters are shivering. Duh. Since we know winter will come every year, we simply plan. Another duh.

PRO — KC is much like Boise in that their culture is heavily tilted towards the family. They also are known for living below their means. This is seen in their high national ranking for disposable income. High disposable income is great for almost every part of a local economy. They’re not wasting money on a new Lexus, but have plenty for all the local businesses. Tenants are of higher quality. There’s more money available for down payments. And on and on. Jobs? KC is one of the places to be. Expansion is happening everywhere. We couldn’t be on a freeway for half a mile before a new project was pointed out. Business loves KC.

Love San Diego?

CON — Me too — just not in any way shape or form as an investment destination. You want an example? Always ready to serve.

Duplexes in a very cool area of La Mesa have been put on the market for as low as $430,000 recently. That’s more than $100,000 below ‘05 closed sales prices in the same exact neighborhood. Still, using 40% down will only net you a $160 positive annual cash flow. Yeah, that’s what I want. The same capital would get you about $1.5 Million worth of brand new duplexes in Texas. Geez, I dunno, a 50 year old So Cal duplex OR 6 brand new Texas duplexes. Go ahead, no rush, take yer time. We’ll wait.

What’s the tipping point?

Do you have enough for one property, or several? I’m no fan of diversification, but diversifying your real estate investments via geography is a luxury you should include in your Plan if possible. IBM having a bad year in Austin doesn’t necessarily hurt KC, or even Dallas for that matter. A problem in Boise with major local employers wouldn’t be a problem for Denver or anywhere else.

Also, if you’re into capital growth and investing a couple hundred grand or more, I’m a big fan of ‘down payment diversification’. I’ll be writing more on that soon, but it allows for a growing Sominex Account, plus acting as a separate kinda buffer during market corrections.

A tipping point shouldn’t be whether a potential investment candidate is local or not. Unless you’re a pro at this, it’s just not a factor. Don’t kid yourself about this. Keep in mind your capital doesn’t know and doesn’t care where it’s invested. You do — especially how that investment ends up on the return side. There’s nothing magical about your city — get over your control issues.

A Purposeful Plan is more important in these times than ever before. Look on the top right hand portion of this blog site for PODCASTS. Make time to listen to them, or do what many of my clients do and put them onto CD’s for use while driving. They have solid useable info.

The best tipping point?

The realization your retirement is getting closer each passing year. You’ll need more income by far than you’ll have sticking with the status quo. You’ll likely live longer than you might have thought. Acting to increase your retirement income now is the best thing you can do for your future.

Of course, living down the hall from one of your kids could be an option. Sound good to you?

This entry was posted on Thursday, February 7th, 2008 at 7:07 pm and is filed under Real Estate Investing, Purposeful Planning, Boise, Financing, San Diego Property Owners, Real Estate Markets, Retirement Income, Builders, Buying Income Property, Market Correction, Leverage, Capital Growth, Dallas, Austin, Kansas City. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.