It’s almost a lock. Whenever I’m talkin’ to an investor familiar with this site, I’m asked about my take on Texas. Why are you so high on Texas? In a nutshell, here’s what I tell ‘em. First, though, let’s talk about the markets from which they’re coming. They fall into a few categories.
- Markets like San Diego — hit hard by the market correction, but still offering relatively unattractive price/rent ratios.
- Places like Las Vegas/Florida and other ongoing nightmares. Vegas, for instance, is over 13% down year over year. Every year I get folks in the area tellin’ me I’m missin’ the boat there. Every year I simply point to two lines on the chart. One is the price trend just mentioned, which has been consistently heinous. The other is the leadership position they maintain in default notices filed. It’s sad.
- Most of the rest of the country — areas with uninspiring demographics, employment, and overall, unimpressive macro economic factors in play.
Why Texas stands out
Check out nearly any survey showing employment; value trends; population growth; economic diversity; rents; taxation of both people and business; and, well, you get the idea.
When we talk about job creation in the private sector, where it counts, in the last year or so, Texas has created more new full time jobs than the other . . . 49 states . . . combined. That’s not opinion, or smoke ‘n mirrors. In fact, it’s the #1 so-called stat there is when deciding where to invest your hard earned capital. Let’s compare that to California, a state on the sorry end of the spectrum.
In the first quarter of this year, 168 CA businesses (100 or more employees) either decided to expand, but not in CA, or left the state altogether. (Fled would probably be more precise.) That was just 90 days. I’m waiting to learn the numbers for the year. Got a feelin’ it ain’t gonna be pretty. Much of the state is under the pressure of double digit unemployment rates. The state is notorious — infamous is probably more accurate — for taxing and regulating businesses into the ground. It takes forever to get things done.
Take developing real estate
In California, if you buy the land, you’re considered a magician if you’re breakin’ ground in less than 12-30 months. Then there are the extra required reports, taxes for everything that doesn’t move, and fees to the myriad state, county, and local bureaucracies. Besides adding costs to the developer/builder via wasted time, it adds even more cost due to the many superfluous fees. God forbid an endangered species of cockroach is discovered.
That adds the cost of the new cockroach altar the contractor must build.
Developing property in Texas is more about fillin’ out paperwork than anything else. Buy the land, adhere to the zoning, show your plans, pay a few fees, then break ground. It usually takes less than 90 days. I’ve recently seen property in Texas (Austin) close escrow on the land acquisition, go through the building department for approval, and close escrow on the finished units in less than six months.
That was possible in California when the Dodgers were still in Brooklyn. 
Maintaining Value
I’ve been in Texas now for goin’ on five years. The next appraisal reflecting a decrease in value will be the first. That’s an incredible statement, given the economic climate in which we find ourselves. In fact, values have inched up the last year or so. The rental values? Again, nothin’ but level or increasing — mostly increasing. Meanwhile, vacancy rates are falling. Austin? Try around 4% or so. In a recent project just north of San Antonio, a new unit was leased for $75 over what was projected. That’s just under 6% more than they thought. Boots on the ground research predicted the higher rent, but nobody would believe it.
Sure, in some places, San Diego’s one of ‘em, rents are edging up a bit. But it’s due to the virtually impossible dream of adding new inventory to the market place. No new competition in almost 30 years — ya think that might cause rents to rise a bit? Problem is, the units are becoming more outdated every year. It’d be funny if it wasn’t becoming so sad.
The bottom line
On every level I’ve analyzed, every boots on the ground research survey I’ve personally conducted since 2003, there’s been no state belonging in the same breath as Texas. The quality of locations offered is off the chart. This very positively impacts the tenant quality attracted to projects. The bang for the buck, an economics technical term, is huge, relatively speaking. A 3 bedroom/2 bath + 2-car garage with a fenced back yard — located in a neighborhood loaded with $250-500,000 homes — rents for $1,225-1,350 a month. Yet the investor pays just under or just over $250,000.
A crummy 55 year old duplex a half mile from my office sells for nearly half a million bucks. It offers a 2 bedroom and a 1 bedroom, along with all the really cool design features available when I Love Lucy was the #1 show on TV.
THAT’S why I keep tellin’ you to get your capital/equity to Texas.
Let’s figure out your situation together. Gimme a call at 619 889-7100 — we’ll put our heads together to figure out what’s on your menu. Rather write me? Click on the Contact BawldGuy button up top. Either way, it’s all good, as I need a fix. Have a good one.