Peace of Mind Investing

Some think of real estate as a long game … and it is. But does that mean you should devote your energy to a tricky investment for years?

It can be a smart choice to pick investments that will give you the life you want WHILE you’re managing your investment … not just after the fact.

There’s a cost for any investment … the cost of learning how to manage your investment. The question is whether you want your learning curve to be steep or gently sloping.

In this episode of The Real Estate Guys™ show, we chat with return guest John Larson about what criteria investors should look at to reduce trouble and toil. We’ll also chat about Dallas … why it’s a great market for peace of mind investments, and whether it’s too late to buy there.

Listen in! You’ll hear from:

  • Your dazzled-by-Dallas host, Robert Helms
  • His dallying co-host, Russell Gray
  • Eight-decade investor Bob Helms
  • Turnkey real estate provider John Larson

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Is it too late to invest in Dallas?

Dallas is a shining star. Job markets have demonstrated incredible growth. Expense ratios are down because of rising rents, and the potential for appreciation is going up.

The city is also attractive to both international and local investors. When people who actually live in a market want to work with investors, you know it’s a hot market.

Dallas has been on our shortlist of great investments for a while, but with its recent growth, some investors are asking themselves whether it’s too late to invest in the city.

John Larson is a managing partner at American Real Estate Investments (AREI). These days he spends a lot of time in Dallas, one of AREI’s top markets.

We asked him whether it was too late for investors to get in on this Texas hot spot.

John told us, “The window is closing, but there’s still opportunity.” John thinks Dallas is still an affordable market … for now.

What happens if investors don’t get in now? It really might be too late, John says. It’s not that depreciation will continue, but that the rent numbers won’t work because of the discrepancy between the cost and the rate.

The A-class strategy

In John’s view, buyers should prioritize good neighborhoods, solid properties, and responsible demographics. The challenge with dying markets is that there are many additional expenses and responsibilities … filling frequent vacancies, doing frequent upkeep, and evicting tenants and finding new ones.

In the same vein, rental properties simply won’t perform if there isn’t anyone to move in. Although properties in better neighborhoods may cost more, vacancies will be far lower. And in general, Dallas is far and away less expensive than most other major U.S. cities.

Your goal shouldn’t be to invest the absolute least amount of dollars possible, but to get the best return. John’s trick for finding worthwhile properties is to look for an after-repair value of $300,000 or more.

Investors benefit from higher rents for higher value properties because they will not only get positive cash flow, but they won’t be likely to get tenants who will have to be evicted or who run out without paying rent.

Because of economy of scale and efficiency, businesses like AREI can provide deals that would be hard to find elsewhere in a popular market … off-market deals that can be offered at reasonable prices.

We asked John what an ideal investment looks like. John specializes in single-family rentals and sees a lot of potential with these properties. He told us he’d zoom in on three things:

  1. Start with the market. John wants to see a growing, diverse economy that doesn’t rely on one industry for jobs.
  2. Look at the median home price. The national median home price is about $250,000. The ideal market should have home prices in line or below the national average … otherwise, investors won’t find affordable properties.
  3. Look at rental rates. Investors should look for strong rental prices and high demand. Tenants paying the median rent should be solidly middle class.

Investments that fit these criteria are low-risk because they provide a good cost-to-return ratio and offer stable, predictable returns. Go lower, and you’ll never get a passive investment because there is too much upkeep and unpredictability.

Investors from high-cost markets like California looking for a place to park their money are flocking to Dallas because it offers both good cash flow and the potential for continued appreciation.

Designing your personal investment philosophy

As the Real Estate Guys™, our investment philosophy has changed a lot over the years. In the beginning, we were drawn toward fantastically priced properties in lower class neighborhoods.

We had to get our heads around the fact that crap happens in poor properties in bad neighborhoods … even with overwhelmingly fabulous managers.

On paper, great properties in nice neighborhoods don’t sizzle as much in terms of returns, but they make life much more enjoyable and perform more consistently.

Want a relaxing retirement? Don’t get headache properties. We’ve learned it really is true that you get what you pay for.

The properties you invest in should be properties you’re comfortable holding forever … properties you’d be comfortable having your children manage.

Many new investors start out looking at lower-priced, lower-class properties, and then move to the A- and B-class properties like we did.

We think perhaps investors should turn that paradigm around and start with the low-hassle, low-risk properties, then work their way to the harder-to-manage lots.

Choosing a successful market

John strategically picked the Dallas market to invest in. So, we asked him what other markets he’s doing business in, and why.

John started out in Kansas City and St. Louis with AREI, and he says that area is a solid place to make an investment, especially in B-class properties. Because property taxes are lower, investors may see a higher rate of return as well … although the area is not experiencing the same exponential growth as Dallas.

John’s goal is to stay out of C-class properties, although investors who already have a few properties in their portfolio may want to consider investing in different types of properties to get nice blended returns.

Dallas will eventually top out and get too expensive. John thinks when that happens, investors will see secondary markets start to explode … which is why he is always on the lookout for the next best place to invest.

Get educated

We loved having John on the show because Dallas is absolutely on our short list of great places to park your money.  

With solid A- and B-class neighborhoods, high-caliber tenants, increasing demand, and a diverse job market, we’re not the only ones interested in Dallas. Now is the time to get in, while you can.

But investors new to Dallas need more than a good property … they need boots on the ground. A solid market plus a solid team is a killer combination.

Interested in seeing how John and his team acquire and rehab properties? Check out AREI 101, an education series by AREI chock-full of helpful information. And listen in to the show to get access to a special report John’s compiled just for our listeners.

Whether Dallas is the market for you or not, we hope we got you thinking about the difference between a property with the best possible cash flow on paper, and a property with more modest returns and significantly less headache.

Want to see Dallas for yourself? Get on the advance notice list for our Dallas field trips here so you can be the first to know about upcoming trips with The Real Estate Guys™.

Like we always say, effective action requires education.


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

Getting Good Deals in a Hot Market

 

Generally, the harder a property is to find, the better it will be. But finding hidden properties means playing an insider’s game.

The key to finding properties in a high-demand market is developing your own deal flow from people with unique access to information.

Relying on the same information sources everyone else relies on means you get deals that have been picked over … and these aren’t the tasty kind of leftovers.

When the market is hot and demand is high, you want sellers and contacts who’ll come to YOU first.

In our latest episode, we share tips and techniques for how to get your unfair share in a saturated market, all through building relationships with insiders.

Our expert guest, John Larson, manages multiple turnkey real estate purchases each month in one of the nation’s hottest markets. You’ll hear from:

  • Your ahead-of-the-game host, Robert Helms
  • His gaming-the-system co-host, Russell Gray
  • Managing director and partner at American Real Estate Investments, John Larson

Listen

 



Subscribe

Broadcasting since 1997 with over 300 episodes on iTunes!

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Relying on relationships

John Larson is a managing director and partner at American Real Estate Investments (AREI), where they buy and sell properties in one of the hottest single-family housing markets in the nation. Dallas!

Because of steep population growth that shows no signs of stopping soon, Dallas is a market in heavy demand. It’s easy to lease properties and keep them leased, which is a big plus for investors.

But high demand also means a high saturation of investors. We asked John what it takes to be successful when lots of people are after the same properties.

He told us that success is all about two things: your relationships and your consistency.

First, relationships. John’s assembled a team of pros whom he trusts to do most of the heavy lifting before they even make a bid on a property.

Dallas has a housing auction once a month. Before the auction, John’s team gets a list of the properties up for sale and researches each one to identify properties that work for them.

When John and his team show up at the auction, a good chunk of the properties listed don’t show up.

John is very careful about sticking to a pre-identified target price and not overpaying for properties, so his team often ends up with only a small handful from the original list of forty or so.

Acquiring even one good property at a decent price takes hours of work and investigation, so having a team that knows what they’re doing is a HUGE asset for John.

John’s emphasis on relationships doesn’t stop with his team. If you go to any real estate networking event in the Dallas area, it’s pretty much a given that you’ll find John or someone from his team there.

John says this persistent networking has netted him connections with agents who have their hands on all kinds of properties.

We asked John why anyone would want to sell to an investor instead of an owner occupant who is willing to pay a higher price up front.

His answer? Eight out of ten investors he works with at AREI come back and buy another property. In the end, John’s entire business model comes down to relationships.

Cutting costs with consistency

Consistency is also key to John’s success. John and his team always use the same buying strategy: they buy with cash and close quickly.

They’ve identified a niche in the housing market and don’t generally stray from it … single-family properties in middle-class neighborhoods that lease for about $1,600 a month.

This is a sweet spot that John’s found works best in terms of finding trustworthy tenants who will pay on time, treat the property well, and stay long-term.

Last year, John also brought his property management team in-house. By doing so, he reaped multiple benefits.

Just to name a few, he now enjoys economies of scale, targets maintenance and management to a certain demographic, and buys materials in bulk.

John’s also been working with the same repair and maintenance crew for over five years. He takes care of them, and they know he’ll give them a constant stream of new work.

Basic tweaks and techniques like these allow John to make his properties more attractive—and thus more profitable—every year.

Finding hidden inventory

Many new investors start their investigation efforts by making a beeline to an MLS (multiple listing service). Although checking out what’s on the MLS isn’t necessarily a bad place to start, John warns that most inventory on the MLS will be picked through.

“All of our good opportunities are off market,” John says.

What needs to happen for John and his team to find that hidden inventory?

Well, first, investors need to know what they’re looking for, be financially prepared, and able to make decisions quickly once they find an opportunity.

Most importantly, they need to form the right relationships.

John has built a team of experts that is constantly in tune with the market—which isn’t too hard when AREI’s volume of purchases reaches into the hundreds.

For new and less experienced investors, John recommends they do their research … a lot of it. Before investors come to AREI, John asks that they research the market and make sure they understand exactly what they’re investing in.

And he recommends investors make sure they’re financially prepared. The best investors are the ones who know exactly what they want and what they can afford.

It’s these trusted and trustworthy investors like these who benefit from the properties people like John can acquire.

If you’re interested in more tips on succeeding in a crowded market, John has written a booklet called Hot Tips for Hot Markets.

And, a heads up: John is holding an investor workshop and tour in April. Participants will get to meet John and AREI’s investment coordinators, acquisitions team, and even some of the lenders AREI works with. They’ll also get to see how AREI professionally manages and renovates properties and get a good feel for how the Dallas market works.

 

Gaining access to the insiders’ club

Lots of beginning investors might read a book, attend a seminar, Google some information, maybe even visit a potential market.

John and investors like him are ahead of the game—they’re going to exclusive auctions and getting listings from short-selling agents. In short, they have access to inventory that no one else has even seen.

Can you work your way up? Yes. But it does take time to become part of the insiders’ club.

If you’re willing to put in the work, start by being prepared. Really do your research and get educated about your market. Then assemble your team. Use the example of John and other successful investors to guide you.

If you’re not willing to put in the time, but you do want to invest, start by finding someone like John who has access to hard-to-find inventory.

Building a relationship with someone who knows what they’re doing can be beneficial on both ends of the equation. An investment organization will get a dedicated buyer … and buyers will get better deals on properties not available to the public.

The key, on either side of the equation? Be prepared. Get educated. Form stellar relationships. And then take action.

Next week on the show, we’ll talk about financing multi-family properties. AND, we’ll introduce a pretty amazing new program.

Until then, go out and make some equity happen!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.