Profitable Niches – Real Estate Development

In this episode of our Profitable Niches series, we’re starting from the ground up. Inventory of homes is tight in many US markets, and returns are diminishing. Enter real estate development.

Our guest, Jay Hartley, saw an exciting opportunity to expand his business into the real estate development space, and he’s got a wealth of knowledge to share.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your stately host, Robert Helms
  • His developing co-host, Russell Gray
  • Returning guest, Jay Hartley, real estate developer and property manager in Dallas-Fort Worth




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Beginning with the basics

One of the questions we ask in our seminars is which is more risky: buying an existing building and renovating or building from the ground up? The truth is, there isn’t a right answer to that question.

From inheriting problems in an existing property to building too much or building something the market doesn’t want, there’s a lot to consider when deciding whether to build or buy. The key is knowing the market, the demand, and the supply.

One of the most exciting things about real estate development is the number of entry points. Throughout the lifecycle of a property, there is value being added. Taking raw land from a zoned area to a lot with utilities and a finished building are all steps in the process.

For those who find themselves in a market with a lot of demand but a squeeze on supply, real estate development can be a FANTASTIC way to add more houses into the market, whether or not you hold on to that inventory long term.

Shifting your investment mindset

Jay Hartley is known as one of the best property managers in the Dallas-Fort Worth real estate market. He began like many investors with buying and renting fixer uppers.

Eventually, inventory started getting tight, prices escalated, and returns diminished. That’s when Jay took his first steps into development.

“We had to look at the marketplace and see where the opportunity would be to add inventory,” Jay says. “We started looking at acquiring vacant lots that were already in subdivisions and doing what they call infill.”

Infill meant building one or two homes on lots in subdivisions and then either renting or selling those homes to investors as turnkey properties.

It wasn’t long before Jay’s successful turnkey model got plenty of competitors and Jay took it to the next level. He utilized the economies of scale by getting into bigger developments and subdividing tracts of land. That’s also when he started building his network and expanding his education.

“I had some clients in the building business,” Jay says. “I took them to lunch and started picking their brains.”

Jay soon learned it was a smart idea to partner with a few builders early on. But then the key to sustaining his business was to keep his contractors busy with his projects so he didn’t lose them to other projects.

Real estate development doesn’t necessarily mean you’re the one swinging the hammer. In many ways, it’s orchestrating OTHER contractors and moving parts to complete a job. That also means managing labor.

“One of the biggest issues we’re dealing with right now is having labor ready and available,” Jay says. “If we don’t keep them busy, we lose that framer, we lose that concrete guy, we lose that roofer. We try to set them up to go to one job site to the next to keep them busy and on my job.”

As the deals got larger, Jay had to deal with the growth spurt in his business. He was always known as the property management guy, but had to shift his mindset as he shifted into real estate development. One of those moves was toward selling properties rather than buying and holding.

“I’m not afraid to sell them anymore,” Jay says. “I was a collector before, and it was tough for me to wrap my head around selling them.”

But, with some help and guidance, he was able to work through those mental roadblocks and scale up his business!

Get rich in a niche with a network

Rolling with changing markets is what makes an investor successful long term. Even though Jay was doing really well in property management, he saw a need for more inventory in the market. So, he became one of the people to create it! That has also set him up to know about lots of different types of real estate, and it’s another tool in his toolkit.

“It’s not about what I’ve done. It’s about who I’ve met,” Jay says.

Building a network of people with all kinds of unique backgrounds is a way to tap into their experience. Jay says you can take classes and watch videos, but watching flipper shows on television doesn’t mean you know how to flip a house. Partnering with people on a build job, however, is worth its weight in gold.

And that’s the essence of most development. It’s done through syndication and joint ventures. You can partner up with people who have the land, capital, or expertise you need, and you can put together a great deal.

Jay started out financing his own projects, but it wasn’t until he started tapping into syndication that his business really took off. He attended a few of our programs on syndication and sales, and they catapulted him into success.

“I’ve been in real estate all my life,” Jay says. “The training there, I didn’t think I really needed it. It was enlightening … it gave me the tools and the ability and the confidence to talk to clients and investors and pitch!”

Jay’s journey has been propelled by his ability to be ambitious and coachable. The ability to shift and adapt to new markets is how he keeps his skills sharp and his business growing.

If you’d like to learn more about real estate development and property management in the Dallas-Fort Worth market, get on the inside track with Jay. Send an email to dallasdeals (at) realestateguysradio (dot) com, and we’ll connect you with Jay and his expertise!

And, we hope to see you at some upcoming events. Secrets of Successful Syndication and How to Win Funds and Influence People are packed full of information that you won’t want to miss. Register now!

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.

Dallas Real Estate Market Update From Local Pros

dallas real estate market

The Dallas – Fort Worth metro has been one of the best real estate investment markets of the last 8 years.

Where’s it at today? Are the travails of the oil industry dragging Dallas real estate market down? And is Dallas still a darling of hedge fund and foreign investment? Do the recent reports of Dallas being the top market for real estate investment in 2016 still hold true?

To find out, we sit down with three boots-on-the-ground local Dallas real estate market experts…and take the residential real estate pulse of Big D.

Discussing how you can bring value to the table even when you have no dollars:

  • Your ask a question, but not in the form of an answer … this isn’t Jeopardy show host, Robert Helms
  • His “I’m no tv host. I just play one on the radio” co-host, Russell Gray
  • Residential Management Professional at Frontline Property Managment, Jay Hartley
  • Broker/Owner at Professional Asset Management and Sales, Pam Blanco
  • Sales Director at American Real Estate Investments, John Larson




Broadcasting since 1997 with over 300 episodes on iTunes!

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(Show Transcript)


Robert Helms: Welcome to the Real Estate Guys Radio Program! Thanks for tuning into the show. We’re in Dallas, Texas today. Let’s say hello to our co-host, financial strategist Russell Gray.

Russell Gray: Hey, Robert!

Robert Helms: Always good to be in Texas!

Russell Gray: It’s awesome. I love it here.

Robert Helms: Yee-haw! A week now I’ve been in Texas. Probably heard us last week on the show. And we heard it was the number one market according to the folks at Price, Waterhouse, Coopers. Not that they’re the authority on real estate, but we look at all kinds of information, especially at the beginning of the year to see what markets are hot. A lot of folks are excited about the Dallas, Texas real estate market.

Russell Gray: Yeah, Dallas has been a market obviously we’ve been paying attention to for quite some time. Anybody go back and look at the archives, way back coming out of the great recession, you know, we’ve looked at different markets, and which ones were positioned to rebound well and do well, and we identified Dallas, Texas as being one of those.

Started coming out here, and of course, back then, properties were real inexpensive, and there was great demand, and good rental demand. And the rent ratios and all that stuff was really strong. And over time, the Dallas real estate market changed, right? Dallas was no longer the best kept secret.


Who’s Investing in Dallas?

And you’ve got people not only from the local area investing here – people all over the United States are coming here. But you’ve got people from all over the world coming here.

One of the statistics I was really surprised at that I looked at about a year ago, was about 11% of the sales were coming from China, which I thought was really interesting. Of course, now we understand what’s going on in China a whole lot more, and there’s been a capital flight; people trying to get their money out of China, and into good, quality assets, like US real estate. When they looked, even though they loved the coastal cities like San Francisco, they actually really liked Dallas because of the strong local economy.


How Current Events and Factors Will Affect the Dallas Real Estate Market

Robert Helms: Well we’ve seen other changes in Dallas, right? For years and years and years, property values didn’t change here very much. Nor did rents. Pretty stable. One of the great things about this market is the diversity of employment. There isn’t one industry here. There’s a lot of big industries here. And that’s also one of the things you look at when you look at real estate markets.

You can make money owning a house anywhere in the world, but the market is such an important driver that you’d really want to understand what’s beneath the demand for rent.

Russell Gray: Right, you know, we talk about this a lot. We look for jobs that are geographically linked. Jobs that cannot be easily moved. And two of those are things when you’re pulling things out of the ground, like oil and gas, which Texas is known for. That’s a job you can’t move off shore. That’s got to happen in the geography.

dallas real estate market affected by oil - oil well

You could make the argument about farmland, and some other things like that, too. In Dallas’ case, you’ve got distribution. That’s another huge one. Dallas is a major distribution hub. One of the reasons we like Memphis; it’s one of the reasons we like Atlanta. Of course, over the last year, or the last at least several months, we’ve watched the price of oil take a precipitous decline. It tanked, if you will.

Robert Helms: So to speak.

Russell Gray: It’s been a slippery slope. So, at any rate, the big question now is, how is that going to affect the Texas economy? And in our case, how is that going to affect the Dallas real estate market?

My gut tells me, not as much as it would maybe some other Texas cities, where that is a much greater percentage. You know, if you pie chart an economy, and look at the Dallas real estate market, it’s a piece for sure.

But they’ve got financial services here, obviously distribution like we talked about is here. There’s a lot of other industries that are here in Dallas.

Technology, for example, medical, it’s a huge educational city. There are a lot of great colleges here. So there’s lots of reasons why people want to live here. There are lots of reasons why businesses want to locate here.

dallas real estate market - businesses

There are lots of reasons why people want to stay here after they’ve come here. They want to settle here. You know, colleges are a great way of bringing people in.

So, Dallas has many, many things going for it. Now we’re in a place where people are saying maybe real estate’s in a little bit of a bubble. We don’t know. We’ll see. How resilient would the Dallas real estate market be? It was very resilient last time. So, we’re here to check all that out.


Jay Hartley and Property Management in the Dallas Real Estate Market

Robert Helms: We are in Dallas, Texas. Let’s meet native Texan, Mr. Jay Hartley. How are you, sir?

Jay Hartley: How are ya’ll?dallas real estate market update - Jay Hartley

Robert Helms: Good, good. Welcome back to the show. We’ve had you on a number of times. You know, it’s interesting, if you want to know the pulse of what’s happening in a rental market, talk to a property manager. So you’ve been in the property management business a quarter of a century. How is it today? What’s it looking like today in terms of tenants and just all that stuff, Jay?

Jay Hartley: We are rocking. The demand is just through the roof. Housing prices are going up. Rents are on the rise, and I love it.


Dealing With Rent Increases

Robert Helms: Well, that’s a good point, because when we see a market get strong based on appreciation and housing prices going up, doesn’t always means that rents go up, and we want them to as investors, for sure. You deal actually in a pretty wide range of property, but the bulk of what you guys manage is single family. So how is that working, and how do tenants take, say, a rent increase?

Jay Hartley: Well, they are coming to expect it. It’s becoming easier and easier to justify a rental increase because of the market the way it is. And it takes me about 30 minutes to convince a tenant, if they’re having any reservations about paying a higher rent, to let them go look at a couple of other properties and see what they’re renting for.

And most of the time any tenant that I have and I tell them that their rent’s going up, and they can renew for another year or two years or what have you, they’re okay with paying more, cause they know what it’s going to cost them to move, and pay the same rent or even higher than what I’m offering.

Robert Helms: Now are you seeing a change in terms of how frequently people move? Is that a change in the marketplace?

Jay Hartley: It is. Tenants are staying longer and longer, and it’s surprising. We’ve become accustomed to multiple year leases, and we’ve had to try and work that into our model to where we’re increasing. If somebody wants to do a long term lease, we’ll work it out, but we need to build in some increases so I’m not losing my client’s money.


Turn Around Time

Robert Helms: Now one of the things – a metric we look at, when it comes to marketplaces – days on the market, how long does it take to turn a property? And I can remember since we go back years and years, there were a few times in this market when it was a couple of months sometimes before you’d find a tenant. What does that look like today? A property becomes vacant, how long does it take to get it turned?

Jay Hartley: Typically it takes about a week. We could see anywhere from a week to 15-20 days. Whereas in the past, it was months at some point. A lot of times we’ll have the property leased to a new tenant, if the old tenant’s moving out. Or if we’re buying and rehabbing a property, before it’s ready we’ll have it rented and a new tenant scheduled to move in.


Trend: Are People Buying More or Getting Out?

Robert Helms: Now let’s talk about kind of the size of your company. You’re about 800 houses under management right now. So, we ask you that almost every time that we see you. And that number’s always gone up, so you’re continuing to add investors, your client base.

As typically a real estate investor who has a house or multiple houses is. How is that? Are you seeing your current investors doubling down, buying more? Is that the key? Or are people saying, well the market is going well, we’ve seen appreciation, it’s time to get out.

Jay Hartley: I’m seeing both and it’s hard to adjust. We are seeing the clients that have owned their homes for 8 and 10 years that now see such an increase in their values that they see it as an opportunity to get out. But, I also see others where they just want more and more. They see the market on the rise, they know we’re nowhere near the peak, so they’re buying as much as they can get ahold of. And as much as I can find for them.

Robert Helms: And that’s part of it, right? If I look at this marketplace and I say, I’m glad I bought houses 10 years ago, at the same time, a person coming in brand new, first time investor, maybe they don’t have a lot of property yet, there’s a lot of reasons that this market makes sense. Because of what we talked about in terms of the durability of the tenant base.

But is it too late? Are the properties still performing at today’s rent and price value?

Jay Hartley: You know, hindsight is always 20/20. And I’ve listened to so many experts come on your show for years and years, and I wish we could have convinced people 5 and 6 years ago to come in droves, cause we needed them as much as we could get, and if we could, we’d be wealthier and smarter for it. But, it’s not too late. There’s still opportunity to be had. And if you’re smart, you’ll get off the couch and get up and buy some real estate, and help us fill the demand that we have right now.


Not Managing Your Own Portfolio

Robert Helms: Well, one of the things we love about you, Jay, is you’re a guy that walks your talk. You’re an investor and a landlord, but you don’t manage your own properties.

Jay Hartley: No, I don’t. I found out a long time ago it’s not a good idea for me to be personally involved in my investments. So, in our company, no one manages their own portfolios. So, in actuality, my brother manages my homes, I manage my brother’s, and my mother’s, and all of our employees follow suit.

So, we don’t want to become personally involved. I don’t care what the tenant’s story is. If you can’t pay rent, you’ve got to go. I want them to pay rent. And if I’m personally involved, I’m liable to make a bad decision, so I don’t.


Landlord Laws in Texas

Robert Helms: That’s such an interesting mindset there. Now one more thing about property management that I want to cover quickly with you. For folks that maybe aren’t familiar with Texas, we always like to, when we go into a market, ask, is it tenant friendly in terms of the laws and so forth? Is it landlord friendly? And Texas, the answer’s obvious to us, but what say you there?

Jay Hartley: It is very landlord friendly. Some of the horror stories I’ve heard from other parts of the country just make me cringe when I hear the things that people have to go through in different states. We won’t name any of those. But in Texas, it’s very easy to be a landlord. We’re able to evict quickly if we need to. The laws definitely favor the landlord.


Challenge of Not Enough Inventory

Robert Helms: Good stuff. Now one thing I wanted to ask you about, and this is more about that eating your own cooking thing, you saw this market get strong, and one of the challenges last year when we talked was, just not a lot of inventory available. The hedge funds had come in, and we’d been squeezed out in terms of margins, so you actually took kind of a detour if you will, and looked at building some property. Talk about that.

Jay Hartley: You know we try to follow market trends the best we can. We want to be ahead of the curve, and know where the pitfalls are if we can avoid them. So, one of the issues we saw coming down the pipe was that we didn’t have enough inventory, and the deals were not strong as far as being able to buy properties and get them for investors, to where they could really make the great cash flow that they were expecting.

So, one of the ways that we tried to offset that was instead of buying, rehabbing, and leasing them out and selling them to investors, the turnkey model, we were having difficulty with that. So one of the solutions we came up with was we decided to start building our own homes.

So, initially I went out, and I hired a good builder – a very reputable builder. We started buying lots and land, and we started building our own homes, leasing them out, selling them to investors. A cheaper price than what they would have paid from a regular builder. And that was a very good model for us.

So we’ve enhanced that as much as we can, and that seems to be really growing for us. And I’m glad I took the risk. I was a little nervous about that at first, cause I’d never built a home in my life. But I got the right members together on my team, and we’re very successful at it.

Robert Helms: Alright, good stuff. Well, as always, great to see you. Thanks for the update.

Jay Hartley: Thanks! Appreciate you being here.

(Get in touch with Jay Hartley)


Pam Blanco’s Take on the Dallas Real Estate Market

Robert Helms: There’s Jay Hartley. We’re in Dallas, Texas talking about the market and what’s going on. Let’s say hello to our good friend Ms. Pam Blanco. How are you?

Pam Blanco: I’m good how are you?dallas real estate market update - Pam Blanco

Robert Helms: I’m good. I hear you’re busy.

Pam Blanco: We’re very busy.

Robert Helms: Yeah, tell us about the market. We are excited to be here. From afar, people are saying Dallas is strong. We wanted to get on the street level and say, you know, you’re working with clients. What’s happening here locally?

Pam Blanco: Well, obviously there’s a demand for inventory. We have a shortage. So, we’ve got a lot of buyers that are still looking for properties. We’re starting to see more inventory come back on the market. So, we’re seeing some foreclosures. So we’re able to get some deals.

Still, the hedge funds are in binds. So they’re a little bit more educated now, so they’re not just paying way over market value. So, some of our hedge funds are paying attention to market values, and ROI’s. We are seeing some good inventory come back, and we’re starting to see business pick back up.

Robert Helms: Well, this is interesting, because you work with a lot of investors, one on one, and you’ve got certainly a book of clients, but you’ve actually represented some of those funds in the past.

Pam Blanco: I have.

Robert Helms: Yeah, so you see both sides of it.

Pam Blanco: I do. And we actually still work with a couple of hedge funds now. They used to buy quite a few properties a month, so we’re starting to see that slow down. So, where they were buying 30-40 a month, they’re buying 10-20. Whether it’s been trial or error, they’ve educated themselves so they’re careful on the properties that they choose.


The Process for Your Investors

Robert Helms: Now let’s talk about the investors that you work with who come in, because you have a little bit different model sometimes with these folks. If someone is looking and interested in the Dallas real estate market place, you’ll go out and you’ll help them find a property, and then kind of manage them through the rehab of it.

Pam Blanco: So, we have investors, we’ll send them ROI sheets. We have a rehab team, or a research team that searches for properties. We’ll send them a list of properties. We’ll walk them through the whole process from you know, their selection through actual closing.

Once they close, we will actually perform the rehab for them. So they have a choice. They can either buy a turnkey property, or they can get a little bit better deal and do the rehab.


Avoiding Over-improving Properties

Robert Helms: Now how do you decide how much work to do? When we toured a couple of your properties, it was amazing to see that you kind of just had a sense, or you tell me of how much is too much work? Cause you can see an over-improved property, where you’re not going to get that return back, but enough where the tenant walks in and goes, yeah!

Pam Blanco: Well, most of it, you know, we’ll try to pick properties that don’t need extensive rehab, so you know, we’re looking at properties that we can work with some of the bones and some of the structure that it has.

So if we don’t have to replace the tile, we’re not going to replace it. So we’re going to pretty much design everything around what is actually there and what is functional. So, sometimes, you know, we have to replace cabinets. But I’m going to say our average rehab is going to be anywhere from $10,000 – $15,000.

Robert Helms: Ok.

Pam Blanco: So we’re trying to keep as much that is there, without having to replace it to save them money.

Robert Helms: And because there’s demand on the trades and so forth, what’s the time for a $10,000 – $15,000 rehab? What’s the turn around time on that?

Pam Blanco: Typically a week.

Robert Helms: Ok. So, you are looking at someone coming in, an investor coming in, buying a property that you know needs work, you’ve done a scope of work, or estimate of value?

Pam Blanco: We do. We actually walk the properties. We get a detailed list of what needs to be done. We give them the price, so once the property closes, our teams have already been in there. So we just send them and they can get it finished.


Apartments Demand in the Dallas Real Estate Market

Robert Helms: Now one of the interesting things as we’ve been getting to know each other over the years, is that you do a lot of single family, but you also do some multi-family and duplexes, four-plexes. How’s that part of the market right now?

Pam Blanco: Again, supply’s pretty low, but when we’re able to find some properties and we can rehab them, they’re typically in lower income areas, so we’re able to go in and offer a better product than what is actually there. So we’re able to get higher rents.

And so we’re starting to set some of those trends in those neighborhoods where we’re getting higher rent, and the expectation of some of the other owners is to rehab their properties, as well. So it’s kind of a win-win.

Robert Helms: Now in terms of kind of that tenant profile, how low do you go? I mean, are you alright working in some of the tougher neighborhoods? Or where’s kind of the sweet spot for what you guys are doing?

Pam Blanco: Typically, we’re going to stay in a little bit higher end. We’re going to try to keep – I think our lowest rent’s $1,095.

So we try to stay in neighborhoods where we’re not going to have a lot of theft, where we’re not going to have a lot of turnover. Because what happens when you’re into some of the lower income areas, these tenants typically don’t have any savings account, so one little thing happens – they get in a car accident – they can’t finish.


Choosing How Much to Spend on Fixing a Property

Robert Helms: So now imagine that you have somebody who comes in and they buy a property and they decide they don’t want to do as much work as you might suggest. Do you just say, “Well, that’s ok.” You handle it or… tell me about that part of it. Cause I might look at your sheet and go, “$15,000? Gosh that makes a really pretty house, Pam, but, can’t we rent this thing if I just slap on some paint?”

Pam Blanco: And sometimes the answer to that is yes. So there are some cosmetic things that we can do, that’s going to make a difference and still be able to get a certain amount of rent.

But obviously we’ve got things that we have to bring up to the landlord codes, so we have to make sure those items are taken care of. You know, but some investors will come in and say I don’t want to replace the appliances. You know, I probably have two more years left on the appliances. Or the AC; I probably have 4 years left.

They actually have a choice to go through our rehab list, and pick out the things that they choose not to do.


Strong Tenant Demand in the Dallas Real Estate Market

Robert Helms: Alright. Good stuff. Now, when you’re looking at the other side of it, which is tenant demand, is that, you’re seeing, strong? Tenant demand still?

Pam Blanco: There is a strong tenant demand. And, you know, but what we also hear is that there’s a lot of management companies out there that their rehabs are less than quality rehabs. So, you know they’ll go look at properties that are in really, really bad shapes, and they know when they come to one of our properties, that they’re going to look very nice.


Acquiring Properties and Financing For Rehab

Robert Helms: Well, and that’s a key. One of the distinctions is saving money, right, as Brian Tracy says, the pain of low quality often outlasts the pleasure of low price. If you cut too many corners, then you’re hurting yourself, because a tenant’s going to look at more than one property, and they’re going to go, “Oooh.” Right? Get that feeling.

Let’s talk about from the acquisitions side. If I buy a property where the work’s all been done, and I’ve got a tenant in there, and I financed that, then everyone knows what that looks like. But in this case, if I’m buying the property, and we looked at one earlier. It was $110,000 to buy it. It’s going to need maybe $15,000 worth of work. How does the financing work on that? Do I have just have to come up with cash for the rehab?

Pam Blanco: Most of the investors will come up with the cash, because they don’t want to finance that, but there are several lenders that will actually loan money for the rehab. So, they’ll put the rehab in with the actual loan on the property. So they can finance their rehab in, and chances are their payments aren’t going to be but maybe couple of dollars more.

Robert Helms: Alright, now, you’re a Texan by choice; you weren’t born here, right? And you and Jay know each other really well, and we always laugh at Jay because he’s been here his whole life. What brought you to Texas, and even more so, does this seem like a market that has enough legs that you’re going to stick around?

Pam Blanco: Well, I love the Dallas Texas real estate market. I’ve been selling real estate for 20 years in this market, and I love it. I’m actually from Ohio, but I came here as a child, so I didn’t have a choice.

Robert Helms: Ah, you were drug along, and you stayed.

Pam Blanco: I won’t leave.


Challenges in Dallas Real Estate Market

Robert Helms: What are the challenges in a market like this? Investors are coming in, Pam, and they’re saying, “Alright, I get it. Dallas is great.” But, what do they need to know before they come into a market like this?

Pam Blanco: They just need to make sure that they’re with a good team. So, that it’s somebody that understands the market, understands the neighborhoods, understands the schools, somebody that can help them, you know, in their decisions. They need a good property management company that’s going to you know look out for their best interests, and make sure that they’re managing that property.

Robert Helms: Alright, good stuff. Well, as always, thanks for your input, and we appreciate your time today.

Pam Blanco: Thank you.

(Get in touch with Pam Blanco)


John Larson and Choosing the Dallas Real Estate Market

Robert Helms: We’re talking about the Dallas real estate market, and so blessed to have some folks who are working in this market, and very excited to introduce our listeners to someone who haven’t talked to before. Let’s say hi to John Larson. Hey John!

John Larson: Hey, Robert! How are you doing?dallas real estate market update - John Larson

Robert Helms: I’m good! Welcome to the program. Now you came to Texas via Michigan. So tell us about your real estate background.

John Larson: Yeah, first and foremost, go blue! And, yeah. So I started off as a high-end, retail, real estate agent in Michigan. Things were good. You know, I learned a lot from there. I learned how to interact with buyers, what certain buyers were looking for, from a retail aspect.

But then, you know, I met a couple of investors who were doing a lot of high end flips in Michigan, and I just quickly realized I was getting a lot more steady business from the investors as opposed to, you know, the finicky “buyers are liars,” which is something we throw around in the retail real estate industry.

But yes, I was just looking for more of a consistent money stream, so I felt like working with investors was the best option for me at that time in my career.

Robert Helms: Alright. We’re focused, of course, today on what’s happening in the Dallas real estate market. And you specifically came to Dallas. So tell us, why Dallas?

John Larson: Well, plain and simple: jobs are why we came to Dallas. We are a turnkey provider. We do produce more of an A class type investment, which, you know it’s average sales price to one of our clients would be $170,000, average rent would be about $1,600.

dallas real estate market update - driven by jobs, job growth map

Growth in clean jobs by state 1998-2007

And we do believe that Texas is the best market right now, and the major cities in Texas, these are the best markets that support that A class model.


The Process For A Class Buying

Robert Helms: Alright. Let’s specifically talk about that model, because for a lot of folks, they want to look at a market and understand kind of the drivers behind it, right? In Real Estate Guys’ vernacular, the first thing is your personal investment philosophy – who you are. Next is the market. I’ve got to find a market that can deliver.

Once I’m pretty solid on a market, and the market is strong, then I’ve got to find a team, cause they’re going to help me, and then ultimately the property. But the property without the team isn’t going to work very well.

So if we’re talking about the market and how strong the market is, then the next thing is (of course you’re talking about jobs and drivers and so forth) but then, do the numbers work? So the A class model is for a person that comes in and says, “You know what? I don’t want to do any of the work. I just want to come in and I’m ready to go.”

So when someone buys a property – when an investor buys a property from you guys, what’s it like?

John Larson: Our properties are top notch. They’re beautiful homes. I mean, you’re looking at homes that range from anywhere from 1,500 square feet all the way up to I’ve sold properties that are 4,000 square feet. Fully renovated, you know we even changed down, everything out to all the light fixtures are brand new, the cover plates for the electrical outlets, and the light switches are completely replaced.

You walk through one of our homes, it almost looks like it’s a high end flip, but it’s a rental property. But we do also strategically make sure that we don’t overspend on these rehabs. It looks nice, it’s very appealing, it’s appealing to our clients, our owners – and it’s also very appealing to our tenants, as well. To where the homes rent out quick, the tenants stay in the properties for about average three years, and they’re actually willing to pay over market value for our rentals.


Investor and Tenant Friendly

Robert Helms: Well, this is interesting, and that’s part of our getting our pulse on the rental market today, that because the rental market is strong, we looked at a couple properties today that were representative, and very clean, very well done, but also with that eye of tenant friendly. Right?

A tenant’s not going to rip this thing up and have it be terrible, used a lot of nice materials, but wear and tear friendly I guess you might say. When a tenant comes there shopping, and they’re looking at three or four properties, and yours might be $100 a month more than the neighborhood property, but you can get that.

John Larson: Absolutely. And that’s the goal. I mean, I obviously I want to set my owners up for success as real estate investors.

Yeah, when they walk through one of our homes as opposed to a home down the street, they’re going to pay that extra $100 just because the home is completely renovated from top to bottom. Everything looks brand new. And it just is definitely worth that extra $100 for sure to that tenant, in that tenant’s eyes.


The Dallas Real Estate Market Versus Some Other Markets

Robert Helms: Now, most of what you guys do is in the Dallas real estate market, but you have some other markets you work in. So, since we’re kind of focusing on the Dallas real estate market, maybe compare and contrast a couple of the other markets that you guys are in, and what the main differences for an investor to consider.

John Larson: Yes, so our main Texas markets are Dallas, Fort Worth, Houston, and San Antonio. We also do produce properties in what I would say is a B class market, in St. Louis and Indianapolis.

Now, the reason why we’re in Texas with the A class model is because the median home prices right now are set at a rate where I can actually go in and produce fully renovated, turnkey asset, in a nice, stable market, and then provide that to my clients at a 6-8% return.

Coming from the Midwest, you see that the median home prices there are a little inflated, to the point where I cannot actually produce an A class property there, and then give that property to my client at a 6-8% return.

So, I do produce what I would say is a B asset. They’re more rent ranges from about $900-$1,100. And my price points on those I would say average sales price about $100,000. Now those are great markets for B class investment; however, like I said, I can’t do an A investment there. But I do have other options for my clients, as well.

Robert Helms: That’s such a great point, that every market is different, and where’s there’s opportunity is different. Right? To be able to produce the same quality of property we walked through today in one of those other markets – it’s not going to make economic sense for an investor.

But a lot of the folks that are selling property there are selling to end users. An owner occupant will pay more for a property. So you’re in a position where you’re primary client base are investors. Couldn’t you put some of those properties in the MLS and get more for them?

John Larson: Absolutely. I can sell any one of my homes in the MLS, especially here in Texas. The areas that we’re buying in strategically, there’s a lot of owner occupants in these areas as well.

I obviously don’t want to buy in neighborhoods where it’s strictly renters, but I do get a lot of repeat business, so many of my clients, they own one of my homes for 6 months to a year, they come back and they want to buy again because they have such a pleasurable experience.

Robert Helms: Well, that’s what you’re after, right?

John Larson: Absolutely.


Things to Learn for New Investors

Robert Helms: Good stuff. So now, I would imagine that you also work with folks that are early in their real estate investment career. Maybe it’s their first or second investment property. So, what do you see with those folks, and what are the things you wish they knew?

John Larson: Well, I wish that they knew a lot more of what went into actually buying these properties distressed, what went into the renovations. What we do, we go above and beyond. As a turnkey provider, we’re assuming all the risks of buying these properties at the foreclosure auction, or sight unseen.

We’re assuming all the risks of the renovation process where a lot of early or new investors might not know to check the foundation, and check the main drain stack, and things like that. Because these are costly expenses, right?

If you go through and just kind of throw some paint on a property, and change the carpet out and the cabinets and whatnot, and make it look appealing for a renter, but then a couple months down the line, all of a sudden, the drain breaks, you’ve got a costly repair there – or you know, the furnace goes out, I mean, these are things that we take care of on the front end, so our clients, our owners, our investors don’t have to worry about this stuff coming up months or years down the line.


Major Fixes Addressed With Goal of No Major Work To Be Done For 10 Years

Robert Helms: Well, you know, the way Pam had talked about a particular investor might say, “You know, I can squeeze two more years out of that,” and certainly they’re inclined if they want to, to do that. It’s their property at the end of the day.

But you shared with us as you were touring us through one of the properties, that you want to make sure that there’s no major work to the degree that you can ensure this, within ten years. You want everything to have serviceable life for ten years.

John Larson: Right, yeah, absolutely. So any major fixes, you know, roofs, all mechanicals, hot water tanks, HVAC – those things we need to make sure that there’s at least ten years left of life on those types of fixes.

So that’s another thing that we take above and beyond providing this turnkey asset. And I’m willing to warranty all these properties for one year after sale, because I do check to make sure all those big fixes, those big fix items, have at least ten years left of life on them.


Turnkey: Renovated and Rented Out

Robert Helms: Now we talk often about this idea of turnkey, and that means different things for different people. So, in your world, is that a property that a property that’s tenanted already? Or it is just already to go?

John Larson: Yeah, my properties, when I say turnkey, that means that this property is fully renovated, and there is someone in there paying rent, right when you close on the property. And if for some reason whatsoever, I mean, the rental market right now in Texas is unreal, so, I have no problem renting out my properties.

But let’s just say you close on a property that’s under renovation, and I don’t get it done on time, and you close on it. I’m still going to cover that rent, because I’m providing a turnkey asset, until we get that property finished, and I have someone in there physically paying rent each month.


Comparing Dallas and Other Markets in Texas

Robert Helms: Well, I know we’re here focusing on the Dallas Real Estate market. Let’s also talk just quickly about the other Texas markets and what you see there. If you’re within a state, and you see, you know, a lot of the top markets in the predictions show we did a few weeks back were in Texas.

Any nuances or differences there? What’s an investor going to see in San Antonio or Houston that might be different than what they’re going to find in Dallas?

Dallas real estate market update - Texas triangle, map of San Antonio, Dallas and Houston

John Larson: Well, it’s pretty similar. I mean, the price points are pretty similar right now. I think we’re seeing in Dallas, prices are probably higher in Dallas than in my other markets, and the prices keep going up faster in Dallas than the other markets.

But in terms of the quality of house that you can purchase in these markets, and what they rent for – we’re all pretty much in line, all four of these markets in Texas.

Robert Helms: Alright, good stuff. Well, this has been awesome. We’re going to plan to get you back on the show and talk in more detail about what you guys do, but really appreciate you sharing, kind of as the new kid on the block in the Real Estate Guys’ world, and the guy who strategically came to Dallas, what you’re seeing in the market. Good stuff.

John Larson: Yep. Thanks, Robert.


Considering Opportunities and Risks In Real Estate

Robert Helms: We’re in Dallas, Texas, talking about the market, and oh my goodness, sounds pretty good!

Russell Gray: Yeah, it’s great. So I guess in summary I would say the bulls are still running in Big D.

Robert Helms: It seems like they are.

Russell Gray: Yeah, and that’s good, because you have to do that, you know, the thing is you know, I love stats, right? I’m the research guy, financial strategist guy. I like to go back and look at the numbers.

The problem is, when you’re looking at statistics, you’re looking in the rearview mirror. You’re looking at what happened a year ago, last quarter. I mean, if you’re doing real good, it’s like, “This is what happened last month,” right?

But when you get a chance to talk to people, boots on the ground, people that are dealing with tenants, dealing with buyers, dealing with sellers that are tracking, they know how many people are standing in line right down to the neighborhood and product type. That’s where you get real time data. That’s your thumb on the pulse.

That’s why we do these types of trips, right? It’s the only way to do it. Because you see the data, you’re like, “Ok, I can see what’s going on.”

Well, we’ve heard the whisperings, right? “Oh, oil is coming down, and it’s going to have this detrimental effect on Texas economy, and Dallas obviously is a big part of the Texas economy. It’s the largest economy in the state of Texas.

And you have to wonder, what kind of effect is that going to have? Those things show up at the street level. They show up in demand, where tenants can’t pay if they don’t have jobs, if they don’t have incomes. Prices can’t get bid up if people aren’t moving there. Those are the types of things that you don’t see.

And a lot of times people think that housing, for example, is a driver of economic activity; you heard the Feds say that all the time. “Oh, housing – we’ve got to stimulate housing, because it stimulates the economy.” My personal opinion is that’s backwards!

Robert Helms: It’s the other way around.

Russell Gray: Yeah, housing is a reflection of a dynamic economy, so when I come into a town like Dallas, and I look at it in terms of its bones, you know, the infrastructure, the diversity, all the things we talked about at the top of the show. It’s like, “Ok, this market makes sense.” Now I want to take the temperature.

I want to see, is this really manifesting at the street level? Is it showing up in housing? Not is somebody goosing housing to create an artificial reading, but is it really showing up where it matters?

People like Jay, Pam, and John, who are at the street level, who are bidding on properties, who are screening tenants, who are placing people, or having to push through rent increases. And having, you know, Jay’s talking about saying to the tenants, “Hey, you know what? You’re going to have to accept this, because this is the market.”

Robert Helms: Right, look around you.

Russell Gray: “This is the market you’re in.” And so, for me, coming here and hearing all of this from these guys is exciting. Because you know, I started to wonder, is this over. Yes I know that you can’t buy the properties as inexpensively as you used to. I get that. And so, that’s just the price you pay.

If we do have an economic downturn, I hope everybody’s excited about that, right? It’s not something to run away from. It’s going to be an opportunity to step in and buy. Jay said, “Hey, if only you guys would have been buying 5 or 6 years ago.” Well, these things run in cycles. The big question is, is this bull, in Dallas, done running? And I think based on what these folks all had to say, not yet. Probably still time to get in and take a look at it. So I’m glad we’re here.

Robert Helms: Hearing John say that, “Well, the prices are higher in the Dallas real estate market, and they’re going up higher in the Dallas real estate market,” I mean, I don’t think you ever could have said those words in the past. Ten years ago in Dallas, I mean, the price was the same as it was last year.

Russell Gray: Well, you know, that was one of my big things. When we first started coming here on field trips, I was in Los Angeles in 1979 / 1980. I commuted from Rancho Cucamonga, which is way out in San Bernardino County, all the way into the beach cities, where I worked in Long Beach.

So I got a chance to cover a lot of ground. It was more than a 60 mile, one way commute. Back then there was open space between the cities, right, as I would come through.

Today, it’s not like that at all. It’s one big blur. When we first started coming to Dallas, I noticed that the cities, and all this open space, you know, Grand Prairie for example, used to be this grand prairie between the two metropolitan areas, right? And now it’s beginning to blur in. And when you start to see that, you realize that a market changes its personality.

You know, the old Neil Diamond song (and I know, I’m aging myself right now, clearly), but he opens up with “I am, I said,” he goes, you know, “LA’s fine, the sun shines most of the time, but the rents are low.” Well, nobody says rents are low in LA today, but the market changed. Right?

He was talking about New York, it was really crowded, really competitive, really congested, rents were high. You come out to California, open, and cheap rent. But then a funny thing happened – it all filled up. I see that same thing happening in Dallas right now. And the Dallas real estate market has gone from pre-crash, being kind of a steady rental market, to being an appreciation market. It still cash flows.

You know, to me, that’s a window of opportunity. If I could go back in time and buy in LA when property still cash flowed, and hold onto those things for the next 10-15 years based on locking in permanent financing, I’m going to see an escalation of rents, I’m going to see an escalation of value, and I fixed my debt. That’s pretty good.

I’m not saying – no predictions here from me – I’m just saying, when you look at it, and you kind of look at comparing one market to another market, there’s a lot of things I think, still to like about the Dallas real estate market.

dallas real estate market - dfw economic overview

Robert Helms: Well, there’s no real estate market that’s risk free, right? Clint Eastwood says, if you want a guarantee buy a toaster. But if you’re going to invest in real estate, you’re going to take risks. And I don’t think it’s if there’s going to be an economic downturn. It’s when the next one happens.

A property that’s purchased correctly, that has a bread and butter type tenant (it’s not about the tenant in it today, it’s about the person standing in line when the person moves out, right?), if there’s enough tenant base, you’re going to weather that storm. Buying right makes a lot of sense, and not buying into the hype.

What’s great about a market like this is the diversity of jobs and industries means that there’s a diversity of tenants. You know, buying something that’s at the high end, that might work today, but that isn’t going to work in every market. Buying at the super low end maybe doesn’t work in every market. But when you’re talking about those solid rental properties, you know, that’s a good thing to have in your portfolio. Doesn’t mean you put all your eggs in one basket, but it’s hard to go wrong.


Understanding How Various Markets Work With Each Other

Russell Gray: Well, this one of the things. You get a lot of market observers, and they try and dump real estate into an asset class, and say, “Well, you know, real estate’s in a bubble.”

Real estate’s not an asset class. Real estate can be down in one market, say, Detroit, Michigan, and it can be up in another market, say, Dallas, Texas, right? And so John’s story, about moving because there was jobs here. When there’s economic distress across the nation, then people move to where they have the best opportunity, where they have the best quality of life, where they can afford to have the things they used to have in a more expensive market. So let’s say that there’s a down turn.

You have to look at the major cities. Where would people want to move? I think Dallas, personally, has been actually a beneficiary of some of the weakness of other economic areas in the United States. Companies have moved here because it has a great labor pool, friendly business climate, friendly tax climate, great infrastructure.

Companies come here, they create jobs, and people come here for the jobs. I think that if we were to have another substantial downturn, and I would agree with you, I don’t think it’s a matter of if, it’s a matter of when – I still think Dallas is going to end up being a winner.

It’s going to be on the short list of places people will go seeking a better opportunity. I think there are other places in the country that are large population bases right now, that are not going to be places people want to go to. They are going to be places people and companies want to flee from. And I think that when they look at Dallas, Texas, as one of the choices, it’s going to be on the short list of places they want to be.

Robert Helms: So come see Dallas. If you’ve listened to the Real Estate Guys for any period of time, you know that we love to go out and do our field trips, and we’re going to plan one of those. We don’t have a date on the calendar, but if you go to the website at and look at events, you’ll see the Dallas field trip, that’s a place for you to say, “Hey, I’d be interested in that,” and then when we have a date we’ll let you know, cause the fine folks you heard today are very interested in showing you this marketplace.

And you’ve got to see the market first, before you even think about buying a property – understand what the drivers of the market are. Now, if you’re ready to go before that, you’re thinking, “You know what? No, I get it. And I want to buy a house this weekend.” Well, awesome.

Go to our website, and you’ll be able to in our resource center, find links to find all of the folks you heart today on the program, and go ahead and reach out and make contact. They’d be more than happy to let you know what’s happening in their neck of the big Dallas woods.

Hey, big thanks to Jay, and John, and Pam for being with us today, and next week on the show, more good stuff. So, tell a friend about the Real Estate Guys.

Until then, go out and make some equity happen.


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5/5/13: Doing the Thing – How Real Life Investors are Thriving in Today’s Real Estate Market

If you’re a regular listener, you know we’ve had Donald Trump, Robert Kiyosaki, Steve Forbes, Herman Cain, Ken McElroy, Peter Schiff and a whole gaggle of famous investors and businesspeople on the show.

What can we say?  We’re awesome (and humble).

But if you’re an everyday guy or gal out there getting started in real estate investing – or maybe even have a few properties in your portfolio – maybe you don’t quite relate to these big time people.  After all, Trump and Forbes were both born into money.  Sure, they did a great job growing it, but it helps to start from a base of several million dollars (not to take ANYTHING away from their amazing accomplishments).

Then there’s guys like Ken McElroy and Peter Schiff, who are self-made multi-multimillionaires, which is perhaps awesome…er.  At least we can relate to starting out with nothing, but still…when you’re talking to guys at that level about what they’re up to today, your eyes roll a little bit.

So, to make it a whole lot more real in today’s market, we round up three real life, every day, doing-the-thing-right-now investors, and get put there nervous selves in behind The Real Estate Guys™ magical microphones and ask them to talk candidly about what they’re doing right now to build their real estate empires.

Lending their voices to the collective wisdom of the radio airwaves:

  • Your bigger than life host, Robert Helms
  • Your older than earth co-host, the Godfather of real estate, Bob Helms
  • Real life investor #1, from Los Angeles, “Action” Andrew Lanoie
  • Real life investor #2, from Silicon Valley, John “Just Do It” Kubel
  • Real life investor #3 (and professional property manager), from Arlington, Texas, Jay “Make It Happen” Hartley

You’ve probably heard the saying, “If it was easy, then everybody would do it.”   In the real world, most people only dream and hope.  A few actually make plans.  Then, there’s the very elite group of people who actually go out an take massive action.

Guess who has the best chance of success?  Of course, the folks that go for it.

But it isn’t always pretty and there are no guarantees.  That’s why being achievement is so special.

As we learn from contestant number 1, it’s possible to go from education to effective action pretty fast!  In less than two years, Andrew has acquired several single family properties in three diverse markets.

So what’s Andrew’s secret to success?

First, he started with education.  And he understands that education isn’t just in the classroom, but also in the real world application.  This is important because many people think they need to know everything before they move forward.  The reality is that what you need to know is enough to get in the game without getting killed.

Second, he developed a model and stayed focused.  We like to say “Get rich in a niche”.  The point is to find something that works and keeping working and perfecting it.

Third, he leverages partnerships to expand his model beyond his own resources with a focus on win-win deals.

Okay, so the secrets aren’t so “secret”.  They’re really common sense.  The big difference?  Andrew is actually DOING IT.  And of course, along the way he’s learned a lot.  Best of all, he’s happy to share it and we’re sure you’re going to enjoy his pearls of wisdom.

And now, on to contestant #2, John Kubel.

John’s a Silicon Valley guy so you know he’s smart.  But as we’ve discussed, there are lots of smart people who don’t do anything.  What’s great about John is he’s really doing the thing.

Like Andrew, John started with education first.  And like Andrew, he realizes that while education might start in the classroom, it’s perfected in the real world.

Today, in just a few years, he already owns properties in four states and two countries!

And, like Andrew (are you detecting a theme?), John is getting it done by leveraging the power of a team.  This is especially true when you’re holding down a day job.

However, after getting to know both John and Andrew, there are some differences.

Andrew is a very outgoing, social guy.  John is a typical Silicon Valley data-driven guy.  Neither is better or worse than the other, they’re simply different.

So John talks a little about how important getting moving is to converting education into results.  So it is possible to be analytical and action oriented!

And now to contestant #3, Jay Hartley…

If you’re a long-time regular listener to The Real Estate Guys™ radio show, then you probably recognize Jay.  He’s been on the show a couple of times in his capacity as a property manager in the Dallas / Fort Worth market.

But today, we’re focusing on Jay as an investor.  Remember, Ken McElroy started out as a humble property manager.  Then, employing the same essential strategies as our three guests today, went on to build a very successful portfolio of properties and businesses.  So we viewed talking with Jay as a chance to go back  in time to talk to a modern day Ken McElroy before he was a big time real estate guy.

Jay was born into a real estate family.  But it was when we was a renter and he realized he was paying more than enough every month to be the owner, so he took the leap.  And so his roller coaster ride as a real estate investor began.

Like many investors, Jay has made his share of mistakes.  And he wisely recognizes that these are where some of the best lessons are.

Of course, as a professional property manager, he’s also able to learn vicariously through the mistakes of others.  And he’s able to use this collective knowledge not just for his own benefit, but also for the benefit of his clients.

So listen in to these three real life investors and glean important lessons you can put into action to advance your own real estate investing dreams!

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