Texas Realty Blog

East Texas Resident Sentenced for Defrauding Investors

Crime isn't paying for a resident in East Texas, who were recently convicted of real estate fraud. Jack A. Brown, from Tyler, took investors for more than $27M. According to the article from News-Journal.com, Brown was ordered to pay restitution of  $8,286,950 while his partners were each ordered to pay $27,540,302.

Between 2001 and 2004, Fleder, Brown, and Sherman devised a series of joint real estate ventures. Through newspaper advertisements and seminars, Fleder recruited insurance agents, financial advisers and others to sell interests in these real estate projects in South Carolina, Virginia and Lindale.

Fleder and Brown promised investors their money would be used to develop these tracts, and they would share in the profits. The defendants also told investors modular homes would be placed on the properties, officials said. They misrepresented the true merits of the investments, property ownership, its value, and the use of investment proceeds, according to a press release from federal officials.

I've had conversations with agents and clients the past few days about the number of scams and unethical investors involved in real estate. Many investors that are know are good people who are straightforward with potential buyers and seller, but there has been a noticeable increase in the number of investors who are inexperienced and/or outright dishonest.

In this case, a consumer defrauded investors, which illustrates that even experienced investors can become victims if they aren't careful.

Link: Marshall man sentenced in real estate fraud.

What's the difference? Real Estate Broker, REALTOR®, Agent

I know some of you may find this subject to be Real Estate 101, but I come across a lot of people, including agents, who don't understand the difference between a real estate broker, salesperson/agent, and REALTOR®.

REAL ESTATE AGENT

First, a real estate agent is a person who is licensed by their state to sell, lease, or manage real estate. Each state has a real estate commission that oversees the education, conduct, and issuance of real estate licenses. The Texas Real Estate Commission calls agents salespersons. TREC's (pronounced, TREK) website outlines criteria to get a license.

REAL ESTATE BROKER

In order to practice real estate, a salesperson must be sponsored by (work for) a real estate broker. In some states, including Texas, a broker has to have been an active real estate salesperson for at least two years, pass a longer exam, and meet additional educational requirements. Once the broker license is issued, the real estate practitioner may start their own company or continue working for another broker. In my case, I have continued to work with Keller Williams Realty because they have a structure that allows me to form my own team (mini-brokerage) within their franchise.

REALTOR®

The most confusion comes from people using REALTOR® in a general sense to describe a licensee who sells real estate. Often pronounced, REAL-A-TOR, this use is a violation of the copyright that the National Association of REALTORS® (NAR) has. NAR is a professional association of real estate brokers and agents. REALTORS®, unlike real estate agents, have subscribed to follow a code of ethics and will most likely have MLS access, a perk of joining the organization. You can find out if an agent is a REALTOR® by checking with your local board or association of REALTORS. In Austin, it's the Austin Board of REALTORS® (ABOR).

WHERE TO GO WHEN AGENTS ARE BAD

Consumers often want to know where to complain or find out if their agent acted inappropriately. If the agent is a member of their local board or association, you can contact them. They can issue fines for issues such as bad MLS data, not following the code of ethics, settle commission disputes, etc.

The real estate commission is where you'd go if your agent violated licensee law, which is often posted on their website. If it's not on their site, you can call to ask. They don't handle commission disputes, but can issue penalties and fines for violating the law. Penalties may even include revoking or suspending a license.

City of Austin Rethinks Building Height Restrictions

I had a friend in town this weekend who is from Switzerland. She moved from Austin back to her hometown of Bern, Switzerland about four years ago. She was amazed at how much we've changed and seemed very happy at the "more metropolitan" look of the new mixed-use commercial developments.

I was at a meeting a month ago where Mayor Will Wynn discussed the new direction for Austin. In the past, the city wanted to limit height restrictions in central areas to inhibit development. Decades later, city leaders understand and accept that Austin will grow despite any barriers they try to put in the way of development. Austin would now like to open it's arms to developers of mixed-use commercial properties, especially in central neighborhoods.

Here is the email I received, which announced the city meeting that will take place on December 13th for Mueller Redevelopment areas:

Please participate in an informational meeting on Wednesday, December 13, 6-9 p.m., at the Region XIII Education Center, 5701 Springdale, on the Vertical Mixed Use Opt-in Opt-out process. The VMU option is part of the new City Council-approved Commercial Design Standards Ordinance. This ordinance was crafted by a citizen task force, City staff, and City consultants. A Vertical Mixed Use (VMU) overlay would allow property owners to develop non-residentially zoned property in a new way.  A use on the first floor of a building could be commercial and above, you could see a residential use, such as condominiums.

Properties along certain streets in your neighborhood, called Core Transit Corridors, have been designated as potential areas where the VMU overlay may be appropriate.  Other properties within your neighborhood may be appropriate for Vertical Mixed Use buildings as well.  The City needs your help to determine which properties within your neighborhood are appropriate for this sort of development.  All organized neighborhood groups have been asked to participate in the VMU Opt-in/ Opt-out process.

Unfortunately, I will be out of town in a commercial real estate analysis class. If you want to read the guidelines for yourself, download the updated commercial design guidelines (pdf).

REALTOR® Magazine Provides Insights on Doing Business in Mexico

Many second-home buyers and investors are flocking to Mexico and other areas of Central America to buy properties. With many baby boomers moving from colder clients, American are investing in droves.

I'd like to invest in Mexico or outside of the U.S. soon, so wanted to cover the recent article about doing business in Mexico. Investors and agents need to heed culture differences and pay attention to local customs.

From the article, here are six cultural tips for U.S. practitioners looking to establish relationships with Mexican real estate professionals or clients:

    * Don't show up early. If you’re invited to a home for a social occasion, it’s customary to arrive 30 to 60 minutes after the scheduled time.
    * Keep conversation light. Polite conversation starters include Mexican scenery and landmarks, the immediate surroundings, and sports. Avoid topics such as religion, politics, the Mexican-American War, and immigration.
    * Avoid romantic misunderstandings. A female inviting a male client or associate to a business meal should also invite his wife to avoid any misunderstanding as to the purpose the meeting.
    * Pay servers directly. When paying at a store or restaurant in Mexico, place the money or credit card directly in the hand of the clerk or server; it’s considered rude to leave it on the table or counter.
    * Don't hide your hands. While dining, keep both hands visible, resting your wrists on the edge of the table.
    * Know the meaning of colors. If making a gift of flowers, be careful which ones you choose. Yellow flowers signify death, while red flowers signify the casting of spells.

Read the full story at RealtorMag Online.

Canyon Lake Area Booming

From the San Antonio Express-News this week:

What was once a quiet, rural retreat for folks looking for isolation still boasts million-dollar views, but increasingly, the views come with a price tag to match. Canyon Lake has been discovered. In the past five years, the median home price has increased 25 percent from $145,000 to $180,000, according to the Canyon Lake Board of Realtors. It is the largest percentage increase in Comal County, outpacing New Braunfels, Bulverde and Spring Branch. But the land itself is seeing the biggest price increases.

In 2001, 37 lots sold, and the average sale price was $8,000, according to board officials. So far this year, 429 lots have sold. While the majority are still under $25,000, 85 were in the $25,000 to $50,000 range and 119 were above $50,000.

A sales manager with River Chase, a new development northeast of the lake, where lots are still being released, has seen lots in his development go from $20,000 for two acres in 1999 to $70,000 for one acre. Area real estate agents say the rapid growth and appreciation have been the result of a kind of perfect storm in real estate: developers eager to cash in on the high-dollar demand for lake views; out-of-state investors cashing out of waning markets on the East and West Coasts and hoping to find a place to park their money to avoid capital gains taxes; and San Antonio families willing to commute to find affordable housing in the area.

Types of Listing Agreements: There's more than One!

I came across a question on REIclub.com. A seller wanted to hire two agents to sell his home because he liked both. He asked if he can have a listing agreement with more than one agent. The answer is YES.

About.com explained the types of listing agreements available. Investors and some sellers may want to be creative when selling their home by using one of the less-used listing agreements. Again, I am just posting this so sellers and investors can know their options.

1. Open Listing:An open listing lets an owner sell her home by herself. It is a non-exclusive agreement, meaning the owner may execute open listings with more than one real estate broker and pay only the broker who brings an able buyer whose offer the owner accepts.
2. Exclusive Agency:An exclusive agency listing is similiar to an open listing except the major difference is the broker will represent the owner. The owner still reserves the right to sell the property herself and not pay a commission. The broker is free to cooperate with another brokerage, meaning the second brokerage could bring an able buyer whose offer the owner accepts. Typically, the broker is paid a listing commission that is shared with the selling broker, so the owner pays both fees.
3. Exclusive Right to Sell: An exclusive right-to-sell listing is the most commonly utilized instrument. It gives the broker the exclusive right to earn a commission by representing the owner and bringing a buyer, either through another brokerage or directly. The owner pays both the listing and selling broker fees. The owner cannot sell the property herself without paying a commission, unless an exception is noted in the contract.

The downside of using a non-exclusive listing would be that you may not get a good response from an agent who may be really good at marketing and selling homes. The most popular agents in your area may prefer to work with a you exclusively rather than have the potential of working very hard with no semi-guaranteed pay. I say "semi-guaranteed" because you should remember that the agent will usually work for free to sell your home and will only get paid at closing anyway.

Investor Help: Where to Find Private Investors

I try to respond to questions in forums such as REIclub.com when I get a chance. A recent poster asked where to find big, private investors. A few responders were unhelpful, so I chimed in.

QUESTION: I need some Multi-Million investors for great deals running 50-68% LTV...I just got nowhere to go with them..

MY RESPONSE#1: You can find big investors by building relationships. It takes a while, but they come to you after you build your reputation or you come across them as you network. We have investor clubs in town and most of the "Big" guys are the quiet, reliable ones who keep to themselves. It takes a while to develop a relationship with them because they have to trust your experience and ethics first.

You won't have a hard time finding big investors if you have a strong reputation, are known for doing deals, and work by word-of-mouth.

MY RESPONSE #2: You may also want to try other business clubs and other professional networks. Real estate-related business groups may be best for you. You'd be able to network with builders, agents, lenders etc. I'll try to rattle off a few real quick:

1. Local chapter of the National Home Builder's Association. There's also NAHREP, which is big here. The National Association of Hispanic Real Estate Professionals.
2. Local CCIM chapter (commercial) re or REALTOR groups such as the WCR (Women's Council of REALTORS) or other member organizations.
3. BNI-type networking groups that allow one person of each profession.
4. Your local Chamber of Commerce. Ours has subgroups such as the South and Northwest Austin Chambers. We also have ethnic chambers of commerce. Anytime you can meet other business folks, it helps.

Network, network, network. Connect with lawyers, etc. and let all the professionals you meet know that you solve problems.

1. Make sure they know what types of problems you solve and who they should refer to you. Tell them how much of a finder's fee you pay, if you pay one.
2. Make sure they remember you by following up after you meet them just to keep in touch.
3. Put all of the names in a database so you can keep track of who is sending you business, etc.

Read the full thread.

Investor Lesson: Wendy Patton Teaches Pre-Construction Investing

I listened to a Millionaire Investor weekly conference call this past weekend. Wendy Patton is known for lease option investing, but she's also an expert at investing in pre-construction. I wanted to outline a few tips on pre-construction investing as well as remind readers of the Millionaire Systems resource, which provides a weekly conference call for investors as part of the Millionaire Real Estate Investor book and system.

Investors may choose pre-construction because the projects usually appreciate by the time the properties are built. Some may choose to keep them as rental units, assign the contract, or sell the property (to owner-occupants or even other investors) when it's finished.

1. Make sure you get to the builder as early as possible. Once the builder is in Phase II or III, they don't need investors anymore. Network with agents and builders so you can work with "motivated" sellers. You'll get the bests deals during "Phase Zero", then the builder often needs to pre-sell 30-50% of the units before they can get financing.
2. Try to get an assignable contract. Most builders won't allow assignments, but I found an article on REIclub.com on how to get around non-assignable contracts. Basically, you can form an LLC for the purpose of purchasing the property, then "sell" the LLC to the assignee buyer. It's not as complicated as it sounds and can be used when purchasing from banks. Check with a legal specialist about this.
3. Don't purchase in HOT markets. If they're already too hot, you may be buying a dud that will sit on the market once the property is completed 1-2 years down the road.
4. If you can get a property with an earnest money deposit instead of a construction loan, go for it. This is the best way to use leverage since you're only making small deposit to reserve the purchase. You only need to put a mortgage on the property once you get closer to the closing. Hopefully, you've already assigned your contract by this time, if that's your strategy.
5. As always, you make money when you buy, not when you sell. Negotiate to get free upgrades and only choose upgrades that have a direct impact on the bottom line. You don't need the nicest finish out, just one that's right for your market. The last thing you'd want is to have the most expensive property because you chose the most upgrades.

The Wendy Patton audio is free until November 7th. After that, you can purchase for only $2.

Additional Resources: Pre-construction investing outlined by Justin Ryan. Free worksheet downloads. Free weekly conference calls.

Austin Business Journal: Texas #2 for Site Selection

AUSTIN (Austin Business Journal) – Texas is a great place to do business, second only to North Carolina. That's the word according to this month’s issue of Site Selection, which features the 2006 list of top business climates.

The annual ranking is determined 50 percent by performance of the state in Conway Data's New Plant Database, which tracks new and expanded business facility activity, and 50 percent by a survey of corporate site seekers across the country.

The survey asked decision makers one key question: "Based on your experience, what are the top ten state business climates, taking into consideration such factors as lack of red tape, financial assistance and government officials' cooperation?"

Rounding out the top ten states were Ohio, Georgia, Tennessee, Indiana, Kentucky, Alabama, Michigan and South Carolina.

For those of you interested in site selection or land development in Texas, the Urban Land Institute is hosting their Third Annual Emerging Trends in Real Estate November 17th in Austin from 11am to 1pm. Contact us for more info or visit Austin.ULI.org.

Annual San Antonio CCIM Symposium to Take Place Next Wednesday

The San Antonio CCIM Chapter will host their 2006 Symposium on Wednesday, November 8, 2006 at the Westin La Cantera Resort. According to their site, attendees will be provided with information about the statistics in the retail, office, land, industry and multi-family industries. Five industry speakers will give a short overview of where the market is headed in each of their respective industries, followed by a statistical analysis. Attendance is expected to exceed 400.

If you are able to attend or you know someone who may, it would be a great networking opportunity. There should also be some great information for investors interested in the San Antonio real estate market. The event may not be sold out. If it is not, cost is $100 member/ $130 non-member before 11/01.