Markets That Should Be On Your Radar in 2019
John Larson and the Real Estate Cowboys talk passive income real estate investing.
Hear new episodes every Sunday morning at 8 a.m. The Cowboys talk about a new report from PricewaterhouseCoopers ranking DFW as the top market to watch. Hear why.
Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.
Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John.
John Larson: Hello, hello my Real Estate Cowboys. This is your host, John Larson. Welcome to another episode of the Real Estate Cowboys podcast. This week we are going to be discussing a report that just came out from PricewaterhouseCoopers, which is the second largest professional services company in the entire world. And each year they put out reports on emerging real estate markets, trends, so on and so forth. So their 2019 report just came out and their number one market to look out for in 2019 was Dallas-Fort Worth. Dallas-Fort Worth has returned to the number one spot after taking a year off. Last year Seattle was number one, so DFW is back on the list and it was not very surprising to me to see that because of the fact of many of the things that we talk about on the show all the time. It seems like every week the growing population here, the very diverse economy, the job growth, the affordable real estate market here, affordable cost of living, room to grow, lots of land, all those things played a role in Dallas returning to that number one spot. And a chief economist for an institutional investor remarked that Dallas-Fort Worth, he said it’s an interesting market and it’s one with the potential for strong future growth, but also with the liquidity of a gateway market like LA, you know, Seattle, Boston, DC, so on and so forth. Uh, so they rank Dallas-Fort Worth as a market that’s up there with these gateway markets in terms of liquidity. Second in that list was Brooklyn, which was kind of interesting. And Florida also had a lot of cities. They’re in that top 20 as well. Orlando is in the top five. Tampa Bay is in the top 10 and Miami and Fort Lauderdale ranked in the top 20. So Florida is also a market that I really like. There’s a lot of good, fast-growing cities in the Florida market and basically, they are the ones that I just named.
John Larson: But DFW returning to number one was definitely not a surprise for me. And it makes me feel really good about the investment opportunities that we have going into 2019, which are mainly commercial developments, office buildings maybe dipping into some retail space here in 2019. A lot of big things that we have coming up here in DFW in 2019. And seeing Dallas-Fort Worth returned to the number one list from PricewaterhouseCoopers, It made me feel good, Right? It made me feel confident that what I’m doing is right and I’m on the right path. They also had some statistics on employment growth going into 2019 and stability. So they have 2019’s top markets that are expecting high growth and low volatility. And the number one city that hit that list was Austin. So we all know Austin has been booming for years. It’s continuing to boom, a lot of tech jobs moving into the Austin area. A lot of people migrating from California into Texas and primarily Austin, but also DFW. And so it was no surprise to me to see that, uh, Austin was number one on that list. Orlando was second in terms of the actual potential growth, but it didn’t have as good of a stability ratio as Austin and Dallas-Fort Worth. So behind Austin, DFW actually had the highest amount of growth with the greatest amount of stability, lowest volatility rating, so that makes sense to me. Uh, these Texas markets because of the no state tax because of the business-friendly climate. I totally can understand why these two cities in Texas rank very high on that graph. Another thing, a couple of other cities that made it into the top five were Raleigh, North Carolina, and Nashville, Tennessee. That rounded out the top five. Boston remains in the top 10 as the highest ranked gateway market for 2019. Los Angeles slipped slightly from last year but remains in the top 20. And the biggest movement of the gateway markets was a return of Washington DC to the top 20 list. And I’m sure that that is kind of attributed to the fact that Amazon has decided to move their HQ2 to the DC area. And then Seattle, that was ranked number one last year, has slipped to number 16 this year. But DFW back to number one. Very excited to see that.
John Larson: So there were a couple of other things in the report that really stood out to me. One of the things was they were talking about debt funds and the popularity of debt funds in the market today. If you know, if you’ve been listening to the Real Estate Cowboys podcasts on a weekly basis, you know that we’re very much involved in debt syndications now and going to our investors for private lending to go take down these commercial buildings here in the DFW market or build new commercial buildings here in DFW.
John Larson: Because there is a very big demand for those spaces here. And I expect that the demand to continue into 2019. But there’s been a rapid growth of private debt funds over the past 10 years basically since you know, the last recession of 2018. And they fill an important gap in the liquidity crunch that started in the last recession. And the benefit of the debt funds is they are able to offer higher, higher yield loan products in a returns hungry real estate capital market. So a lot of our investors are looking for these higher returns on their money and higher cash flow and debt is a good way to get that. Debt funding is a great way to make that happen. These debt syndications that we offer, um, most of them pay 10 and a half percent and some of the opportunities can pay as much as 12 percent. So, a great way to earn truly passive income on your investment dollars. The benefits of a debt fund for us is they provide higher leverage, in some cases, 100 percent loan to value. It’s greater speed, easier to deal with, then going to the banks. And, and I really expect banks to get real tight with their funds moving into 2019. They’re already talking about raising the interest rates again. And the interest rates are supposed to get up to five percent for a retail home buyer here in 2019, which means that the rate’s gonna go up even more for investors. Right now it’s at about six percent or greater. So I expect that to continue here in 2019 and beyond. Obviously, it’s attractive to us as borrowers because we can get deals funded faster and a lot easier by syndicating debt from our investors as opposed to dealing with the banks.
John Larson: And that price premium that I talked about is passed onto you as the investor. So it’s a win-win. We’re willing to pay our investors a higher interest payment than we make with a bank. But these banks are gonna require more money down moving forward, I believe, and they’re just going to be a little bit more difficult to work with. I don’t think that banks will be lending money as easily as they have been in recent years. So we’re just trying to get ahead of that problem, which is why we’ve opened up our private money lending program. And we have over 100 investors who have invested in our private money lending opportunities since we started in 2018 and now moving into 2019. And we’re about to finish up funding another deal that we have that I’ve talked about up in North Dallas and we’ll be looking…I actually have a couple of opportunities I’m looking at in the DFW area, uh, that we will start raising for here soon. As you know, last week I was talking about the popularity of CBD. We’re very much involved in that business as well. We may be looking at potentially starting a CBD facility in Denver, so maybe we will also be looking in the Denver market for a possible private money lending debt syndication for our CBD business. And actually, Denver ranked eighth on the US markets to watch just behind Austin there at six, Austin at six and Boston at seven. The next was Denver, so Denver is there in that top 10 as well. So we believe that Denver is still a really solid market to invest in real estate also. So we’ll see what our next syndication opportunity is, but it’s going to be something here either in Dallas or maybe possibly Denver like I said. And our investors are seeing double-digit returns on those opportunities. And perhaps if we move up to Denver we might even be able to offer a higher rate of return on our debt syndications, which has been pretty much at 10 and a half percent here in the past few deals that we’ve done.
John Larson: So you know how I found it interesting that the report from PricewaterhouseCoopers was also talking about the popularity of debt funds moving forward. You know, they also touched on the fact that equity syndications, although they may provide higher yields, they’re more vulnerable to losses in a downturn. And I am expecting to see a bit of a downturn. We’re already kind of seeing it in many markets across America. A downturn in the real estate market which could have a negative effect, it will have a negative effect on the returns that were promised to you on equity syndication. Because obviously in a downturn with the volatility in the market, you know these sponsors may not be able to sell the property at the price that they thought they would, right, when the market was more healthy one, two, three years ago. And we’re definitely coming into a correction. I’ve been talking about that a lot on the show. That obviously can have a big, big hit on any equity syndications that you have going on. It’s not a guarantee with equity syndication. You’re not getting a guaranteed return. It’s, hey, if everything goes according to plan, you’re going to see a 30 percent return on your money. So a lot of my investors are moving towards the debt syndication opportunities because it’s pretty much a guarantee in terms of you know what you’re going to be collecting each month on your investment. Now we still need to exit out of the properties as well, but in most cases, we’re going to be performing a refinance and just holding the investment as cash flowing vehicle, just like I would a single family home. But you know, I prefer working with business professional tenants that have long-term leases in there and only occupy the facility 40/50 hours a week max as opposed to living in the property 24/7 with their kids and everything else.
John Larson: So I just like commercial real estate more in that, it’s more passive and it’s just a better experience for all of us involved. And it’s really easy to refinance those types of opportunities. And there’s still attractive loans out there for a refinance on a commercial space, especially in the Dallas-Fort Worth market. Really, like I said, excited to see Dallas-Fort Worth back in the number one spot and like I said, it makes me feel really good about investing more dollars, more of my own dollars and more my investors’ dollars into this market moving forward. The 2019 population growth rate in Austin is projected to be over three times the national rate, while the rate is forecast to be over two times greater in Dallas-Fort Worth and San Antonio.
John Larson: So I think that’s another reason why these three cities have made it back in the top 20 and DFW sitting at number one. It’s because of the population growth. These cities are growing exponentially and we talk about this just about every week as well, that you know, about 1200 people a day move to the state of Texas. About 400 of those people are moving to DFW and a large portion are moving to Austin as well. Right? So with Austin to be projected over three times the national rate, it’s crazy. And you know, they just talk about Dallas, Fort Worth, Houston, Austin, success is really based on the migration, the population growth. Austin, Dallas, Houston, Oklahoma City, San Antonio, all have a significantly higher percentage of their population in the zero to 24 age group and 25 to 44 age groups. So the younger population is supporting good labor force growth, right? We have a lot of younger people moving and migrating into these areas. So a very, very strong job for us here, which is great. Business startup activity is high in Austin, DFW, and Houston.
John Larson: The affordability of single family homes is also a big reason why these cities are on the tops of this list. So it makes sense in my eyes. And this is all things that I discussed on the show a lot is you know, that affordability, the population growth, job growth, the diverse economy is all playing a role in why these markets are so popular and are on investors’ radar. And so if DFW is not on your radar, I definitely think that it should be, coming into 2019, just with the volatility of the market that we’re seeing in other areas around the country. You know? So I think it’s a good way…definitely hedge your bet coming into 2019 and beyond with these fast-growing markets. Right? I think DFW kinda fell off people’s radar for a little bit when the economy just all over the country was doing really well and obviously there’s more affordable areas in the country to maybe buy rental properties and things like that.
John Larson: And we know that the property taxes in Texas are pretty high, which that has a negative effect on your cash flow and the rising interest rates aren’t helping with the cash flow now. But now that we’re starting to see some volatility in the market, you’re starting to see the cities with the very diverse economies and the high population growth starting to rise to the top again as areas to invest. Uh, for institutional money, for private money, for just the regular everyday investor who wants to build a rental portfolio or lend some money on a commercial project, uh, it’s starting to take notice that, you know, the cream is rising to the top again and DFW is back to number one because of that, I believe. Uh, just very, very low risk because of the economy that we have and the, you know, the population growth, right? There’s going to be demand here. Because jobs are moving into the market because people are moving into the market because the workforce is young and strong.
John Larson: That is why I believe you’re seeing three Texas cities hit the top 20 and you know Dallas-Fort worth at number one. Now some other cities that I know are popular and on people’s radar in terms of building rental portfolios and investing dollars in, have not registered as high as they have in recent years. Now some of the other markets that we invest in, like Kansas City, that’s kind of still hit the middle of the road, came in at 35, which that’s pretty much what Kansas City does. It’s always kinda been in the middle of the road and the years that I’ve invested in that market and even people who are older than myself that invested in Kansas City have always kind of said, you know, you’re never going to see huge appreciation and huge, huge demand, but you’re never going to see, you know, the property drop in value too much and it’s just kind of stays in the middle. Which is good for investing in single family homes, I believe and building a rental portfolio. Just kinda stays consistent.
John Larson: Another area that we’re in that you may know, may or may not know, is St Louis. So St Louis ranked 46, kind of still in that middle, middle of the road area, but just below that fault line where they’re saying, you know, that’s, that’s the median fault line. So 45 was the, uh, where the medium fault line ended. And St Louis was just below that. Some other areas where I know a lot of investors out there, they have these markets on their radar. Indianapolis was at a healthy 19, which is pretty good. Three Florida cities made that list, so you had Orlando, you had Tampa Bay, was in, two of those were in the top 10 and then Miami was right there at 12. You know, I think Florida still very, very strong opportunities there.
John Larson: And I’ve always liked North Carolina and Raleigh I think is a great area. It’s still affordable real estate, diverse economy and growing very quickly and still growing rapidly. Other areas like Detroit; that came in at 44, Jacksonville 48, Chicago 49, Birmingham, Alabama, 50, Cleveland 60, and then you have Memphis down there at 71, which is very low. It’s more than one standard deviation below the median, so that, I know has been a popular area for a lot of investors to look at, but I just feel like it doesn’t have the economy to support long-term growth and stability and I just feel like more and more people are moving out of the Memphis area than moving in. I’m going to have a copy of this list on our Real Estate Cowboys website. So if you want to take a look at this list, you can go to a RealEstateCowboysDFW.com, see where your cities rank where you’re investing and if you want to get some ideas on where you should possibly invest coming into 2019 and beyond, and there’s some cities that have been on your radar. Definitely take a look at this list and I think it’s really, really accurate. We’re going to take a quick commercial break. When we come back, I want to talk about a few more things, uh, about markets to watch and look out for and maybe avoid in 2019 and beyond with this potential volatility in the market. And also want to check in with Taylor Glasgow again, who runs our private lending department. Just get an update on where we’re at with our current raise. I think from what I heard this morning, he said we’re almost fully funded, so I just want to give our listeners an update on where we’re at on our current private lending opportunities. See if there’s still room to get in on this opportunity and start collecting double-digit returns here in 2019. Really solid opportunities, safe opportunities. So we’ll be right back. after this message.
John Larson: Hello and welcome back to the Real Estate Cowboys podcast. This is your host, John Larson. I’m bringing in fellow cowboy Taylor Glasgow. If you have been listening to the Real Estate Cowboys, you would’ve heard around Christmas, Taylor was recently on the show. I wanted to bring him in just to kind of give us an update on our current private money lending raise that we have here in the number one market in America. Dallas-Fort Worth. So, Taylor, you’re the one that’s on the phone with all the clients all the time. I just kinda wanted to give the audience an update since a lot of Real Estate Cowboys listeners are investing in our private lending opportunities right now here in Dallas. So can you just give us an update on our current lending opportunity in Dallas, uh, up in Carrollton, our office building and how much have we raised and how far are we away from funding? Is there still an for our listeners to get in on this deal?
Taylor Glasgow: Hey John, thanks for having me on again. There is definitely still an opportunity to get in on this deal. We are at $2.575. In order to close on the asset, we only need about $225,000 more. The Investors that come in this month and invest with us this month are actually going to start receiving interest payments in February. Next month we’re going to be raising the remaining amount, that 800,000, which is what we need for the renovations. So there’s definitely still a chance to get in if you guys want to get in. If we spoke before, you know you have my direct line, you can call me at that number. You can text me at that number. Let’s see if we can get something moving.
John Larson: Alright, sounds good. So what I’m hearing you saying is we have just over two $2.5 million. We need $2.7 million to actually close on the building and then the remaining 800,000 we can raise later and add the investors on the deed of trust later and those investors that come in on the 800K remaining for construction and holding costs and other fees there, those investors would receive their interest payments later. But if you get in and can help us fund the remaining $2.7 million to close on the building, you can start seeing your returns in February. Is that what I’m hearing here?
Taylor Glasgow: Most definitely.
John Larson: Okay. Sounds good. My next question would be, it seems like we have a lot of investors who have invested on South Lake projects in South Lake, Texas, also here in Dallas who have already started to invest again on the Carrollton offering. Why do you think that is?
Taylor Glasgow: Well, private lending is getting a lot more popular. I mean essentially what you guys are doing is taking the position of a bank, right? So, uh, we have investors that have come in with us on the South Lake projects that just saw, um, how smooth the program was, how passive it actually was. Uh, they get their interest payments on time every single month. So they just, you know, they, they like this deal because the collateral was an asset that’s already spinning off $49,000 a month in cash flow. It’s already there. It already exists and it’s only a 12-month term. So a lot of people like that. Um, so they’re going to have, you know, returns coming back to them whenever that note matures. One’s going to be happening in 12 months and then the following year they’re going to have one coming in after that. So if you set this up right, you can have a return of your capital come in year after year.
John Larson: Good point. So they’re diversifying into other projects. Right. And the benefit of this Carrollton deal is it is a shorter term, right? So we can recycle the money into another deal fairly quickly and the fact that the building’s already there and already cash flowing is very attractive. So I talked about this on the show today as well, about the popularity, the gaining popularity of debt syndications, debt funds. What would you say our clients like best about our private lending opportunities and you know, you told me that you drove by the South Lake opportunity just recently. Where are we at with that project?
Taylor Glasgow: That project is actually ahead of schedule. Our partner, David Keener, has been very diligent on getting things done. We actually thought that only the framing was going to be done whenever I drove by it the other day, but they already have walls up and they’re rocking and rolling on it. So you know, this program is gaining a lot of popularity. For one, we’re doing deals in the best market in 2019. Dallas was ranked number one again, so a lot of investors are looking to place funds into this market. But then again we have a lot of people that don’t necessarily want to take on the risk of owning a turnkey rental or buying an asset right now in this market. So you know, getting that steady stream of cash flow, that fixed rate of return is something that people are obviously looking to get right now in this market.
John Larson: Right. And like I talk about, very, very passive, you’d be receiving checks from our accounting team each month and that’s pretty much all the communication that you have to have with us. And then obviously we’re providing updates, photo updates, video updates of where we’re at in the project, just to kind of keep you engaged, keep an eye on how your money’s working for you. So great. Taylor, thanks for coming on the show again. And for those of you who are interested in getting in on this current offering that we have, it sounds like we’re coming up right on the tail end. Go to RealEstateCowboysDFW.com. Put in your information and Taylor and his team will reach out to you and discuss the next steps and let you know if there’s still a position available. If we can’t get you in on this deal, we’ll have another deal. ready to go probably here in February, late February, early March. So don’t be alarmed, you know, it’d be great to get you in on this opportunity and start collecting an interest payment as soon as February. If not, we can get you in on the next raise. And so RealEstateCowboysDFW.com or AREIUSA.com. That’s American Real Estate Investments website. Great information on both sites. Uh, you could also go and download my book, The Passive Income Guide: What’s Your Return on Life? There’s great information on debt syndications, turnkey rentals, property management, lots of stuff that we talk about on the show. You can just read right in a quick, easy read book. So thanks for tuning in. I hope everyone has a great week and always remember, what’s your return on life. This is John Larson signing off.
Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.