Travis Hanson bought his first two properties while he was in law school. He now owns several real estate businesses and continues to invest in property. He is now sitting in cash and waiting for next year’s correction.
In 2009, Travis Hanson was attending law school at Texas Tech University with the goal of returning to Salt Lake City to become a city attorney.
It was shortly after the 2008 financial crisis that the real estate market crashed. Hanson was looking for ways to earn extra money while he was at school. At the time, he found homes as cheap as $50,000 in Lubbock, Texas.
“I remember going home and telling my wife after I was looking up some of these prices. I mean, it was just ridiculous,” Hanson said.
The couple had money saved, and Hanson’s wife had a full-time job at the university she attended. So they started by investing in two houses, both within a month of each other, in Lubbock.
Hanson recalled paying $34,000 for one and about $40,000 for the second, with a 3% down payment. They were able to secure two mortgages with an interest rate of 4%. At approximately 800 square feet, the houses were small but a good start. Each was a two-bedroom, one-bathroom house. Based on other properties in the same area, Hanson estimates they are now worth around $100,000.
By the time he graduated a year later, the couple owned nine properties, six of which were co-owned by a friend of his. All of them were rented. After expenses, which included principal, interest, and taxes, were paid, the cash flow from each property was between $250 and $400.
The experience caused a change in mind for Hanson and he decided he would stay in Texas, get a job as a lawyer and use his salary to continue buying houses.
“My jaw dropped and I thought, there’s no way he’s going to come back,” Hanson said of his old plans to return to Utah.
Today, Hanson owns more than 109 properties, according to county records seen by Insider. Combined, they make up about 150 rental units. He also owns many real estate businesses, including a property management company, a brokerage firm, and an educational platform called The Real Estate Retreat Network, which hosts in-person networking events and one-on-one coaching.
“At the height of it all, it had 650 doors and that included apartment complexes,” Hanson said. “I’ve sold all my apartment complexes in the past few years. Right now, I only have 150 doors and that’s on purpose.”
Lately, he has been less focused on volume and more on buying quality new properties that require less maintenance and attract higher-income tenants. This makes it easy to manage your rentals.
Right now, as mortgage rates continue to rise, home sales are cooling off. As of September, the median sales price for existing homes had fallen 7% from its peak in June to $384,800, according to the National Association of Realtors. Ian Shepherdson, chief economist at Pantheon Macroeconomics, estimates that prices could fall by 15-20% over the next year.
Also, high inflation will mean people are less able to buy property, Hanson said. This will further reduce demand and competition, but will create good opportunities for people who want and can buy.
Also, during the financial crisis, inflation was not a problem facing the American consumer, Hanson said.
“The fact that people have to make more money just to survive because of the inflation problem, I think I see that as a great once-in-a-lifetime opportunity, bigger than 2008,” Hanson said.
“We’re pretty much insulated from market downturns,” Hanson said. “The national median for homes right now is about $400,000. We’re not anywhere near that. So, for my investments, everything I buy costs less than $250,000. So if there’s a market downturn, the risk that I’m assuming it’s very small, those houses just aren’t affected by the rest of the country.”
In fact, you have cash, waiting for a sharp market correction in house prices to complete your portfolio.
Tips to take advantage of the coming recession
Over time, real estate always recovers, and that’s what Hanson is willing to bet his money on. Between 1980 and 2020, median home prices in the US increased by 416%.
To take advantage of any opportunity, the best position to be in is to have cash. To get there, you will need learn about delayed gratification, which means resisting the temptation to spend money on things you don’t really need, he noted. For the next year, you can start saving as much cash as you can so that you can invest. Also, you can use this time to find ways to increase your income.
If you’re not sitting in cash, it’s not a deal breaker, he noted. Hanson told Insider that he has bought many properties without using his own money. One way to do it is get a line of credit (LOC) from a bank, which is a loan that is withdrawn as needed. It’s not hard to get approved for one, but you’ll need to have a decent credit score, he noted.
“I know 18-year-olds who get $200,000 lines of credit. You just have to ask. I mean, most people just don’t ask. They just assume,” Hanson said. “I compete with 18-year-olds buying property and I know they have lines of credit with these banks. They may have a guarantor, [or] they have some people behind them helping, but I know it’s possible.”
Hanson recently used an LOC to purchase a property for around $72,000, according to a HUD-1 document seen by Insider. He then made some improvements that brought the property’s value up to $130,000, based on market comparables for the same area. Hanson plans to refinance the property for 85% of its value after the repair and use that cash to pay down the line of credit. This is a practice that he often does.
Don’t be discouraged by higher mortgage rates, as you can always refinance he said. The cost of refinancing a mortgage is typically 1% of the loan, which is what deters many people from refinancing their rate for a lower rate, he said. But Hanson thinks there may be a grace period once things calm down. Many banks may start waiving that fee later so they can remain competitive.
People just need to talk to their banks because these big institutions are struggling too, he said. As home sales fall, they’re not closing as many loans, he added. Hanson told Insider that he has had discussions with his loan officers and is confident that he will be able to refinance in the future without paying the fee.
“I think what you’ll see is banks will put in programs where they’ll give people a grace period of up to 24 months, maybe longer, where they can come back and refinance those mortgages at no cost,” Hanson. said.
Next, look for properties that are well below the national median home price. This will protect you from much of the volatility when there is a market downturn.
The Zillow Home Values Index, which measures monthly changes in the level of ownership Zestimates, notes that the typical price of a home in the US is approximately $357,810. You also want to stay below the market median for the area you’re buying in, he added. That’s why most of Hanson’s properties are under $250,000.
Lastly, be strict with your numbers.. This means that for each property you look at, you will need to determine how much your principal, interest, taxes and insurance will cost each month. This will vary depending on the type of loan or mortgage you get. Then, determine the rent you can charge based on other similar properties in the area.
Source: news.google.com