In addition to celebrating 25 years since its founding, Houston Trust Company also celebrated the launch of its NextGen Conference series six years ago. On November 26, 2019, we had the opportunity to host our annual fall conference in our new offices at 3737 Buffalo Speedway. The topic this year, as voted on by attendees at the 2018 fall conference, was Residential Real Estate and the Do’s and Don’ts of Home Buying.
Couldn’t join the conference? No problem! A full video of the conference is linked below, as well as highlights from each presentation.
Mark Herrin, Chief Legal Officer, Houston Trust Company
Pat Parkman, Vice President, Trust Administration, Houston Trust Company
Melissa Moncrief, Senior Vice President of Private Banking, Amegy Bank
Paul Silverman, Sales Manager, Martha Turner Sotheby’s International Realty
Investing in Residential Real Estate
Neal Dikeman, Managing Partner
Old Growth Ventures LLC
Buying a Home: Factors to Consider & Pitfalls to Avoid: A Panel Discussion
- Mark on the economics of buying a home: Purchasing a home is a very capital-intensive process, so property taxes, routine maintenance, monthly income and all debts should be taken into consideration when looking into what you can and cannot afford.
- Pat on marital status: There are additional considerations when buying jointly with your partner, such as purchasing power. If you intend to buy with joint interest, make sure both you and your partner contribute to the asset.
- Paul on millennial home-buying: While millennials are buying homes much later in life and are more interested in living in large cities instead of the suburbs, they also have access to data that can help them make more informed decisions.
- Melissa on running the numbers: Keep in mind that the down payment will be around 20% of the cost of the home. For the mortgage, you will need to qualify for up to two times your annual income. Banks like to see a two year history of any kind of income, such as bonuses, trust distributions and income from investments.
- Mark on getting help from a trust: There are a range of ways that a trust can help buy a home, each with their own pros and cons (view chart at left).
- Melissa on credit: If you don’t have a credit score or have a bad credit score, remember that it takes six months to a year to build credit. Banks want to see revolving payments on your credit card as well as bank loans and car loans. If you have been late on payments in the past, be prepared to give an explanation. Refrain from making any other large purchases during the reviewing period, for example, buying a car. Such a large transaction could also impact your credit.
- Paul on determining home value: The listing price is at times irrelevant due to certain features within a neighborhood. Factors such as power lines, railroad tracks, and school zones can all effect home value. Houston, in particular, due to the high risk of flooding in certain areas, requires an added level of risk assessment when looking at homes.
- Paul on online lenders: There is something to be said for a lender that is available in person because it allows you to maintain control over the process as opposed to working with an online lender. When something goes wrong, you will want face to face interaction with someone who can help.
- Melissa on expenses: There are many expenses that come with buying a home, so it is important to know how much cash is in your pocket and how long it needs to be there for. Along with the 20 percent down-payment, you also should have 25 to 30 percent in cash and securities. Fees and closing costs also are important to plan for. Banks like to see that you have some reserve after purchasing a home, so be sure to have funds for 60 days prior to the closing date (10 days before closing at the latest).
- Know what you can and cannot afford. Consider the specific home you are buying and factor in potential repairs and inspection fees. Paying a mortgage on a home that you cannot afford is not a better use of your money than a monthly rent that is within your budget.
- Start the process early. Talk to your lender, and trust officer (if applicable), to ensure all paperwork is completed up front. This preparation will prevent you from making any rushed decisions down the road.
- Be patient and ask questions. The home buying process is very exciting, but can be stressful without the right allies. Make sure you put together a good team of professionals who can review documents for any oversights and guide you along the way.
Questions for our panelists? You can email them to firstname.lastname@example.org.
Investing in Residential Real Estate
Neal Dikeman, a sixth generation Houstonian, is Managing Partner at Old Growth Ventures, LLC. He spent most of his career as a successful venture capitalist in the world’s tech capital Silicon Valley, and the world’s energy capital, Houston. He has been a venture capitalist at Jane Capital, the firm he cofounded at age 25 and helped build into a leading player in cleantech; the parent company of YellowPages.com; and at Shell Oil. In addition to investing, he has personally cofounded seven technology startups ranging from energy to software, and served as CEO, VP, CFO, Chairman, and Board member multiple times.
Founded in 2010, Old Growth Ventures rehabilitates, builds, owns, and operates unique properties in Spring Branch, the Heights, and Old 6th Ward in Houston. Neal’s presentation gave an overview of purchasing residential real estate as an investment, sharing some of his tricks of the trade from Old Growth Ventures.
Neal’s Rules of Engagement for Investing in Residential Real Estate:
- You are what you eat. Anyone can buy a house, but in order to turn a profit in real estate, it is important to have a very specialized and focused approach.
- Buy the smallest house on the biggest lot in the best neighborhood with the best school districts that you can afford.
- Your home is not an investment. This does not mean your home is not an asset, but that you will spend more if you ignore the upkeep from the beginning. The house will have investment value if you do the work.
- Speed kills. Good opportunities either will sell very quickly or be available for longer periods of time. Apartments and smaller complexes, for example, where the process takes a shorter amount of time to close a deal will have more turnover. If it ends up taking two years to repair your home, you will lose money in the long run. Make sure to get a repair crew in the house on the first day so as to avoid deferred maintenance.
- Your new house value is three to four times the land cost. The flipping market is huge, so the goal is to buy cheap, rehab fast, and sell quick. You can double your money in time and capital.
Questions for Neal? You can contact him through his website.
Financial Markets Update
On Behalf of Houston Trust Company, Matt Caire shared a financial markets update for 2019.
- Overall the S&P 500 was up 26% through late November.
- From Q4 of 2018 to today, there has been a positive shift in the markets – they are now up over 30%.
- The Federal Reserve Bank cut rates which in turn eased investor concerns and lowered the cost of capital.
- With increased corporate earnings and lower interest rates, most major assets including stocks, bonds, and commodities posted positive returns in 2019.
- Shares of technology or information technology were up 40%, whereas those in energy were weaker.
- While valuations were slightly expensive relative to history, stocks remained attractive given the lower level of interest rates. Yields in many countries around the world stayed in negative territory making even the low levels of positive yields in the U.S. appealing to foreign buyers.
Outlook for 2020
There are also several reasons to be optimistic about the markets heading into
- The consumer, which represents approximately 70% of U.S. economy, remains healthy. Central banks have been cutting rates and providing liquidity. This coordinated easing effort around the world helps lift prices of all financial assets.
- The net worth of consumers is at an all time high. This is driven by increasing stock prices and rising home values, which are both fueled by low interest rates. In this environment, investors find it is unusual for a recession to occur.
- Houston Trust Company remains constructive on the outlook of the equity markets in 2020. Election years normally produce an increased amount of volatility and we expect this year to be no different.
- Some uncertainty remains surrounding the current trade war with China and that volatility is likely to persist. However, we believe our clients should stay the course and that we maintain a positive outlook going into 2020.