Early Bird Gets the Worm

A very financially wise (and well off because of it) person told me last weekend, “Most vast fortunes were created by people who were idle when things were good, and active when things were bad.” This means they sat on cash during good times, and bought everything during bad times.

This conversation was about real estate and the regentrification of a bad area of town. The West side of Austin has historically been the posh side of town. All the skyscrapers, clubs, malls etc. are built on the West side, leaving the East side to deteriorate.

This is what West Austin looks like.


This is what much of East Austin looks like.

For example, West 6th Street is a bustling entertainment area. Cross the freeway (I-35), and East 6th Street starts out with a car junkyard followed by a string of run down buildings. There is a distinct difference.

The funny thing is, just recently land prices jumped in parts of East Austin, and some newer, nicer buildings have started to creep up. On a recent drive through the area, I saw a brand new condominium establishment amidst the old buildings. On the lot next to it, a bigger and better condominium establishment is under construction. These are luxury condo’s on EAST 6th street. I smell regentrification.

These condos are nothing amazing, but they by no means fit in with their less-attractive surroundings:


Spotting regentrification of an area is a common theme some business men I know have very profitably used. They buy old and unwanted properties in bad areas, fix them up, then sell at a premium as the area increases in value. Of course everyone thinks they are crazy when they first buy in these terrible areas.

The lesson to learn is not to jump in when everyone is jumping in. Since real estate is such a hot topic right now, I’m sitting out. The people who took the initial risk of building nice properties in East Austin will reap the most reward, as newer establishments will pop up right around them. The people who jump in after them can reap some reward, but not nearly the same amount.

Great riches will be found in this unconventional area. The builders can offer swanky accomodations that feature cheaper prices and cheaper taxes, yet walking distance to Downtown. Smart.

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    Blog posted on: May 24, 2005

    7 comments on “Early Bird Gets the Worm

    1. jim

      If you’re Contrarian and correct, you’ll be lauded. If you’re Contrarian and wrong, you’ll be the goat. :)

      Reply
    2. Neville

      The businessmen who buy these properties in seemingly bad areas are thought to be crazy when they purchase. People then say “I told you so” for a while as the area further declines or the property has a tough time selling.

      In the beginning they suffer huge losses on the property, but if their cards are played right, they also reap huge rewards in the end.

      Usually everyone shuts up when they make the big profits. People then proceed to call them “lucky.”

      -Nev

      Reply
    3. Anonymous

      Not to be a pedant, but isn’t it “gentrification” rather than “regentrification?” Of course, it may indeed be that East Austin was once gentrified, only to fall into a slump again.

      Reply
    4. Anonymous

      Jim brings up a very good point. I’m sure for every successful contrarian real estate investor there have been dozens of failures.

      Playing cards right can be trick at times :)

      Reply
    5. Alien Shaman

      I was in Old Louisville recently, another example of regentrification, but it seems to be happening very slowly there.

      In San Diego, there are a number of rough areas which people have tried to regentrify on their own. In each case, unless local government pitches in to clean up the area, many investments seem to be lost in the area. Who wants to move into a brand new condo with bad streets, crime, and crack houses?

      If the local gov in Austin is helping clean up the east side, then it is probably a safer investment, than if you are leaving it up to good people to come in and take back a community. It might also be worth trying to find out if anyone on your city council, or their friends, are buying in the area because then it is almost guaranteed to take off.

      Reply
    6. Dena Davis

      Neville,

      I got to your blog by googling east austin imagages. I like you analysis on east Austin. It has merit. I do believe that the highest returns have already been made in east austin. My husband and I own 24 east Austin properties, the appreciation has exceeded California appreciation rates. We were able to gain significant net worth within a matter of 3 years.

      That said— I am still buying in Austin. And I do encourage my clients to buy into east austin. 78702– has probably reached a price fairly close to the top. So for the speculative investor– this it is not the place to be right now.

      Our new little honey hole is 78723. This is the closest affordable spot close to the new mueller airport development. That development will bring what east austin is missing—– nice retail and support services industry. The nices place to be will be within the development itself– but the cost of those homes on postage size lots will be in the 250K range. And probably even more than that. ( construction on the resendential property begins spring 2007 see http://www.muelleraustin.com ) My strategy is to buy up every nearby house that will rent for enough to support the mortage, insurance. property taxes and insurance. My team of investment agents and I are placing our clients in this area in properties that meet this criteria. And we are also investing our own money in this area.

      My investments in East Austin and the investments of my clients are insured by more than just gentrification. They are insured by Austin’s Traffic problems. That’s right!! Traffic is a good thing for the east Austin investor. Downtown is a major employment area and just a HOT place to live and play. The person living in round rock today who endures a 45 minute commute to downtown– will be enduring a 1 hour commute within the next 5 years— maybe more.

      Just like Los Angeles– ( my old hometown) the properties that were located in the central city areas experienced a higher demand than those in the outerlying areas.

      East Austin is 5 minutes from Downtown. In 78723– you can get a 3/2 bath home for 135K. Try that on the west side of the I-35. You get a 3/2 for 400K. There is still a lot of room for this investment to go UP!!

      Neville– I like your style. You are someone who we will hear about in the future!!!

      Reply
    7. Amy

      While regentrification may be a smart move for businessmen for the payoff in the longrun, you fail to mention what impact all of these new buildings and homes have on the existing community. Forget that you’re ‘beautifying’ a less than appealing (on the surface) part of town. The forgotten or looked-over story here is that there are families (east of 35, north of riverside – between townlake and 11th street) who have raised theres in a quiet and comfortable neighborhood. Only to be disturbed by the ‘white man’s’ appetite for profit. How out of place then do you think is it to have a modern style fourplex ‘nestled’ between a block of 2-4 bedroom houses in need of a decent remodel? It’s an eyesore, at the very least. At the most, it’s a disgusting reality check that an increase in property is around the corner for these native eastside families. MOST of which can afford little more than their mortgage in the first place. In reality, REGENTRIFICATION is a raw deal for the east side of Austin.

      Reply

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