104. The Big Picture: Minimizing Risk

And we are going to talk about the Big Pitcher, Minimizing Risk. In this episode, I'm going to start off by giving some context of looking at the Big Pitcher when it comes to buying real estate, and this is more on the buying side than it is on the selling. So when you're looking at buying real estate, and we're going to be looking at specifically residential real estate in this episode, there are some elements that, not necessarily with the examples that we're going to use, but there are some elements that could tie into commercial real estate, but that's really a different topic. So we may come back to looking at the Big Pitcher and Minimizing Risk when it comes to buying commercial real estate. So for this episode, again, we're primarily looking at buying residential real estate. But starting off, let's look at, I think there's two big picture elements when it comes to buying real estate. We've got the qualitative aspect and you have the quantitative aspect. And I think if we start with the quantitative aspect, I think that this is one that often gets neglected. We look at the quantitative aspect when buying residential real estate, when we look at how much is it going to, how much is the property or how much is the house going to cost? What am I paying price per square foot or what am I paying on an existing, either a resale or what am I paying price per square foot on a new construction and how does that compare to other properties in the market, in my, effectively, am I getting a good deal? We look at the quantitative aspect when we look at the square footage or when we look at the number of bedrooms and bathrooms and the number of garages and a lot size, you know, how many acres am I getting? So that's, and then we look at the quantitative aspect when we look at financing. You know, what, you know, what is my interest rate, what is my monthly payment, how much are taxes, you know, what's insurance going to cost me on this property? If you look at older homes versus newer homes, you might run an analysis on what the utilities are going to cost on whether the property or the, the house is a, is a energy efficient or not, you know, you may run a, a quantitative analysis on, you know, we need to do upgrades, you know, so I don't like the kitchen counters and I don't like the color of the paint on the walls or I don't like the flooring and so all that's going to have to be changed out and that's going to cost money and so when, when we're looking at numbers, that's usually the quantitative aspect that comes into play. What we, what you want to, and that's all good, that needs those, those issues or elements need to be taken in consideration when buying real estate. If we look at the bigger picture associated with buying real estate from an investment perspective and it's not necessarily, we, we don't, I won't say that we look at buying a residential property as a traditional investment but if we still apply the principles of an investment to that decision, that at least gives us some context moving forward in terms of looking at the bigger picture, so if there's three elements that come into play with an investment decision in relation to an investment decision related to real estate and one is your initial cost. So what's it going to cost me? What am I paying today at time zero, okay? The next one, the second element is what is the holding period, right? How long are you going to hold that investment? How long are you going to hold that property for? Then the third element is what is your future value? Well, your goal, again, if you're, if you're buying stocks or bonds as a, as a traditional investment, then you are investing money at time zero, so you've got your initial cost. You determine, you need to, at least have an idea of how long you plan on holding that investment for. You know, is it going to be a short term hold? Is it going to be a long term hold? What is your investment strategy that comes into play? And then what do you expect that future value to be? So on stocks and bonds, you can run an investment analysis and, you know, arrive at a number and then use that as a guide as you, as you buy that investment and then as you hold it during your holding period. So with, with, with commercial real estate, we'll run that investment analysis. What is that initial cost? How long do I plan to hold it for? And there could be variables there. You know, it could be a three, five, seven, ten, maybe even a 15-year hold, but you're running an analysis on that. And so when we buy an investment, we, we want it to appreciate and we want it to be worth more than what we paid for it at time zero. And so the same is true for residential real estate that when we buy that house, we want it to go up in value. We don't want to, we don't want to lose value when we sell it at a future date. If you look at, and I'm going to give you an example later on as we go through the list of examples that I have, where, where that's applicable. But if we look at what transpired going into the great recession, you had individuals that were buying real estate in certain, certain parts of the U.S. and the appreciation was so crazy that they could buy that house on an interest only loan. So it was negative amortizing in a lot of instances where there wasn't even enough to pay down. There was no pay down on the principal associated with that loan and it didn't matter because they were going to sell it and the appreciation was so high that they were still going to make money. You also had loans where there was an adjustable right mortgage and the interest rate would change at some point in the future depending upon how that loan was structured, depending upon the type of adjustable right mortgage and we'll get into the different types of mortgages in the subsequent episode and then how all that works. But in that case, again, they weren't interested in paying down on the principal. They really weren't interested in terms of the interest rate potentially increasing at some point in the future because they were playing on selling the house before that happened. And so you had this short term or these short term holds as the model and then when the Great Recession hit, you know, there were some instances where the property changed in value by 40% overnight and then the interest rate started kicking in and these individuals weren't able to afford the mortgage payments. And so again, that's where looking at what is your initial cost, what is your holding period and they were very short-sighted in many instances and as a result, it caught up with them. So always planning to have an extended holding period in case of what's your strategy if that were to happen? Could you sustain that investment or could you sustain ownership in that real estate if the market changed? And so that's an example in terms of looking at the three elements of an investment decision and applying it to real estate and then specifically residential real estate. Later on, I'm sure we'll get into in a subsequent episode we'll get into the analysis on a commercial property and in how that works, what that looks like and that because that process differs from buying a commercial property, differs from buying a residential property. But if we look now at that, we start to get into some of these elements of things to look at. So what I use are examples to give you things to consider so that even though this is on a podcast, you can get somewhat of a visual in terms of what these issues are and what you might want to look for when you're buying a house, when you're buying property and it could even be raw land that you expect to develop at some point in the future. And note here that this is not necessarily these are things you have to look for to make sure they never happen. It's just you want to make sure that if you're buying real estate that you've looked at the bigger picture so that when they happen, you're not stuck. If you buy, if we draw comparison to let's say there's a difference between buying a stock and buying a house, the stock, you can get a wealth of information out there on the internet and from other resources in terms of the historical price of that stock and then what it's doing throughout the day, the changes in price throughout the day. That stock is the same no matter where you buy it. I could be in San Antonio, Texas and buy the stock online or I could go out to the East Coast or West Coast and buy that same stock online, it's still the same stock. Whereas real estate is very localized and it's affected by that local market or it's impacted by that local market and then what's going on around it. Stock is very liquid so I could buy stock in the morning and by that afternoon I could sell it. You've got lower transaction prices, in some instances it could be a couple of dollars, some instances it could be even free trades based on the platform you're using. Stock is highly liquid. You've got a lot of buyers, it's a homogenous product meaning it's the same. You buy one share of stock, you buy one share of stock, it's still the same stock in that same company. Whereas when buying a house and it's impacted by that local market, it's not as liquid. Usually, we don't work in absolutes here but usually on the front end if you're buying a house as a buyer, you probably have about a 4% on average, about a 4% cost to the buyer to purchase that property. Then when selling, again on average, about 8% is a good number to start with and it's always subjective to that individual property on both the buying and the selling side. It could go three and a half or even lower, it could go higher. On the selling side, we might see something in the sevens or it could go up into the eighths but if we look at, there is no standard real estate commission but if we were to look at a 6% real estate commission, that's 6% right off the bat to the seller and then you've got the other cost that we'll get into in subsequent episodes or episodes but you've got your potential your title premium, you've got per rated taxes, HOA dues, maybe seller contributions, transfer fees to HOA. There's a number of variables that come in there that can increase that 6% on up. If you're to buy a house at time zero and you've got 4% in cost going into that house and you wanted to turn around and sell it that same day and this is what we're looking at is the average 1 to 4 family residential house. This is in a flipping situation where you want to turn around and sell that same house that you're going to incur 6 to 8% in expenses based on a purchase price or the sales price of that house. Right there, you've got a significant amount of cost tied into that house and so that creates a situation where you're probably going to have to have a holding period for least couple of years until you've built up enough equity through appreciation or paying down on the note to get to a point where you could sell that property. And then whereas stock is homogenous and it's the same no matter where I buy it from in the US, property is not. Properties heterogeneous meaning there are no two properties that are the same. So keeping that in mind, keeping those elements in mind, when you're looking at buying real estate, you want to be able to make sure you look at the big picture so that you don't get stuck in a situation where you weren't aware of or you didn't think about. And again, as long as you're aware of it, you thought it through and you're like, "You know what that doesn't bother me, I don't care." Then that's fine. You've made that decision and you've had the knowledge to be able to make that decision. And that's where you want to be. So let's look at a couple of these examples. And so one of my favorite is a hotel in my backyard. There's a hotel in my backyard, not mine, but that's the title of this. There was a subdivision that went in, a new home subdivision, it was a small one in terms of the number of homes. I don't know the exact total, but so it wasn't one of these big subdivisions that goes on for phase after phase after phase. So it was a pretty small subdivision right off the interstate, up in Bernie. Just north of 46. If you were to drive out to I-10 West going to Bernie, you passed 46 and hit on up and before you get to John's Road, which is kind of on the north side of Bernie, so to speak. You look over, it used to be a looking to hotel. Now it's under a different flag, but take a look off to the right and you'll see this hotel. Well, you go, what's the issue at that? We've got hotels all up and down the interstate. Well, in this case, what you had was this residential neighborhood went in, right off the feeder road on I-10, and at some subsequent date after the houses were built, this hotel goes up in the backyard. So about nine or 10 homes, and it's a three-story hotel, and so now you've got this three-story hotel in the backyard of your home. You've got a two-story home, and so now the people on the second, third, or maybe even the first floor, that probably not because there's fence back there, but let's say people on the second, third floor can see right into your backyard, and if you leave the windows open or the window shades, then you can see right into your house. So now you've got a total loss of privacy. Some other issues that come into play is with commercial properties. They generally have lights on all night, so you've got light pollution. You've got cars coming and going at all hours of the day. I know I've pulled into the hotel while traveling many times at midnight and you're unloading the car and having to make numerous trips to unload everything and opening closing doors, numerous times. You've got transient nature of a hotel business of people coming and going from all over that are riding your backyard, so to speak, and the problem with that is, is you drive down that street. It's on a cul-de-sac, and if you were to look down that street, what you see right behind the homes is this big three-story motel. I was saying hotel earlier, I guess looking to, or whatever it is now, it's probably more like a motel. You've got this three-story motel in your backyard, and so as long as, I always imagine that if you had a house full of college kids, they're like, "We don't care. Who cares?" That means we can make all the noise we want because our neighbors can't complain. But if you've got a family, you want to let your kids run around out in the backyard and now that totally changes the dynamic of that homeownership. The reality is that most people who get into that situation go, "I didn't know. What do we do?" The reality is, because they just bought that house, again, with that upfront cost to the buyer, and then with the cost to sell that house, they're kind of stuck for a while. Because one, you're probably not going to get the appreciation right away. And two, who wants to come in and buy a house with a motel in the backyard? The question then is, did that change the marketability of that property? Well, I started to do some research on that years ago, and at that time, the neighborhood was still too new. This was just a few years in, that it was very difficult to tell. There wasn't a lot of transaction data throughout that whole neighborhood, so it wasn't just the street where those properties were affected. Really couldn't see much in terms of a difference on the appraisal district side, in terms of how the houses were assessed, in terms of people going in and protesting. But I think that might have been a little difficult to say, how does that really affect your house? We don't have any market data to prove that. So that may have been difficult, even if the taxes were protested. So it didn't see much change, and so it's probably worth going back to looking now to see what's happened in that neighborhood, and what's transpired after all these years. But one of the things I always wanted to do is drive into the neighborhood and knock on the door and say, ask the homeowner, what do you think about this? And see what kind of response they get. I would get. I've talked to enough people where these kind of things have happened, and some, not not necessarily with a hotel, but with some, it's like, whatever it doesn't matter. There are some neighborhoods where there is a stigma, but then that stigma goes away. And then the real question is, there may have been a fear of an impact, initially, a fear of an impact on market values. But then I think after a while, a lot of times those stigmas, they just kind of disappear. But what you are left with oftentimes is the loss in the quality of life or quality of ownership of that property, the enjoyment of that property, because of that issue or that condition that's affecting the property. So in this case, you know, people may have gotten used to it. They may say, you know, it's not even that big of a deal. Don't have a problem with it. The, another, another example, if you drive out, again, if you go out, I tend west to Bernie Stage Road, and you take a left on Bernie Stage Road, so Brudy's is on your right over there. Take a left, you pass the HEB there, and, and hit on down that road. Bernie Stage Road has been widened through there, and there's a lot of development going on, especially north of Bernie Stage Road heading on out to Pharaoh's ranch and then out towards Bernie. But there's a lot of development there on the north side of Bernie Stage Road, both commercial and residential. But if you head on down that road, you'll get to a point to where you'll see, so there's two things that have happened on this road. One is the expansion, so it used to be just a two-lane road heading out. And so now that road has expanded, so you had neighborhoods a little bit further on down that are, that are along that road. And so now when that road gets expanded, now you've got, the road is not only bigger and you've got more traffic and you've got more road noise, is that that road ends up going into the right of way or the expansion, ends up going into the right of way. And, and then it's closer to those backyards, and so now you've just got more vehicle traffic in your backyard than you did before, and it's closer to the house. The second thing is, as you head out there, there's a, there's a gas station. And again, this was a neighborhood, residential, you know, production home neighborhood, that when it went in, there was a commercial strip of land out there on Bernie Stage Road, and nothing was, nothing was built on it. And so after that neighborhood went in, then that commercial property was partially developed and then a gas station went in. And then it's been marketed, last time I drove out there, I think the gas station was still the only thing there, because there's still the track next door to it. And you know, more likely than not, that's going to be a little neighborhood retail center. But now those people who bought those homes, and they had a little bit of a buffer with their backyard up to Bernie Stage Road, now they've got a gas station in their backyard. And so the same thing, you know, the, it's, it's will, you know, you can have that attitude if I don't, I don't care. But on the other hand, now you've got, you know, again, you've got light pollution, you've got noise pollution, now you've got potentially the smells of gasoline coming from the gas station, trash gets blown, you know, up against the fence, you know, you've got people coming and going all day long and, you know, on into the night, and I'm not sure when that one closes. And so again, it's, it's knowing what, what's around the property that you're buying, or that you're, you know, you're potentially looking at buying. And having a big picture understanding of what, you know, what might happen with, there's times where we just don't know. But it's, it's at least understanding that something will be built there at some point in the future, and at least going in with that knowledge. And so if you're like, you know, I don't care, then that's fine. You're able to make that decision. But if you don't have that information, you buy that house, and the next thing you know, you got a gas station in your backyard, you're stuck with it, you know. And then if you, if you're trying to sell to the next buyer, and they're like, I don't want to buy a house with a gas station in my backyard, there are buyers out there who will and don't care. But on the other hand, do you really want to get into that situation, you know, where you've got that, that, that, that condition that's potentially affecting the marketability of your property? So you know, and certain circumstances, and we'll get into zoning later. But one way to, to, to look at what could potentially happen around your property based on how the property is zoned to give you an indication. It's not an absolute, but it could give you an indication. And so in, in the city, and not every city in Texas, but most cities, each piece of property has a zoning description. We'll get it. We'll get more in a zoning later. But through that, you can look at the zoning map and see how that property adjacent to your property, or a property that you're potentially looking at buying is zoned, and then that can give you an indication of what might be built there. And always with the understanding that zoning could change at some point in the future. That's not always an absolute either. But at least that gives you an indication. Now, with the property in the hotel in the backyard, that could be out, that property could be out in the county. And so properties in the county are not zoned. Only properties within the city limits have a zoning description. And so same thing with the gas station in the backyard. Based on where that is, I think that that, that was country, or in the county, I mean, not country, but in the county. And I think it might still be in the county. I know there's certain areas out there that the, or one area that the city of San Antonio is annexed, but I'm not sure that it's extended out that far. And so if it did, then now that would have a zoning designation associated with it, but I don't think it does, I have to go look at the zoning map. But so I think it's still in the county and therefore there's no zoning designation. So then how do you know in that instance, well, you ask questions, but the problem is most people don't. They, we go back to, you know what I've realized, I just totally glossed over the second element. Now that's where I'll bring it in. If I had not told you, you wouldn't even know, know any different. But the, the, we talked about the quantitative aspect, the other is the qualitative aspect. And that's where it's either like the color of the house or I don't like the color. Like the, the, the carpet, I don't like the carpet. I like the flooring, the tile flooring. I don't like the tile flooring. The backyard's big enough, it's not big enough. It has a pool. I don't want to pool. Right. So that's all the, we're getting to more of the touchy-fuely stuff. Does it have a playground in the neighborhood? Does it have an neighborhood pool? Is it gated or not gated? You know, what's the construction, I mean the style of construction for the, for the home? You know, how big, how big of the backyard are there green spaces and, you know, on and on. And it's all the stuff that makes me feel good, right? And so people drive up, they see the house, they say, yes, I like it. It's pretty. It makes me feel good by it. And then they get into the house and then there's a hotel in the backyard. Then there's a gas station in the backyard and it's like, man, we didn't know this. And so how do you, how do you find that out? Well, one is if you're working with a real estate agent, you ask your real estate agent. Now, a lot of times they don't even know. You could ask in a new home construction neighborhood, you could ask the sales office, but I wouldn't recommend doing that because that's, that's not going to get you the answer you want. I'll just leave that there. We might come back to that in a subsequent episode. But it's talking in neighbors. It's talking to people in government, it's talking to people in real estate development, it's talking to people on the commercial side who haven't an understanding or an idea of what's going on or what might go on with that piece of property. And so there it really, it's going to take somebody who's in the know to get those answers. But it's worth it's worth finding out that information before you make that decision and to get into a situation like a hotel or gas station in your backyard. The reality though is, you know, if you're in a plated neighborhood and you're on the interior, or like, and there's houses all around you, then it's probably less of an issue. But if you're, if you've got undeveloped property adjacent to property, you're looking at buying, you probably want to find out or at least try to get an idea of what might go in there. So here's an example of the bill, and here's an example, so homeowners buy new home construction in a neighborhood, and there's quote unquote green space behind their properties, right? So they buy the house, it's all, it's all treat and, and then they love it. You know, I've got green space in my backyard, never going to be developed, and I just put all that in air quotes, never that's never going to be developed at screen space. And the reality is that you never, I say you never go in without assumption that green space will never be developed, because that's always, there's always potential for that changing. You never know what those dimensions are. That property could be green space or it could just be land that is going to get developed at some point in the future, and you either bought it as green space or somebody told you as green space, is to get you to buy that property. And so I would never go over the assumption that green space will not be developed. And so in this case, next thing you know, there is development in the backyard and it is close to the fence line. So there's still a little bit of green space back there, but it is a very thin strip compared to what they were led to believe. So that ends up creating a whole separate issue. Now I've got a home in my backyard where I didn't expect to have a home. I've got a backyard in my backyard where I didn't expect to have that. I wanted the privacy. That's why I bought this house on this CODOSAC with a green space in my backyard, so I would have that privacy. So that's where these kind of things happen day in and day out, and people just aren't aware of what's going on. Another one that was long in the making was the worst-box expansion and a worst-box extension I should say. And so worst-box now goes from the medical center all the way over to I-35. So we go from west of I-10, one major interstate. We cross over how we went 281 and go all the way over to I-35, so from one side of town to the other. So it's a major thoroughfare. And for the longest time you had this neighborhood over on Blanco Road that really the only people who drove up drove down that road were the people who lived in that neighborhood back there. And it was all green space. And I wish I regret there's so many times I wish I'd taken my camera when all this was going on. And that used to be green space up in there. There used to be trails and it was all nature. And the reality was at some point way down the road, worst-box was going to get extended. And the question was when that comes down to all sorts of factors, population growth and need and funding, availability of funding for road expansion. And so you had these individuals that had always enjoyed this privacy up in there. That was on a slaughter creek, one of the major green waste bases with drainage going through there forever. And so then fast for 20 years and now you've got a major thoroughfare in your backyard. Unfortunately, it's not, and in some instances there are some houses that are close to it. But it's more of they had enjoyed peace and quiet there forever with nothing in their backyard. And now you've got, you're going to have road noise. And it goes on from early in the morning to late at night. So where at once, you know, 20 years ago, for the 20 years you get peace and quiet. And then now you've got a road in your backyard. Another one is one road in, one road out. And that was Roger's Ranch. And Roger's Ranch still has one road in and one road out. They've done some expansion at the bidders overpass to allow two lanes going in and two lanes coming out. But for the longest time, it was literally one road in and one road out. And it would get backed up even I talked to homeowners now that live in there and it still gets backed up even with the other two lanes going in and out. And so it's if you ever get on Google Maps and look at 1604 in bidders outside of the loop. And you will see the one road going in and one road going out. And it's a big subdivision, Roger's Ranch is a big subdivision up in there. And as long as you know that going into it, that's fine. You know, if you're like, look, I'm an early riser. I get up at five o'clock every morning and I leave the house by 5.30. You're good. You're probably going to bypass all that. You know, I work till late at night. I don't get home till 10 o'clock. Fine, you're going to bypass all that. But if you're trying to get out of there in the morning and take the kids to school and drop them off and then pick them back up and head back in there, you know, and five o'clock time for rain, it is just a major traffic jam. You got one road in and one road out. So as long as you know, that's the thing, as long as you know, you're fine. But if you hadn't thought about it and then you buy a house and then you're like, wait a minute. Why is it taking me 30 minutes to get out of my neighborhood in the morning? There you go. I've got a couple of others one and I can't find the new story right off. I don't know why I don't have it saved here, but there was a commercial building that was adjacent to a residential neighborhood and this was not in Texas. This one was, I don't remember where this was, but that commercial building had a private helipad for a helicopter. And so the helicopter would come in and land on the building and people would get out and go to work and then they would get back in the helicopter and fly out. And the neighbors that were adjacent to that commercial property did not like it. The helicopter creates a lot of wind. It creates a lot of noise, depending on when it's coming and going. And so they didn't like it. But you know what, that's where you've got people to come in and say I don't want a helicopter landing in my backyard and that's like, well, what can you do about it? That property has that right as a property owner to land a helicopter on their helipad. Yeah, so helicopter in the backyard, oh, there's a neighborhood. I remember a neighborhood meeting where the neighbors got together. And if you live in San Antonio, you pretty much are under an airplane at some point in the city. They're either taking off or landing and then you have the military for San Antonio Airport. And then you've got the military bases that do training. So there are airplanes all over San Antonio. And there are certain fly patterns for taking off and landing. And so if you watch the airplanes coming into land at San Antonio Airport, they follow the generally the same pattern and they follow a salotto creek coming in from the northwest and then take a lot of creek all the way down to the airport. And so there are neighborhoods all along there that are, you know, encumbered, so to speak by the airplane noise. And I remember one neighborhood I'd heard about where the planes literally fly right over the neighborhood is they're making their descent into salotto creek and to go towards their landing into the San Antonio Airport. And they had talked to the H.O.A. about getting the flight pattern redirected so the airplanes wouldn't fly directly over their homes. And it's just laughable because you never get into FAA regulations and so where you're going to have not fly a few neighborhood and fly over another neighborhood. But that's what you got to deal with sometimes. Couple of more. I've got the trains, if anybody's from the new Bronfels area. I think this has gotten better. I talked to somebody recently and they said, oh, the trains are still a problem but my understanding is that it is much improved from where it was 20 years ago. But you've got trains that go through the center of new Bronfels all the time. And there's an Amtrak. My office was right on the railroad tracks there back in the day right there off of the downtown circle. And that Amtrak train would literally sit on the horn from one end of town to the other. And if you're on the phone, you either have to put the person on hold or say, let me call you back. Once the train's on past. But there were certain areas in town that didn't have the railroad rail road crossing arms. You'll see it that way. It's going to say a railway, but railroad crossing arms and then they would literally blast their horn and you had the train tracks were in the backyard of certain homes or on that path. And so they were always affected by the noise. Now I think there's some quiet zones in place. They worked out some railroad crossings to address the safety issues. And so number of those items have been addressed, but I think there's still some horns that are heard through new Bronfels based on feedback I've gotten from somebody I talked to recently. So that, again, if you know that there's going to be train horns in your backyard and you're like, that's fine. I can deal with that. I would actually enjoy that, somebody might say. But if you're not aware of it, then that creates another issue. So there's a story that ties into that. There was an individual that bought a house in new Bronfels, the bought the house closed and then a railroad that had had a dormant railroad easement right behind that property set. We need to use this. We're going to start using this easement. And so we're going to resurrect the rail line on this dormant easement. It's been dormant for a really long time. And we're going to resurrect this easement, start using it again. And the homeowner was not happy about that because they did not want to train in their backyard. You know, they did not want the noise effect in their enjoyment of that property. So that's again, something to think about. There are many instances of oil wells and gas wells all over the U.S. but we had a lot of that occurring during the Eagle Fort Shell play and which is still going on. But when that kicked off, there's new stories where you had people that had moved down South of town and they'd bought their little ranch yet to build their retirement home on. Built the retirement home and said, "I'm ready to enjoy the good life, the quiet country living." And then next thing you know, there's an oil and gas operation in their backyard and it's a combination of drilling and the noise and the smells and the property getting torn up for the drilling sites. And so next thing you know, you had somebody that had bought this property, built a dream home and then they are stuck with this issue in their backyard. And it's not like they could just turn around sell the property, I mean who wants to come and buy that property with an oil well right in the backyard or a gas well in their backyard and then having to deal with that. And it's some instances you had water pollution, water wells were polluted, they were complaining about the smell and it just affected their quiet enjoyment of that property and really nothing they could do about it. Couple of other things, one is like right now, Dezavala is going through an expansion and so if you get the time, this is the early February, if you get the time to go, drive up and down Dezavala between Vance Jackson and Northwest Military, really not even that, it gets Lockheel Selma, all of that's getting expanded and they are cutting, they've already cut the trees down that were along the roadway and in the backyards hanging over the roadway so they can make room for the expansion and it is, in certain areas it's going to be right in the backyards of certain homes. So where they had enjoyed a two lane road for the last 20, 30 years, if not more, now there's going to be a road directly in their backyard and so that's going to create more road noise and with it being that close to the backyards. If you get a chance to drive Dezavala, take a look at that. Another example that I'm hearing a lot of right now is a quarry either going in or potentially going in out at highway 46 and 3.009. So if you were to take I-35 to 3.009, they're in Garden Ridge and then head out Northwest towards Canyon Lake, you take 309 out and you will dead end into 46 and then if you take a right on 46, that'll take you back towards New Bronfels and if you take a left, that'll take you out towards Boverti and it's a right now there's a lot of discussion going on with the quarry going in out there and there's even a website that I found it's called stop 3.009 Vulcan Quarry.com and so on here, some of the things they're talking about are depreciation of property values, they're talking about contamination of water resources, they're talking about, let's see what else, carcinogenic dust, truck traffic and so all valid concerns but they're quarries all over San Antonio and not even all over San Antonio, all over this area. And so take a look at that website and do some reading up on it but I've talked to real estate agents up in the New Bronfels area and one of the things we've talked about is if you're showing a home to a potential buyer out there, making them aware that this is going on so that at least they've got that knowledge and they can make that decision and if they say, you know what, I don't care, then you're fine, you know, you've made that disclosure. It's if you don't tell them and they move in and next thing you know, they're impacted by all of these issues, you know, the dust, the road noise, the truck traffic, the trucks tearing up the roads, roads aren't going to be as smooth as they were, you know, is there going to be depreciation of property values, is that going to impact the marketability of your property? I don't know. It depends on where your property is located and how much it's affected by it. But it's at least having that bigger picture knowing that there's this quarry that may potentially go in in your backyard. And while it may not be directly in your backyard, it can still have an impact on your use of that property. So one other that I've got and then I'll talk about the final story is there was a there's a neighborhood that had on the fence line, beyond the fence line, it was all trees. And most of those homeowners thought that that property would never be developed. They thought it was either green space or that it was the quarry that would not be developed or they thought it was Camp Bulless and it would not be developed. And then when you talk to those homeowners and you know, you said, you know what, that's zone commercial. It's going to get developed. They were unaware of that. They'd either been told or led to believe that it was green space or somehow had to do so on their own and firt on their own that it was not going to be developed. And so the property was actually bought and it was downzoned from commercial to residential. And so it's easier. We'll talk about zoning again later. But it's easier to down zone from commercial to residential than it is to up zone from residential to commercial. And so but in this case, it was down zone from commercial to residential. It was going to be a residential neighborhood. And then it went through another zoning change back to commercial. So an up zoning back to commercial. And in two days, all of those trees on that property were cleared every single one. I say every single one there may. I mean, almost every single tree. And then you had, which is not uncommon, they were mulching the trees on site. So they were running them through a lot most of them are cedar. They were running them through the big, you know, the big commercial mulcher and shredder. And then of course with the with the wind and the dust, it was just blowing everywhere. So that went on for days and days and days. But these people once they, you know, they would look out over their deck on the second floor and look out over all these trees. And it was beautiful. And then two days later, it's just dirt. And then you had, I don't know how long the construction period on that was, but usually on commercial construction, depending upon the type of construction, you know, you're probably usually looking at about 12 to 18 months. And in some instances, even longer, pins on again, the phases and how that property is developed. And so the construction period on this property was at least 12 months, 12 to 12 to 18 months. So you've got constant noise, you've got pouring the foundation at five o'clock in the morning, working till late at night. You've got light pollution. You've got constant noise. So what actually ended up going in was a whole school campus, private school campus, elementary, middle and high school. And complete with the athletic fields and extra traffic and all sorts of issues. So those are the, you know, those are the things. It's just, it's worth being aware of the, hey, I've got all this, this beautiful land in my backyard. It's best to know that it could be developed as opposed to waking up one day going, well, they clear cut all that land behind my house. And what are they going to put in there? And I don't want that going in there. And I don't like this construction noise. And I don't like the lights being turned onto my backyard all night, you know, shining into my house. So stuff you got to deal with. It's just again, it's worth looking at, it's, it's worth understanding the big picture and knowing what's going on. One final thing I'll leave you with. And this goes back to what we started off with. And that was the, the, the investment analysis. Right. So it's the, the initial cost, it's the holding period. And it's the future value. Okay. And, and so in this case, this is the, the lehetus case, the lehetus resort. And in, in this case, let me type this in here while I'm talking to you. So, so lehetus, Texas, that's, that's the only thing out there to see here. There we go. So from, let's see which way. So from San Antonio, Texas, you head out I 10 and you go past curvil and past junction and past Sonora and past Ozone. And you get to Fort Stockton. And this is actually what's interesting is this is actually taking me on a different route. So let's change this because this one actually is interesting is I don't know why I did that, but that one actually took me into Mexico. We don't want to do that. So lehetus golf resort and spa. And you know what, I'm not sure what, what the maps are doing here for some reason, but it's, it's about a nine hour drive. Let's put it that way. The lehetus, Texas, about a nine hour drive from San Antonio. Here, I want to get you, I want to get the directions right. And, and actually what's, what's closest out there is a, well, Terry, lingua. Terry, lingua is right down the road from. Here we go. Sorry, this is taking so long here. Here we go. This is better. This, this gives me what I'm looking for here. They still, yeah. So you go, San Antonio, you go curvil, junctions, Sonora, Ozona, Sheffield, Fort Stockton. And then once you get to Fort Stockton, you head to Alpine on 67. And so what's interesting is once you get to Alpine, then as you leave Alpine, then you start heading up, like it's a, it's a climb up into the mountains, West Texas mountains. And, and you're on 118 and you take 118 to Terry, lingua. And then when you get to Terry, lingua, you take 170 over to lehetus. And so Terry, lingua is probably the next closest town. And really, once, once you're at Terry, lingua, you're really in the big bend area right there. So lehetus is, is pretty much on the, almost on the border. It almost bust the Rio Grande River on the US side. And it's such a small town that if you, if you weren't looking for it, you would really miss it. You would drive right by it. And so if you're just out there for a Sunday drive, so to speak, you, and you didn't know you were looking for a lehetus, you would drive right by it. So it's, it's about seven hours. It says from, from San Antonio. If I, if I change the destination to El Paso, let's go to El Paso. Which is really the next, the next town. That's about a five hour drive. And that's following, that's hidden out 10 to Van Horn and then Van Horn to Alpine and Alpine and Terry, lingua, Terry, lingua to lehetus. So about five hours from El Paso. There is a, an airport out there. You can, you know, you can take a jet. There are flights that leave on small planes from some of the major cities like Houston and Dallas. So you can fly a plane in there. Or if you have your own private jet, you can fly your private jet out there. So this guy is, it was resort. And the guy who had owned it, it owned it just as a hobby. And so this guy came in and, and that bought it and he, he had made his money in telecommunications. He had no experience in real estate development. And he paid 4.2 million, 4.25 million for it at auction in 2000. Now, when it say auction, that doesn't necessarily mean it was like a distress property that it was up for foreclosure or coming up with bankruptcy sale or something like that. If certain properties like this commercial properties or farm and rancher land will be sold through an auction or you could do seal bids as opposed to putting it out there on the market. Because in this case, everybody may have their own idea of what it's worth to them based on what they're going to do with it. So he bought it. The property had included a boardwalk, you know, an old west boardwalk, a nine-hole golf course, some cheap motel rooms, 90 cheap motel rooms, had an RV park and a 65-year-old trading post. And this guy's vision was to spend $1 million and fix it up. And he was going to put in a five-star golf resort. He was going to have pad sites for multi-million dollar homes. He was going to sell 800 residential lots for up to a million dollars a piece. He wanted to have two championship golf courses. He wanted $100,000 RV pad sites. You drive your main dollar motor home out there and park it on your $100,000 RV pad site. 36,000 square foot spa, four restaurants, one of which was a five-star restaurant. And if you were out there many years ago, they talked about that. They still talked about it. An amphitheater, equestrian club, a hunting club. And if you look at this, you're like, okay, this isn't maybe this isn't unreasonable, but it's in the middle of the desert. And I think that's what that that was the issue. If you read the article, there's a Texas monthly article and they had interviewed some of the local people and they're like, this guy's crazy. He's trying to put a golf course in the middle of the desert. If you have a little nine-hole, you know, cow pasture, then whatever. But trying to put in a championship golf course out in the desert, you know, they thought he was crazy. Well, if you fast forward to 2007, so he'd own this property about seven years. He filed for bankruptcy. 15 million dollars in debt, $500,000 monthly operating losses. And then at that time, the property was assessed. This is on the tax rolls. Was assessed at 16 million. And the assessed value is not always the same as the fair market value. We'll talk about that in a later episode. So in this case, they estimated that he spent more than 100 million of his own money. They don't know how much he spent, though. And so, a high-bid at auction was 13 and a half million. And that was, there's no word on whether that was accepted or not because I think that it had to go back to the creditors committee at that point as part of the bankruptcy to determine if that was going to be accessible or not. So eventually, it was bought by somebody and it's still an operation. And if you get on their website, their rooms are pricey, but it's a nice property and it's worth visiting. But the issue in this case was, if you look at going back to that analysis we talked about earlier, you have your, if you look at the investment analysis, you've got your initial cost, you've got your holding period and you've got your future value. So he paid $4.25 million when he bought it. That was his initial cost. His holding period in this case was seven years. Now imagine he expected his holding period to be a whole lot longer, but the problem is if you go into a deal like this, you've got to know what you're going to pay for it, how much you're going to spend on it, as part of your due diligence on the front end, and what you expected to be worth at some point in the future. And I don't think that he ever did that. I think that if you look at a more recent example, not directly on point, but it'll give you an idea. That's the fry festival or the fire. I guess I just said fry. That's not right. The fire festival from last year that was just a fiasco where I forgot the total amount of money that I forgot his name, but the guy had raised. And then how much he spent. But in that case, I can see everybody just jumping on board going, yeah, this is a great idea. And they're getting to play along and spend all his money. And he's the one taking all the risk. And at the end of the day, he's the one that ended up going to federal prison. But everybody's going to play along and spend your money while you got it. And I think that's I can see that happening right here where he's like, I'm going to buy some, you know, this resort in the desert. And I'm going to put all the stuff in and his buddies were like, go for a man. I think this is the greatest idea in the world. And we'll come come help you spend your money and we'll come hang out there and enjoy it. So in this case, though, he bought it for 4.25. After seven years, he put over 100 million of his own money. And then it was worth 16.5 or estimate. That was we'll just go with the assess value. So good real estate investment. You've got to know what your initial cost is. You've got to have a plan. You've got to know what you're going to spend. You got to have an idea of what that that probably is going to be worth at some point in the future. So some ways to minimize that risk. We're going to wrap up here with this. One is to avoid risky ventures. So don't get into something you're not you're not familiar with. Well, if you're going to buy a house, that's one thing. But know that bigger picture. Know that bigger picture going into it. Study real estate is an ongoing investment. Be aware of what's going on in the market. What's going on the economy? What what's going on in development? Transportation changes. If you're going into role state on the investment side, get experience in one type of investment. Don't try to do everything. A lot of times what you'll see are individuals who are successful have become very specialized in the niche market. Work with or for experienced individuals to get that knowledge and experience going into you know, going into the investment. Put a strong team in place. You know, you can have roles or you can delegate responsibilities to individuals on that team and bring their strengths to the table. Start off with a small scale investment to get your feet wet and learn and then go from there. Assume a longer holding period than necessary. That doesn't mean you have to hold it for that longer time, but that goes back to your exit strategy. What happens if you've got a shorter holding period and that doesn't work out? What's plan B? And then with an investment you want to price the risk and that's when you're buying it on the front end. What am I going to pay for this based on based on the risk of this investment? And then you analyze the cash flow on a residential transaction. You don't have cash flow, but on a commercial transaction or real estate development, you will. So you want to analyze the cash flow risk over that holding period. So again, we've talked about, you know, the qualitative aspects of a real estate decision. That's the emotional side, the touchy field side. That's the stuff we can't quantify. So you can get into location. You can get into job growth in that city and how that impacts real estate. You can get into the school districts. Crime rate, neighborhood amenities, driving distance to and from work or school, shopping amenities and entertainment. That's big these days. The traffic, you know, we talked about a couple examples of traffic. They can impact real estate, zoning, flood risk, drainage, noise pollution, HOA management, privacy. We talked about a couple examples of that future development, competition with the developer. If you're buying the first phase of that neighborhood and it's going to be a seven or eight phase development, you're going to be competing with the developer until the last section is built out. Competition with other neighborhoods, stigmas. So those are all on the qualitative side. They will impact the marketability of that property and the value of that property. But it's not the quantity of aspects. So when you're looking at buying real estate, you need to see the big picture associated with the real estate purchase or investment to minimize current and future risk.