👋 Exciting Things Are Happening at Frontline Property Management!

September 2021 Newsletter

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More good news!!!

Just under two weeks ago we brought great news to your email regarding the CDC’s attempt to put the eviction moratorium back in place.

This week we are back to tell you that the HOA laws are changing in Texas!

How does this affect real estate investors? For years HOAs have had little to no limit of power when it comes to regulating rental properties. These new laws will decrease the cost and smooth the process of having a rental property within an HOA. One main point of celebration for real estate investors is that, under the new laws which took effect September 1st, 2021, HOAs are barred from requiring access to tenant applications, screenings, and lease agreements. They will now only be allowed to request the tenant’s contact information and the lease commencement and expiration dates.

Click here for more information regarding the changes in HOA laws.

These updates were heavily supported by The Texas Association of Realtors.

Did you know that all Frontline Property Management, Inc. Portfolio Managers are licensed real estate agents and members of The Texas Association of Realtors? We believe our duty to our investors extends past just increasing ROI through insightful and thorough property management. As such we have dedicated Realtors ready to help with all of your real estate needs! If you are looking to expand your investment portfolio or would like to take advantage of the current market, reach out to your Portfolio Manager.

Speaking of Portfolio Managers…

Please help me in welcoming our newest team member and Portfolio Manager Katie Hartley!

Katie has been a licensed real estate agent since 2005 and has managed a multitude of different property types over the years. In addition to a wide range of management experience, she also has experience in real estate sales and marketing. We are thrilled to have her on our team and look forward to the impact she will have on our investors!

Jay Hartley MPM®, RMP®

Owner - Managing Partner

Office | 817.377.3190

Direct | 817.288.5546

Frontline Property Management, Inc.

3000 Race Street, Suite 132

Fort Worth, TX 76111

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The 9 Best Real Estate Investing Books of 2021

Best Overall:

The Book on Rental Property Investing

Best on Commercial Real Estate:

Mastering the Art of Commercial Real Estate Investing

Best on General Investing: Rich Dad, Poor Dad

"The Book on Rental Property Investing," and this handy guide explains everything you need to know about succeeding with rental investments as a means of generating cash flow. It also outlines the biggest mistakes rental property investors make and how to avoid them. If you're looking for a primer to rental property investing that's suited to beginners, this book can help position you to get ahead. It's packed with simple strategies and actionable tips for creating and maintaining wealth through income-generating rental property investments.

"Mastering the Art of Commercial Real Estate Investing" explains the basics of investing in commercial real estate, using six specific laws of real estate investing that are designed to promote maximum profitability. Author Doug Marshall explains how to determine when the timing is right to buy a commercial property and when it makes sense to take a pass on a deal, as well as how to position an investment for optimal cash flow over the long term.

"Rich Dad, Poor Dad" is a treatise on how to build and grow wealth by investing intangible assets, such as real estate and small businesses. This book rates as one of the best general reads on investing and personal finance of all time, but there are some key lessons to be gleaned for real estate investors. It's less about specific strategies and more about how to develop a wealth mindset that includes real estate as a focal point. The overarching theme is using real estate to generate passive income so that you're working smarter, not harder, to build a portfolio that produces consistent returns. If you're looking for motivation and inspiration as you ease into real estate investing, this book offers plenty of both.

Best for Flippers:

The Book on Flipping Houses

Best on Real Estate Taxes: The Book on Tax Strategies

Best for Building Wealth:

The Millionaire Real Estate Investor

If you're interested in flipping houses as opposed to playing the long game that's usually associated with owning rental properties, you'll want to check out J Scott's "The Book on Flipping Houses." As a professional flipper, he's developed a very successful system for finding properties to flip, rehabbing them without eating into his profit margin, and reselling them for maximum gain. This book covers everything you need to know about flipping as a real estate investing strategy, from how to evaluate potential markets to getting financing for a rehab property to hiring contractors and eventually putting the home back on the market.

Amanda Han and Matthew McFarland are both certified public accountants and they draw on their knowledge and expertise to offer a thorough tax guide for real estate investors in "The Book on Tax Strategies." If you're not sure how depreciation works, for example, or how to use a self-directed IRA to buy real estate investments, you can get pointers on both here. It's a must-read to add to the list if you're looking for strategies and tips to minimize what you owe to Uncle Sam on your real estate investments.

"The Millionaire Real Estate Investor" covers the biggest myths about money and investing that often prevent people from achieving millionaire status, as well as how to vet real estate opportunities to find the ones that prove most profitable. You don't have to be rich to appreciate the strategies and techniques Keller advocates but it's possible that you could get rich in real estate by applying the principles he touts.

Best for REIT Investors:

The Intelligent REIT Investor

Best for Beginners:

The ABCs of Real Estate Investing

Best on Out-of-State Investing: Long-Distance Real Estate Investing

"The Intelligent REIT Investor" outlines the most important concepts associated with REIT investing as a wealth-building strategy. Specifically, the authors dive into how to evaluate and choose which REITs to invest in, based on your overall goals, risk tolerance, and time horizon for investing. If you're interested in adding REITs to your portfolio but you have no clue where to start, this book can help you get your feet wet without getting in over your head.

If you're just entering the world of real estate investing, opt for "The ABCs of Real Estate Investing" by Ken McElroy. As the title of the book suggests, you'll learn basics like how to achieve wealth through real estate, ways to find and evaluate properties, negotiating deals, how to increase income through property management tools, and much more. McElroy himself has over 26 years of senior-level experience in multifamily asset and property management. Even more, reviewers agree that this is a great starter book, praising how informative and easy-to-read it is for first-time investors.

"Long-Distance Real Estate Investing" challenges the myth in real estate that you should only look into investing in your locality. This is a great read for investors who live in an area that's not particularly suited for investing, or for those looking to widen their real estate investments nationwide. Although out-of-state investing is considered risky, author David Greene argues that rules, technology, and markets have changed well enough so you can successfully invest anywhere.

Outlook for the Texas Economy

Economic activity in Texas improved during the second quarter, and strong growth is expected for the remainder of the year. Improved hiring in June resulted in solid second-quarter payroll growth, although joblessness in the Lone Star State was still higher than the national average. Moreover, headline wage numbers flattened in real terms due to supply bottlenecks driving up inflation. On the bright side, oil industry activity grew as oil prices increased and the global economic recovery continued. The relative health of the state's economy and favorable business practices attracted migrants and firms from other parts of the country, bolstering population growth and housing demand.

Texas' economy extended its year-long recovery in June according to the Dallas Fed's Texas Business-Cycle Index, which rose 7.8 percent on a seasonally adjusted annualized rate (SAAR). Hiring in Central Texas pushed the Austin and San Antonio indexes up 8.9 and 8.7 percent, respectively. The metric decelerated 8.5 percent in Houston while accelerating 10.7 percent in Dallas. Economic activity was more subdued in Fort Worth as quarterly employment flattened, pushing the index up 2.6 percent SAAR.

The Texas Leading Economic Index (a measure of future directional changes in the business cycle) ticked up for the third straight month, but the growth rate decelerated due to negative fluctuations in the Texas Stock Index, Texas value of the dollar, and average weekly hours in manufacturing. On the other hand, the Texas Consumer Confidence Index increased as optimism surrounding overall business conditions, employment, and household finances outweighed inflationary concerns. Increasing COVID-19 vaccination rates bolstered consumer confidence. Based on data from the Texas Department of State Health Services, 50.3 percent of the state's population was fully vaccinated as of June 30. Unfortunately, after months of decline in COVID-19 cases, the emergence of a more contagious Delta variant increased uncertainty surrounding the end of the pandemic as the number of new cases grew in the last week of June.

Rising oil prices and optimistic national economic data during the second quarter resulted in higher growth and inflation expectations for 2021. However, the liquidity in the financial markets as a consequence of large-scale asset purchases by the Fed, which include mortgage-backed securities and U.S. Treasuries has pushed down interest rates. The ten-year U.S. Treasury bond yield fell 10 basis points after reaching a pandemic peak of 1.62 percent in April, but the Federal Home Loan Mortgage Corporation's 30-year fixed-rate ticked up to 2.98 percent. The median mortgage rate within Texas held steady in May3 at 3.2 and 3.0 percent for GSE and non-GSE loans, respectively, but, similarly to the national headline metric, remained below year-ago levels. Texas home-purchase applications declined for the third consecutive month in June, falling 25.4 percent YTD, and refinance applications declined 31.8 percent over the same period. Lenders adding more requisites and the shrinking pool of households able to refinance is likely impacting refinance activity. (For more information, see Finding a Representative Interest Rate for the Typical Texas Mortgagee.)

Despite healthy demand, housing sales slowed in June amid ongoing inventory constraints, marking the fifth consecutive quarterly decline as total sales fell 2 percent QOQ. Transactions for homes priced less than $400,000 offset quarterly growth of 11.5 percent in the luxury-home sector (defined by homes priced more than $500,000). The Residential Construction Cycle (Coincident) Index, which measures current construction levels, elevated nationally and within Texas due to improved industry wages, employment, and construction values. Construction activity is expected to remain strong in coming months as indicated by the Texas Residential Construction Leading Index (RCLI), which rose to a record high amid elevated weighted building permits and housing starts as well as a decrease in the ten-year real Treasury bill yield. Although the RCLI indicated increasing activity, the trend flattened as growth rates in building permits and housing starts decelerated. Austin's leading index reflected statewide fluctuations in weighted building permits and residential starts while similarly reaching an all-time high. Houston and San Antonio indexes increased even as weighted permits decreased in both metros. The leading index in North Texas flattened as weighted building permits and residential starts decreased. Despite the differences between major metros, the metrics suggested steady construction in the coming months. (For additional housing commentary and statistics, see Texas Housing Insight at recenter.tamu.edu.)

The West Texas intermediate (WTI) crude oil spot price climbed to $74 per barrel, representing a year-to-date increase of $28. An increase in consumption led to OPEC+ deciding to ease production cuts starting in 2Q2021, an action that addressed current concerns regarding reduced oil inventory. Oil prices are expected to flatten as the hike in production should exceed growth in global consumption. Texas' active rig count increased to 219 after crude oil production elevated to 4.84 million barrels per day in May4, still well below its peak of 5.34 million barrels per day in January 2020. Natural gas prices also trended upward with the Henry Hub spot price reaching $3.54 per million British thermal units (BTUs). Natural gas prices are expected to rise based on projected growth in liquefied natural gas exports and increasing natural gas consumption.

Texas nonfarm employment added 55,800 jobs in June, rising 4.4 percent SAAR. Based on the state's solid employment performance, the Dallas Fed is forecasting annual employment to increase 5.6 percent in 2021, reaching 13 million workers by December. Texas' unemployment rate decreased to 6.5 percent, still greater than the national rate of 5.9 percent. The size of the state's labor force expanded while the labor force participation rate remained fixed at 62.2 percent. Texas' major metros reported lower unemployment rates than the statewide average except in Houston where joblessness fell to 7.1 percent. Unemployment inched down to 6.2 percent in Fort Worth and fell similarly in San Antonio and Dallas to 6 and 5.9 percent, respectively. Joblessness remained lowest in Austin, where unemployment slid to 4.9 percent.

The number of Texans filing initial unemployment insurance claims decreased 23 percent in June despite surging to 24,934 in the last week of the month (Figure 1). Initial claims at the metropolitan level reflected statewide fluctuations (Figure 2). The increase coincided with Texas' decision to opt out of further federal unemployment assistance. Administrative/support/waste management/remediation services registered the highest number of initial claims in the week ending July 3. On the other hand, Texas' average weekly continued unemployment insurance claims fell 17.4 percent in June as record job openings indicated strong labor demand. Nevertheless, employment remained below pre-COVID levels due to factors involving in-person schooling, daycare closures, and early retirement affecting the transition from unemployment to employment.

Texas' average real private hourly earnings flattened year over year (YOY), despite reaching a record high in nominal terms. Recent hiring in leisure/hospitality and accommodation/food services, which typically pay lower than the overall average, may be weighing on the statewide average. The average wage in North Texas exceeded the U.S. rate ($30.22), paying $30.69 in Fort Worth and $32.18 in Dallas. Austin's hourly earnings ($30.43) exceeded the national average despite falling 4.4 percent YOY. Real wages declined 1.5 percent in San Antonio ($26.09) but were roughly unchanged in Houston ($29.08) compared with year-ago levels.

Hiring in Houston slowed during the second quarter, recovering 19,600 jobs compared with the 33,700 positions added during the first quarter. Houston payrolls remained 5.4 percent below pre-pandemic levels, a larger gap than the other major metros. Dallas added 33,400 employees in the second quarter, the highest number of job gains of the four major MSAs. San Antonio and Austin registered quarterly increases of 9,800 and 9,400 workers, respectively. Payroll expansions across the major metros were largely concentrated in the leisure/hospitality, professional/business services wholesale trade, government, and education/health services industries. Employment declined only in Fort Worth, which shed 1,000 positions during the second quarter as global supply chains negatively affected the manufacturing industry. Goods-producing employment decreased due to falling construction jobs.

Texas' goods-producing sector lost 15,600 jobs during the second quarter despite registering two straight monthly increases. Amid increasing oil prices, energy-related employment rose by 2,300 jobs in the second quarter but remained around a fifth below year-ago levels. Recovering global economic conditions supported the state's manufacturing industry, which added 4,900 employees. Durable-goods payrolls recorded a 4,100-job gain during the second quarter. Production of manufactured homes accelerated in June according to the Texas Real Estate Research Center's Texas Manufactured Housing Survey, contributing to increased business activity. Plant activity chipped away at backlogs that bottled up over the past year amid moderating sales volume. Manufacturers expanded payrolls to boost activity, but hiring was hindered by on-going labor-supply challenges that drove wages and incentives upward. Amid strong labor demand, average hourly manufacturing earnings rose 5.5 percent YOY after adjusting for inflation, while the Dallas Fed's Manufacturing Outlook Survey corroborated labor-market data, specifically wage gains, supply issues, and strong demand. The survey's production index rose 14 points, indicating healthy output growth. All business indicators except finished goods inventories and capital expenditures increased. Outlook uncertainty increased for the second straight month as business executives voiced concerns surrounding persistent shortages in labor and materials adversely impacting business operations.

Construction payrolls fell last quarter, shedding 22,900 quarterly jobs mostly in commercial projects. The decline in higher-paying nonresidential jobs pulled the average hourly construction earnings ($27.97) down 5.8 percent YOY after adjusting for inflation. Total construction values dipped for the third consecutive month, remaining unchanged compared with first quarter values. The YTD sum, however, reached double-digit growth, increasing 10.2 percent compared with 1Q2020 levels. The value of apartment groundbreakings soared 21.6 percent in 2Q2021, while single-family values grew 2.4 percent QOQ and duplex construction declined 5.7 percent QOQ. Nonresidential construction fell behind last quarter's pace with substantial reductions in warehouse and hotel values. Austin mirrored statewide nonresidential construction changes, while the loss in DFW was concentrated in library/museum and hotel values. Lower warehouse, school, and library construction values attributed to the decline in commercial activity in Houston and San Antonio.

Texas' service-providing sector continued to recover jobs lost due to the pandemic that closed the economy. After adding 128,500 jobs in the second quarter, the service sector was the hardest-hit major industry with employment 2 percent below pre-pandemic levels. Leisure/hospitality recouped 58,000 jobs in 2Q2021, but arts/entertainment/recreation payrolls remained almost a fifth below pre-pandemic levels. On the other hand, the transportation/warehousing/utilities industry added 11,300 positions, surpassing pre-pandemic employment by 1.2 percent. The Dallas Fed's Service Sector Outlook Survey reported moderate hiring and revenue growth in June, but strong quarterly numbers preserved the 11-month positive trend for both indicators. Respondents remained optimistic regarding future business activity as vaccination rate increases, ongoing booster shot rollouts, and repealed business restrictions contributed to the current optimism. Anecdotal evidence from the survey's comments section pointed to a labor force unable to match current demand. Rising prices weighed on expectations of future activity and company outlook more broadly.

Texas retailers added 3,200 workers over the past three months, mostly in motor vehicle/parts dealers, clothing stores, and miscellaneous store retailers. On the other hand, hiring declined in food/beverage stores and general merchandise stores after expanding in the first quarter. Inflation-adjusted retail sales flattened in June, declining 0.5 percent on a monthly basis from a record-high the previous month and decelerating 11.4 percent YOY. The Dallas Fed's Retail Outlook Survey corroborated depressed retail sales activity as the sales index remained negative for the second consecutive month as inventories fell to an 11-month low. In response to historically low inventories, over 60 percent of business executives reported increases in input and selling prices. Retailers, however, communicated future optimism as business indicators remained at relatively high levels, extending a year-long improvement of underlying indexes.

Fueled by supply-side bottlenecks, the U.S. Consumer Price Index (CPI) accelerated 5.4 percent annually as transportation prices shot up 21.2 percent relative to last year. Despite the higher reading in June, the CPI's yearlong average was 2.2 percent, only slightly above the Federal Reserve's average target rate of 2 percent over time. Core inflation, which excludes food and energy, rose at its greatest pace since November 1991, climbing 4.5 percent and accounting for nearly one-third of the total increase relative to year-ago levels amid supply shortages for used vehicles. Similar fluctuations in the components of Houston's CPI resulted in annual growth of 4.6 percent overall and 3.1 percent less food and energy.

The Texas trade-weighted value of the dollar5 depreciated in May, falling 9.4 percent YOY. Texas' real commodity exports reached a record high in June, rising 8.4 percent QOQ compared to 4.4 percent nationally. A considerable amount of the quarterly improvement was due to rebounding oil/gas shipments to Singapore, South Korea, and India. Total crude oil exports skyrocketed 36.2 percent in real terms during the second quarter, elevating 89 percent relative to 2Q2020 values. Quarterly inflation-adjusted manufacturing exports accelerated 10.1 percent as transportation equipment shipments and energy-related export values soared.

The Center created a Texas weekly leading index to predict turning points in the Texas economy. (For more information, see Texas Weekly Leading Index.) The index decreased during the week ending July 3 after increasing substantially the previous week (Figure 3). The index's decrease was mainly due to an increase in the number of people filing for unemployment insurance and a decrease in the number of new business applications. Even though the number of new business applications fell, the number remains high, signaling future business activity remains strong. The index has been gathering impetus and is pointing toward higher future economic activity as the reopening of the economy continues and uncertainty regarding the pandemic dissipates due to increasing vaccination rates.

Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisor regarding your specific situation.