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“If you challenge conventional wisdom, you will find ways to do things much better than they are currently done.” – Michael Lewis, Moneyball: The Art of Winning an Unfair Game.
Before I discovered real estate investing, I lapped up the conventional investor wisdom: If you invest for retirement, buy stocks and mutual funds in a 401k.
So I invested in the stock market. While I did ok, I felt out of control. Stocks go up. Stocks go down. I had so little control over my portfolio. I never felt secure in my investments.
I also noticed that my best stocks only paid an annual dividend of 3-4%. That’s puny.
I thought: There must be superior ways to secure my future with higher ROI and steady monthly cash flow. And that is real estate.
Real Estate Is Better
‘Hold up’, you say. ‘You’re carping about the risky stock market, low returns and you think REAL ESTATE is better? Do you know how many people lose their shirts in real estate?’
Let me hazard a guess – when I mention real estate and cash flow, what do you think of first? Probably rental properties. Being a landlord. Repairs. Vacancies. Headaches.
That’s what the conventional wisdom tells us: ‘Real estate investing’ equals ‘rental property investing.’That isn’t what I’m talking about.
What I AM Talking About: Distressed, Owner Financed Real Estate
A major key to success in real estate is finding a good strategy, and then finding property that fits that strategy. That is what I’ve done with a type of real estate investing that just crushes the stock market year after year. And that is owner financed inexpensive single family homes.
This type of investing is steady, safe and low stress:
- I buy under market value houses in town for $40,000-$65,000 – cash.
- I perform a ‘light’ rehab of $5000 or so per property.
- I do NOT rent the property. I seller finance the property to a qualified buyer with a steady job, documented income and a
- $5000-$10,000 down payment.
- I only ‘carry the mortgage note’ on these investment properties.
Advantages:
- Simplicity – Owner financed real estate profits are extremely easy to calculate
- Add up annual cash flow.
- Subtract property taxes and insurance.
- Divide by property purchase price.
- There’s your ROI. 10-14% is common.
- Reliability – Steady cash flow of $500-750 per month.
- No repairs or maintenance.
- I am NOT a landlord.
- Only expenses I pay are property taxes and property insurance.
- No stress and complete peace of mind.
Here are my houses and their returns – after taxes/insurance are paid:
Property 1
$51k purchase, 16.4% ROI.
Property 2
$72k purchase, 12.3% ROI
Property 3
$43k purchase, 16.5% ROI
The bottom line on my distressed property portfolio:
- 3, $50-$60,000 houses
- Bought for cash and owner financed to qualified buyers with
- $5000 down minimum.
- Total return average: 15.06% ROI
- Repairs: None. Ever.
- Total cash flow per year: $23,450.
My cash flow is rock steady and doesn’t vary. In a few years, when the stock market inevitably dives and investors are in a panic, I’ll continue to pocket my 14.1% annually.
Summary
My distressed real estate portfolio simply crushes the typical stock portfolio. It is more profitable, less stressful, and much less prone to market fluctuations than the stock market. It also does not suffer from the problems of rental property investing: vacancies, repairs and maintenance.
Regular investors can stick to the conventional wisdom. Me, I’ll take the unconventional and enjoy 14% per year – for life.