We’re in the affordable home market in San Antonio TX, and it used to be quite easy to resell distressed homes with owner financing with little to no repairs, such as my first one here:
I bought that one for $51,000 (about 30% under FMV) and resold it with seller financing for $79,000, IIRC, 9% int., 5k down. No repairs were done by me on this one.
(Dodd Frank rules followed, FMV charged to owner finance buyer, value based upon sold comps in the neighborhood).
Our old model was – buy a distressed house in certain areas, no repairs, resell it with seller financing, 10-15% ROI typically for investor. That’s how it used to be.
These days, things have changed. Another property was purchased for $49,500, also 30% under FMV, below:
This one was a 3/1, 1 car garage, built in the late 50s. It was nicer than the house above. We put it on the market to sell with seller financing:
- $5000 down
- $895 per month PI/TI
- 30 year amortization
- 10% interest
- No prepayment penalty
- No balloon
- Final price: $89,900 (FMV)
We probably had 100 people look at it over 3-4 months. No one wanted it. This was a new experience for us. What the heck was going on?
It turned out that a few miles away, there was a new luxury apartment complex with units for about $800-1200 per month that were really nice. Our theory was that people were getting pickier as the economy gets better and are opting for better housing.
So, we altered our model a bit.
We did a partial rehab on this house – AC, paint in and out, kitchen and bath rehabbed with new flooring, tile and countertops, light fixtures and outlets. Total rehab was $11,000.
Then we put it back on the market.
It sold with seller financing with the above terms in less than 60 days. Even with rehab, the investor clears 13% ROI with no further repairs or maint.
- Markets change – people get fussier as they have more money and better jobs
- Have the investor do a $5-10k light rehab that ensures the roof and foundation are ok, plumbing works, basic electrical works and paint touch up. This will get the house sold much faster.
- Keep a close eye on revitalization going on near your house – you may have to upgrade to keep up with the competition
Eventually, the market in San Antonio will go down, and we expect that we will be able to resell houses without repairs again. For now, however, we do light rehabs and our investors still make 10-12% ROI. Not bad when you are doing no maintenance on the property :).