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How to Avoid Buy and Hold Investing Trainwrecks

If you have considered investing in buy and hold real estate in San Antonio or another city, you probably have heard about the investing horror stories….major repair problems you didn’t anticipate, bad tenants, cash flow negative properties.

Most of the problems that investor run into in under market value fixer uppers can be avoided with proper planning and foresight. Here are a few areas that many San Antonio buy and hold investors get into trouble:

#1 Bad Location

You need to buy property where QUALITY buyers and tenants want to live. If no one you want to rent to or sell to wants to live there, you are going to have problems.

For many investors in fixer uppers in San Antonio, this problem comes down to wanting to buy the cheapest possible property, which usually means buying in a bad area. And that problem often comes down to not having enough money to really start investing.

I have seen this mistake time and time again – would be investors want to get started in buy and hold investing and really do not have the capital to do it right. Not having enough money means you end up buying cheap in bad areas, you get bad tenants, you don’t have cash reserves for repairs….pretty soon, you are in a very bad situation.

Personally, I buy in blue collar areas that are on the edge of wealthier neighborhoods. This property in Beacon Hill I sold to my father in law, which is an up and coming area on the edge of very expensive neighborhoods. This buy and hold deal worked out great for him:

hollywoodBefore Rehab – $50,000 cash purchase, zero rehab by investor, 90 DOM, resold for $80,000 owner finance, $804 per month, 14% ROI.
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After rehab, completed entirely by end buyer.

He just had the buyer pay him off, and he made nearly $48k on a $51k investment. Nice deal!

#2 Numbers Do Not Add Up

Another common problem new buy and hold investors get into is they find a nice looking property in a nice area and the rent sounds good, but when they add up the numbers, including repairs and vacancies, the expenses are greater than the cash flow.When you see this, you should always follow the numbers. Don’t listen to your heart. If there is not enough money in the deal, don’t do it. And be honest with yourself about what the expenses are, don’t fudge them to make them look good.There is nothing worse than buying a fixer upper buy and hold deal and having to put money INTO it to keep it out of foreclosure.

#3 The Property Is a Wreck

I deal with ugly properties that might scare many investors:

front 3
$20,000 cash purchase, $5000 in rehab, 65 DOM, sold for $39,900 owner finance (Fair Market Value), ROI 12%.

This is an example of our lower priced affordable home, but still an excellent investment in property. These houses will sell in our neighborhoods in San Antonio TX. It is a 4/1 on Colima Ave. in the 78207 zip code. It was purchased by the investor for $20,000 cash, which was well under market value. He had it repainted in and out and the door secured, and other minor fixes. That cost him $5000 total in repairs.

Houses in this range and location do not require major repairs and upgrades to resell.

We then sold the house with owner financing to a qualified end buyer. The buyer was qualified according to SAFE Act – documented income, tax returns, pay stubs, employment verified. All Dodd Frank underwriting rules were followed.

Terms:

  • $3000 down
  • $400 per month PI/TI
  • 30 year amortization
  • 10% interest
  • No prepayment penalty
  • No balloon
  • Final price: $39,900 (FMV)
  • ROI: 12%

That is the kind of house I deal with, but you as a new investor may want to steer clear of houses with major problems. If you get a truly ugly fixer upper, consider having an expert real estate investor/company run your investments for you.

Lastly, many buy and hold investors get into the business for passive income but find that they simply do not have the time and/or the money to do it right. That passive income dream can become a money sucking nightmare if you are not careful.

If you are looking for a good buy and hold investment property, I can help you with the below property and run the entire project for you.

Front

Address: 126 E Dullnig Ct., San Antonio, TX 78223
Year Built: 1919
Description: Major cash flow on this San Antonio fixer upper distressed property – 4 beds 1 bath, 1100 sqft, two large storage units in the back, Lot Size: .19 acres, Yearly taxes: $1,600.00, Estimated yearly insurance $700.00, Estimated repairs: 30K, includes interior paint, electrical/plumbing up to code, landscape, trash removal, kitchen/bath updates, central HVAC, flooring, 2 room conversions, foundation/roof repairs.
Max ARV: $109-$115k

Cash Price: $55,000

Exit Strategies:

  • Rent with 30K in repairs: $1150.00
  • Owner Finance San Antonio wholesale property with 20K repairs: 5k down, $995.00 monthly P/I, 30 year amortization, 10% interest, Price: 99K.

Our top real estate investors have done hundreds of rehabs on San Antonio investment property, so I know what I am doing on the rehab; my estimates are usually within 5-10% of the actual rehab number.

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San Antonio Real Estate Market Continues to Rise in June 2016

According to the San Antonio Board of Realtors, monthly housing reports in our south TX city continue to show steady growth and rising values.

In May 2016, 2800 homes were sold, which is a 10% increase over May 2015. Also, May 2015/May 2014 saw a 9% increase in home sales over a year ago.

The average selling price of a house in San Antonio today is $249,000, with a median price of $209,000, which is up three percent from a year ago. The average price of San Antonio homes sold in May 2015 increased 10% from a year ago.

In April, San Antonio houses that are less than $200,000 were more than half of what was sold in the city. In May, 48% of the market involved houses that sold between $200,000 and $500,000.

San Antonio’s growth is higher than Texas’ overall, but the city is still a very affordable place to both live and invest. The average home price here of $249,000 is far less than the Texas average of $271,000.

Meanwhile, the city’s commercial development continues to grow strongly. A May 2016 report by Marcus & Millichap’s Retail Research Market Report found that the retail vacancy in San Antonio has reached an all time low. There also has been limited new retail construction, so the trend of increasing occupancy and rising rental prices will continue to have an affect on the commercial market.

The employment base of San Antonio will grow at a healthy 2.5% clip for 2016, which should contribute to the rising demand for various retail businesses from grocery stores to service companies.

In my under market value San Antonio  real estate investing business, we continue to see strong growth in prices and demand for affordable homes, as well. I did manage to get this San Antonio fixer upper under contract and for sale for just $52,000, which will produce a rate of return of more than 15%:

Front

  • San Antonio Wholesale Property Address: 1515 Wagner Ave. San Antonio, TX 78211.
  • Year Built: 1949
  • Description:  Location Location! Cash Flow! Under market value, 3 beds 1 bath, 816 sqft, built: Lot Size: .14 acres, Yearly taxes: $600.00, Estimated yearly insurance $700.00, Estimated repairs: 15K, includes interior paint, electrical/plumbing up to code, landscape, trash removal, kitchen/bath updates, flooring, roof repairs.
  • Estimated Repairs: 15k
  • Cash Price: $52,000
  • Exit Strategy: Rent San Antonio investment property with 15K in repairs: $850-$900 per month — or Owner Finance with 15K repairs: 5k down, $900.00 monthly P/I, 30 year amortization, 10% interest, Price: 89K.
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SOLD – 1515 Wagner Ave. San Antonio, TX 78211

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  • San Antonio Wholesale Property Address: 1515 Wagner Ave. San Antonio, TX 78211.
  • Year Built: 1949
  • Description:  Location Location! Cash Flow! Under market value, 3 beds 1 bath, 816 sqft, built: Lot Size: .14 acres, Yearly taxes: $600.00, Estimated yearly insurance $700.00, Estimated repairs: 15K, includes interior paint, electrical/plumbing up to code, landscape, trash removal, kitchen/bath updates, flooring, roof repairs.
  • Estimated Repairs: 15k
  • Cash Price: $49,000
  • Exit Strategy: Rent San Antonio investment property with 15K in repairs: $850-$900 per month — or Owner Finance with 15K repairs: 5k down, $900.00 monthly P/I, 30 year amortization, 10% interest, Price: 89K. 15% ROI is possible.
  • Comps: Rental Comps 1515 Wagner Sold Comps 1515 Wagner
  • Contact us for more information or to make offer.

More Photos:

Back Bath Bed1 Bed2 Bed3 Kitchen Living Room water heater

 

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Buy and Hold Success Story – $50k Investment – $47k Return

Back in 2013, one of our investors bought their first San Antonio investment proeprty: a $50,000 buy and hold deal a few miles north of downtown San Antonio.

This was a point in the market when we did not have to do much rehab on our San Antonio investment properties. He picked up this house for a bit under $50,000 and cleaned it up with a broom and got rid of the trash. The total investment was $50,000.

At my recommendation, he did a seller finance deal on this San Antonio fixer-upper, under market value property with the following terms:

  • $50,000 cash purchase
  • $80,000 owner finance price
  • Zero rehab by investor
  • $806 per month
  • 14% ROI
hollywoodBefore Rehab – $50,000 cash purchase, zero rehab by investor, 90 DOM, resold for $80,000 owner finance, $804 per month, 14% ROI.
dasdf
After rehab, completed entirely by end buyer.

The owner of the property did a fantastic job on rehabbing it, as you can see by the pictures. But that is not the end of the story on this San Antonio investment property!

More Pictures After Rehab:

20140403_080937 20140727_134826 20140819_153126 20141017_121747 - Copy

In August 2016, the owner of the property decided to cash out the investor. She paid him off with the proceeds of the sale of one of HER investment properties.

She paid him a sum of approximately $75,000, which is what was left on the mortgage. So, not only did he make $25,000 on the sale of the property, he also made approximately $22,000 in payments over 2.5 years! He made a total return of $47,000 on his $50,000 investment!

Now that is a fantastic San Antonio investment property return!

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Why Some Investors Are Flipping in Austin and Buying and Holding in San Antonio

Forbes magazine recently had another one of its Best Real Estate Investing Cities list, and Texas did very well. Austin was listed as the #1 city to invest in, and San Antonio real estate investing came in at #3. Houston, Dallas and Ft. Worth also made the top 10 list.

Some real estate investors have been pulling out of the Austin market, however, due to the high costs of real estate there. Forbes magazine gives us a clue why: The gross metro product for that city grew 24% from 2011 until the end of 2015, but houses there appreciated by 34%. 

Meanwhile, the average home price in Austin was $334,000 in 2015. So clearly real estate prices are seriously on the rise in Austin. That’s why many investors call me up and are looking for San Antonio investment properties. San Antonio real estate properties are much cheaper; you still can buy a good affordable fixer upper in San Antonio for $45k to $50k.  And the average home price here is about $210,000.

Given how much cheaper houses are here, there is lots of interest in San Antonio investment properties. However, you should note that days on market is longer in San Antonio than Austin. So what some investors who are interested in flipping under market value properties are doing is doing a flip or two in Austin and then doing buy and hold in San Antonio.

As a San Antonio property wholesaler, I have flipped many properties in San Antonio TX over the years, but in this current market, we are seeing profits on our flips of $7k to $10k. And days on market can be 90 or 120 days. For that reason, I am not strongly seeking out fix and flip investors at this time. I will do them for the right property and right investor, especially if the investor has the cash to do 4-5 at once. That way, both of us can make a good profit. Also, if you are a patient investor, then a San Antonio flip can work well. Just do not expect a house to sell in 20 days like in Austin.

I think the flipping market will get better in San Antonio once the market slows down in the next year or two.

So I have some investors flipping in Austin, and once they have 100k or 200k, they buy and hold in San Antonio with one of our $50k San Antonio fixer uppers:

thumb_IMG_4878_1024

    • Address: 1723 W Ashby Pl  San Antonio, TX 78201.
    • Year Built: 1925
    • Description:  Under market value property, investors dream north of downtown, 3 beds 1 bath, 1000 sqft, built: 1925, lot size: .19 acres, yearly taxes: $1,700.00, estimated yearly insurance: $800.00; estimated repairs: 50k in repairs to flip, includes new HVAC, updated kitchen/bath, flooring, paint in/out, exterior skirt, appliances, plumbing/electric up to code, paint out door storage exterior, trash, lawn maintenance.
    • Max After Repair Value: $125,000.00
    • Cash Price: $65,000.
    • Exit Strategy: Owner Finance with 35K repairs: 5-10k down or more, ~$1295.00 monthly P/I, 30 year amortization, 10% interest.
    • Or 15K rehab, new HVAC, paint in/out, kitchen/bath repairs,  then FSBO at 105K, 10% interest, $1095 monthly PI/TI, 30 year amortization.
    • Alternate Exit Strategy: Flip with $50k in repairs. $8000 to $10000 profit.

I made the vast majority of my money in San Antonio real estate investing in buy and hold over the long term. Buy and hold in San Antonio is always a good deal because affordable homes seldom rise above 75k.

 

 

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Why I Buy and Hold Investment Properties with ‘Foundation Problems’

Most San Antonio real estate investors are afraid of ‘foundation problems’ on their fixer upper properties. I understand why that is:

A serious foundation issue on a property can kill the profits on a buy and hold deal. If you have a $25,000 budget to rehab a San Antonio wholesale property, a $10,000 foundation repair can turn it into a negative cash flow situation.

However, one of my millionaire mentors in real estate investing taught me many years ago to not usually worry about foundation problems on buy and hold investments. Actually, I tend to be attracted these days to foundation problems.

The reason? Because most other investors are scared of foundation issues and the competition for these distressed properties is lower. Meanwhile, if you try to buy an old fixer upper for $50k in San Antonio with no foundation problems, you will probably be fighting off a lot of investor competition, which drives up the price.

By buying a foundation problem fixer upper, you often find that you can get the house 5k cheaper, which you can then put into fixing the foundation.

When I am looking at San Antonio wholesale property to buy, I keep these ideas in mind about the foundation:

  • Uneven floor is not a big problem in an old house in San Antonio

Most of the buyers of my properties are accustomed to being in a house with a foundation that is not perfect, so a floor that slopes a bit is not a deal killer.

Some investors in San Antonio will see that minor sloping floor and freak out. However, my experience with the houses I buy between 1900 and 1950 usually have a somewhat uneven floor with a pier and beam foundation.

This can be caused by rotting floor joists, ground settling over the decades or shoddy construction.

When I do my inspection, I usually get under the house and see how serious the problem looks. For many of the houses I buy, all that needs to be done is to replace some floor joists for a few thousand dollars.

It is unusual for me to buy a pier and beam foundation house in San Antonio that needs more than 5k of repairs.

  • Wholesale prices on foundation work

Going to a regular foundation contractor could leave you with a deal busting foundation bill. I have workers who can fix a foundation for half of that price. This includes permits and the engineering report.

That’s why it may be a good idea for you to work with an experienced investor who has the network to get a foundation repaired affordably.

  • Foundation problems can mean profits

I have bought houses for $25k that had foundation problems, but all they needed was about $3000 in repairs for the foundation. On one of these deals, I fixed the foundation and sold it to an investor for a 5k profit.

She then did 5k more in repairs and owner financed that 25k house for $50k and $550 per month. She is making 14% a year on that deal.

All on an under market value San Antonio investment  property with a foundation problem.

So, don’t always be afraid of dealing with a foundation issue; it can turn out to not be a deal breaker, especially if you work with an expert investor who can help you do repairs affordably.

 

 

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My Best Tips for Successful Buy and Hold Investing in San Antonio

Investing in under market real estate in San Antonio has treated me well over the years. I firmly believe that investing in under market value fixer upper San Antonio properties for the long term is the best way to enjoy long term cash flow.

If you are on the fence and are about to dive into buy and hold investing, I have some simple tips to share, as a successful San Antonio property wholesaler:

  • Work with a real estate agent and investor

Most real estate agents just represent people who are buying or selling their personal residence at retail prices. The majority of agents do not invest in real estate themselves, so they are often unable to help you find a good under market value fixer upper that will produce good positive cash flow.

It can help to become an agent yourself so you can source your own deals, but it’s not essential at first.

  • Cash flow!

You need to get a San Antonio wholesale property under market value enough so that when you do the repairs and collect rent from the tenant, you will have enough to cover all of your expenses. These usually include mortgage, taxes, insurance, repairs and vacancies.

Right now, the San Antonio real estate market is pretty hot, and good fixer upper deals for affordable homes are harder to find. This is why working with a highly experienced real estate agent and investor is so important: She can help you find a good under market value deal that can produce cash flow. Also, if you work with an experienced investor agent, she will probably have a good rehab crew that can do the fix up work at a fair price.

Here is a nice wholesale property deal in San Antonio I just found that will produce $1150 per month in rental cash flow:

Front

Address: 126 E Dullnig Ct., San Antonio, TX 78223
Year Built: 1919
Description: Major cash flow on this San Antonio fixer upper distressed property – 4 beds 1 bath, 1100 sqft, two large storage units in the back, Lot Size: .19 acres, Yearly taxes: $1,600.00, Estimated yearly insurance $700.00, Estimated repairs: 30K, includes interior paint, electrical/plumbing up to code, landscape, trash removal, kitchen/bath updates, central HVAC, flooring, 2 room conversations, foundation/roof repairs.
Max ARV: $109-$115k

Cash Price: $55,000

If you do that San Antonio distressed property all cash, you should have about $700 left for positive cash flow – not bad! – after expenses.

  • Due diligence

You need to carefully consider if the wholesale property you want to buy will generate the cash flow you want.

A very common error for new fixer upper investors is to overdo the rehab or not be aware of all the things that have to be fixed.

  • Only invest if the cash flow is there

I never buy an under market value property based upon what I think the value of the house will be in a few years. That is real estate speculation and that is a great way to end up in the poor house. If after I run the numbers – property cost, rehab cost, all expenses – I generate positive cash flow of a few hundred dollars, I do the deal.

  • Don’t forget repairs and vacancies

I like to account for at least $50 per month for repairs on my fixer upper deals in San Antonio. Also, plan on a 5% loss for vacancies. However, I often do San Antonio Section 8 rentals, and I find that this type of rental income is quite solid and safe; I have Section 8 tenants who have been with me for 5 years or more.

Above all, after you find a good potential under market value property that will produce positive cash flow, do the deal. Don’t sit around thinking about it too long or you may never take action. Many people think about investing in San Antonio wholesale property, but the majority never do a deal because of fear.

If you do your due diligence as I outline, there should be no reason to not move forward on that property!

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SOLD – 126 E Dullnig Ct., San Antonio, TX 78223

Front

Address: 126 E Dullnig Ct., San Antonio, TX 78223
Year Built: 1919
Description: Major cash flow on this San Antonio fixer upper distressed property – 4 beds 1 bath, 1100 sqft, two large storage units in the back, Lot Size: .19 acres, Yearly taxes: $1,600.00, Estimated yearly insurance $700.00, Estimated repairs: 15K, includes interior paint, electrical/plumbing up to code, landscape, trash removal, kitchen/bath updates, central HVAC, flooring, 2 room conversions, foundation/roof repairs.
Max ARV: $109-$115k

Cash Price: $48,000

Exit Strategies:

  • Rent with 30K in repairs: $1150.00
  • Owner Finance San Antonio wholesale property with 20K repairs: 5k down, $995.00 monthly P/I, 30 year amortization, 10% interest, Price: 99K. Or, owner finance with quick $5k clean up, resell for $79,900.

Contact us for more information or to make offer.
Sold and Rental Comps: Rental Comps 126 E Dullnig Ct Sold Comps 126 E Dullnig Ct

More Images of this San Antonio under market value property:

back bath Bed 1 Bed 2 Bed 3 Bed 4 kitchen Living Room Sink Utility Room

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San Antonio TX Economy Still Strong, Even With Oil and Gas Slowdown

Personal income growth since 2011 in Texas ranks #2 in the US, with only North Dakota ahead. Some San Antonio real estate investors think that crashing oil and natural gas prices would have slowed down the Texas economy, but the Lone Star State continues to do well. And San Antonio buy and hold properties continue to sell and rise in value.

Note: I don’t personally worry much about what the economy does in San Antonio anyway. In the 2007-9 crash, I bought and sold $2 million in real estate and still had my San Antonio buy and hold houses rented out with no problem. San Antonio affordable homes are always in demand. 

Economic experts in Texas this month stated that several areas of the Texas and San Antonio economies continue to keep job growth going and wages rising. For example, health care is very strong, and San Antonio has a very strong military presence with several Air Force and Army bases.

Even with low oil prices, Texas still created 1.7 million jobs from 2010-15, which is the best in the US. In the same time frame, the entire US economy lost 400,000 jobs.

The oil and gas slow down has had some impact in Houston, but San Antonio is continuing to see low unemployment and wage growth. San Antonio is seeing economic growth in the 3-4% range.

Even though oil prices are low for the time being, research shows that oil production has only dropped marginally in Texas. There are 2.5 million barrels per day produced in this state, down from 2.8 million two years ago. The small production decrease has come even though there are only 200 or so active rigs in the state, which is down from 900 two years ago.

This means good news for San Antonio buy and hold investors, and San Antonio flip investors. I continue to buy and sell real estate investments, although the prices are up 20% from two years ago.

I recommend doing Section 8 rental property for a good San Antonio buy and hold investment, as the rental market is very strong:

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  • Address: 804 S San Eduardo Ave, San  Antonio, TX
  • Year Built: 1949
  • Description: Fixer upper, under market value 4 beds 1 bath, 816 sqft, built: 1949, lot size: .1 acres, yearly taxes: $1,200.00, estimated yearly insurance: $750,
  • Estimated Repairs: 30K, roof, central hvac, windows, plumbing, electrical, kitchen/bath update, interior/exterior finish.
  • Cash Price: $48,000
  • Exit Strategies: Rent San Antonio investment property with 30K in repairs: $1,095.00 with section 8, no need to chase the monthly payment, San Antonio Housing Authority pays direct deposit to your account.
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Positives and Negatives of Section 8 Real Estate Investments in San Antonio

Section 8 rental property in San Antonio is a controversial topic in some quarters. Section 8 housing came to be during the Great Depression, when the federal government wanted to provide public housing for lower income people. Today, the purpose of section 8 is to offer subsidized housing to certain lower income citizens.

But is San Antonio section 8 property a good real estate investment? Generally, I say yes; I like to deal with the San Antonio Housing Authority and section 8 renters. That said, it depends on the property and a few other things. Let’s look at section 8 rental property pluses and minuses:

Pluses

  • Your income is stable and guaranteed each month. You receive your payment each month electronically. After a person applies and passes the background check and other screening, the section 8 voucher gives them up to 100% assistance for their rent.
  • Higher rent. You can reassess the rent you charge each year and increase it by up to 8%. So, if you rent your San Antonio investment property for $800 monthly, you could raise it to $1175 in five years.
  • Incentive to keep up the San Antonio rental property: There is an annual inspection, so if the renter trashes the house, they can lose their voucher. Note: I do serious rehab on the San Antonio fixer upper before I rent it, and pictures are taken. So if there is a lot of wear and tear, I can show the tenant did it.
  • Large number of possible tenants: The GoSection8.com website has thousands of prospective San Antonio renters and it is quite easy to get a house rented.
  • Long term rent: I find that most section 8 renters rent for many years, so you will have fewer vacancies with your San Antonio rental property.

Minuses

  • Government bureaucrats: You have to deal with the red tape of the Section 8 bureaucracy and this can cause some delays. However, I find that the San Antonio Housing Authority is pretty good to work with.
  • Slow payments: It can take longer than I like to get a renter in my San Antonio buy and hold property due to delays with the government. But, once the tenant is in, the rent comes in every 30 days on time.
  • Inspections: Section 8 has fairly strict inspections, but I do complete rehabs and I know what Section 8 looks for, so I do not have major problems here.
  • More repairs: The renter does not own the San Antonio property so it is possible that more wear can happen.
  • Late payments: I have had a few tenants over the years pay late, and reporting them can take some time.

Generally, I find section 8 rental property in San Antonio to be a good bet. I am able to get good renters into my investment properties by carefully screening potential renters.

Here is a good potential San Antonio section 8 rental property:

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Address: 4907 Waycross Ln., San Antonio, Texas 78220-1840
Year Built: 1971
Description: Under market value fixer upper 4 beds 2 bath, 1078 sqft,  lot size: .13 acres, yearly taxes: $1,200.00, estimated insurance: $750.00, estimated repairs: 30K; central hvac, flooring, update kitchen/bath, roof, interior/exterior finish.
Price: $49,000 Cash
ARV: 109-115K
Exit Strategy:

  • Owner Finance with 30K repairs: 5k down, $1,095.00 monthly P/I, 30 year amortization, 10% interest, Price: 109k
  • Rent with 30K in repairs: $1,095.00 with section 8, no need to chase the monthly payment, San Antonio Housing Authority pays direct deposit to your account.