How Investing in Real Estate Can Make You A Millionaire

Lots of people want to know: stock market or real estate? Real estate or stock market? Anyone who knows me – an under market value property investor in San Antonio TX who owner finances everything – knows that I always will prefer real estate investing over the stock market.

Investing in real estate right can make you a millionaire at a young age. Some of us used to invest in the stock market but lost our rears in the early 2000s, not to mention 2008.

Many people think that if we put enough cash into the stock market, we will be able to retire and not incur a great deal of risk. The problem is that it often takes 30 years to invest enough, and you never know when you are going to be about to retire, and suddenly the market dives. When that happens, many would be retirees end up having to work another 10 years or more.

The low interest rates in the last few years mean that elderly people often have 50% of their money or more in stocks. This is often because they took such a hit in the big economic downturn in 2008. Now they have to take a lot more risk with stocks.

For me, once I got out of the stock market with my $50,000 and invested in real estate, I become wealthier much faster. I began in 2001 and had 40k of college debt, but by investing in below market value properties, I was able to be essentially retired at age 28 with 20k+ per month of cash flow.

I find that investing in under market value property just produces more steady cash flow than any other vehicle. I never have to ask invest in stock market or real estate, invest in real estate or stock market. It’s 100% under market value real estate for me.

I always choose real estate over the stock market because my returns are like this property below:

new front
$65,000 cash price, $15,000 rehab, resold for $99,900 owner finance, $1041 per month, 7 DOM, 12.9% ROI.

This under market value property was purchased by a CA cash buyer in July 2015 at 1622 Alametos St. This house is in 78201, and is north of downtown. This region is seeing rapid growth and appreciation.

The out of state investment property investor bought cash on this below market value property, and we completed $10,000 in repairs in 3 weeks:

  • $65,000 cash price
  • $1500 carpet removal and adding wood vinyl in 3 bedrooms
  • $3500 HVAC
  • $750 for third bedroom conversion.
  • $750 for dumpster – clean out
  • $1500 two tone interior paint
  • $500 update five light fixtures
  • $1500 level front bedroom
  • $1500 closing costs

Total Investment: $76,500

Repairs were complete on July 31, 2015 and out of state investment property was put on MLS. By Aug. 3, we had two full owner finance, price offers as follows:

  • $1041 per month
  • 30 year note
  • 10% interest rate
  • $5000 down payment
  • $99,900 final price
  • $216/mo. taxes/insurance

Investor’s total monthly income after taxes/insurance is $825.

Final ROI: 12.9%

I will make nearly 13% per year without repairs on this under market value property until the buyer decides to refinance. Most stock portfolios cannot produce that type of steady return. That is why I always recommend investing in real estate instead of the stock market. Invest in real estate or stock market? For me it is not a choice at all.

Should I Invest in the Stock Market or Real Estate?

To invest in the stock market or real estate? Many people are asking themselves that question right now as their stock portfolios take a beating. I have been on both sides of this and have a strong opinion.

In the last 20 years, I have invested in under market value real estate as well as the stock market. I have reached a firm conclusion: Investors generally speaking are better off to invest in real estate over the stock market.

Even though I have done well at times when the stock market increased in value in the early 2000s, I have been able to make much more steady passive income from investing in below market value properties.

Conventional thinking investors think that if we invest sufficient cash into the stock market, they will be able to stop working with little risk. The big problem that most people have is how many years it takes to invest and the big ups and downs of the stock market.

Invest in the Stock Market or Real Estate? 

Given the low interest rates we have seen for the last eight years, many older people are far more invested in stocks than they ever thought they would be. This is understandable as they need to grow their portfolio so they do not run out of money. But there is a lot more risk by investing in stocks rather than bonds.

With under market value real estate, you can stop working much earlier and safer than the stock market, if you do it right. Take me: I started out in 2001 with $40,000 of college debt and was financially retired in real estate by 2007 with $20,000 per month in passive income from investment properties. I did invest in the stock market early on and made nearly $100,000; of course I lost half of it in the stock market dive after 9/11. That is when I started to look at investing in under market value real estate in San Antonio.

Investing in real estate instead of the stock market has many advantages:

  • Leveraging your money, if you decide to get mortgages and rent out the property (this is not what I do, but many do so)
  • Long term, steady cash flow- every one of my under market value properties produces $600-900 per month of steady cash flow without repairs.
  • Tax breaks – rental property owners enjoy many tax write offs and depreciation write offs.
  • If you know what you’re doing (or working with an expert), you can buy under market value properties in real estate and make 10% a year or more, year after year.

It Is Tough to Retire Reliably By Investing in the Stock Market

The US government and most traditional investing models tell us to invest in stocks and mutual funds. Over time, the stock market generally goes up in value. I learned this the same as everyone else and I first invested in the stock market when I graduated from Northeastern University 16 years ago.

I quickly got frustrated with this because I found that while I had years where I made 15% per year, I also had terrible years, such as right after 9/11, when I was negative growth and lost 10s of thousands of dollars.

I also ran the numbers in retirement calculators and was amazed at how long and how much I would be investing before I could ever stop working.

Even worse, I was just spitballing when I would die, and I also had to take a guess at what my investment return would be. If I lived longer than I thought or didn’t get the return I thought, I’d run out of money!

Then I Discovered How Real Estate Investing Is Better Than the Stock Market

I have been investing in below market value property since 2001. After I lost 50% of my net worth in the stock market after 9/11, I left Boston (where I went to college) and came home to TX. I soon discovered something amazing: I could buy houses under market value in San Antonio by 30% or more. With some rehab, I could rent them out or owner finance them and make a steady 10% per year, or even 15% in some cases.

Investing in Real Estate Provides Cashflow!

When you buy your under market value properties, look at how much passive income they produces. I see at least $600 per month of cash flow on my deals. I buy my houses in cash and owner finance them at 10% so I have no repair costs. I prefer investing with owner financing than renting so I have more cash flow and no maintenance.

The cash flow from my under market value properties continues year after year. I only hold the note on the property, so I never have to be a landlord. Once you have enough of these houses, you can retire. I actually did ‘financially retire’ at 28 once I had $20,000 per month in cash flow.

Now, some stock market investments will generate cash flow, but rarely are dividends going to give you a steady 10-15% annual return. You might see a 15% return on your stocks, but that is just on paper and you will see no cash gain until you sell. Meanwhile, I am getting steady cash flow every year from my below market value houses.

If you rent out your properties, you also enjoy appreciation of the asset (all of my houses are now owner financed, though).

How I Get Great Returns in Real Estate Investing

Everything comes down to buying a house under market value. As a Texas real estate agent with 15 years of experience, I am very skilled at finding these houses and negotiating a price that provides me or my investor with at least a 10% annual return. Many of these below market value houses are REOs, short sales or estate sales. The seller may want to get rid of it and just recover some cash.

I buy my houses at least 20% under market value. So if I buy a $50,000 house, I have to see at least $10,000 in equity when I close.

Note that it does cost more to buy and sell houses than it does to sell your stock. But if you are smart and buy under market value, you will more than make up for that.

Rental Properties Have Major Tax Advantages

I no longer rent out my properties, but no doubt, many of my investors do rent them out and enjoy great tax benefits. Under market value properties may be depreciated, so the cost of the house, repairs and any improvements can over time be depreciated. According to the IRS, you can deduct your depreciated value of the house from your yearly taxes over 26.5 yrs. If the house is $100k, you could deduct about $3700 from your income each year, which would save you about $1000 per year in taxes.

One Downside of Rental Properties

They require management and repairs. You cannot just buy a rental property and forget about it, like a stock share. But with my system of owner financing, I can pretty much buy the house and get a buyer in there, and it pays me monthly cash flow, even better than a stock.

My Rate of Return Over 15 Years Beats the Stock Market

I own more than 50 owner financed properties in San Antonio TX, and over 15 years, I have made over 13% on average from all of my properties, ranging from $500 to $900 per month in pure cash flow without any repairs.

From 1950 until 2009, the stock market returned an average of 7%, and that mostly is on paper, so you have to sell to realize the gain. Meanwhile, I make 10 to 15% per year on my under market value, owner financed properties in San Antonio.

Also, the stock market has very bad years, such as 2001 and 2002, when the stock market dropped 10% to 20% per year. If you were on the cusp of retiring those years and lost 50% of your net worth, you were out of luck. I know people in that situation. And I was making 13% per year or so at that time on my houses. Demand for my under market value properties only goes up in a downturn, too.

If I would have to invest more than $500,000 per year at 7% interest in a tax deferred account to generate the cash flow that I have in under market value real estate. I would have to continue to invest that every year. I have more than $40,000 in cash flow coming in every month right now from my properties without investing a dime more.

So, when you think to invest in real estate or the stock market, I think the conclusion is pretty clear – investing in under market value real estate makes a lot of sense long term, due to the rate of return and the passive cash flow – especially if you owner finance the properties.

 

 

Five Big Mistakes To Avoid When Investing in Under Market Value Property

Investing in under market value properties wisely can bring you passive income year after year. It’s such an attractive notion that many real estate investors end up getting overeager and jump into real estate investing too quickly without enough thought, and they make big mistakes.

I see a lot of new real estate investors make major mistakes especially when the market gets hot, such as it is now in San Antonio TX where I invest in below market value properties. New investors jump in when things are ‘hot’ and they make a lot of errors, and many get out quickly.

sa
I have made millions of dollars in under market value property in San Antonio TX, but there are lots of mistakes rookies can make.

Here are some of the biggest mistakes I see real estate investors making when investing in under market value properties:

#1 Listening to Someone Who Has Never Invested in Under Market Value Property

There are plenty of people out there who have never invested outside of their 401k and will tell you how awful it is to invest in real estate. Or, if they have invested in under market value real estate, they probably made some of the errors you will see here. You should ignore people who just generally bad mouth investing in real estate. I financially retired with distressed properties in San Antonio TX at age 28, so I know investing in real estate can work!

There also are people who are actively investing in real estate who just trash the business. They must have made a lot of mistakes and are losing money. You should ignore them too.

#2 Listening to a Person Who Wants to Sell You a $30,000 Real Estate Investing Program

On the other end of the spectrum, you have people who are overly enthusiastic about investing in below market value properties. If you will only buy their expensive training program, they will show you how to make a million dollars in real estate this year. Most of those programs are taught by ‘gurus’ who do not actively invest in real estate.

In most cases, there is nothing in that $30,000 program that you cannot find out mostly for free online or from free mentors. If you must spend some money to learn the business, consider paying a local expert investor a few thousand dollars to teach you how to invest in under market value property.

I have personally spent thousands of hours learning my local market in 78207, 78210, 78201 and a few other zip codes in San Antonio. No one knows my under market value neighborhoods better than I do. It is that knowledge that allows me to find really good distressed property deals.

The key to being successful in real estate investing is learning your local market so you get good deals under market value in areas that people want to live in. You also need to be able to build an expert team of contractors, agents, investors, real estate attorney, title company, etc. That’s the key to success in real estate investing, not an expensive program.

The other option is to partner with an expert wholesale property team in your city who finds you the best under market value properties. There are plenty of good ones out there. In my case, I buy the distressed properties for cash after doing careful research on the house and the area.

Then I resell the house to an investor, do the $30,000 in repairs for them, and resell it with owner financing. This is a good strategy for the out of state property investor who does not have the time to be a landlord or to become an expert in the market.

Here’s a great example of the kind of under market value investing I do. 

#3 Buying Under Market Value Property for Appreciation

When you buy real estate and wait for it to appreciate, you aren’t really a real estate investor. You are a speculator. Now there is nothing wrong with speculating in real estate; I have bought some land outside San Antonio before and waited for it to appreciate and I did ok.

I also bought a car dealership at 1/2 price and waited a year and then resold it for a 100% profit. But buying for appreciation is not my main business. And here’s the key – I have passive income coming in from my investment properties, so I can afford to speculate.

Many under market value real estate investors will get into the business without a lot of cash and will buy a property waiting for it to appreciate in value. This is big trouble waiting to happen. That property may be producing negative cash flow, that is, costing you money every month, while you wait for it to appreciate.

I do not care if my under market value properties appreciate or not. If they do, fine, if not, fine. I still am making 12% per year on my properties without maintenance (I owner finance everything I own).

The bottom line on appreciation is you never know exactly when house values are going to go up or down. Betting the farm on that is a risk I am not interested in.

It also is not a good idea to buy a fix/flip house and hope for appreciation. The market has to keep going up in value for you to turn a profit. A ton of flippers went bankrupt in the last crash doing this.

I mostly buy and hold my investment properties in San Antonio, truly one of the best cities to invest in real estate (strong economy, cheap under market value properties, growing population). But when I do buy a flip property, I buy it 20% under market value or more so I am well protected from a downturn in the market.

#4 Underestimating Repairs on Under Market Value Property

This is one of the killers of new real estate investors – they spend too much on repairing the house. It is easy for even experts to underestimate the repairs needed on a property. I own a construction company and I usually do about $20,000 of rehab on an under market value property.

But sometimes when I get in there, I see that the foundation needs more work than I thought. Fortunately, I can afford it and I always add about $5000 or $7000 to the cost of the rehab to be safe.

New investors will very often vastly under estimate repair costs, and overpay a retail priced contracting crew for the work. There goes your profit. I’ve done nearly 1000 deals in my career with thousands of properties, so I know what a rehab is going to cost.

I also owner finance my houses to blue collar workers, so I repair the house enough to get it sold, and leave the rest of the work to the end buyer.

Remember to not over improve the house. People tend to want to make the house as nice as where they live. You do not want to make the house any nicer than houses on that street.

I do not advise new under market value property investors buy an old house on their own. The older the home, the more fixes it will need. And that old house may eat up all your profits in repair costs. You really should partner with an expert real estate investor in your city to make sure you make money on your first deals.

#5 Overpricing Your Below Market Value Property When You Sell It

A new investor often will pay too much for the house, under estimate the repairs, spend too much on the rehab, and then overprice the house when they sell it on a flip. That house could sit for months and be difficult to sell.

I am not a regular flipper as it gets harder and harder to make a profit when the market is appreciating, such as it is now in Texas. I find that I can make more money in more real estate market situations with buy and hold, owner finance.

What Are Some Pitfalls of Investing in Out of State, Under Market Value Properties?

Everyone enjoys getting a higher rate of return on their under market value property, which is why many investors look for out of state investment properties – meaning investing in lower cost markets than say, northern California.

But there is no question that there is some risk involved in investing outside of your home territory. This can get particularly dicey if you are investing in out of state investment property for appreciation. As a financially retired real estate investor in Texas, I never bought under market value properties for appreciation. Never! It is just too risky.

I always buy my below market value properties in San Antonio TX for regular, steady cash flow.

When buying out of state property, it is easy to be lured into a questionable market by low prices and promises of high rates of return. Here are some of the pitfalls you may run into when investing out of state:

  1. Your under market value wholesaler may tell you that the property can rent or owner finance for a higher monthly amount than the market supports. You should make sure that the rental and sold comps for the property support the proposed monthly payment. Note that you can eliminate most repairs on a property if you owner finance the house rather than rent it out.
  2. Under market value buyers in some out of state real estate markets are shocked to find out that they cannot sell the house as quickly as they like. Some developers in some states may restrict selling a property in the first year. I always buy under market value properties in C neighborhoods in San Antonio, so I do not have this issue.
  3. You buy an under market value property out of state and you discover that you are not allowed to lease it. Sometimes a homeowner’s association will pass a new restriction that limits leasing a property. Most of the neighborhoods I buy my below market value properties have no HOA.
  4. Extra costs for investing out of state. Other states and localities may have higher taxes and transfer fees. In Texas, we do have higher property taxes as we have no state income tax.
  5. Under market value houses in out of state markets may not appreciate as quickly as what you were promised. I never buy below market value properties for appreciation, so any appreciation is just icing on the cake for me.
  6. Property management companies may not manage your out of state investment property effectively. I always recommend that out of state investors owner finance properties when they buy them from me to eliminate property maintenance issues.
  7. Generally make certain that you do your due diligence when buying out of state investment property under market value. Do careful research on property values and price to rent ratios for the specific neighborhoods you are considering.

How Do You Buy Under Market Value Properties in Another Market?

Buying under market value properties can be a wonderful investment, whether you decide to rent them out or owner finance them (as I do in my 100+ property portfolio).

Of course, the major advantage of buying under market value properties is the cash flow that they generate each month. On my below market value properties in San Antonio TX, I earn approximately $700 per month on my owner financed properties owned in cash. Here is an example:

new front
$65,000 cash price, $15,000 rehab, resold for $99,900 owner finance, $1041 per month, 7 DOM, 12.9% ROI.

This under market value property was purchased by a CA cash buyer in July 2015 at 1622 Alametos St. This house is in 78201, and is north of downtown. This region is seeing rapid growth and appreciation.

The investor bought cash on this below market value property, and we completed $10,000 in repairs in 3 weeks:

  • $65,000 cash price
  • $1500 carpet removal and adding wood vinyl in 3 bedrooms
  • $3500 HVAC
  • $750 for third bedroom conversion.
  • $750 for dumpster – clean out
  • $1500 two tone interior paint
  • $500 update five light fixtures
  • $1500 level front bedroom
  • $1500 closing costs

Total Investment: $76,500

Repairs were complete on July 31, 2015 and property was put on MLS. By Aug. 3, we had two full owner finance, price offers as follows:

  • $1041 per month
  • 30 year note
  • 10% interest rate
  • $5000 down payment
  • $99,900 final price
  • $216/mo. taxes/insurance

Investor’s total monthly income after taxes/insurance is $825.

Final ROI: 12.9%

Now that is some nice passive cash flow, isn’t it?

Many under market value investors are not able to find good properties with cash flow in their home markets. So, they may be looking outside of their home market at out of state investment properties.

But where should you buy your under market value properties in another state? Hopefully I can shed some light on that key question here.

I have been fortunate that I do not need to consider buying out of state investment property because my returns in San Antonio TX are still over 11% per year, even with housing prices up a lot in the last year. Two years ago, a typical below market value property I bought was $40,000, now it is more around $55,000.

I continue to invest here in San Antonio, one of the best cities to invest in real estate, because the return is good and I have many advantages:

  • I have a real estate license in TX, which saves me big when I buy under market value properties.
  • I have a large network of contractors, fellow investors, lenders, agents, title companies etc.
  • I know my neighborhoods very well, which means I know how much to pay for a house and how much to resell it for. I also know how much to rehab a house without overspending.

But if you are an out of state investor looking for best cities to invest in real estate, what should you consider?

  • Before you start to look for out of state investment properties, I suggest that you increase the area that you are looking for under market value properties in your home state. If you only need to drive 90 minutes to find a good area to buy under market value properties, then that might have more appeal than looking 1000 miles away. If you are a California investor, this may not work for you though.
  • If you cannot invest in under market value property near you, think about areas that you know. Did you grow up in another state? Do you have any family or friends in a good state you can buy out of state investment property? The better you know that area, the easier it is to find below market value properties in decent areas.
  • If you cannot find a good out of state investment property where you know people, do you have time to research a new market? It is usually a good idea to visit a new investment property area and you can have a bit of a vacation while yo do so.
  • Look at lists online for the best places to buy under market value properties this year. You can find excellent resources online that tell you the cities with the best rent to value ratios. I personally prefer to owner finance my properties and not rent them, however.

How to Know If An Area Will Be a Good Under Market Value Investment

Once you have located a good potential below market value investment market, you want to know if you will be able to produce good cash flow. You want to make sure that the economy is strong and stable above all else. Getting the cheapest real estate is NOT the only consideration!

  • Is the population growing or shrinking? A growing population is a very good sign of a strong job market. Here in Texas, we are seeing major population and job growth as of 2016, even with lower oil prices.
  • Are housing prices going up or down? If housing prices are dropping, this is not always bad. During the 2008 crash, the values of under market value properties in San Antonio dropped, and it was awesome! I could buy houses for $30,000 again, and I did – more than 25 of them. However, if housing prices are crashing and the population is leaving, this could be trouble.
  • What kind of risk is in the area? Is it a part of the country that has a lot of tornadoes or floods? Are there crazy swings in housing prices? In San Antonio, we are pretty steady here. The market didn’t go too high in the boom, so didn’t fall that far in the crash.
  • What about property taxes? We have no state income tax here in TX but we have higher property taxes. Still, I’ve managed to financially retire at 28 years old with my owner finance portfolio of under market value houses.

If you are thinking about buying out of state investment property after you investigate the local market, you will need to have a good team to rely on in that area.

One way to minimize problems with property management in an out of state market is to owner finance your properties rather than rent them out. You can have a buyer live in your house and pay you mortgage payments each month. The buyer maintains the house, and if they don’t pay, you foreclose just as a bank would. This can work very well in Texas, which is an easy foreclosure state.

In summary, there are many excellent below market value property markets to invest in. Just because you don’t live in one does not mean you can’t invest. If you are thinking about investing in another area for under market value property and have questions, contact me and I’ll try to help.

 

 

 

 

 

 

 

A Recent 12% ROI Under Market Value Project With No Landlording

This distressed property sale was completed in August 2015. The market in San Antonio TX has changed greatly in the last year. The market is booming and prices are up across the board, even in fixer upper homes.

new front
$65,000 cash price, $15,000 rehab, resold for $99,900 owner finance, $1041 per month, 7 DOM, 12.9% ROI.

Still, we have CA investors coming into our fine city and buying property investment homes and making 12-13% ROI annually, with no property maintenance.

This under market value property was purchased by a CA cash buyer in July 2015 at 1622 Alametos St. This house is in 78201, and is north of downtown. This region is seeing rapid growth and appreciation.

The investor bought cash on this below market value property, and we completed $10,000 in repairs in 3 weeks:

  • $65,000 cash price
  • $1500 carpet removal and adding wood vinyl in 3 bedrooms
  • $3500 HVAC
  • $750 for third bedroom conversion.
  • $750 for dumpster – clean out
  • $1500 two tone interior paint
  • $500 update five light fixtures
  • $1500 level front bedroom
  • $1500 closing costs

Total Investment: $76,500

Repairs were complete on July 31, 2015 and property was put on MLS. By Aug. 3, we had two full owner finance, price offers as follows:

  • $1041 per month
  • 30 year note
  • 10% interest rate
  • $5000 down payment
  • $99,900 final price
  • $216/mo. taxes/insurance

Investor’s total monthly income after taxes/insurance is $825.

Final ROI: 12.9%

 

What Should I Look for In a Wholesaler That Sells Under Market Value Properties?

As a very successful wholesaler of below market value properties in Texas, I know what many under market value property investors are looking for when they buy a property:

ROI and nothing else.

I definitely do understand why below market value property investors buying out of state investment property want to make a good rate of return! Many of my California cash buyers get tired of making 3% returns on their insanely expensive investment properties, so obviously they want to make as high a return as possible.

But as my mascot Teddy says:

teddy roi

Smart boy! 🙂 Currently, my under market value properties in San Antonio TX, we are seeing prices in the $60,000 range with $25,000 to $30,000 in rehab, which nets an annual rate of return of 11-12% typically. Some investors may not think this is enough, but I can tell you this: I was able to financially retire at age 28 by making 10-12% per year on under market value buy and hold investments, and $5000-$10,000 on flips.

Here is a good example of a great below market value property I own:

Front

  • Address: 914 W Hutchins Pl, San Antonio, TX 78221-2513
  • Year Built: 1950
  • Description: Add more Cash Flow properties to your portfolio, large fenced yard with mature tress, 9, 3 beds, 1 bath, 1300 sqft,  Yearly Taxes: $2,000.00, Estimated Yearly Insurance: $700, located south of beautiful downtown, well established neighborhood, parks, and schools, Estimated Repairs: 30-35K, flooring, electrical/plumbing up to code, bath/kitchen update, paint in/out, central HVAC, etc. Max ARV 109K with owner finance.
  • ARV: $119,000-$125,000 with owner finance
  • Cash Price: $59,900 firm.
  • Exit Strategy:Owner Finance with 30K repairs: 5-10K down, $1095 monthly PI/TI, 30 year amortization, 10% interest, Price: 109K; or Rent with 30K rehab: $1095.00; Or paint clean Jazz with 15K in repairs and owner finance for 87K.
    review sold and rental comps.

Now, many under market value investors will look at that return, which is around 11-12% and say, ‘Yeah, that’s pretty good, but I can go to XXXXX and make 15% ROI.’

I understand the sentiment, but if all you care about is ROI with below market value property investing, you could be headed for trouble. I’m sure there are some great $5000 properties that you can buy in Detroit! Good luck with that.

What I have learned in 15 years of buying and selling under market value properties is that there are other factors in play when you buy a property from a wholesaler:

  • How many rehabs have they done in the last 10 years and how long have they been in business?
  • How experienced are they in doing rehabs?
  • How accurate are their rehab numbers?
  • How experienced are they in finding quality tenants and owner finance buyers?
  • Are there ARV numbers accurate and is the house being prices with the market?

Those are just a few things that you should carefully consider besides the rate of return on your under market value property. After all, earning ‘16%’ doesn’t sound so good if you are having constant problems with vacancies, property damages and the rehab costs $30,000 more than was estimated.

A top notch wholesaler is an expert in the neighborhoods in which he works. He has done hundreds of deals and rehabs in those areas and knows exactly what a rehab will cost and how much to spend. He also knows what the house will sell for when it’s all said and done.

My point is that you should consider the experience and quality of the wholesaler you are working with, not just the raw, stated rate of return.

 

 

How You Can Earn 12% ROI on An Under Market Value Property Without Repairs

Most under market value or wholesale property investors I know buy houses with mortgages and rent them out. I used to heavily purchase under market value properties and rent them out, as well.

However, about 10 years ago, one of my real estate investing mentors pointed something critical out to me: John, you’re in San Antonio TX. You have all these blue collar workers you are renting houses to. Why not just owner finance the under market value property to them and let them do most of the repairs?

Wow, what a great idea, I thought! Most of the time, when you purchase a whole sale under market value investment property, you spend $30,000 or more doing the rehab and then you have to work to find good tenants. And we all know some of the disadvantages of rental properties:

  • Leaking roofs, electrical problems, broken hot water heaters, busted toilets.
  • Damage by tenants
  • Tenants that don’t pay and stay in the property
  • Vacancies
  • Problems with property managers, not to mention the expense

I had all of these problems at one time or another with my 200 rental properties. However, in 2008, I started to convert all of my below market value rental properties to owner financing.

Here’s how I turned my renters into owner finance buyers:

  • I sent each renter a letter asking if they wanted to buy the below market value property.
  • People who wanted to buy it had to send me all of their financial documents so that I could properly qualify them per Dodd Frank rules.
  • People who did not qualify or did not want to buy the property left when their lease was up.
  • Those who wanted to buy the property put $5000 down and agreed to my terms – 10% interest, 30 year note, $600-995 per month PITI.

Once the occupants had bought the properties, they were responsible for all of the maintenance of the under market value whole sale property. I no longer had to be a landlord! What a great deal. Pure passive income every month and no landlording.

If I ever have to foreclose on the below market value property, I’m in TX, and it’s easy to foreclose here – a non-judicial foreclosure state.

And that, my fellow under market value investors, is how you can earn 12% per year on a below market value property and never have to do repairs. That is all I do in my wholesale property business in San Antonio TX now – owner financing. Below is a perfect example of how you can earn a high ROI without maintaining the property:

This distressed property sale was completed in August 2015. The market in San Antonio TX has changed greatly in the last year. The market is booming and prices are up across the board, even in fixer upper homes.

new front
$65,000 cash price, $15,000 rehab, resold for $99,900 owner finance, $1041 per month, 7 DOM, 12.9% ROI.

Still, we have CA investors coming into our fine city and buying property investment homes and making 12-13% ROI annually, with no property maintenance.

This property was purchased by a CA cash buyer in July 2015 at 1622 Alametos St. This house is in 78201, and is north of downtown. This region is seeing rapid growth and appreciation.

The investor bought cash, and we completed $10,000 in repairs in 3 weeks:

  • $65,000 cash price
  • $1500 carpet removal and adding wood vinyl in 3 bedrooms
  • $3500 HVAC
  • $750 for third bedroom conversion.
  • $750 for dumpster – clean out
  • $1500 two tone interior paint
  • $500 update five light fixtures
  • $1500 level front bedroom
  • $1500 closing costs

Total Investment: $76,500

Repairs were complete on July 31, 2015 and property was put on MLS. By Aug. 3, we had two full owner finance, price offers as follows:

  • $1041 per month
  • 30 year note
  • 10% interest rate
  • $5000 down payment
  • $99,900 final price
  • $216/mo. taxes/insurance

Investor’s total monthly income after taxes/insurance is $825.

Final ROI: 12.9%

If you have questions about owner financing property in San Antonio (one of the best cities to invest in real estate) or anywhere else, please contact me.

How Do I Get Started in Wholesaling Under Market Value Properties?

I’m a wholesaler of under market value properties in San Antonio TX, and I know that many people who want to get started in real estate investing turn to wholesaling.

Many investors do so because they want to save up enough money so that they can start to invest in under market value properties themselves. There are some ways to invest in houses without much money down, but I do not prefer this type of investing. I buy all of my under market value properties in cash. Buying cash real estate is more secure, and I’m not interested in holding mortgages on investment properties.

So What Is Wholesaling Anyway?

Wholesaling below market value properties means that you the investor purchase a distressed property, or get the property under contract, and then sell it, or assign the contract as fast as you can.

I do this several times per month in my below market value wholesale property business in San Antonio. I find the below market value house often in an estate sale, get it under contract, and then I wholesale the under market value property to a cash investor from California. He usually fixes up the house for about $30,000, which I do for him, and then we resell it with owner financing for 12% annual return.

The vital key to wholesaling successfully is finding wholesale properties below market value so that there is still money to be made for the end buyer.

Note: You need to use caution when you are assigning contracts on below market value properties! Some states will consider finding either a buyer or seller as real estate agent duties. It could be considered as the act of a real estate agent when you assign the contract. You do not want to be accused of practicing real estate without your license. Be sure you know your state laws before you engage in wholesaling activities.

I’m a real estate agent in TX, so I don’t have these concerns. Getting your real estate license is a good option if you are going to be a regular under market value real estate investor.

How Do I Find Wholesale Properties?

The key to this whole game is to find under market value properties. Some of the ways that I find good wholesale properties are listed below.

MLS

This is difficult but occasionally I will be able to wholesale a property of the MLS. Most under market value property investors are all over the MLS so it can be hard to get these properties cheap enough to make them work in a wholesale deal. One option here is to just get your real estate license so that you can make commissions off of these MLS deals.

Off market properties wholesaling

– This is where you are going to make most of your money in wholesaling. This means that the person wants to sell their house for a variety of reasons but it is not listed for sale. The owners could be sick, going through job or relationship problems but have not listed the house for sale yet. They just need the right people to find them and make an offer.

There are several options for finding good off market properties in your area:

  • Purchase from good wholesalers: You may find that finding your own wholesale properties can be really tough as there is a lot of competition. But there are some really good and experienced wholesalers out there that you can buy under market value properties from, and still make a good profit. In my case, I always have 10 or more under market value properties for sale. I have more than 15 years of experience with below market value properties, and I know a good deal that both I and the wholesale buyer can make profits from. I make sure that my wholesale buyers always are going to make a good profit of 10% or more so they come back and buy more.
  • Direct marketing: You send postcards, letters, put up bandit signs and put up websites to attempt to get desperate sellers to call you to sell you their under market value property.
  • Drive for dollars: You drive around neighborhoods looking for empty homes that you can get under contract below market vale.
  • Network: You may see many ads where people claim to have off market houses for sale from the banks. Watch out as most banks are not going to sell an individual house unless they use MLS. I use a lot of networking with other wholesalers, agents and investors in San Antonio to find good under market value properties to wholesale.
  • Go to REIA meetings: You may be able to locate other wholesalers and investors with under market value, off market properties at these events.
  • Direct mail: Some wholesalers send out direct mailings and buy under market value properties and off market properties in this way. They will often send out letters to owners who are not living locally and also to owners who inherited the property. I am a real estate agent, and I can also list the house for sale that I cannot buy under market value.
  • Advertise: Many below market value property investors and wholesale property investors advertise for buying houses with bandit signs and billboards.

Becoming a Successful Wholesaler Is Work

I am a wholesaler of below market value properties myself, and finding good properties that both you and the buyer can profit from is tough. But you can make some money by wholesaling properties so that you can raise money to invest in properties yourself.

What About Assigning Contracts?

Every sales contract has a clause that states it may be assigned. This means that anyone can come into the deal and become the buyer without any permission from the seller. So, you the wholesaler can sell the contract to another under market value property investor and not buy the house.

How Do I Find Buyers for Wholesale Properties?

Once you find a good below market value property, you have to find a cash buyer. In most cases, the profit margins on wholesale property deals are slim and you cannot pay a real estate commission. You have to find cash buyers so that you can make money on these wholesale deals. You also need to be able to close fast so that you can assign that contract.

REIA meetings are good ways to find cash buyers. I sometimes check recent property sales in San Antonio to see who has bought houses for cash in my area. I get letters sometimes from other wholesalers who find me because I buy houses for cash every year.

Going to trustee sales, tax sales and auctions are good places to find cash buyers for your wholesale properties.

No doubt, finding cash buyers for wholesale properties is challenging. I find many cash buyers for my wholesale properties in California.

The good news is, when you close a successful wholesale property deal, you can make $2000 or more. If you have any questions about wholesaling below market value properties, please contact me. I have 15 years of experience doing this, and I probably can offer some helpful insights.

Which Are the Best Texas Cities to Invest in Real Estate?

If you are considering to purchase under market value, out of state investment property, you probably will be considering the state of Texas as a possibility. Texas generally offers some great benefits for out of state property investors and has some of the best cities to invest in real estate.

Forbes recently recognized Texas as a great place to buy under market value investment properties. In fact, FOUR of its Top 10 Best Buy Cities in 2015 for real estate were in Texas. Forbes analyzed more than 300 housing markets and Texas turned out to be a great place to invest in real estate. Let’s take a look at each one:

#1 Austin

Forbes rated Austin #1 in its Top 10 Best Cities to Invest in for 2015 with its impressive population growth of 8.9% and job growth of 3.6%, which is far better than the national average of 2%.

Milken Institute’s Growth Comparison for Austin, 2nd Best-Performing City in US in 2014

austin

More figures about Austin to consider for out of state property investors:

  • MSA is Austin/Round Rock TX
  • Population is 1.8 million
  • Average home price is $261,000
  • Population growth from 2010-13 was 8.9%
  • Job growth annually is 3.6%
  • Unemployment is 4.2%
  • Home price to rent ratio is 19

Of course all this growth is driving housing prices higher. Austin house prices are 8% over the typical income for the region. But under market value investors  should take heart because the higher house prices in this area are due the demand, not a housing bubble and over inflation.

Austin is not reliant upon energy for most of its economy so the oil crash should not be a major factor here.

#3 Houston

MSA is Houston-Bayton-Sugarland TX. As is the case in Texas generally, Houston has a business friendly environment, no state income tax for people or corporations and a very educated population.

Houston investors made gross returns of 18% in 2015.

Houston also has strong growth in jobs, a booming population and low housing prices. The average price here currently is $214,000. Some experts say the housing market in Houston is still undervalued, so if you are looking for under market value property to invest in, you could do well in Houston.

Remember, in every real estate investment market, there is a strong correlation between the price of homes and the median income. When prices go high above that level, the market is overpriced and you will have a hard time finding under market value property that will produce passive income. If houses are under valued, you should feel confident that you will make a solid rate of return with investment property. Houston is a solid out of state property investment option.

Also note that the median age of inventory in 2015 for Houston was only 54 days.

I would watch to see what is going to happen to the Houston market in 2016 as oil prices continue to drop. Houston’s economy has a lot to do with energy exploration. The rental market is driven largely by transient oil and gas workers, so we’ll see how the Houston market responds to lower oil prices this year.

#5 Dallas

MSA is Dallas-Plano-Irving TX. The population of Dallas is growing at at least 6% per year and will continue for the next few years at least. It also has a job growth rate of 3%, and this is being driven by a boom in high tech companies. One of these is One Technologies LP, which is an online credit monitoring service that was ranked in 2014 as the quickest growing private firm in Dallas.

Investors made almost a 20% return here before expenses in 2015, which is due to strong appreciation in prices and high rents.

Under market value property investors should note that 13 privately held corporations worth $1 billion or more are in the Dallas metro area, such as Dean Foods, Exxon Mobil, Kimberly Clark, Neiman Marcus, Southwest Airlines and Texas Instruments.

In 2015, new home closings rose 20% in Dallas from a year earlier.

#6 San Antonio

MSA is San Antonio TX. San Antonio is where I have invested for most of my below market value investment career since 2001. I continue to invest in under market value properties here, rehab them and resell with owner financing. Here’s why I continue to believe that San Antonio is one of the best cities to invest in real estate:

  • Prices are still low, even with the economic boom. The average home price here is $189,000. Even with higher prices, I still buy below market value properties for $50,000, do $25,000 in rehab and sell with owner financing for $99,000. That still makes me an 11% return, which is excellent passive income.
  • Booming economy, with the biggest growth in construction employment from 2014 to 15. Even though oil prices have effectively crashed in the last year, I have no shortage of buyers for my under market value properties. Only 2-3% of our economy depends upon oil and gas. My workers may get laid off from oil work, but they find other blue collar employment.
  • Strong job outlook, with a 3.5% job growth rate in 2015.
  • Growing population – San Antonio is the #9 fastest growing city, according to Forbes. This means strong demand for owner finance and rental properties, and is a great option for out of state property investment.

If you want a good example of how good under market value investment properties can be in San Antonio, here is one:

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$62,000 cash purchase, $10,000 rehab, 50 DOM, sold for $89,900 owner finance, $937 per month, 12.3% ROI.

This 3 BR 1.5 bath property investment with positive cash flow north of downtown San Antonio TX is in a heavily revitalizing area. It was bought by the investor for $62,000.

It only needed approximately $10,000 of rehab, including new flooring, paint in and out, and minor foundation work.

The total project cost to the investor was $72,000.

Within 50 days of the completion of rehab, it was sold with owner financing with the following terms:

  • $5000 down
  • $89,900 final price
  • 10% interest
  • 30 year note
  • $937/month PITI
  • Cap rate 12.3%