What Should You Not Do When Buying Under Market Value Property?

Many real estate investors with out of state investment property flame out quickly when they buy under market value properties. That’s because they make huge mistakes that either mean they make no money or they lose money.

The things that you should not do when you buy below market value property for real estate cash flow include:

  • Not doing your research. You don’t usually buy a car without doing a lot of research, right? The due diligence you do when you buy an under market value house should be even more rigorous. When I buy the best San Antonio investment property, I do my research about the neighborhood down to the street level. I also do a thorough inspection of the property before I make an offer. This is one reason you might consider becoming a real estate agent, as I am. That way you can search for your own deals in the MLS and view the houses yourself.
  • Doing it all yourself. I’ve been doing real estate investing in below market value properties for 15 years, but I don’t try to do everything myself. I have on my team a good inspector, full construction crew, real estate attorney, CPA, insurance professional and closer. I have seen many investors buy a house on their own and they end up with losing their investment.
  • Paying too much. This of course will turn your under market value property investment into a real mess. Finding a good house to invest in takes time, so it is tempting to make a high offer that will be accepted quickly. Overbidding means that you will have too much debt, if you are buying with financing. This creates big problems when repairs and vacancies crop up.
  • Spending too much on rehab. A classic mistake of the under market value property investor is to spend too much on fixing the property. I have been investing in San Antonio distressed houses for 15 years, and I know how much rehab to do on a house to resell it. If it’s in say 78207, I may do 15-20k in rehab, but I know I probably can skip the granite in the kitchen. If I am rehabbing in a higher end area such as 78201, I will do the granite and fancy back splash in the kitchen. Also, I have a construction company that allows me to save 30% or more on rehabs compared to retail contractors.
  • Making money in under market value properties for real estate cash flow isn’t easy, but it is doable with proper planning and research. If you have any questions about investing in the best San Antonio investment property, please contact us.

When you are considering below market value property or out of state investment property, please try to avoid the above mistakes!

How I Buy Investment Properties in Texas Below Market Value

I financially retired at 28 with more than $20,000 per month in cash flow. The most important factor in my success in buying the best San Antonio investment property is every house I buy is under market value. That is, I buy under market value properties that require rehab. It also helps that I invest in one of the best cities to invest in real estate.

I have more than 50 buy and hold, owner finance properties that I own in cash that I purchased under market value between 2001-2012.

I also have a great dog and mascot named Teddy, which you will learn about if you stick around TexasCashFlow.com 🙂

teddy3

How I Determine Market Value

One of the biggest reasons I became a real estate agent was so I could determine market value of the best below market value San Antonio investment property on my own. It is never a good idea to use Zillow to determine market value of a property. Zillow is notoriously off base, especially when you are dealing with off market properties or an out of state investment property that are not in the MLS.

Also, bear carefully in mind that the value that you come up with will largely depend upon the repairs your under market value properties need. I like to buy properties that are at least 20% under market value. So if the house is worth $90,000 and needs $25,000 in rehab, buying the house at $115,000 is a waste of time and money. I will not make any money. I want to buy that house for at least 20% under $90,000, or about $72,000, so I can make a good profit.

How I Buy Under Market Value Properties

There are several ways that I use to buy under market value properties in San Antonio TX:

  • Buying fair market sale houses: These are houses that are owned by a private person who has equity in the house and there is no bank involved. Most of these sellers are in no rush to sell, so this can be tough. But I have bought many under market value properties in estate sales; that is where I get the bulk of my deals. Often times, there are several children involved and they just want to be rid of the house that needs repair.
  • Buy off market properties: Given my level of success in real estate investing, I tend to find many good deals that are not in the MLS. Agents and investors in the business send me below market value deals. Of course, you need to get experience in the business to work this way, but know that if you do become successful, good deals often find you. I have many of my below market value properties for sale on this website that will make you a good profit.
  • Buy REOs under market value: These are Real Estate Owned properties, and these are houses that the banks have foreclosed on. REOs are usually in the MLS, and some of them will be repaired and some will not. Of course, REOs are tougher to find now and many of them need a lot of work. To make your offer more attractive, you may want to tell the seller you don’t need to do an inspection. Pay all cash if you can – cash is king!
  • However you buy your under market value investment property or out of state investment property, do not spend too much money on the rehab. Rehabs are where many investors lose their rears. Spend too much on your rehab and you will never make any money. I own a construction company and I am able to do rehabs for 50% less than most contractors on the best San Antonio investment properties.

That in short is how I buy below market value properties in Texas. The big thing to remember is to stick to your guns on your numbers – if you need to buy that house 20% under market value to make money, don’t go over it. Move on to the next under market value property deal if you have to – there are lots of them out there!

 

 

What Is the Worst Mistake in Buying Investment Properties?

I buy under market value properties in San Antonio TX. As the real estate market continues to heat up in San Antonio, more people are jumping into the real estate investment business.

Many people who start to invest in under market value investment property in San Antonio end up never making money or losing a lot of money. That goes the same for people looking for out of state investment property.

Most often, people run into real estate investment problems because they are impatient or do not have a good, long term plan for good cash flow on below market value property.

I have been successful with my San Antonio investment properties (I financially retired at 28) because I have a very simple plan that I always stick to:

I buy distressed San Antonio homes for 20% or more under market value, and resell them with owner or seller financing to make a 20% return long term. The vast majority of my portfolio is long term buy and hold in the best San Antonio investment property.

dude

That’s my mascot Teddy there, chiming in! Of course, buying good distressed properties under market value in San Antonio is not easy. If it were, everyone would be buying them and retiring early!

Here is the most common mistake I see by far in people who buy distressed real estate properties and out of state investment property: They pay too much for the house and have very little cash flow!

They buy the house often at the top of the market, and the only way they make cash flow each month is if the property is always occupied, and there are no maintenance issues.

As soon as something goes amiss, they end up losing money each month and have no cash flow in their under market value San Antonio investment properties.

The biggest piece of advice I can give you is to always pay as little as possible for the investment property in the best cities to invest in real estate. If you are not skilled in negotiation or are just a beginner, you need to work with a skilled investor who can help you to get a low price on that below market value house.

If you have questions about investing for cash flow in under market value San Antonio houses, please contact me! I always can use cash partners and both of us will make a good profit in the best San Antonio investment property.

 

 

Turn 3 Properties Into 6 or More in 5 Years With Your IRA

6

I am a strong believer of investing in under market value real estate property with all cash and owner financing them. When you buy distressed properties with all cash and finance them to qualified buyers, there is one overwhelming advantage with these below market value investments:

  • You have no mortgage on your property investment, so if the property is ever vacant for any reason, you do not have overwhelming financial pressure bearing on you. Over leveraged real estate investors were a major factor in the real estate meltdown five years ago.

Of course, on the other side of the ledger, you cannot purchase as many distressed sale properties as you could if you leveraged your capital and use 20% down conventional financing. This is always a valid concern for people with limited capital to invest in the best San Antonio investment property.

Still I would like to illustrate how the smart and patient investor can take three fixer upper homes and turn it into 6 and possibly more in 5 years, assuming you have no additional cash to invest after the initial investments. The illustration below assumes you owner finance the houses, so you do not have any maintenance costs. This is our tried and true positive cash flow model!

That $275,000 in Your IRA

I run across many aspiring investors that have savings and IRA assets of $275,000 or so. In current market conditions in San Antonio TX, that $275,000 can fund approximately three solid distressed sale properties in cash. Let’s illustrate with three houses we have right now:

  • Property 1 – 262 Bogle St., 78207: $50,000 + $30,000 rehab = $84,500 investment + $2500 closing costs, $2000 commissions = $89,000 total investment.

Total Owner Finance Cash Flow Per Year: $8940 ($745 per month after tax/ins.)

  • Property 2 – 109 Llano, 78223: $29,900 + $40,000 rehab = $69,900 investment + $2100 closing costs, $2000 commissions = $74,000 total investment.

Total Owner Finance Cash Flow Per Year: $9,000 ($750 per month after tax/ins.)

  • Property 3 – 1027 Sams Dr., 78221: $59,900 + $40,000 rehab = $109,000 investment + $3000 closing costs, $3000 commissions = $115,000 total investment.

Total Owner Finance Cash Flow Per Year: $12,000 ($1095 per month after tax/ins.)

Total Income from 3 Properties Per Year: $29,940

The next step would be to bank that positive cash flow from your three properties for up to five years. At the five year mark, you will have approximately $149,700 in your tax deferred IRA.

At this point, how many property investments you can buy depends upon the state of the San Antonio real estate market. Right now, the prices are higher because unemployment is lower, and more rehab is necessary to sell the houses. However, there is a high probability that in the next five years, there will be a substantial downturn in real estate prices.

In the last crash from 2008-11, the price of my distressed houses dropped from $50,000 median to $30,000 median. I was able to purchase many more homes during the downturn.

If the prices go down to approximately $35,000 per property plus $10,000 in rehab (possible in a slower economy given people simply want any house to live in), you could buy at least 3 more houses, and possibly 4. With three more houses, you would have approximately $45,000 in total cash flow from your grand total of six houses!

If the prices stay the same five years from now (which in my 15 year experience is very unlikely), you could purchase at worst two more properties, with a total cash flow from your five properties of $40,000 or so.

In either case, that cash can be banked in your IRA to buy more of the best San Antonio investment property whenever market conditions warrant buying more.

I am waiting until the next downturn to take my banked cash flow from my current portfolio to buy at least another 20 houses. You can and should do the same thing!

 

 

 

 

 

Converting My Rentals to Owner Finance Was the Best Decision Ever

Before the market crash, I owned more than 100 rental properties. Like many investors, I once thought that owning rental properties was the only way to make money in real estate investing.

What I found was, I always was dealing with some sort of problem with the distressed property. It didn’t matter that I had property managers. When you own 100 houses, you always have to deal with a repair, a late bill, a vacancy, paperwork and so on.

I also found it was hard to know what my cash flow on each house was each month. Writing checks for new water heaters and fridges gets old fast!

It was around 2009 that one of my mentors talked to me about how he had retired with millions in real estate: He only owner finances his fixer upper homes.

Rather than being a landlord responsible for property upkeep and repairs, there are more efficient ways to generate monthly cash flow.

Be the Bank!

Think about your own house. Each month you send an electronic payment (or check) to your mortgage company or bank. Your bank doesn’t have to maintain the property – you do. Since you are buying the property from the bank on terms, it is naturally to your benefit to maintain the property. The bank knows that statistically, homeowners are much more likely to keep their houses in good repair than renters. That’s what makes holding mortgage notes so attractive.

My mentor taught me that I could be the bank for people who do not have the credit history to qualify for a regular mortgage loan. I carry the loan on the distressed property for 30 years just like the bank, and the new owner of the house simply pays me a mortgage payment each month that includes taxes and insurance.

My mentor told me, why should you spend $10s of thousands on rehabbing a property when you can have the end buyer do most of it? Owner finance investment property is smart.

The end buyer usually has a vested interest in maintaining their property, as they own it.

How a Typical Owner Finance Property Deal Looks:

$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.

The under market value property 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 for this under market value property 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 positive cash flow
  • Cap rate 12.3%

After I converted most of my under market value properties to owner finance, most of my worries about my properties disappeared. The owner maintains it and I simply enjoy the monthly cash flow from each property into my bank account.

Most people don’t seem to ever consider owner financing their property investment, probably because they don’t know about it.

The keys to success in owner finance property are simple:

  • Carefully documenting the income of the potential buyer and verifying their work history
  • Follow the Dodd Frank law, which mandates that you must collect proof of their income and document their work history.
  • You can have a Texas licensed loan originator do this for you for a $750 or so fee (we have one on staff).

The bottom line on owner finance investment property  is you enjoy cash flow without maintenance and the buyer enjoys buying their own home at last – a true win-win for everyone.

2513 W Poplar St, San Antonio, Texas 78207

55

  • Address: 2513 W Poplar St, San Antonio, Texas 78207
  • Description: Fixer upper home, great opportunity to own cash flow property, Booming Texas Market, 3 beds, 1 bath, 1000 sqft.
  • Estimated Repairs on Distressed Property Sale:10K, includes interior texture/paint, new HVAC, minor flooring, minor foundation, plumbing/electrical up to code. Max ARV 79K with owner financing, Price: 45K cash.
    Exit Strategy: Owner Finance for positive cash flow with 10K repairs: 5k down, $800 monthly P/I, 30 year amortization, 10% interest, Price: 79K, can sell note after 1 year.
  • Positive Cash Flow: $700 per month with no maintenance. Consider this investment in property!

Why You Should Ignore Popular Advice About Real Estate Investing

This article now appears on Inman News.

  Key Takeaways

  • Ignore what your eyes tell you about property’s appearance: study the numbers, cost of repairs and the area.
  • Pay 20 percent to 30 percent under market value or move on to another deal.
  • Buying in poorer areas means less competition for the deal, and it could make you 12 percent ROI or better.

There are so many myths out there about purchasing distressed properties in what people often call “problem” neighborhoods. Raise your hand if you ever heard this before: “Don’t ever buy a real estate investment in a bad neighborhood.”

ignore

I hear it all the time. It’s baloney. Many of the best San Antonio investment properties are in so-so areaa.

If you just trust your eyes and only buy in nice areas, your chances for making money are slim. For instance, a major real estate investing company is a perfectly good organization that focuses on selling rental properties and related training.

In a recent blog, however, the company said this: “The whole idea of buying property for investment is to buy in hot or an up-and-coming neighborhood. Don’t waste your time or money investing in a property located in a poor or declining area.”

It is correct in the sense that you should definitely buy in an up-and-coming neighborhood. I do that all the time when I buy under-market value houses in San Antonio.

I study the market and find the neighborhood near a hot area that I think is going to get hot next, and I snatch up $40,000 houses for cash before they go up to $80,000. I make 10 percent to 15 percent a year on most of these best San Antonio investment properties.

However, the rest of the quote is questionable: “The whole idea of buying property for investment is to buy in hot or an up-and-coming neighborhood.” If this means paying anywhere near market value, I don’t agree at all. That’s how investors end up making zero cash flow.

I will buy a 20 percent to 30 percent under-market-value house in a hot, affordable neighborhood (under $80,000 wholesale is my strategy). That makes a lot of sense. That type of deal will produce excellent, positive cash flow if you don’t over rehab.

For example, a California investor bought this three-bedroom, one-and-a-half bathroom house in a rising area north of downtown San Antonio:

l20b61845-m0xd-w640_h480_q80

The investor bought it from me for $62,000 — approximately 30 percent under market value — and did $10,000 in repairs. He resold it with seller financing with $5,000 down, $89,900 price, $937 per month property, taxes and insurance (PITI). That’s 12 percent ROI.

This company might consider this a poor neighborhood, but my investor doesn’t have to repair the house, and he makes 12 percent on his money. What a great out of state real estate investment.

“Don’t waste your time or money investing in a property located in a poor or declining area.” I don’t buy in declining areas, but what defines a poor area?

Does that include households that make $2,500 or $3,000 per month? That’s 90 percent of the owner-finance buyers that helped me to financially retire before I was 30 on distressed sales.

The majority of the neighborhoods that I invest in are considered poor areas, but they are on the way up, as the city is pouring revitalization dollars into parks, green space, walking paths and more.

For instance, this three-bedroom, one-bathroom home west of downtown is in a so-so area:

pe

Sure, it’s not pretty, but smart investors ignore what their eyes tell them and study the numbers, the nature of the repairs and the area. The repairs on this house to resell it were minor, and the nearby area has seen millions and millions of dollars in new construction and city funding.

The investor purchased it from me for $29,900 — about 30 percent under market value. After $7,000 for paint inside and out, foundation repair and clean up, it sold with seller financing for $5,000 down, $55,000, $550 per month PITI. That’s 11 percent ROI.

And this is in an area that most investors would consider poor. It is, however, on the way up.

Of course, you cannot simply go into any poor area and start buying cheap, distressed sales with positive cash flow. That’s also a path to ruin. But if you only purchase investment properties in nicer areas, you will be fighting a lot of investors for any of the few deals that generate cash flow. That drives prices up to market value and beyond, and you can kiss your profits good bye.

Invest in distressed, fixer upper homes or under market-value properties for true positive cash flow, but be certain to:

  • Carefully study the market to learn which area is near a hot area and will likely go up in value in the next year.
  • Get the property for at least 20 percent under market value to leave room for a profit of at least 25 percent on a flip and 10 percent ROI on a buy-and-hold.
  • Buy out of state investment properties in areas that are less expensive, especially in B and C neighborhoods.
  • Owner finance the property to a qualified buyer — save yourself thousands in rehab costs. Do enough to sell the house and leave the rest to the new owner.

If you invest carefully in properties in poor or bad areas, you will end up with cash flow that all the poser investors simply dream of.

Why I Love Down Real Estate Markets!

real-estate-chart-300x300

I have invested in all kinds of real estate investment properties in Texas for 15 years. That means I have seen many ups and downs in the local and national real estate market.

It’s true that in the last real estate crash, I did lose some money. In fact I was sweating quite a bit in 2010! Still, I came out of the crash owning more than 100 MORE houses than I did before the crash! It turns out that the real estate crash was a blessing for me.

Here are three ways that I was able to get through the last downturn in terrific shape in my real estate investments, especially distressed sales.

#1 I Got The Heck Out of Expensive, Higher End Houses

The biggest problem I had in the latest downturn was that I had far too much money invested in expensive houses from $500,000 to $1 million in San Antonio TX. When the market was rolling in 2004 to 2006, buying these houses was great. I bought a house for $500,000, put $200,000 in and resold it for $1 million. I was making fantastic money, but the bubble was about to burst.

One day in 2007, I called the bank and they would no longer loan money to investors. My heart sank. That’s when I knew a down turn was coming. And it sure did.

I ended up getting stuck with several $1million houses that I could not sell for what I paid for them. I ended up losing several hundred thousand dollars.

That got me down, but it was a blessing: I learned to not invest in such high end real estate. While it can be good when times are good, those houses are the first to get hit in a downturn.

I learned to invest in real estate that ALWAYS in demand no matter what’s going on in the economy.

#2 I Started Investing Only in Under Market Value Affordable Homes

If you read this site at all, you know what I do: I invest in under market value real estate in San Antonio and distressed sales, which I then owner finance at 10% interest. This real estate product is always in demand in my affordable neighborhoods. I know that no matter how bad the economy gets, I can always sell these houses and make money.

The best part about distressed property sales: The demand for them increases in a downturn! People lose their jobs and houses, so need a small house, and I provide it.

As a matter of fact, I love real estate downturns. I actually make more money. In the last crash, I snatched up 100 more houses at $25,000 each. Now they are worth $50,000 or more.

I love real estate crashes.

#3 I Buy in Cash And Don’t Sell

As a distressed property expert,  I buy most of my houses in cash and for cash flow. So in a crash, the last thing I do is sell a house for a loss. I simply let the house produce cash flow. If I have to foreclose because someone loses a job, then I resell it for $5000 down again.

People tend to lose their shirts in crashes because they buy more expensive properties and are depending upon appreciation to make money. I never do that. I simply buy my little under market distressed houses or distressed sales for cash flow.

Always remember: The key to my success in real estate investing is I can make money in any market.

 

 

 

 

The Crash and How I Stayed Positive in Real Estate Investing

‘If you look the right way, you can see that the whole world is a garden.’ – Frances H. Burnett, The Secret Garden

sunrise

By John Majalca, Financially Retired Real Estate Investor

It is incredibly important to always stay positive in your real estate investing business. Early on in my career, I learned maintaining an optimistic attitude in my under market value real estate investing would carry me through the tough times.

And have I had some tough times! But let me back up:

Before the crash, my real estate investing in distressed San Antonio properties boomed. I also bought $1 million houses, rehabbed them and resold them. These were the boom years – I could resell those big mansions for a $300,000 profit! Life was great.

The Crash

And then one day in 2007, I called the local bank to borrow more money. They said:  ‘Oh, we aren’t loaning money to investors anymore.’

Whoa. And that was when things started to crumble. I couldn’t borrow money from banks, even though I owned more than 100 properties with an excellent record of success.

Worse, I couldn’t sell my $1 million mansions anymore for what I paid for them. And of course, fewer banks were doing mortgages, people lost their jobs and couldn’t qualify….that end of my business was a bit of a mess.

God and Increase

However, I managed to stay positive throughout it all. In my personal case, I focused on God and people who deliver Godly, positive sermons and speeches. Some of the positive people I listened to online included (and still do include) Joel Osteen. I find that his positive and optimistic sermons about increase and prosperity (in all things, not just money) to be tremendously uplifting.

I also listened every day to Bob Harrison, who is known as America’s #1 Increase Authority, and is the founder of Christian Business Leaders International. His lectures and seminars are incredibly rewarding.

Those two mentors most of all got me through the crash.

Optimism Leads to New Opportunity

Maintaining a positive outlook through the downturn opened me to new opportunities in real estate investing. I realized that ironically, it’s the higher end, $500k+ homes that are the riskier investments! Meanwhile, my little $40,000 2 BR 1 bath houses still bought and sold like normal! In the middle the crash! And that was when I fully focused on distressed, under market value real estate investing.

My logic was, people will always need a house to live in, even in bad times. So the demand for affordable homes ($25k-75k depending on the market condition) will always be there. I was able to buy up distressed homes in the crash for as little as $20,000!

I bought 200 of them and most I still hold today, each producing monthly cash flow with owner financing.

3 Tips

Now, I always advise new and experienced investors to maintain a positive attitude at all costs. It is what will make you stick with investing and be successful when others quit. Here is what I recommend to you:

  1. Listen every day to positive and motivational people during your work. Personally, I listen to Christian leaders such as Harrison and Osteen, but that is what works for me. You may be different. Find positive mentors online that you can listen to and inspire you. Listening to them is what got me into the best part of my real estate career – owner financed real estate in under market value houses. You cannot go wrong in distressed sales with positive cash flow.
  2. Stay away from all negativity, especially online. The Internet is wonderful, but it can be a cesspool of negativity! The problem is that people feel anonymous and uninhibited online, and will say terrible things. This is true in real estate forums. I’ve had people tell me all sorts of nonsense about owner finance, that it is dishonest, illegal, predatory….it’s a waste of my time. I get away from them immediately. If you spend too much time among real estate investors online, the pessimism of a few can really get you down. Get completely away from that! I made nearly all of my money in real estate investing without a website and without ever going online. It’s not necessary to participate in real estate online forums to succeed in fixer upper homes for positive cash flow.
  3. Find a positive and successful real estate mentor! Whatever city you live in, you can find a mentor to talk to that can inspire and motivate you. Why would he talk to you? Well, what can you offer him? Offer to help him out for free in any way he needs so that you can learn from him. You want to find a really successful, long term, ethical investor, ideally a person in business 10 years. You’ll  have to go to real estate meetings for a few months to figure out who is who in your city. I did exactly this when I first got started and got connected in San Antonio with very successful investors who still inspire me to excellence today.

 

 

 

Why I Don’t Fear ‘Foundation Problem’ Houses

Takeaways:
• Pier and beam ‘foundation problems’ often are minor repairs.
• Most investors run from ‘foundation problems.’ I run to them.
• A wholesale construction crew can fix most for $3000-$5000.

This article now appears on Inman News.

Nothing scares most home owners and real estate investors more than a house with a ‘foundation problem.’ That’s understandable; a serious foundation problem can ruin a house – and your investment – if it is not repaired in time. Foundation issues are particularly common in older distressed properties, including the ones I buy in San Antonio, Texas.

However, I learned years ago to not fear houses with foundation problems in my area. I won’t tell you to never worry about foundation problems in your potential investment properties, of course. Still, you should not automatically nix a real estate deal because of a reported ‘foundation problem.’ They can be some of the best investment opportunities around!

Lessons my mentor taught me

I have had the good fortune to have several highly successful real estate investing mentors over the years. When I first started in 2001, I too was afraid of purchasing anything with any kind of foundation issue. The problem was, I was buying distressed properties under market value in south Texas. Try to find a distressed old house with a pristine foundation! They are rare, and the competition to buy them soon drives the price over market value. Finding houses was tough!

One of my Atlanta real estate mentors taught me that simply the term ‘foundation problem’ instantly sends 3/4 of potential investors running for cover. Reduced competition for a deal means you can save thousands, some of which you can spend on foundation repairs.
So when I inspect an under market value investment property in San Antonio, I not only don’t worry about a foundation issue: I actively seek them out! Here are the main reasons why:

#1 Uneven floors are normal in old houses

My owner finance end buyers are used to living in houses with non-perfect foundations, so a sloping floor isn’t usually a deal breaker.
However, investors notice the uneven floors in a house right away, and usually assume the worst. My experience with distressed houses in my market is that almost all of them – built from 1910-1960 – have uneven floors on a pier and beam foundation. This can be for several reasons, such as rotting floor joists, ground settling, or simply poor construction.

When I conduct the house inspection, I do my best to get under the house and see how serious the problems look. For most of these investment properties, it’s simply a matter of replacing a few floor joists and leveling the foundation.

It is rare that I have a pier and beam foundation that needs more than $5000 in repair. Usually it’s less than $3000. I just make sure to negotiate the sale price with that in mind. Often, I can get the house at a discount because most other investors ran for the hills.

#2 A wholesale construction company saves thousands

If you have a typical foundation company fix your foundation issue, the bill will always be much higher. To survive in distressed house investing, you have to find less expensive ways to fix foundations. I run a small, full time construction company. My team can fix a foundation problem in most cases for a very reasonable price, and this includes all permits and required engineering reports.
Typical investors pay retail prices for their foundation work, which makes it very difficult to turn a profit.

Bad Foundation House That Turned a Profit

I have bought and sold several hundred houses with foundation issues in the last 15 years. This one was a typical example:

pe

It is located three miles west of downtown San Antonio in zip code 78207 with a pier and beam foundation. When I bought it for $25,000, the left part of the house was sitting on the ground, especially the left front corner. That’s probably why it had sat on the market for 5 months. I bought it, and my crew repaired the foundation by inserting new floor joists. Cost: $3,000.

I then sold this under market value property to another investor for a $5000 profit. She did $5000 more in repairs and clean up:

1

The repaired house was sold with owner financing: $5000 down, $550 per month, for $49,900 (fair market value). I earned a commission on that transaction of $1500. On a ‘foundation problem’ house that no one wanted, I made $6500.

In my experience, an investment property with a ‘foundation problem’ is actually a ‘foundation opportunity.’ 🙂