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!

Earning 11% ROI on Under Market Value Property for Building Wealth

New and even experienced investors often ask me how I was able to build monthly positive cash flow of more than $40,000 per month – without starting with much capital.

There are many factors involved, but at the end of the day, my strategy is very simple for real estate cash flow:

  • I buy 20% under market value investment properties in San Antonio, Texas.
  • I perform about $25,000 in rehab in 45 days, and then resell with owner financing to earn a 10-12% ROI.

I also have a great good luck charm named Teddy, which you will learn about if you stick around long 🙂

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Now these are not very expensive houses; after all, this is San Antonio TX. My typical property is $60,000 or so wholesale, which is then resold with owner financing for $100,000 or so.

Each one of my below market value properties earns me ‘only’ $400 or $700 per month in positive cash flow. Some investors – especially those on the West Coast – might snicker at such a ‘small’ return.

However, one thing I have learned over 15 years in real estate investing in under market value properties is this: I would much rather do 100 ‘small’ deals per year, than 1 or 2 ‘big’ deals.

My little, bitty 3 bedroom houses for $100,000 or less may not look like much, but when you have 50 of them owned in cash, you are talking serious, positive cash flow. And that is what allowed me to financially retire at 28.

These little houses are becoming even more valuable in San Antonio these days, given how the economy is growing. The north side of downtown, especially 78201 zip code, is appreciating very well. I love to buy fixer upper distressed properties in this area – under market value.

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This house 2229 W Hermosa, San Antonio TX 78201 is a typical hot deal north of downtown that will do very well for the savvy investor.

After I do $35,000 in rehab on this below market value property, I will resell it for the investor with owner financing. I’ve bought and sold hundreds of houses in this area, and I know that I can resell this property with owner financing for $129,000. That will generate approximately $1,000 per month in positive, long term cash flow for the investor.

It is on under market value deals just like this one that I have built a large nest egg of real estate cash flow that made me financially retire so young.

 

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 🙂

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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!

 

 

Should I Become a Real Estate Agent as an Investor?

Investing in under market value properties in San Antonio, Texas has provided me with a fantastic, long term passive income. Before the real estate downturn of 2007-9, I was not a real estate agent, and I relied on several investor friendly agents to show me potential under market value distressed properties in San Antonio TX.

After the crash, many real estate agents got out of the real estate business . I discovered that finding a good, long term real estate agent was harder than before to buy below market value property.

It was in 2010 that I made a fateful decision: I became a real estate agent and investor myself, and it has been a great decision for me. It has made it easier for me to buy under market value properties in San Antonio TX.

Being a licensed Texas real estate agent has really helped me to build my distressed property cash flow in the last five years. Currently I own more than 50 owner financed investment properties in San Antonio TX. On most, I am making at least 10% return, which means I have cash flow of $500 to $800 per property. Most of them I own in cash.

Whenever I buy another distressed real estate property for buy and hold, I am able to save at least $1000 on real estate commissions. If I buy 40 houses a year, that’s more than $40,000! What a deal!

If you are buying more than 1-2 below market value properties per year, I think it is a good idea to go ahead and get your real estate license. If you do absolutely nothing else with it, your real estate license will save you majorly on commissions.

On many of my deals, I as the real estate investor agent buy the under market value property, fix it, and then resell it with owner financing. I am able to save TWO real estate commissions on these deals, which in some cases saves me $5000 or more!

Advantages of Being a Texas Real Estate Investor and Real Estate Agent

  • A real estate investor agent can save on real estate commissions for below market value properties, as I illustrated above.
  • You have access to your area’s MLS and can do your own due diligence on potential investment properties. Having MLS access saves you time, and allows you to get offers in before other investors.
  • As a real estate agent investor, you will be able to network with other agents, who certainly know people who want to invest, or may be investors themselves. I often buy unlisted properties because of my contacts with other agents in San Antonio TX.
  • You can do your own BPOs or Broker Price Opinions. This is a 1-3 page report that a licensed real estate agent can do, for a payment of $50-100. This is a great way to earn extra cash flow as you are getting started in real estate investing.
  • You also can sell retail properties to supplement your income, which has really come in handy for me several times each year as a real estate agent investor. Nothing like earning another $20,000 per year!

Clearly, the advantages of being a real estate agent investor  are many for getting texas cash flow. I believe becoming an agent is really worth it if you buy several under market value investment properties annually. I also have found that being a real estate agent investor makes it easier to work with investor looking for a good out of state investment property.

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.

 

 

Buy and Hold or Flip Out of State Investment Properties?

Anyone who is involved in real estate investing for long will eventually ask him or herself a critical question:

Should I buy and hold or flip San Antonio investment properties?

Flipping houses has become very popular in the last decade, probably due to all the Flip That House type shows on TV. On the other hand is buy and hold investing, which is probably the oldest way to make money in real estate investing.

So which should you do? Well, it depends!

Overview of Flipping Houses

The basic definition of flipping a house is buying a property under market value (20-50% usually), improving it, and then reselling it for a profit. To gain maximum financial advantage, the goal is to sell the house as quickly as possible after the rehab.

A good house flipper in under market value houses will try to buy, rehab and resell the under market value property as quickly as he can. The reason is that holding a piece of real estate without any income coming in costs money. Some of ‘soft costs’ of holding a flip property include:

  • Property taxes
  • Utilities
  • Hard money finance charges
  • Any repair and maintenance

House flippers try to hold the property as little as possible. In the flips I have done in the last year, I held my San Antonio investment properties for about three months each.

Overview of Buy and Hold Investing with Out of State Investment Properties

This type of investing with below market value properties involves purchasing the under market value house, making some amount of improvements, and then keeping the house for rental or owner finance income. To pay for the monthly costs of holding the property in most cases, the house will be rented to a tenant. Typical holding costs for a buy and hold property are:

  • Financing
  • Taxes
  • Utilities
  • Property taxes
  • Maintenance costs

It should be noted here that there are other forms of buy and hold investing, which is the type we usually do. That is, we buy and hold the property in cash, and owner finance the under market value house to a qualified buyer.

The advantage of this type of buy and hold investing with out of state investment properties is that there are no maintenance costs. Also, without a mortgage, this type of under market value investing is usually less risky, especially in a downturn.

Pros of Flipping

  • Short term profits: You can, ideally, realize your profits in a few weeks or months. Your cash will not be tied up in an under market value property for very long, and you can move on to another deal.
  • If you can flip a house in under six months and make at least 15% profit, you have done very well.
  • Good ROI, if you know how to rehab an under market value property without overdoing it.
  • No renters or landlord headaches.

Cons of Flipping

  • Making money at it takes a lot of work. The reality shows make it look easy. Flipping a house and making money isn’t as easy as it looks.
  • Unexpected costs: Anyone who rehabs under market value houses for a living will run into unexpected additional costs. This can be especially damaging when you are trying to make quick profits.
  • Rehab problems: You might think it will take a week to do that roof, but it takes six weeks. That adds to your time line and when you will be able to make a profit.
  • In an appreciating market, you may have trouble finding under market value houses that are truly flippable.

Pros of Buying and Holding

  • Creating wealth: You can really build wealth over time with buy and hold investing, especially with owner financing rather than renting under market value property. Real estate also will generally increase in value over time, which can make you very well off.
  • Steady cash flow: If you own several properties that each make $800 per month, this is a nice way to earn a living.
  • No worry about selling short term: You can usually wait out the inevitable downturn in the market as you are enjoying the cash flow from the property. A flipper could end up in trouble if the market crashes in the middle of a project.

Cons of Buying and Holding

  • Market changes: If you need cash fast, you could need to sell your under market value property but the market dipped so you lose money.
  • Legal problems: Tenants can be a pain in the neck, which is why we mostly owner finance our houses. We only carry the note on our houses, so we have no tenant issues at all.
  • Struggles with being a landlord: A buy and hold rental property can turn into a negative cash flow situation easily if you do not buy the property at the right price, and if there are expensive repairs. Vacancies are another big problem in bad markets. Again, that is the plus of investing with owner financing and buying cash – no mortgages and no tenants.
  • Property management responsibilities for rentals

Overall, in our experience, we prefer buying and holding with owner finance over flipping. Flipping is great if we need to get more cash to buy and hold more houses, but it is not a long term wealth creation solution for us for Texas cash flow.

 

 

228 Yucca, San Antonio TX 78203

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  • Address: 228 Yucca, San Antonio, Texas 78203
  • Year Built: 1950
  • Description: 3 beds, 1 bath, 1056 sqft, large lot: .17 acres. Property sits on a beautiful large lot, plenty of room for growth or a wonderful playground and garden.
  • Max After Repair Value: $99,900
  • Cash Price: $34,800
  • Exit Strategies: Retail sale w/40k in repairs: 99K with FHA, VA, Conventional; owner finance w/40K in repairs: 5k down, $995 monthly P/I, 30 year amortization, 10% interest, Price: 99K; rent: $995 monthly with 40K in repairs.
  • Notes: We recommend that you owner finance this house because you will have no maintenance expenses. ROI will be ~10%.
  • Contact us for more information or to make offer.
  • Sold and Rental Comps: Rented Comps 228 Yucca sold comps 228 Yucca

More Pictures:

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SOLD OWNER FINANCE – 1609 W Travis St, San Antonio, Texas 78207

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  • Address: 1609 W Travis St, San Antonio, Texas 78207
  • Year Built: 1950
  • Description: Booming San Antonio Market out of state investment property, very popular location west of downtown, 1609 W Travis St, San Antonio, Texas 78207-3567, 3 beds, 1 bath, 1100 sqft, estimated repairs: 38K, includes paint in/out, new HVAC, flooring, foundation, update kitchen/bath, etc.
  • Max After Repair Value: $89,900
  • Cash Price: $35,000 firm.
  • Exit Strategy: Owner Finance with 35K repairs: 5-10k down, $895 monthly P/I, 30 year amortization, 10% interest, Price: 89.9K, can sell note after 1 year; or rent: $900 monthly with 38K in repairs.
  • Notes: We recommend that you owner finance this out of state investment property because you will have no maintenance expenses. ROI will be ~10%.
  • Contact us for more information or to make offer.
  • Sold and Rental Comps: Rental Comps 1609 W Travis Sold Comps 1609 W Travis St

More Pictures:

2 Beds rooms inside Back yard Back Bath Bedroom 3 Kitchen Living room Sink Water heater

3 ways to stay positive in the midst of a storm

Key Takeaways

  • Listening to positive and inspiring people keeps your spirits up in rough times.
  • Staying positive can lead to new business opportunities.
  • Stay away from negative real estate investors especially online forums.

This article now appears in Inman Select.

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Maintaining a positive attitude in San Antonio investment properties has been key to my long-term success since 2001. My mentors taught me that staying relentlessly positive in my investing would propel me through rough waters.

And have I ever been through some rough Class-4 rapids in my day.

But let’s back up for a second. Before the real estate crash of 2008, I focused largely on $1 million homes in San Antonio, Texas, which I rehabbed and resold for a 30 percent profit. Those were the days — rehab a house in four months and sell it for a $325,000 profit.
Learn from tough times

Then one morning in 2008, I called my local bank to borrow an additional $250,000 for two rehabs. The voice on the other end of the phone said, sorry — we aren’t loaning money on under market value San Antonio investment properties anymore.

What? And that was when it all started to fall apart. It was nearly impossible to borrow money, though I owned 100 houses free and clear and had an eight-year success record.

But I had a bigger problem. I was stuck with $1 million worth of under market value houses that I couldn’t sell. No one could qualify for mortgages, and the market crash had dropped their value to under $800,000.

I had many sleepless nights. Despair crept up on me as my bank account shrank.
Focus on positive speakers

Even though I was losing money left and right at this time, I still managed to keep a positive, can-do attitude with my out of state investment properties.

That’s easy to say, but how did I do it? I listened every day to positive speeches and sermons from famous speakers and pastors.

Being a Christian, I listened every day to Joel Osteen; I found his uplifting sermons about prosperity in all aspects of life to be a huge lift for me.

Also, I listened daily to the leader of Christian Business Leaders International, Bob Harrison, who is also known as the No. 1 increase authority in America.

Harrison has been through trying financial times as well. But his optimism has carried him through, and he is now one of the leading business speakers in the world.
Lead with optimism and find new opportunities

Maintaining an optimistic outlook didn’t just get me through the market crash. It also opened new horizons for me in real estate investing.

I discovered something shocking: the expensive $1-million houses are the riskiest investments. When the market dips, the demand for those homes plummets, as do the prices.

On the other hand, my little, bitty $50,000 three-bedroom, one-bathroom out of state investment property sells just the same no matter what’s happening in the market.

The demand was always there for these small under-market-value houses, and each one made — and continues to make — me $600 to $800 per month on owner financing.

So, the crash and staying positive throughout it led me to an amazing new business opportunity — buying and selling distressed homes and owner-financing them. Even better, the crash allowed me to snatch up 100 of these houses for about $20,000 each, and they now sell for $50,000 each or more.
The crash and staying positive throughout it led me to an amazing new business opportunity.
3 tips for staying positive

It’s vital to maintain a positive, can-do spirit in your real estate investing, no matter what. This is what makes you stick to it when other investors give up. Here’s my advice:

1. When things are bad, listen to uplifting and motivational speakers

Find positive business mentors online that can inspire you and keep you motivated. Zig Ziglar is another great one.

2. Remove yourself from negative environments, especially online forums

I love the Internet, but there is a lot of negativity on some real estate investing websites. Many people just want to moan about how bad things are — it makes them feel better.

I don’t have even one second of time for this kind of talk. Associate with positive, can-do real estate investors only. And by the way, I made plenty of money in real estate without a website or ever being online at all.

3. Shadow a successful, positive mentor

Whatever city you are in, you can locate a good real estate mentor to inspire you. Why would he or she talk to you? Because you have something to offer.

Offer to help them with hanging signs, making calls or doing office work in exchange for learning from them. I met most of my mentors at real estate meetings in San Antonio, and their positive attitude rubbed off on me.

Maintaining an optimistic outlook in down times led me to even better real estate success in under market value  properties, so always keep your chin up.

 

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

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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!