Why I Buy Investment Properties for Cash Flow and Never Appreciation

As a financially retired expert in under market value investment properties in Texas (San Antonio – one of the best cities to invest in real estate), I always purchase my below market value properties for cash flow – never for appreciation. Anyone considering California investment property – take note! Appreciation is a crap shoot. Cash flow is forever.

Don’t get me wrong: My mascot Teddy and I don’t mind appreciation, but:

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I didn’t financially retire at 28 in San Antonio in under market value investment properties by hoping my houses would appreciate. No way.

Instead, I invest for cash flow in all of my below market value properties. I make at least 11-12% ROI on each of my under market value investment properties in San Antonio, which I find one of the best cities to invest in real estate. Here’s exactly how I do it:

  • I find an under market value property.
  • I buy it cash for at least 20% under market value (or I move on)
  • I do $25,000 or so in rehab.
  • I sell it with owner financing at 10% interest, $5000 down.

That is it, my friends. That is the simple secret to investing in under market value properties and making millions. Each one of my San Antonio investment properties makes at least $500 per month in passive cash flow. If my houses appreciate, great – I may sell one or two and make $20,000. But that is rare.

Banking on Real Estate Appreciation Gets Investors Hosed

A huge mistake that many new real estate investors make when buying under market value property is that they have no passive cash flow. Their hope is that the houses will go up in value. That is pure speculation, and you only want to speculate when you can afford to speculate.

When I first buy my under market value property in San Antonio, I do about $25,000 in rehab, but I am careful to not overdo it. Over rehabbing is another landmine that many real estate investors step on. Not me. I do enough rehab to get the house sold. I research the under market value properties in the San Antonio neighborhood to get a good idea of how much rehab to do. Once I sell the house with owner financing, it is producing positive cash flow for me.

The advantage of doing owner financing instead of renting is all the repairs are on the buyer. I do not spend a penny on fixing the house after the rehab is done. Cool huh?

The Disaster of Negative Cash Flow

Many real estate investors buying for appreciation routinely low ball their monthly expenses. I’m talking vacancies, repairs, interest on loans, etc. Most new investors will not account for what they do not know, because they so much want to see positive cash flow. Remember – when you underestimate expenses, you are not thinking. You’re feeling. Don’t do that. Buy the best cash flow investment in your area, or another area.

I Never Try to Predict the Real Estate Market

Well, I do try to take a guess on where things are headed (I think we will see a booming real estate market in San Antonio for at least two more years). But I am never going to bank my income on whether or not my educated guess about the local real estate market pans out. No thanks.

It is a lot safer to invest for cash flow and never appreciation. Buying my little under market value properties in San Antonio has made me quite wealthy at a young age. So that is what I recommend most investors do – invest in the best cash flow investment you can find.

Why Buy Out of State Investment Property?

If you are an investor or possible investor in California, you probably know the answer to that question! Many of my out of state investors in California cannot believe the sky high cost of investment properties in many of the high population areas of California, such as San Francisco, Los Angeles and San Diego. Great places to live, but for positive cash flow investing? Not so much! California investment property is very expensive.

san fran
I feel for San Francisco real estate investors.

I’ve been fortunate enough to build my large portfolio of under market value properties here in Texas, where property values are a lot lower than some places. San Antonio investment property produces excellent real estate cash flow and is quite inexpensive. I also only owner finance my houses, so I have no maintenance costs.

If you are thinking about buying an out of state investment property for passive income, here is a good simple guide that can help:

How to Select Your Out of State Investing Market for Passive Income

Where you are going to invest in under market value properties depends on your real estate investing goals. Are you a flipper or a buy and hold investor? If you hang around my site long, you’ll learn I retired early with buy and hold investment properties that are owner financed. I’m a big believer in buy and hold long term cash flow – that is how I financially retired at just 28 in San Antonio – one of the best cities to invest in real estate, in my humble opinion.

Anyway, a good buy and hold market for passive income might not be the best flipping market. Here in San Antonio TX, flipping has gotten tough as the economy is booming as of January 2016; it’s hard for flippers to get properties cheap enough to make a good profit. For buy and hold investing though, I still make 10-12% per year, or $500-$700 per month in positive cash flow.

tx
I’m biased, but TX is a great place for out of state investors – the population is soaring due to job growth.

As you think about where to buy out of state investment property and under market value properties, consider:

  • State law: Is the state friendly to property owners? You want to invest in a state that makes it easy to evict tenants or to foreclose. State that are tenant friendly, such as CA, make it so hard to evict or foreclose, you could lose your shirt.
  • Trends: What’s going on in the state as far as population? Here in Texas, we are seeing MEGA population growth.   My market of San Antonio is #5 on the list above as far as hottest housing markets go. Jobs are the biggest reason that people are coming to Texas, as well as housing affordability. This makes Texas a great place for out of state investors.
  • Price to rent: What does rent cost compared to the price to buy? In my town, it’s 16.90, while in San Francisco it’s 30.05. Whoa! No wonder so many CA investors are investing in out of state investment properties.

These are not all the factors to consider when you are buying an out of state investment property instead of California investment property, but if those three areas look favorable, you probably could do well in that market and financially retire early as I did, in one of the best cities to invest in real estate. San Antonio investment property is excellent for cash flow.

Ok…..so let’s take a quick break from the investing talk. Time for a picture of our TexasCashFlow.com mascot – Teddy!

teddy meme 3

Ok, back to the program!

How To Find Out Of State Investment Properties and Under Market Value Properties

Now that you know which market to buy your below market value investment properties, how are you going to locate that house? Most investors I know do it two ways:

  • They find a good real estate agent investor who is hooked up with excellent contractors, property inspectors, title company, real estate attorneys.
  • They find a good turnkey property provider. The house has been totally rehabbed and usually has tenants or buyers in place.

Which of these routes you go with will depend upon your investing goals again. Some out of state property investors want to have absolutely no headaches or management worries, so they just buy turnkey properties. Other out of state investors think that method is too expensive, so they manage their own rehabs and property management.

If you decide to find your own below market value properties in your chosen market, here’s what you’re looking at:

Buying Below Market Property Yourself

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Advantages

  • You’ll get the house at a low price
  • High cap rate or ROI

Disadvantages

  • The house will not be producing income during the rehab and the time it takes to find a renter or an owner finance buyer
  • Rehab costs could shoot up if you don’t have reliable partners
  • Harder to manage the rehab and management from a distance
  • Difficulty in controlling material costs

Buying Turnkey Property

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Advantages

  • Totally rehabbed
  • Tenant or buyer may already be in place
  • No work for you
  • Cost of material more predictable and stable
  • You know the quality of work you will get
  • Whole investment team is in place

Disadvantages

  • Higher initial cost
  • Lower ROI or cap rate

How big a difference are we looking at between buying a run down under market value house and buying a turnkey? Let’s take a look:

  • Run down property: Estate sale, $30k purchase, $30k in rehab – will produce 13% ROI with owner financing or renting.
  • Turnkey property: $80k purchase price, no repairs, will produce 9-10% ROI with owner financing or renting.

So which will it be? Most people would say you obviously go for the better ROI with the under market value property you do yourself. But remember, you are going to have to do a heck of a lot more work – at a distance – with the fixer upper property. A turnkey property will earn lower ROI, but it a lot less stress. At the very least, you might consider a good turnkey property if you are a beginner in real estate investing. That way, you can make some good positive cash flow as you develop your own investment property team.

It all boils down to how you look at investing in real estate. Investing by definition means using something to get some type of return. You just have to decide if you want to use just your money to get a return, or use your time AND money to get a potentially higher return.

Choose wisely based upon your personal investing goals, and you will hopefully be able to be financially retired on your time table.

Personally, if I were a usual buyer of California investment property, San Francisco investment property, Los Angeles investment property or San Diego investment property, I would strongly consider buying out of state investment property. Investment property is all about real estate cash flow…..it’s something you can rely on year in and year out, unlike hoping for appreciation.

 

Do You Have a $200,000 Salary and Hate Your Life? Buy Under Market Value Properties

I can’t tell you how many people I run into in my under market value  properties career who have good jobs and hate their lives.

That is, they make $200,000 or more per year and yet, they work 60 hours per week, sit in dull cubicles for years and years, and wish they had the time to do what they want to do.

The truth is, most of us have been conned into thinking that the ONLY way to live in America is to trade time for money.

And you know what Teddy our mascot says?

time for money

That’s right. If Teddy knows that trading time for money sucks, you should be able to figure it out too. Passive income is the way to go – with under market value properties – at least 20% below market value. Who wants to sit bored in a cubicle or office for most of their working life? It’s a form of slavery, even if you are well paid.

stop

I stopped trading my time for money at a very young age – 23 in fact. That was the year I bought my first under market investment properties in San Antonio (I’m 38 now). I financially retired at 28, in San Antonio, one of the best cities to invest in real estate.

And I probably had it a lot tougher than you do….by this I mean, I didn’t have a lot of capital to start with. I actually had to borrow capital at 8% from a private investor to buy much of my early portfolio in fixer upper houses. Yet I had plenty of passive income in under market value properties within a year of starting.

But a guy or gal like you…..you make $200,000 per year or more out there in California or Washington….you most likely have some capital stored up so that you can buy under market value investment properties, and STOP trading your time for money. This type of out of state investment property is perfect for you. Passive income fast.

Here is a quick plan to stop trading your time for money TODAY. I am going to assume you have some capital to work with (if you don’t, go find some private investors to borrow money from like I did).

If you live in a high cost area, strongly consider buying an out of state investment property.

This under market value investment property is one that I have scouted out carefully in a very hot part of 78201, which is north of down town San Antonio. It is seeing a lot of young professionals moving in and property values are shooting up. There is a good chance you could get a young professional buying this under market value property from you, or a hardworking blue collar family:

edison front

 

  • Address: 2229 W Hermosa Dr. San Antonio, TX 78201
  • Year Built: 1948
  • Description: Distressed property sale, 2 beds 1 bath, 769 sqft, lot size: .14 acres yearly taxes: estimated repairs: 35K (convert to 3 BR).
  • Max After Repair Value: $129,000.00.
  • Cash Price: $69,900 firm.
  • Exit Strategy: Owner finance 10% interest rate, $5000 down, 30 year note, $1100 per month PITI. Plenty of positive cash flow.
  • 10% ROI no maintenance.

Here’s how I was able to financially retire at 28 in one of the best cities to invest in real estate – I bought under market value properties just like these with cash or with borrowed cash. I do $35,000 in rehab (I now have a professional construction company that does this for me – no more getting my hands dirty). Then I resell the house with owner financing to a qualified buyer. What I do is super simple, and yet, so many people cannot see it !

The above out of state investment property will make you $1000-1100 per month, assuming you fund the deal with cash from your $200,000 or whatever job. In time you will be able to financially retire.

That’s it. Buy, rehab, resell, and collect the cash flow. It IS that simple. Lather, rinse and repeat. If I did it, Teddy says you can become financially retired too:

teddy2
I’m tired after all the rehab work today!

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 🙂

teddy5

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.

edison front

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.