How I Increase My Profits with Limited Rehabs

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With the real estate market heating up in San Antonio, lots of new real estate investors are jumping into the game. It always happens when the market gets hotter.

However, many of those new investors will fail. It always happens in every ‘up’ market. I make positive cash flow in every market.

One of the biggest reasons that investors crash in real estate investing in distressed properties or under market value properties is they simply spend to much on rehab. I never spend too much on these fixer upper homes or distressed property sales.

Many real estate investors do not understand the neighborhood in which they invest. They assume that a 3/1 in 78210 is going to be largely the same as a house in 78207, as far as fixing it goes. This is completely wrong.

A home in 78210 on the north side of downtown San Antonio, TX is a hotter area with an average income of 2013 reported at $26,522. Meanwhile, in 78207, the average income  is $20,100.

This makes a major difference in terms of how I rehab the house. For a 78210 house, which is currently in higher demand due to its proximity to downtown, I will often opt for a fancier finish to include:

  • Granite counters
  • Premium light fixtures
  • Tile flooring
  • Nice front door

The rehab on a house in 78210 might be around $15,000. We did a deal in 78210 that was $62,000 cash, and rehabbed for $10,000. It included new flooring, nice paint in and out, and refinishing the floor.

On the other hand, we did a rehab in 78207 last year with a lower income, and spent much less: about $5000. We just painted the floor, painted in and out, fixed the foundation and got rid of trash at this fixer upper home.

That’s all that a buyer in that area would expect – just the basics. To spend all of that money on fancier finishes in that neighborhood would be overkill.

Let’s do the math. The investor in 78207 paid $29,900 and did $5000 in rehab. It makes the investor $450 per month in cash flow.

The distressed sale property in 78210 cost the investor $62,000 and makes the investor $750 per month. The rehab here was $10,000.

On 78207, the house makes a return of 15% or so. But if we put another $5000 in for too much rehab, the return would drop to about 13%.

I save my investors thousands of dollars and increase returns by 2-3% on each deal by knowing when to call it quits on rehab.

Of course, this all sounds simple on paper, but figuring out how much to spend on rehab of a Texas investment property – just enough to sell it quickly – takes a great deal of practice over years of investing.

If you are starting in real estate yourself or do not know well the neighborhood where you invest, make sure you are relying on a solid agent or investor there. He or she should be able to tell you how much rehab to do on your distressed investment property.

So many real estate investing careers are wrecked by careless attention to rehab costs. Please don’t let it happen to you.

 

 

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

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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:

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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.’ 🙂

SOLD – 910 Drury Ln, San Antonio, Texas 78221

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  • Address: 910 Drury Ln, San Antonio, Texas 78221
  • Year Built: 1957
  • Description: Booming Texas market cash flow property, 2 beds, 1 bath, 621 sqft, large back yard with shed, plenty of room for the addition of 2 new bedrooms and another bath, estimated repairs: 20K, includes paint in/out, new HVAC, flooring, foundation, update kitchen/bath.
  • ARV: $86,900.
  • Cash Price: $45,900.
  • Exit Strategy:Owner Finance with 20K repairs: 5-10k down, $850 monthly P/I, 30 year amortization, 10% interest, Price: 86.9K, can sell note after 1 year; or rent: $900 monthly with 20K in repairs.
  • Notes: We advise owner financing this house for a ~10% return without maintenance expenses.
  • Contact us for more information or to make offer.
  • Rental and Sold Comps: Rental Comps 910 Drury Lane Sold Comps 910 Drury Lane

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Contact us for more information or to make offer.

SOLD CASH – 1027 Sams Dr, San Antonio, TX 78221

Front

  • Address: 1027 Sams Dr, San Antonio, TX 78221
  • Year Built: 1957
  • Description: Very large lot, 1027 Sams Dr, San Antonio, TX 78221, 4 beds 2.5 bath, 1900 sqft, built: 1957, Lot Size: .34 acres, storage units, Yearly taxes: $1,900.00, Estimated yearly insurance $600.00, Estimated repairs: 40K-50k, includes interior paint, electrical/plumbing up to code, landscape, trash removal, kitchen/bath updates, central HVAC, flooring, finish out 4th bedroom, appliances
  • ARV 129-135K with owner finance,.
  • Cash Price 69.9K cash. Home has a new metal roof
  • Exit Strategy: Owner Finance with 40K repairs: 5k-10k down, $1295.00 monthly P/I, 30 year amortization, 10% interest, Price: 129-135K, can sell note after 1 year; or rent with 40K in repairs: $1,295.00
  • Notes: We advise owner financing this house for a ~10% return without maintenance expenses.
  • Contact us for more information or to make offer.
  • Rental and Sold Comps: Sold Comps 1027 Sams Dr. Rental Comps 1027 Sams Dr

Back neighbor Back bath 1 Bed 2 Utility Room water heater Living Dining Large Bedrrom kitchen Bedroom

 

Contact us for more information or to make offer.

SOLD CASH – 914 W Hutchins Pl, San Antonio, TX 78221

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.
  • Notes: We advise owner financing this house for a ~10% return without maintenance expenses.
  • Contact us for more information or to make offer.
  • Rental and Sold Comps: Sold Comps 914 W Hutchins St Rental Comps 914 W Hutchins St

 

More Pictures:

Back storage Back Bath floor Bed 1 Bed 2 Bed 3 Front Kitchen Living & Dining Shower

Contact us for more information or to make offer.

SOLD CASH – 262 Bogle St. San Antonio, TX 78207

Front

  • Address: 262 Bogle St. San Antonio, TX 78207-7471
  • Year Built: 1946
  • Description: Under market value cash flow investment, excellent back yard, well established neighborhood, 4 bedrooms, 2 bath, 1236 sqft, lot size: .16 acres, estimated yearly taxes: $2,000.00, estimated yearly insurance: $700, estimated repairs: 25K includes paint in/out, new HVAC, flooring, foundation, update kitchen/baths, etc.
  • ARV:  $99,900.
  • Cash Price: $55,000.
  • Exit Strategy: Owner Finance with 25K repairs: 5-10k down, $995 monthly P/I, 30 year amortization, 10% interest, Price: 99.9K, can sell note after 1 year; or rent with section 8: $995 monthly with 25K in repairs.
  • Notes: We advise owner financing this house for a ~10% return without maintenance expenses.
  • Contact us for more information or to make offer.
  • Rental and Sold Comps: Rental Comps 262 BogleSold Comps 262 Bogle St

More Pictures:

Back Bath 2 Bath Bed 2 Bed Kitchen Large storage shed Living & Dining Utility room

 

 

Contact us for more information or to make offer.

SOLD – 109 Llano St, San Antonio, Texas 78223

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  • Address: 109 Llano St, San Antonio, Texas 78223
  • Year Built: 1950
  • Description: Great opportunity to own cash flow property, Booming San Antonio Market, very popular location south of downtown, 4 beds, 2 bath, 1421 sqft, estimated repairs: 30K, includes paint in/out, new HVAC, flooring, foundation, update kitchen/bath, etc. ARV 89.9K with owner financing.
  • Cash Price: $29,900.
  • Exit Strategy: Owner Finance with 30K repairs: 5-10k down, $900 monthly P/I, 30 year amortization, 10% interest, Price: 89.9K, can sell note after 1 year; or rent: $900 monthly with 40K in repairs.
  • Notes: We recommend owner financing this house – no maint. needed. ~10% annual return.
  • Contact us for more information or to make offer.
  • Sold and Rental Comps: Sold Comps 109 Llano St, Rental Comps 109 Llano St

More Pictures:

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Contact us for any questions or to make an offer.

133 Holly St., San Antonio TX 78207

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Address: 133 Holly St., San Antonio TX 78207

Description: Affordable home, 3 BR/1 bath, 840 square feet, large front and back yard, built in 1948.

Price: $39,900

Exit Strategies: Owner finance: 5k down, $695.00 monthly PI/TI, 30 year amortization, no pre-payment fee, Price: $69.9K, repairs: 5K; paint, clean, etc.

650 Canyon Springs Dr. Canyon Lake, Texas

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Address: 650 Canyon Springs Dr. Canyon Lake, Texas, Comal County

Year Built: 1979

Description: Sweet heart of a deal near a beautiful, peaceful lake; 650 Canyon Springs Dr. Canyon Lake, Texas, Comal County 2 beds 1 bath, 1114 sqft, built: 1979, .21 acres, estimated 30 miles north of San Antonio Texas in the amazing hill country (Texas Mountains), enough room for a boat.

Cash Investor Price: Tax value is $60,000; asking $49,900.

Exit Strategies:

Owner finance 5-10k down, $895-$995 monthly PI/TI, 30 years amortization, 10% interest, Price 89.9-99.9K, repairs: flooring, paint, etc. 10k

Rent: clean up, paint/flooring 10K, rent: $900-$1000