Take Over a Hard Money Loan on an Investment Property and Save Big!

Investing in San Antonio real estate can be a great way to build wealth as it was for me. One of the challenges when you are first starting out is finding the capital to fund your investments of course. One of the ways that some investors get started is by using hard money.

A hard money loan is a bridge loan that is used for the short term to finance a property while you are doing renovations. A hard money loan in San Antonio is often used by house flippers who want to renovate the home and then sell it retail for a profit. But another strategy that some under market value property investors use is to use the hard money loan to renovate the home. Then, once the property is fixed, get a conventional investment property loan on the home and pay off the hard money loan. The property then can be rented out and you pay the loan from the rental proceeds. If you have done the deal right, you should be able to put away some money every month as your profits and save it over time to do more deals.

Hard money of course is expensive; you can expect to pay an interest rate of 12% to 16% in many cases, and you also have to pay an up front fee and a renewal fee every six months with many lenders. Ideally, you will want to have the property renovated in six months or less so you can either sell it or get a conventional loan and hold it as a rental property.

On a related note, sometimes if you look around, you can find a real estate investor who has a hard money loan on a property but does not have or does not want to spend the cash to renovate the property. In this case, you might be able to work out a deal with the real estate investor that can really save you a lot of money.

All you would need to do with this investment property would be to take over the hard money loan from the investor. In many situations, the investor may have bought the home at a much lower price than it is for sale for today. This can be a great way to get an under market value deal on a property.

For example, we have a San Antonio investment property below where the investor has a hard money loan on the home for about $58,000. That is way below market value. Homes have appreciated in San Antonio by at least 7% in the past year overall. This home on Alametos St. is for sale for $65,000, but if you take over the hard money loan, you have saved another $7000, plus the fees of taking out a new hard money loan. Then, you only need to spend the money on the rehab. What a great way to save a bundle on an investment property! Below is more information on this under market value deal.

Potential more than 40K in profit on this investment. 1614 Alametos, San Antonio, Texas 78201. Excellent location, just north of downtown with a short distance to the river walk and the new San Pedro creek river walk extension (multi-billion dollar inner city revitalization project). Properties in this location are expected to appreciate by more than 50% in value over the next two to three years.

1614 Alametos has a large back yard with shady trees. Currently, the property is set-up as 2 bedrooms and 1 bathroom with a large patio in the back of the house. To get the maximum value out of this property and location, another bedroom and bathroom should be added. Estimated repairs: $65K with purchase price: $65K. Max After Repair Value: $199K

Note: 1622 Alametos just down the street was sold to an investor in 2015 for $65,000. With $15,000 of rehab, the property was sold for $99,000 with owner financing for a 13% ROI. Home was sold within one week.

Price: $65,000

Exit Strategy: Buy, Rehab and Hold this San Antonio investment property.

Why Seller Financing Often Makes Sense in San Antonio

As a successful under market value real estate investor in San Antonio, I own plenty of rental properties and owner finance properties. Depending upon market conditions, I may do one investment property type more often than the other, but I will always strongly believe in the San Antonio owner finance market as a way to grow your wealth.

Some real estate investors are afraid of owner financing a property. Why would you want to be the bank? Most investors want to put down 20% on a property and rent it out. Or they want to flip the house and move on to the next real estate investment deal. But there is a lot of money to be made by owning the property in cash and owner financing it. You also can have a mortgage on the home and do a wraparound mortgage as well as you like, but that is a topic for another blog post.

The major benefit of owner financing a property is that you enjoy having checks mailed to you each month for the mortgage payments, and you do not have to do anything else. Owner financed property is a nice fit for the weary landlord, tired of the repairs and hassles of rental property. That is a major reason why owner financed houses in San Antonio became my favorite way to invest.

Offering seller financing on a fixer upper will open up many opportunities to make a lot of money with your investments. Many potential buyers of a home do not qualify for a traditional mortgage. In San Antonio, we have millions of Hispanic renters who want to own their own home. But they have bad credit or no credit; many deal only in cash. These potential buyers need someone to give them financing if they are ever going to buy. This is a great opportunity for you to make a good ROI on your home.  You can ask a higher price for the home and get a good rate of return.

For example, check out the following San Antonio property:

Booming south side market, 318 Elks Dr. San Antonio Texas 78211, lot size: .12 acres, 3 beds 1 bath, estimated rehab 7K, paint interior/exterior, plumbing/electrical up to code, Max ARV: 85K, Asking Price: 49K, sold comps are excellent in this neighborhood.

Max ARV: $85,000
Asking Price: $49,000

Exit strategy: owner finance, 5k down payment, 85K sales price, $850 monthly PI/TI, 30 year amortization, 10% interest or rent $850 monthly.

This home is $49k and needs only $7k of rehab to sell it, in my opinion. Thus you are in at $66,000 and can sell it for $85,000 (ARV) and charge 10% interest and make $850 per month.

Those terms are pretty typical for this type of house, but as the bank, you can charge whatever you want. If you ask too much, you may take months to sell it. But if you negotiate lower terms, you can sell it faster.

I strongly recommend as a real estate investor having at least some of your real estate portfolio as owner financed properties, especially in San Antonio.

San Antonio Real Estate Investing Random Thoughts 2018

I started investing in under market value real estate in 2001. It was a rough experience at first. With more than $40,000 of college loan debt and not much cash, I struggled to get going in real estate. First, I tried to invest in Boston, where I attended college. Of course, prices there were out of sight. I came back home to Texas, and tried Austin. Still, even back in 2001, prices in Austin were too high for a guy with only $10,000 or so to invest.

Eventually, I migrated south to San Antonio. In those early days, I was able to find undermarket value properties for $20,000 in acceptable areas where I could get decent renters. That is how I made my investing home in San Antonio.

These days, prices are much higher, but there are still good deals out for real estate investors in 2018, if you have reasonable expectations. You will have tough sledding if you want to get a house in 78201 for .50 on the dollar. Today, I’m generally able to get houses at .70 on the dollar. The market is strong and economy is doing well. There is a lot of competition and prices are higher.

I have found that investing in San Antonio fixer uppers has not been too risky. The demand for affordable homes here is strong, and the economy is good. The biggest thing to remember is to not pay too much for the property. But as I said, don’t expect to get a house for .50 on the dollar unless it’s in a real hell hole. It is not 2009 anymore!

Many of my recent real estate investors have come from the California and Austin markets. Those are much more expensive than San Antonio. Even with the higher prices in the $50,000 to $70,000 range in San Antonio for my houses, you still can earn a 10-12% return on buy and holds. This is a very solid return and is mostly what I have made over the years.

If you have $50,000 or $75,000 available, San Antonio real estate can definitely make a great return for you. I strongly encourage people to consider investing in under market value real estate here, in addition to their stock portfolio.

Building Wealth In Real Estate Investing with a Solo 401k

One of the major purposes of investing in real estate in San Antonio and other places is to build wealth slowly over time. One of the most important ways to do so is to invest in high ROI real estate investments that are protected from US taxes.

Many real estate investors automatically decide to invest in real estate with a self directed IRA, which is a perfectly good way to invest. But there are other options that are worth considering; in fact, a solo 401k can often be superior to an IRA for investing in real estate. But most people are not aware that a solo 401k can be created by a private individual to invest in almost anything, including real estate.

Here are some things to know about the solo 401k:

  • It is a one participant 401k plan, and is just like a traditional 401k plan but it just covers one ‘worker’ – you.
  • Unlike an IRA, you can contribute up to $60,000 each year
  • A solo 401k plan has an employee and profit sharing option but a traditional IRA has a low annual contribution limit. For those over 50, you can make a maximum contribution of $24,000 in a 401k and that can be pre tax or after tax.
  • A solo 401k may be contributed to in either Roth or pre tax format, but a self directed IRA may only be made in pre-tax.
  • Tax free loans: A solo 401k allows you to borrow $50,000 or 50% of the account value. You can use the loan for whatever you want. A self directed IRA cannot be used to borrow funds without it being a prohibited transaction.
  • You can open your 401k at many banks yourself. But with a self directed IRA, you have to use a custodian to hold the funds.
  • You do not need to make an LLC with a 401k. The plan itself may invest in real estate investments without an LLC. A 401k plan by definition is a trust, and the trustee may take title to real estate property without an LLC being formed (another expense).
  • Much better protection from creditors: A solo 401k is a fortress against lawsuits and creditors. It offers far better protections than an IRA. The 2005 Bankruptcy Act will normally protect all 401k assets in a bankruptyc. Most states also have more creditor protection in a solo 401k than a self directed IRA – outside of Chapter 7, 11, or 13 bankruptcy.

Once you have established a solo 401k, you only need to decide which under market value real estate investments that you are going to invest in.

How an Owner Financed Deal Works In San Antonio

The majority of my real estate investment portfolio in San Antonio is in owner financed properties. Rather than rent the properties out, I do an owner financed note to a qualified buyer.

Many real estate investors are not familiar with how an owner financed deal works, so I thought I would lay it out here for you:

First, I find an under market value investment property in San Antonio in a revitalizing and growing area near downtown. A good example is this dual property in an area that is seeing major reinvestment by the city:

Address: 106 and 110 Dewitt, San Antonio Texas, 78210

Description: Location Location, just south of downtown, short distance to the river walk and the new San Pedro creek river walk extension project (multi-billion dollar inner city revitalization): properties are going to double in value in the next 5 years. Both homes need to be converted into 3 beds 1 bath: estimated repairs for both projects: 80K-40K each, purchase price for both investments: 80K, Max After Repair Value: 119K each or 230K for both, Package deal.

Price: $80,000 cash

After I do a $3k-10k clean up and repair of the property, I find a good, qualified buyer with steady work, income and at least $5000 down payment. I execute a promissary note with the buyer of the San Antonio property. I typically charge 9% or 10% interest, a 30 year repayment schedule (fully amoratizing), no prepayment penalty, and consequences for default.

The buyer then sends me his monthly mortgage payments either by check or electronic deposit (I have a special Chase account set up for this purpose). I then earn a very good ROI in the range of 10-15% per year, and the property is maintained by the end buyer.

I tend to hold my notes for the long term, and do not usually sell them.

Seller financed deals sometimes are for the short term while the buyer gets their credit cleaned up and refinances. In San Antonio, few of my blue collar end buyers end up refinancing. I get long term cash flow with no repair headaches. I also can save thousands in rehab costs because I generally only do a light clean up of the property. The same property if rented would need far more in repairs.

Why don’t more investors consider owner financing their properties? I think many investors simply are not familiar with the process. Many new investors think investment properties must always be rented. Not so.

Another reason I think is that real estate investors may want to pull  cash out of their investment properties to do more deals later. You can’t do that with an owner financed property. But you can sell the note on the property if you choose to do so and get cash for more deals.

Last, I think that people don’t realize that you can buy properties with a mortgage and then do an owner financed deal to the end buyer. This is known as a wrap around mortgage, and can be a really great way to make good cash flow, conserve cash for more deals, and eliminate investor worry about repairing properties.

 

 

New York Times Highlights San Antonio’s Development Prowess

As most real estate investors in San Antonio know, billions of dollars of development have poured into San Antonio in the last 20 years. And the city is really starting to get on the national and international map, both as a tourist destination and also as a place to find high ROI investment opportunities in Texas and elsewhere.

The New York Times just wrote a new piece about taking 36 hours to visit San Antonio, and it highlighted much of the revitalization of the Alamo City in the last few years. For example, did you know that the River Walk, which opened in 1941, was expanded in 2013 from the three mile tourist section to a full 15 miles?

The downtown area of the River Walk is where all the tourists flock, and it’s great; there are many wonderful bars and restaurants along the narrow sidewalks. But the River Walk is now much bigger, and you can walk two miles down to the wonderful Pearl Brewery area. There you can enjoy a less crowded and less commercialized walk as you pass art installations, wetlands, and even an underpass that features a very cool soundtrack of singing birds.

For San Antonio real estate investors, this development has led to property appreciation, better investment opportunties, and more are slated for the future.

On the east side of town, the local developer Efraim Varga plans to invest $150 million into a mixed use development called Essex Modern City. It is going to include 80,000 feet of office space, 65,000 of retail space, 250 apartments, 150 condos and 80 townhouses.

Developers of this space are hoping that tech companies will move in to lease some of the creative office space. The site of the development is very close to the Alamodome, Hemisfair and the San Antonio River, so the development is expected to do quite well.

Meanwhile, I continue to buy  San Antonio fixer uppers, which are doing very well with all of the revitalization this city is seeing. I am seeing stronger demand for my end buyers with my owner finance program. Most of my neighborhoods are within a few miles of downtown and much of the revitalization that is taking place:

  • Address: 3118 Owasso St. San Antonio, TX 78211
  • Description: San Antonio investors, flip this house for a nice profit,  4 beds 2 bath, 1560 sqft, new homes on the same block, estimated repairs:60-80K, Price: 49K, Max ARV: 159K-189K, estimated profit: 40-80K, 3 month major project.
  • Cash Price on San Antonio Fixer Upper:  $49,000 CASH ONLY
  • Exit Strategy: Flip with 60-80k in repairs, profit 40-80k.

San Antonio Housing Market Was Red Hot in 2016

The housing market in San Antonio in 2016 was hot as home prices went to the highest levels ever. The local paper reported that 29,508 homes were sold, which was more than an eight percent increase from 2015.

The median price for San Antonio real estate increased six percent to $204,300. This was the very first time that the median sales price had been over $200,000 for an entire year, including the real estate boom years of a decade ago.

Also, the inventory of homes that are available dropped in December 2016 to only three months. this indicates there are more buyers than sellers in San Antonio.

So what does this mean for San Antonio real estate investors? Well in my experience, it means that real estate prices are going up, and buying homes for many people in San Antonio is becoming more difficult. For people who earn a good income of course, the homes in San Antonio are very reasonable.

But for people who earn $3000 per month and don’t have credit, buying a home with conventional financing is very difficult. That is the reason I focus my San Antonio investment strategy on owner financing.

Here is a good example of an under market value property that I am selling right now:

  • Finance Your Investment Properties
  • Address: 1319 S Hamilton St., San Antonio, TX 78207
  • Year Built: 1956
  • Description: San Antonio buy and hold investors and real estate investors  – Another Major cash flow opportunity, 30% instant equity under market value, almost cute cottage, needs minor help, booming San Antonio Market West of Downtown,  2 beds, 1 bath, 616 sqft, lot size: .05 acres, estimated repairs: 5K, clean/lawn maintenance/interior paint/front paint. Max After Repair Value: 69K
  • Cash Price on San Antonio Fixer Upper:  $42,000 CASH ONLY
  • Exit Strategy: Owner Finance with 5k in repairs: 5Kdown payment, $695.00 monthly PI/TI, 30 year amortization, 10% interest, Sales Price: 69K, see attached sold/rental comparables.
  • Sold and Rental Comps: Sold Comps 1301 S Hamiltonrental comps 1301 s hamilton

This property is only $42k cash, and with $5k in repairs, you can sell this with owner financing (you’re the bank), to a family with job and income but no credit. The major advantages of this type of deal are that you do not have repair expenses ongoing. Also, you can limit your initial out of pocket costs. If you were to rent this house out, you would have to do $20,000 in repairs, not $5000.

Owner financed homes is the backbone of my real estate investment portfolio in San Antonio. Each home earns at least 10% ROI with no expenses.  This type of buy and hold investing helps to support the working families of San Antonio as well, so it is a win win.