How to Avoid Buy and Hold Investing Trainwrecks

If you have considered investing in buy and hold real estate in San Antonio or another city, you probably have heard about the investing horror stories….major repair problems you didn’t anticipate, bad tenants, cash flow negative properties.

Most of the problems that investor run into in under market value fixer uppers can be avoided with proper planning and foresight. Here are a few areas that many San Antonio buy and hold investors get into trouble:

#1 Bad Location

You need to buy property where QUALITY buyers and tenants want to live. If no one you want to rent to or sell to wants to live there, you are going to have problems.

For many investors in fixer uppers in San Antonio, this problem comes down to wanting to buy the cheapest possible property, which usually means buying in a bad area. And that problem often comes down to not having enough money to really start investing.

I have seen this mistake time and time again – would be investors want to get started in buy and hold investing and really do not have the capital to do it right. Not having enough money means you end up buying cheap in bad areas, you get bad tenants, you don’t have cash reserves for repairs….pretty soon, you are in a very bad situation.

Personally, I buy in blue collar areas that are on the edge of wealthier neighborhoods. This property in Beacon Hill I sold to my father in law, which is an up and coming area on the edge of very expensive neighborhoods. This buy and hold deal worked out great for him:

hollywoodBefore Rehab – $50,000 cash purchase, zero rehab by investor, 90 DOM, resold for $80,000 owner finance, $804 per month, 14% ROI.
dasdf
After rehab, completed entirely by end buyer.

He just had the buyer pay him off, and he made nearly $48k on a $51k investment. Nice deal!

#2 Numbers Do Not Add Up

Another common problem new buy and hold investors get into is they find a nice looking property in a nice area and the rent sounds good, but when they add up the numbers, including repairs and vacancies, the expenses are greater than the cash flow.When you see this, you should always follow the numbers. Don’t listen to your heart. If there is not enough money in the deal, don’t do it. And be honest with yourself about what the expenses are, don’t fudge them to make them look good.There is nothing worse than buying a fixer upper buy and hold deal and having to put money INTO it to keep it out of foreclosure.

#3 The Property Is a Wreck

I deal with ugly properties that might scare many investors:

front 3
$20,000 cash purchase, $5000 in rehab, 65 DOM, sold for $39,900 owner finance (Fair Market Value), ROI 12%.

This is an example of our lower priced affordable home, but still an excellent investment in property. These houses will sell in our neighborhoods in San Antonio TX. It is a 4/1 on Colima Ave. in the 78207 zip code. It was purchased by the investor for $20,000 cash, which was well under market value. He had it repainted in and out and the door secured, and other minor fixes. That cost him $5000 total in repairs.

Houses in this range and location do not require major repairs and upgrades to resell.

We then sold the house with owner financing to a qualified end buyer. The buyer was qualified according to SAFE Act – documented income, tax returns, pay stubs, employment verified. All Dodd Frank underwriting rules were followed.

Terms:

  • $3000 down
  • $400 per month PI/TI
  • 30 year amortization
  • 10% interest
  • No prepayment penalty
  • No balloon
  • Final price: $39,900 (FMV)
  • ROI: 12%

That is the kind of house I deal with, but you as a new investor may want to steer clear of houses with major problems. If you get a truly ugly fixer upper, consider having an expert real estate investor/company run your investments for you.

Lastly, many buy and hold investors get into the business for passive income but find that they simply do not have the time and/or the money to do it right. That passive income dream can become a money sucking nightmare if you are not careful.

If you are looking for a good buy and hold investment property, I can help you with the below property and run the entire project for you.

Front

Address: 126 E Dullnig Ct., San Antonio, TX 78223
Year Built: 1919
Description: Major cash flow on this San Antonio fixer upper distressed property – 4 beds 1 bath, 1100 sqft, two large storage units in the back, Lot Size: .19 acres, Yearly taxes: $1,600.00, Estimated yearly insurance $700.00, Estimated repairs: 30K, includes interior paint, electrical/plumbing up to code, landscape, trash removal, kitchen/bath updates, central HVAC, flooring, 2 room conversions, foundation/roof repairs.
Max ARV: $109-$115k

Cash Price: $55,000

Exit Strategies:

  • Rent with 30K in repairs: $1150.00
  • Owner Finance San Antonio wholesale property with 20K repairs: 5k down, $995.00 monthly P/I, 30 year amortization, 10% interest, Price: 99K.

I have done more than 500 rehabs on San Antonio investment property, so I know what I am doing on the rehab; my estimates are usually within 5-10% of the actual rehab number.

San Antonio Real Estate Market Continues to Rise in June 2016

According to the San Antonio Board of Realtors, monthly housing reports in our south TX city continue to show steady growth and rising values.

In May 2016, 2800 homes were sold, which is a 10% increase over May 2015. Also, May 2015/May 2014 saw a 9% increase in home sales over a year ago.

The average selling price of a house in San Antonio today is $249,000, with a median price of $209,000, which is up three percent from a year ago. The average price of San Antonio homes sold in May 2015 increased 10% from a year ago.

In April, San Antonio houses that are less than $200,000 were more than half of what was sold in the city. In May, 48% of the market involved houses that sold between $200,000 and $500,000.

San Antonio’s growth is higher than Texas’ overall, but the city is still a very affordable place to both live and invest. The average home price here of $249,000 is far less than the Texas average of $271,000.

Meanwhile, the city’s commercial development continues to grow strongly. A May 2016 report by Marcus & Millichap’s Retail Research Market Report found that the retail vacancy in San Antonio has reached an all time low. There also has been limited new retail construction, so the trend of increasing occupancy and rising rental prices will continue to have an affect on the commercial market.

The employment base of San Antonio will grow at a healthy 2.5% clip for 2016, which should contribute to the rising demand for various retail businesses from grocery stores to service companies.

In my under market value San Antonio  real estate investing business, we continue to see strong growth in prices and demand for affordable homes, as well. I did manage to get this San Antonio fixer upper under contract and for sale for just $52,000, which will produce a rate of return of more than 15%:

Front

  • San Antonio Wholesale Property Address: 1515 Wagner Ave. San Antonio, TX 78211.
  • Year Built: 1949
  • Description:  Location Location! Cash Flow! Under market value, 3 beds 1 bath, 816 sqft, built: Lot Size: .14 acres, Yearly taxes: $600.00, Estimated yearly insurance $700.00, Estimated repairs: 15K, includes interior paint, electrical/plumbing up to code, landscape, trash removal, kitchen/bath updates, flooring, roof repairs.
  • Estimated Repairs: 15k
  • Cash Price: $52,000
  • Exit Strategy: Rent San Antonio investment property with 15K in repairs: $850-$900 per month — or Owner Finance with 15K repairs: 5k down, $900.00 monthly P/I, 30 year amortization, 10% interest, Price: 89K.

SOLD – 1515 Wagner Ave. San Antonio, TX 78211

Front

  • San Antonio Wholesale Property Address: 1515 Wagner Ave. San Antonio, TX 78211.
  • Year Built: 1949
  • Description:  Location Location! Cash Flow! Under market value, 3 beds 1 bath, 816 sqft, built: Lot Size: .14 acres, Yearly taxes: $600.00, Estimated yearly insurance $700.00, Estimated repairs: 15K, includes interior paint, electrical/plumbing up to code, landscape, trash removal, kitchen/bath updates, flooring, roof repairs.
  • Estimated Repairs: 15k
  • Cash Price: $49,000
  • Exit Strategy: Rent San Antonio investment property with 15K in repairs: $850-$900 per month — or Owner Finance with 15K repairs: 5k down, $900.00 monthly P/I, 30 year amortization, 10% interest, Price: 89K. 15% ROI is possible.
  • Comps: Rental Comps 1515 Wagner Sold Comps 1515 Wagner
  • Contact us for more information or to make offer.

More Photos:

Back Bath Bed1 Bed2 Bed3 Kitchen Living Room water heater

 

Buy and Hold Success Story – $50k Investment – $47k Return

Back in 2013, I sold my father-in-law his first San Antonio wholesale property: a $50,000 buy and hold deal a few miles north of downtown San Antonio.

This was a point in the market when we did not have to do much rehab on our San Antonio investment properties. He picked up this house for a bit under $50,000 and cleaned it up with a broom and got rid of the trash. The total investment was $50,000.

At my recommendation, he did a seller finance deal on this San Antonio fixer upper, under market value property with the following terms:

  • $50,000 cash purchase
  • $80,000 owner finance price
  • Zero rehab by investor
  • $806 per month
  • 14% ROI
hollywoodBefore Rehab – $50,000 cash purchase, zero rehab by investor, 90 DOM, resold for $80,000 owner finance, $804 per month, 14% ROI.
dasdf
After rehab, completed entirely by end buyer.

The owner of the property did a fantastic job on rehabbing it, as you can see by the pictures. But that is not the end of the story on this San Antonio investment property!

More Pictures After Rehab:

20140403_080937 20140727_134826 20140819_153126 20141017_121747 - Copy

In August 2016, the owner of the property decided to cash out my father in law. She paid him off with the proceeds of the sale of one of HER investment properties.

She paid him a sum of approximately $75,000, which is what was left on the mortgage. So, not only did he make $25,000 on the sale of the property, he also made approximately $22,000 in payments over 2.5 years! He made a total return of $47,000 on his $50,000 investment!

Now that is a fantastic San Antonio investment property return!

Why I Buy and Hold Investment Properties with ‘Foundation Problems’

Most San Antonio real estate investors are afraid of ‘foundation problems’ on their fixer upper properties. I understand why that is:

A serious foundation issue on a property can kill the profits on a buy and hold deal. If you have a $25,000 budget to rehab a San Antonio wholesale property, a $10,000 foundation repair can turn it into a negative cash flow situation.

However, one of my millionaire mentors in real estate investing taught me many years ago to not usually worry about foundation problems on buy and hold investments. Actually, I tend to be attracted these days to foundation problems.

The reason? Because most other investors are scared of foundation issues and the competition for these distressed properties is lower. Meanwhile, if you try to buy an old fixer upper for $50k in San Antonio with no foundation problems, you will probably be fighting off a lot of investor competition, which drives up the price.

By buying a foundation problem fixer upper, you often find that you can get the house 5k cheaper, which you can then put into fixing the foundation.

When I am looking at San Antonio wholesale property to buy, I keep these ideas in mind about the foundation:

  • Uneven floor is not a big problem in an old house in San Antonio

Most of the buyers of my properties are accustomed to being in a house with a foundation that is not perfect, so a floor that slopes a bit is not a deal killer.

Some investors in San Antonio will see that minor sloping floor and freak out. However, my experience with the houses I buy between 1900 and 1950 usually have a somewhat uneven floor with a pier and beam foundation.

This can be caused by rotting floor joists, ground settling over the decades or shoddy construction.

When I do my inspection, I usually get under the house and see how serious the problem looks. For many of the houses I buy, all that needs to be done is to replace some floor joists for a few thousand dollars.

It is unusual for me to buy a pier and beam foundation house in San Antonio that needs more than 5k of repairs.

  • Wholesale prices on foundation work

Going to a regular foundation contractor could leave you with a deal busting foundation bill. I have workers who can fix a foundation for half of that price. This includes permits and the engineering report.

That’s why it may be a good idea for you to work with an experienced investor who has the network to get a foundation repaired affordably.

  • Foundation problems can mean profits

I have bought houses for $25k that had foundation problems, but all they needed was about $3000 in repairs for the foundation. On one of these deals, I fixed the foundation and sold it to an investor for a 5k profit.

She then did 5k more in repairs and owner financed that 25k house for $50k and $550 per month. She is making 14% a year on that deal.

All on an under market value San Antonio investment  property with a foundation problem.

So, don’t always be afraid of dealing with a foundation issue; it can turn out to not be a deal breaker, especially if you work with an expert investor who can help you do repairs affordably.

 

 

My Best Tips for Successful Buy and Hold Investing in San Antonio

Investing in under market real estate in San Antonio has treated me well over the years. I firmly believe that investing in under market value fixer upper San Antonio properties for the long term is the best way to enjoy long term cash flow.

If you are on the fence and are about to dive into buy and hold investing, I have some simple tips to share, as a successful San Antonio property wholesaler:

  • Work with a real estate agent and investor

Most real estate agents just represent people who are buying or selling their personal residence at retail prices. The majority of agents do not invest in real estate themselves, so they are often unable to help you find a good under market value fixer upper that will produce good positive cash flow.

I only became an agent in 2010 after about 8 years of very successful fixer upper buy and hold investing in San Antonio. I know a good under market value deal when I see it.

  • Cash flow!

You need to get a San Antonio wholesale property under market value enough so that when you do the repairs and collect rent from the tenant, you will have enough to cover all of your expenses. These usually include mortgage, taxes, insurance, repairs and vacancies.

Right now, the San Antonio real estate market is pretty hot, and good fixer upper deals for affordable homes are harder to find. This is why working with a highly experienced real estate agent and investor is so important: She can help you find a good under market value deal that can produce cash flow. Also, if you work with an experienced investor agent, she will probably have a good rehab crew that can do the fix up work at a fair price.

Here is a nice wholesale property deal in San Antonio I just found that will produce $1150 per month in rental cash flow:

Front

Address: 126 E Dullnig Ct., San Antonio, TX 78223
Year Built: 1919
Description: Major cash flow on this San Antonio fixer upper distressed property – 4 beds 1 bath, 1100 sqft, two large storage units in the back, Lot Size: .19 acres, Yearly taxes: $1,600.00, Estimated yearly insurance $700.00, Estimated repairs: 30K, includes interior paint, electrical/plumbing up to code, landscape, trash removal, kitchen/bath updates, central HVAC, flooring, 2 room conversations, foundation/roof repairs.
Max ARV: $109-$115k

Cash Price: $55,000

If you do that San Antonio distressed property all cash, you should have about $700 left for positive cash flow – not bad! – after expenses.

  • Due diligence

I have done about 900 houses in my career, so I personally inspect each San Antonio wholesale deal to see if I will be able to generate enough cash flow after repairs. This is where having an expert agent investor on your side with an expert rehab crew will pay you back big!

A very common error for new fixer upper investors is to overdo the rehab or not be aware of all the things that have to be fixed.

  • Only invest if the cash flow is there

I never buy an under market value property based upon what I think the value of the house will be in a few years. That is real estate speculation and that is a great way to end up in the poor house. If after I run the numbers – property cost, rehab cost, all expenses – I generate positive cash flow of a few hundred dollars, I do the deal.

  • Don’t forget repairs and vacancies

I like to account for at least $50 per month for repairs on my fixer upper deals in San Antonio. Also, plan on a 5% loss for vacancies. However, I often do San Antonio Section 8 rentals, and I find that this type of rental income is quite solid and safe; I have Section 8 tenants who have been with me for 5 years or more.

Above all, after you find a good potential under market value property that will produce positive cash flow, do the deal. Don’t sit around thinking about it too long or you may never take action. Many people think about investing in San Antonio wholesale property, but the majority never do a deal because of fear.

If you do your due diligence as I outline about, there should be no reason to not move forward on that property!

 

 

 

SOLD – 126 E Dullnig Ct., San Antonio, TX 78223

Front

Address: 126 E Dullnig Ct., San Antonio, TX 78223
Year Built: 1919
Description: Major cash flow on this San Antonio fixer upper distressed property – 4 beds 1 bath, 1100 sqft, two large storage units in the back, Lot Size: .19 acres, Yearly taxes: $1,600.00, Estimated yearly insurance $700.00, Estimated repairs: 15K, includes interior paint, electrical/plumbing up to code, landscape, trash removal, kitchen/bath updates, central HVAC, flooring, 2 room conversions, foundation/roof repairs.
Max ARV: $109-$115k

Cash Price: $48,000

Exit Strategies:

  • Rent with 30K in repairs: $1150.00
  • Owner Finance San Antonio wholesale property with 20K repairs: 5k down, $995.00 monthly P/I, 30 year amortization, 10% interest, Price: 99K. Or, owner finance with quick $5k clean up, resell for $79,900.

Contact us for more information or to make offer.
Sold and Rental Comps: Rental Comps 126 E Dullnig Ct Sold Comps 126 E Dullnig Ct

More Images of this San Antonio under market value property:

back bath Bed 1 Bed 2 Bed 3 Bed 4 kitchen Living Room Sink Utility Room

Why I Still Think Buying and Holding San Antonio Real Estate Is the Best Investment

I became independently wealthy at 28 years old with buy and hold real estate investing in San Antonio TX. While I did do some San Antonio flips early on, I have found over time that making regular, steady cash flow on a lot of little San Antonio affordable houses is the real key to build my personal wealth.

Here are the five major advantages to buying and holding real estate investments in San Antonio, in my 15 year experience:

  • Income: Most investments you purchases offer a regular return, such as an annuity, or potential for appreciation in equity (stocks), but buy and hold real estate offers both of these. The best buy and hold real estate investments offset your expenses and debt, and also produce monthly positive cash flow of 5-10% per year. Meanwhile a typical annuity pays 3-4%.
  • Depreciation: Flipping houses in San Antonio is great and I have done my share, but the IRS is always going to get its piece of your real estate profits with flips. With buying and holding, you can write off the value of your San Antonio wholesale property over 27.5 years. This depreciation is negative income. However, it is only negative in a paper sense because your costs of upkeeping the property come out of your cash flow. So, depreciation losses reduce or remove your positive cash flow and reduce your taxes.
  • Building up equity: The cash flow from your San Antonio investment property allows you to pay your mortgage without spending your own money. Each month, also, part of your loan principle is paid off. About 15-25% of every loan payment will pay off the principle of your loan and add to your equity.
  • Appreciation: Your real estate investments can go up in value, and of course they can go down. The good news is that with properly cash flowing real estate properties, you are making profits regardless of what is going on in the market. My San Antonio properties did drop in value by 20% in the crash, but I was able to continue receiving income from them; in some cases, I even could increase the rents in the downturn.  As long as you have positive cash flow in downturns, you will be fine. I did great in the downturn five years ago with my San Antonio real estate investments. I bought and sold $2 million in real estate during the crash.
  • Leverage: If you put $25,000 into mutual funds, and it increases by 10%, you made $2500. If you put that same money into buy and hold real estate, you can buy a $75k property with a $60,000 mortgage loan. If it goes up 5%, you made around $3500, or a 20% or so return!! So, maybe the stock market has a better return on average but with buy and hold real estate, your returns are based upon a higher amount than your actual investment of principle.

As I said, I also flip houses, so this is not an either/or deal. But I like buying and holding affordable San Antonio properties because of the tax advantages, the passive cash flow, and the ability to scale. If I am holding 25 houses producing $500 of cash flow each, I have that each year, and as equity builds, I can refinance and buy more.

In summary, San Antonio buy and hold investing is the best ‘get rich slow’ scheme. You can over time create residual income, and also increase your equity exponentially as you pay down the principle, and also through appreciation and leverage.

If  you are looking for a good under market San Antonio investment property to buy and hold, here is a nice $48k deal:

Front

  • Address: 804 S San Eduardo Ave, San  Antonio, TX
  • Year Built: 1949
  • Description: Fixer upper, under market value 4 beds 1 bath, 816 sqft, built: 1949, lot size: .1 acres, yearly taxes: $1,200.00, estimated yearly insurance: $750.
  • Estimated Repairs: 30K, roof, central hvac, windows, plumbing, electrical, kitchen/bath update, interior/exterior finish. ARV $99k.
  • Cash Price: $48,000
  • Exit Strategies: Rent San Antonio investment property with 30K in repairs: $1,095.00 with section 8, no need to chase the monthly payment, San Antonio Housing Authority pays direct deposit to your account.

With this under market value San Antonio fixer upper, you can rent it section 8 for $1100 per month, and after 6 months, you can cash out refinance approximately $70,000 and do another rental property. Your cash flow on the above deal would still be approximately $250 to $300 per month.

 

I Continue to Buy and Hold With Section 8 Rental Properties in San Antonio

I hold a lot of San Antonio owner finance properties but in recent years I have been doing more section 8 rentals for San Antonio investment properties.

Some people do not like section 8 rentals because they think they can have more problems with those types of renters. However, I find that generally, using section 8 with the San Antonio Housing Authority works quite well.

Section 8 rental property can work really well for the out of state investor who wants to reduce taxable income and enjoy depreciation and write offs. As much as I like owner financed property, you cannot write off anything or reduce your taxable income with depreciation.

I have been doing section 8 rental properties in San Antonio for several years and I have found there to be many great advantages:

  • You will always get your payment electronically on time. You never have to worry about chasing down rent payments.
  • If the economy goes down, you do not have to worry about the San Antonio renter losing his job. The voucher will always pay their rent.
  • I can often charge more rent to a section 8 tenant.
  • I really love how easy it is to market for section 8 renters. All I have to do is post the San Antonio buy and hold property on the GoSection8.com website and I start to get calls from potential renters.

Of course, it is very important to screen the potential renters carefully. I do background checks and credit checks, and I always verify employment. I want to have potential renters that have a voucher that covers the rent, and I also want them generally to bring in at least $1500 in additional income per month, and I increase that if there are several children in the house.

Last, doing section 8 rental property allows you to leverage your money. You can often do a 20% down loan on a San Antonio investment property, and then do the rehab. Once it is occupied for a few months, you can cash out refinance about 80% of the ARV and use that cash to buy more property. This is a quick way to build capital and buy and hold cash flow.

In short, doing section 8 rentals with San Antonio wholesale property is a really fine way to increase your net worth and cash flow.

 

 

Investing in Real Estate and Building Your Rental Portfolio

As you are thinking about investing in real estate and building your rental portfolio, you can no doubt find many wholesale property companies in San Antonio to sell you properties.

I am a San Antonio property wholesaler like others in some ways, but with me, you will find a key difference:

I built myself a large portfolio of rental investment properties (and owner financed investment properties) practically from scratch in about 5 years, from 2001 until 2006. If the person selling you properties has few to no properties, how much do they really know about what they sell?

When I first got started in San Antonio real estate investing, I did not have much capital, only about $25,000. In my first year in real estate, I did 50 houses – San Antonio flip properties.

I did that by finding $2 million in private money from a retired doctor and investor in San Antonio. He loaned me in the money in small parcels and I bought under market value $30,000 properties, rehabbed them, and flipped them for a $8000 profit, which we split.

I was able to make $100,000 in my first year in real estate investing, and I re-invested most of the profits into buy and hold rental properties.

Now I am in the position where I have a very large portfolio of buy and hold properties, and I really do not need anymore properties for myself. I like to help other small investors develop their own portfolios.

I run across many small real estate investors in California that want to build a rental property portfolio but are priced out of their current market. I specialize in helping these investors maximize their available cash so that they can buy enough rental properties so they can quit their jobs within a few years.

Here is a typical real estate investing scenario I see:

  • California investor with a good $200,000 per year job and $100,000 cash or equity cannot buy anything in CA worth having.
  • He has steady high tech employment and good credit.
  • I recommend that you buy an under market value San Antonio investment property for cash at $70,000.
  • We do $35,000 in rehab on the fixer upper property. I make it really nice – with central air, tile, lighting, granite, really make it shine.
  • We then rent it out section 8 for the investor for approximately $1295 per month – ARV is about $139,000.
  • After the house is rented, the investor from California can cash out refinance up to 80% and do another section 8 rental property.
  • If he has a line of credit on his residence, he pays himself back with the line of credit from the first investment property, and then borrows another $100,000 and does another one.

This is one of the ways that I built a portfolio of buy and hold properties after I had profits from my San Antonio flips in my first few years in real estate.

So, if you are thinking about buying San Antonio wholesale property, I recommend that you find a 10 year expert in the business who not only can sell you a property, but has experience in building a cashflowing portfolio for himself.