3 Habits to Get Rich in Real Estate Investing

This article now appears in Inman News.

Key Takeaways

  • Get in the office early, and leave late. Work while those other real estate investors are sleeping.
  • Ignore popular thinking, and do you.
  • Hang around people with happiness, joy and optimism, and all of that positive energy will rub off on you.

I bought my 30th investment property in 2008, and then considered myself “financially retired” with approximately $25,000 per month in positive cash flow. I was 28.

I did not financially retire so early because my family had money: I grew up very poor in a small Texas town. My parents often could not pay the electric bill. Most of my relatives still work $13-per-hour, blue collar jobs.

When I graduated college, I was burdened with $40,000 of college debt. That’s when I set my sights on getting wealthy in real estate.

Over the next decade, I learned three vital habits that allowed my real estate holdings to grow from one property, to five, to 10 — and more.

Your odds of retiring early in real estate investing will soar if you practice these three habits regularly:

1. Work hard.

There is no substitute for applying as much effort as possible in real estate at every moment.

Many top producing CEOs say that they get up at 6 a.m. and often do not lie down at night until after 9 p.m. Those producers are dead on the money. In my first five years as an investor, I clocked countless 18-hour days.

Most of my packed days were filled with calling as many as 100 people as I looked for deals and capital. I never surrendered. Sometimes I had to speak to five or more people to find the one who could loan me money.

Get in the office early and leave late. Work while those other real estate investors are sleeping.

2. Ignore popular thinking.

Author John Maxwell wrote in the best-seller “How successful people think” that high achievers think differently than others. They often ignore what most people think and sometimes do the opposite of what the conventional wisdom states.

In my real estate investing, I reject the conventional wisdom that I should buy attractive properties in nice parts of town. My reputation in my city is a real estate investor who buys distressed houses.

I purchase only at 20 percent to 30 percent under market value and for cash flow. I do not care about appreciation, and I rarely rent my houses. Instead, I owner-finance houses to subprime borrowers, which defrays most of my repair and ongoing maintenance costs.

I recognize the value in real estate investments that many other people do not see; I then developed a business model that capitalizes on this fact.

For example, I purchased this house for only $15,000. No one wanted it, and 30 days later, I sold it for $20,000 (a $5,000 profit) to another investor. Then, he resold it with owner financing at 12 percent.

He has bought three more houses from me since that deal. I made about $3,000 on each of those deals, so my bottom line profit on a house no one wanted: $14,000.

3. Hang around positive and focused people.

The psychological researcher Barbara Frederickson did some amazing research a few years ago. It detailed how thinking positively has a positive effect on the brain.

Her clinical study had five subject groups, and each one was shown a different film clip. The first two groups watched clips that produced overall positive emotions, such as a happy married couple having fun with their children outside. The third group saw a neutral clip; this was the control group.

The other two groups viewed clips that stirred up negative emotions, such as a couple arguing, people fighting and children crying. After, every group was asked to think of themselves in a situation similar to what they watched. They then were told to write down what they would have done in such a situation.

The test subjects who viewed negative clips wrote the least. Subjects who viewed happy scenes wrote the most.

This research suggests that if you as a real estate investor experience positive things, including joy, optimism, happiness and love, we open ourselves up to more profitable and beneficial experiences in real estate.

I totally agree with this.

When I got into real estate investing, I was only 22. I had a lot of debt and no cash. I just wanted to make $1,000 per week — a massive sum for me back in 2000. As I got deeper into the business, I came across successful investors who took me under their wing.

They were very positive people, and their goals were much higher. They wanted to make $15,000 or $20,000 per week.

These positive people helped to focus me on being wealthy and successful. I absorbed their enthusiasm and joy, and it hit me: I could do that, too.

They taught me to learn as much as possible about my local San Antonio, Texas, real estate market to find the best under-market value deals. They also taught me to be patient as I got wealthier.

I learned from them to make small ($1,000 or $2,000) profits on many deals or to make $4,000 on a flip.

I never focus on making big profits on one deal. Rather, I do 50 houses in a year and make $250,000 — that’s big bucks in Texas.

Hang around people with happiness, joy and optimism, and all of that positive energy will rub off on you.

No matter your position in real estate investing, you can apply these three lessons to greatly increase your investing success and wealth.

But remember: Pass on these positive habits to other real estate investors, so they can benefit, too.

Why Daring to Be Unpopular in Investing Pays Off

This article now appears on Inman News.

Key Takeaways

  • The ‘herd mentality’ in investing leads to subpar results.
  • Buying an ugly house, in the right area, can be a fantastic investing opportunity, but don’t overpay for your rehab, or your profits will evaporate.
  • Buy real estate property under market value in revitalizing areas, regardless of its current appearance.
  • Positive cash flow often comes from the most unattractive houses (on the surface at sale)

A friend of John C. Maxwell, author of the book “Thinking For a Change,” observed: “The problem with popular thinking in business is that it doesn’t require you to think at all.” Most of us don’t want to do the tough work of thinking.

It’s much easier to just follow the herd in investing and hope they thought it all through. That’s why so few of us are ever rich and successful.
It’s much easier to just follow the herd in investing and hope they thought it all through.

Look at the stock market. The herd instinct of many conventional investment managers and their clients encourages them to invest in index funds, exchange traded funds and government bonds.

Popular thinking says that type of stock market investing is safe. Blindly following the crowd isn’t thinking, which is why it usually brings average results.
Unpopular investing in the stock market

However, two contrarian investment managers in New York City named Martin and Ari Sass reject this popular thinking in stock investments. Instead, they conduct deep, forensic research of companies to determine the few with the strongest management that meet a stringent criteria.

This investing style has led them to better returns with less risk — to the tune of now having $7.5 billion in assets under management for Fortune 500 firms and high-net-worth individuals. And note that both men started with no money and no Wall Street contacts. Daring to be unpopular in stock investing can achieve incredible results.
Unique thinking in real estate investing

Similarly, daring to be unpopular in real estate investing can yield spectacular results that few investors achieve. In my San Antonio, Texas, real estate investing career, which spans 15 years, I have made several million dollars by embracing unpopular thinking.

In short, I buy what other investors sprint away from.

Most real estate investors in my city chase 5 percent returns on rentals in $200,000 pretty houses or $40,000 returns on flips. Not me. I love making $5,000 on a deal when I do an occasional flip. Usually, I buy ugly, distressed houses from $25,000 to $70,000 in blue-collar neighborhoods that some investors would never consider.
Junk houses

Falling-apart house in the right area? I’ll take it. A burned house? No problem. Holes in the roof? Great. Foundation issue? Love it. Dirt floor? Of course — sold. A two-bedroom? Yes. A one-bedroom? Heck yes — I’ll convert it to a two- or three-bedroom for $5,000.

No one wants these deals, so I get a fantastic price, and most of the fixes and rehab are easy and inexpensive for my wholesale-priced construction company to complete. I can have a positive cash flow deal in 90-120 days.

In most cases, I buy in up-and coming-areas. So when I owner-finance these distressed houses after a partial rehab to carefully screened buyers, they sell quickly. It’s now a quite pretty house in a revitalizing area that is near downtown.

For me, the investor, owner finance means that I have zero maintenance costs. I make long-term cash flow in the 10 percent to 15 percent per year range on every one of my deals without fail.
For me, the investor, owner finance means that I have zero maintenance costs.

Popular thinking rejects my model, naturally:

  • That area has high crime. It’s too dangerous.
  • My $25,000 real estate investing seminar said “never buy ugly stuff.”
  • Those houses are falling apart and too expensive to fix.
  • You can’t resell a two-bedroom, one-bath.
  • You’ll never find a good, paying occupant for those houses.
  • That house should be demolished.

I love that conventional real estate investors are too lazy to do their own thinking. That means more great deals for my investors and me.

Here is a typical property that I buy:

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This distressed property sale home is only $24,000, and it’s a located in 78207, where the city of San Antonio has poured tens of millions of dollars into revitalization: parks, running and walking trails, picnic areas, shopping plazas, green space and more. It’s only about two miles from downtown. It’s currently ugly and just sat there. I snatched up this distressed property sale.

Next door and across the street are owner-occupied houses worth $80,000 to$100,000. When this ‘junk house’ is fixed up and resold, it will quickly gain in value.

But no one wants my junk house because of its current state:

Living_Dining Kitchen

Conventional thinking cannot see beyond the surface ugliness in the property investment, but by engaging my brain, I see the obvious: Because of the neighborhood and the revitalizing nearby, this deal is a fantastic investor opportunity.

This house only needs $19,000 in repairs completed in 30 days or less (my construction company cost; retail cost would be $30,000 or more):

  • Electrical update
  • New flooring (float new floor over that minor foundation issue after it’s repaired)
  • Clean out
  • Update bath and kitchen with tile and granite
  • New light fixtures
  • Paint in and out
  • Finish second bedroom

After-repair value will be approximately $60,000 to $65,000 (I always run neighborhood comps). On an owner-financed note, this house will return approximately 10 percent per year to the investor — with no maintenance costs. With the pretty homes next door and the parks, running trails, shopping and downtown so close, this house will resell in 30 to 90 days.

However, because the house is ugly, and most investors learned to never buy ugly houses at their real estate investing seminar, they will miss out on a great deal. It is deals like this one that have made me wealthy beyond my dreams.

And it’s mostly due to the fact that I ignore popular thinking, and I dare to be unpopular.

So should you:

  • When investing in real estate, think about rejecting the conventional wisdom.
  • Buy an ugly house under market value in an up-and-coming area.
  • Do the necessary repairs to resell it, but don’t overpay on the rehab.
  • Consider owner-financing the property to a well-qualified buyer.

And you could have yourself a fantastic long-term investment that the non-thinking herd will never enjoy.

Why I Never Fear A Foreclosure

This article now appears on Inman News.
Key Takeaways

  • I often get houses back in even better condition than when I sold them.
  • Although some sources say the entire process takes three months, in my experience, I get a house back in 60 days or even less.
  • The foreclosures happen fast, I get $5,000 down again from every new buyer and I continue to buy houses and owner finance them.

The first few years after the real estate crash led to a flurry of investors snatching up foreclosed properties, rehabbing and renting them out, then reselling a few years later at a profit. For some it worked out, but for others, the appreciation never materialized.

My real estate investing business deals with foreclosures as well, though indirectly: I buy distressed houses, rehab and resell with seller financing (investing for pure cash flow, not appreciation). I never mind taking back a property.

In fact, as an owner finance specialist in affordable homes in San Antonio, Texas, foreclosing on a property can be mega profitable.

Yet it amazes me that some investors I meet are terrified of a foreclosure. In fact, I just met a couple from California who would not invest in part because of the fear of getting a house back. I respect their position, but I know it’s completely wrong.

Here’s why:

1. I get the house back in better condition 95 percent of the time

I buy houses in San Antonio for 20 percent to 30 percent under market value, perform $20,000 in rehab and resell with seller financing. A typical deal will be:

  • $60,000 wholesale purchase price of a distressed home in a rising neighborhood
  • $15,000 in rehab — just enough to resell it
  • Resell at $89,900 with $5,000 down, 10 percent interest and a 30-year note

For example, I recently sold this house with owner financing after the investor did $10,000 in rehab:

new front

I upgraded the flooring, painted inside and out, added central air, leveled the foundation and added a third bedroom. Enough rehab was completed in this area (at low, wholesale prices) to resell the house in a week. However, the roof will need to be redone in a few years, and the kitchen needs more cabinets.

The owner has a lot of pride of ownership in his or her new home; for most, this is the buyer’s first house. So they make improvements, often $10,000 or more. Then, three years later, someone loses a job, and I have to foreclose.

In almost every case, the house has been upgraded by the previous owner. So next time, I will resell this house for $95,000 and $5,000 down again.
In almost every case of foreclosure, the house has been upgraded by the previous owner.

I have gotten a house back three times before and got $1,000 per month with $5,000 down each time. That is a great return on investment.

2. I can foreclose lighting-fast in Texas

When I have to foreclose, it’s an easy process in Texas. Although some sources say the entire process takes three months, in my experience, I get a house back in 60 days or even less. In a few cases, the former owner simply hands me the keys and I put it back on the market the next day.

On my last foreclosure, I spent $1,000 for the entire legal process and had it done in 45 days.
On my last foreclosure, I spent $1,000 for the entire legal process and had it done in 45 days.

I should note that foreclosing is not what I want to do. Once a family is 30 days behind, I call them and attempt to work it out. In many cases, a child got sick or someone lost their job.

I know their financial situation because they provided me with proof of income and assets during the qualification process. So, I try to get them to tap their 401K or other assets to get caught up and get them through this trying period. If we cannot work it out, the foreclosure proceeds.

3. I deal in volume, so some foreclosures are necessary

My investors and I buy hundreds of houses per year. There is little question that at some point, some percentage of those houses will be in foreclosure. It can be 5 percent in boom years, and 20 percent in recession years.

I accept and embrace that. Fortunately, San Antonio, Texas has a strong, stable real estate market with a diverse industrial base. There always is strong demand for affordable homes in my city — regardless of market conditions. Houses foreclose, and houses are quickly resold.
I accept and embrace that at some point some of my investment homes will be in foreclosure.

The foreclosures happen fast, I get $5,000 down again from every new buyer, and I continue to buy houses and owner-finance them. Even though I’ve done my share of foreclosures in the past 15 years, I still managed to financially retire in this business with $40,000 per month in cash flow.

So, don’t fear foreclosures in the real estate investing business. It’s merely part of the investing landscape and a golden opportunity to make more profits.

Case Study – 1219 Perez St.

1
$29,000 cash price, $7000 in rehab, 120 DOM, sold for $55,000 owner finance, 12% ROI

This house at 1219 Perez St. in the 78207 zip code is another example of one of our more affordable homes. This area is being revitalized,  but homes are still less expensive here than north of downtown.

It was bought for $29,000 cash by the investor, and resold with owner financing for $55,000. Only $7000 in rehab was done, leveled foundation, painted floor, painted in and out. No more than that should be done as it isn’t necessary for resale. Terms:

  • $5000 down
  • $550 per month
  • 10% interest
  • No prepayment penalty
  • No balloon
  • Final price: $55,000
  • 12% ROI

More Pictures After Rehab:

new kitchen new LR new room 2

Interested in Investing? Key Points –

  • $50-70k cash wholesale properties – mostly sold to California cash buyers
  • We qualify end owner finance buyers on job history and documented income per Dodd Frank rules.
  • All owner finance prices are FMV.
  • Typical terms – 30 year note, 10% int., $5000 down payment – varies depending on exact deal
  • Low foreclosure rate – resell to new buyer if needed
  • 10-13% ROI is typical return
  • 1-3 months to locate quality owner finance buyer
  • Tax/insurance payments are escrowed
  • 5-10k rehab, no long term property maintenance
  • We have completed over 1,000 of these deals
  • Contact us to learn more

Case Study – 2923 Colima Ave.

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 homes. 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%

Note: The final price for the owner finance buyer is FMV and DOES NOT constitute ‘predatory lending,’ which is illegal per Dodd Frank regulations. Sold comps in the neighborhood on properties of similar size, age and condition are approximately $39,900 to $49,900 – if elec and water work and roof is not leaking.

A CMA was run on similar houses within a two mile radius. Max value in that area for similar houses is $99,900 for an immaculate property that has been updated.

More Pictures:

WP_20150131_006 WP_20150131_011 WP_20150131_012 WP_20150131_013

 

Interested in Investing? Key Points –

  • $50-70k cash wholesale properties – mostly sold to California cash buyers
  • We qualify end owner finance buyers on job history and documented income per Dodd Frank rules.
  • All owner finance prices are FMV.
  • Typical terms – 30 year note, 10% int., $5000 down payment – varies depending on exact deal
  • Low foreclosure rate – resell to new buyer if needed
  • 10-13% ROI is typical return
  • 1-3 months to locate quality owner finance buyer
  • Tax/insurance payments are escrowed
  • 5-10k rehab, no long term property maintenance
  • We have completed over 1,000 of these deals
  • Contact us to learn more

Case Study – 3711 Southport Dr.

Front
$49,900 cash purchase, $11,000 in rehab, 90 DOM, sold for $89,900 owner finance, 13.8% ROI.

This property at 3711 Southport Dr., 78223, was purchased by the investor for $49,500 in late 2014. It is on the southside of the city. This was about 30% under FMV.

It is a 3/1 with a one car garage, and was built in 1957.

Central air was added, painted on the inside, and kitchen and bath rehabbed. Total cost: $11,365. Total investor cost was $60,865.

Using our unique owner financing system, this property was resold in four months to owner finance buyer that we found for the investor. The buyer maintains the property.

Terms:

  • $5000 down
  • $895 per month PI/TI
  • 30 year amortization
  • 10% interest
  • No prepayment penalty
  • No balloon
  • Final price: $89,900 (FMV)
  • ROI: 13.8%

More Pictures After Rehab:

lr 2 light kitch bath2 halls 2

Interested in Investing? Key Points –

  • $50-70k cash wholesale properties – mostly sold to California cash buyers
  • We qualify end owner finance buyers on job history and documented income per Dodd Frank rules.
  • All owner finance prices are FMV.
  • Typical terms – 30 year note, 10% int., $5000 down payment – varies depending on exact deal
  • Low foreclosure rate – resell to new buyer if needed
  • 10-13% ROI is typical return
  • 1-3 months to locate quality owner finance buyer
  • Tax/insurance payments are escrowed
  • 5-10k rehab, no long term property maintenance
  • We have completed over 1,000 of these deals
  • Contact us to learn more

Case Study: 604 West Hollywood Ave.

hollywood
Before Rehab – $51,000 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.

This house at 604 West Hollywood 78212 is in Beacon Hill, which is a rapidly appreciating area north of downtown by 2-3 miles. It was bought for $51,000 cash in October 2013 by the investor. It was very run down. Today it is worth $125,000 and mostly rehabbed, but not by the investor — by the end buyer. Terms:

  • $51,000 cash purchase
  • $80,000 owner finance price
  • Zero rehab by investor
  • $806 per month
  • 14% ROI

More Pictures After Rehab:

20140403_080937 20140727_134826 20140819_153126 20141017_121747 - Copy holl bath rev

Interested in Investing? Key Points –

  • $50-70k cash wholesale properties – mostly sold to California cash buyers
  • We qualify end owner finance buyers on job history and documented income per Dodd Frank rules.
  • All owner finance prices are FMV.
  • Typical terms – 30 year note, 10% int., $5000 down payment – varies depending on exact deal
  • Low foreclosure rate – resell to new buyer if needed
  • 10-13% ROI is typical return
  • 1-3 months to locate quality owner finance buyer
  • Tax/insurance payments are escrowed
  • 5-10k rehab, no long term property maintenance
  • We have completed over 1,000 of these deals
  • Contact us to learn more

Case Study – 1629 Santa Anna St.

l20b61845-m0xd-w640_h480_q80
$62,000 cash purchase, $10,000 rehab, 50 DOM, sold for $89,900 owner finance, $937 per month, 12.3% ROI.

This 3 BR 1.5 bath affordable home north of downtown San Antonio TX is in a heavily revitalizing area. It was bought by the investor for $62,000.

It only needed approximately $10,000 of rehab, including new flooring, paint in and out, and minor foundation work.

The total project cost to the investor was $72,000.

Within 50 days of the completion of rehab, it was sold with owner financing with the following terms:

  • $5000 down
  • $89,900 final price
  • 10% interest
  • 30 year note
  • $937/month PITI
  • Cap rate 12.3%

More Pictures After Rehab:

l20b61845-m1xd-w640_h480_q80 l20b61845-m3xd-w640_h480_q80 l20b61845-m7xd-w640_h480_q80 l20b61845-m8xd-w640_h480_q80 l20b61845-m9xd-w640_h480_q80

 

Interested in Investing? Key Points –

  • $50-70k cash wholesale properties – mostly sold to California cash buyers
  • We qualify end owner finance buyers on job history and documented income per Dodd Frank rules.
  • All owner finance prices are FMV.
  • Typical terms – 30 year note, 10% int., $5000 down payment – varies depending on exact deal
  • Low foreclosure rate – resell to new buyer if needed
  • 10-13% ROI is typical return
  • 1-3 months to locate quality owner finance buyer
  • Tax/insurance payments are escrowed
  • 5-10k rehab, no long term property maintenance
  • We have completed over 1,000 of these deals
  • Contact us to learn more

Case Study – 1622 Alametos St.

This property sale was completed in August 2015. The market in San Antonio TX has changed greatly in the last year. The market is booming and prices are up across the board.

new front
$65,000 cash price, $15,000 rehab, resold for $99,900 owner finance, $1041 per month, 7 DOM, 12.9% ROI.

Still, we have CA investors coming into our fine city and buying affordable homes and making 12-13% ROI annually, with no property maintenance.

This property was purchased by a CA cash buyer in July 2015 at 1622 Alametos St. This house is in 78201, and is north of downtown. This region is seeing rapid growth and appreciation.

The investor bought cash, and we completed $10,000 in repairs in 3 weeks:

  • $65,000 cash price
  • $1500 carpet removal and adding wood vinyl in 3 bedrooms
  • $3500 HVAC
  • $750 for third bedroom conversion.
  • $750 for dumpster – clean out
  • $1500 two tone interior paint
  • $500 update five light fixtures
  • $1500 level front bedroom
  • $1500 closing costs

Total Investment: $76,500

Repairs were complete on July 31, 2015 and property was put on MLS. By Aug. 3, we had two full owner finance, price offers as follows:

  • $1041 per month
  • 30 year note
  • 10% interest rate
  • $5000 down payment
  • $99,900 final price
  • $216/mo. taxes/insurance

Investor’s total monthly income after taxes/insurance is $825.

Final ROI: 12.9%

Interested in earning 12-13% ROI with no property management expenses? Contact us now.

After Rehab Additional Pictures:

new door new front room new front new kitch 2 new lr 2 new br new bath new bath 2 new ac

Interested in Investing? Key Points –

  • $50-70k cash wholesale properties – mostly sold to California cash buyers
  • We qualify end owner finance buyers on job history and documented income per Dodd Frank rules.
  • All owner finance prices are FMV.
  • Typical terms – 30 year note, 10% int., $5000 down payment – varies depending on exact deal
  • Low foreclosure rate – resell to new buyer if needed
  • 10-13% ROI is typical return
  • 1-3 months to locate quality owner finance buyer
  • Tax/insurance payments are escrowed
  • 5-10k rehab, no long term property maintenance
  • We have completed over 1,000 of these deals
  • Contact us to learn more