I have been wholesaling and investing in under market value properties in San Antonio since 2001. I have been very successful because I have avoided some of the most common mistakes that many San Antonio property wholesalers make:
Having no emergency cash: I have been successful enough with San Antonio investment properties that I have plenty of cash when I need it. The problem that some beginning wholesalers have is that they don’t have much money. It’s nice to be able to wholesale properties because you don’t always need to have a lot of capital to make money. However, if you do not get the house sold, you have to buy the house. In my case, I am able to buy the house myself if it does not sell, and then I usually mark it up and make at least $5000 when I sell it eventually.
Not having a good buyer’s list: Many wholesalers in San Antonio real estate investing struggle to develop a good buyer’s list because it’s hard to find cash buyers. It takes a lot of work and networking. You should never wait until the property is under contract until you find cash buyers. Finding cash buyers is an ongoing process that you should always be doing. I am always looking for cash buyers everywhere I go, and I also market heavily on Craigslist and through my website for cash buyers. I have found many good out of state investment property investors this way.
Remember the needs of the buyers. It is easy to get too focused on your assignment fee as a San Antonio real estate investor. If the price of the house is too high, the end buyer may feel there is no money to be made. I am very good at negotiating a low price and getting the rehab numbers very close to reality. I also can recommend one of my excellent, inexpensive crews to rehab the San Antonio wholesale property to make sure that the investor is happy with his profit.
Check the house carefully. Either pay to have it inspected or be really good at inspecting houses yourself. If you end up putting a house under contract with very expensive, unknown problems, you could end up losing your rear.
Paying too high a price: Buying and selling under market value properties is fun and it is easy to lose track of the bottom line. If you pay too much money, you will never be able to turn a profit.
Crunch numbers: Before you buy or put a wholesale property under contract, you have to know that it is worth it. I am now a real estate agent so I am able to run my own comps and determine my ARV. So, you figure 70% of the ARV, minus your profit, and that is the highest price you can pay. Do not pay more than that or you will lose money.
Bad pricing: If you do not get any offers on your property after a month, you may have priced it too high.
By avoiding those common problems with San Antonio wholesale property, I have been very successful in my investing career.
I have long advocated investing in under market value properties in cash, rather than investing in the stock market. I once had nearly $100,000 invested in the stock market, and lost almost half of it during the crash after 9/11.
As soon as that happened, I pulled my money out of the stock market, moved to Texas, and began to invest in San Antonio investment properties.
My under market value strategy is as follows:
Buy a house in cash for $25,000.
Perform $25,000 or so in rehab.
Resell with owner financing at 10% interest, at a price of $79,000 or so.
Typical rate of return is 14-16% per year, with no maintenance costs.
What do you think, investors? Does making 14% per year steadily sound like a good proposition? Can you do that in the stock market every year for 10 years or more? And can you enjoy regular cash flow from your stock market portfolio? Many investors only realize their gains if they cash out – if the market does not tank and they lose half of their portfolio as I did!
My distressed properties may look like a risky investment, but looks can be deceiving! When you invest all cash in a piece of real estate property, you do not have a mortgage. And, when you owner finance the property, you get steady real estate cash flow each month, and you do not need to do landlording repairs either.
Here in San Antonio, my below market value properties always make a steady rate of return no matter what the larger economy is doing.
How to Invest in Real Estate with a Self-Directed IRA
I always buy my houses in cash, but many investors have cash in their IRA and they want to learn how to invest in real estate with IRA. This can be a great strategy, if you buy the right kind of real estate. More investors than ever are deciding to invest in real estate with self directed IRA – Kiplinger’s says that there has been an 82% increase in the purchase of real estate investments from inside an IRA.
But, funny, many people with IRAs still do not realize that they can invest in real estate. The ERISA statute only states that IRAs cannot be invested in collectibles, some precious metals and life insurance. But other than that, you can invest in almost anything you want.
Investing in real estate with a self directed IRA is still a rather ‘niche’ business. As of 2012, there was about $95 billion in self directed IRAs. But many investors in the middle class are now getting in on the act.
There are some things to keep in mind if you want to invest in real estate with an IRA:
No self dealing: This is where the IRA owner cannot invest in something that benefits themselves certain members of their family. If you make this mistake, the entire IRA could be taxed!
You cannot mingle non retirement funds and your IRA funds. So, if you buy one of my houses for $25,000 cash, you cannot write a check from your personal bank account that your IRA is going to purchase. The money must be in your self directed IRA.
Note that you cannot deduct expenses of owning real estate from inside your IRA. However, your real estate cash flow will collect over time tax deferred. Personally, all I care about is cash flow, not deductions, but your preferences may differ.
If you rent out the property, all expenses must be paid from your IRA, but with owner financed properties, which is what I do, this is not an issue.
Note that the custodian for your self-directed IRA cannot give you any advice about the investment in real estate. They just take directions from you, the real estate investor.
Also note that the title to all assets in your IRA are vested in the name of your custodian, for the benefit of your IRA. All proceeds from asset sales or any real estate cash flow must go back into your IRA. You can set up an LLC if you like, but some experts say it is not necessary.
An IRA is actually a trust and it has its own set of rules and protection of assets.
In the end, investing in real estate with an IRA can be a great choice for retirement….if you invest in the right sort of under market value properties.
Many of my cash buyers who used to invest in California investment property, San Francisco investment property, San Diego investment property and Los Angeles investment property now invest in San Antonio investment properties using their IRAs. Imagine – earn 14-15% ROI every single year with your self-directed IRA, and never have to repair a house! That’s what my investing system in San Antonio investment properties offers.
I buy and sell wholesale properties in San Antonio TX every week that most investors say I should have just torn down. ‘Why would anybody buy an out of state investment property that looks like THAT?’
LOL! I have made millions of dollars in my 15 year, under market value property investing career, and most of it was on cheap, ‘junk’ houses selling for well below market value. Ugly houses that typical investors run screaming from.
I own dozens of previously ‘junk’ houses that I bought under market value that looked very rough, such as the distressed property you see below for real estate cash flow.
Take a hard look at that photo. Does that photo make you want to run away and hide? If so, sorry, but you are making a serious mistake. You can purchase under market value properties just like that one for $29,900. Then, you do not rent it.
No. Instead, you owner finance it to a blue collar, hard working buyer that we qualify for you. As long as the buyer can prove they are working steadily and have $5000 down payment, they can buy this house.
Here is where it gets even better for the below market value property investor: You can often sell a house such as the one below AS IS to an owner finance buyer. You might spend $1000 or $2000 to clean it up, but other than that, you often can sell the house as is.
So, if you buy ‘junk’ houses such as the one below for $29,900 and do no repairs, and then owner finance it for about $49,900, $500 per month. You can enjoy at least 12% ROI and never do any repairs! Not bad for excellent real estate cash flow.
Or, do $30k in rehab and resell it for $5000 down, $895 per month, $89,900 final price.
Either way, you are making an outstanding rate of return on an under market value investment property that most investors foolishly avoid.
If you want to get really wealthy with an out of state investment property, buy a dozen or more of these little, ‘junk’ distressed, San Antonio investment properties and owner finance them as I did. You will get $500 to $600 per month on each if you do no repairs, or $800 to $900 per month if you do the rehab. It’s up to you!
Address: 228 Yucca, San Antonio, Texas 78207
Year Built: 1950
Description: Booming San Antonio Market, very popular location west of downtown, this is a 2/1 that has a lot of potential, perfect for a young family. This is a great location and wholesale property, only a few minutes west of downtown and the Riverwalk. Property sits on a beautiful large lot, plenty of room for growth or a wonderful playground and garden.
Max After Repair Value: $89,900
Cash Price: $29,900 firm.
Exit Strategy: Owner Finance with 35K repairs: 5-10k down, $895 monthly P/I, or owner finance as is, $500 per month, 30 year amortization, 10% interest, Price: 89.9K, can sell note after 1 year; or rent: $900 monthly with 38K in repairs.
Notes: We recommend that you owner finance this house because you will have no maintenance expenses.
The majority of my buyers for real estate cash flow are former buyers of California investment property, San Francisco investment property, Los Angeles investment property and San Diego investment property. San Antonio investment properties are hard to beat for cash flow and low cost, especially when you do not have to do maintenance on them.
But remember, this is seller financed property, not a rental property.
Buying under market value properties can be a wonderful investment, whether you decide to rent them out or owner finance them (as I do in my 100+ property portfolio).
Of course, the major advantage of buying under market value properties is the cash flow that they generate each month. On my below market value properties in San Antonio TX, I earn approximately $700 per month on my owner financed properties owned in cash. Here is an example:
This under market value 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 on this below market value property, and we completed $10,000 in repairs in 3 weeks:
$65,000 cash price
$1500 carpet removal and adding wood vinyl in 3 bedrooms
$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
Investor’s total monthly income after taxes/insurance is $825.
Final ROI: 12.9%
Now that is some nice passive cash flow, isn’t it?
Many under market value investors are not able to find good properties with cash flow in their home markets. So, they may be looking outside of their home market at out of state investment properties.
But where should you buy your under market value properties in another state? Hopefully I can shed some light on that key question here.
I have been fortunate that I do not need to consider buying out of state investment property because my returns in San Antonio TX are still over 11% per year, even with housing prices up a lot in the last year. Two years ago, a typical below market value property I bought was $40,000, now it is more around $55,000.
I continue to invest here in San Antonio, one of the best cities to invest in real estate, because the return is good and I have many advantages:
I have a real estate license in TX, which saves me big when I buy under market value properties.
I have a large network of contractors, fellow investors, lenders, agents, title companies etc.
I know my neighborhoods very well, which means I know how much to pay for a house and how much to resell it for. I also know how much to rehab a house without overspending.
But if you are an out of state investor looking for best cities to invest in real estate, what should you consider?
Before you start to look for out of state investment properties, I suggest that you increase the area that you are looking for under market value properties in your home state. If you only need to drive 90 minutes to find a good area to buy under market value properties, then that might have more appeal than looking 1000 miles away. If you are a California investor, this may not work for you though.
If you cannot invest in under market value property near you, think about areas that you know. Did you grow up in another state? Do you have any family or friends in a good state you can buy out of state investment property? The better you know that area, the easier it is to find below market value properties in decent areas.
If you cannot find a good out of state investment property where you know people, do you have time to research a new market? It is usually a good idea to visit a new investment property area and you can have a bit of a vacation while yo do so.
Look at lists online for the best places to buy under market value properties this year. You can find excellent resources online that tell you the cities with the best rent to value ratios. I personally prefer to owner finance my properties and not rent them, however.
How to Know If An Area Will Be a Good Under Market Value Investment
Once you have located a good potential below market value investment market, you want to know if you will be able to produce good cash flow. You want to make sure that the economy is strong and stable above all else. Getting the cheapest real estate is NOT the only consideration!
Is the population growing or shrinking? A growing population is a very good sign of a strong job market. Here in Texas, we are seeing major population and job growth as of 2016, even with lower oil prices.
Are housing prices going up or down? If housing prices are dropping, this is not always bad. During the 2008 crash, the values of under market value properties in San Antonio dropped, and it was awesome! I could buy houses for $30,000 again, and I did – more than 25 of them. However, if housing prices are crashing and the population is leaving, this could be trouble.
What kind of risk is in the area? Is it a part of the country that has a lot of tornadoes or floods? Are there crazy swings in housing prices? In San Antonio, we are pretty steady here. The market didn’t go too high in the boom, so didn’t fall that far in the crash.
What about property taxes? We have no state income tax here in TX but we have higher property taxes. Still, I’ve managed to financially retire at 28 years old with my owner finance portfolio of under market value houses.
If you are thinking about buying out of state investment property after you investigate the local market, you will need to have a good team to rely on in that area.
One way to minimize problems with property management in an out of state market is to owner finance your properties rather than rent them out. You can have a buyer live in your house and pay you mortgage payments each month. The buyer maintains the house, and if they don’t pay, you foreclose just as a bank would. This can work very well in Texas, which is an easy foreclosure state.
In summary, there are many excellent below market value property markets to invest in. Just because you don’t live in one does not mean you can’t invest. If you are thinking about investing in another area for under market value property and have questions, contact me and I’ll try to help.
I’m a 15 year expert in San Antonio investment properties, and for the first eight years, I mostly did rental investment properties. However, during the market crash of 2008, I converted most of my under market value properties to owner finance investment properties.
That was a great decision! Today I am a financially retired owner finance investment property owner ((San Antonio – one of the best cities to invest in real estate). I have found that owning owner finance investment properties is generally better than rental properties.
Teddy, our site’s mascot, agrees with me :):
If you are not very familiar with owner financing properties, sorry! I’ll explain:
Some people want to buy a home rather than rent, but they lack the credit to get a traditional loan. One option the under market value property investor has is to ‘be the bank.’ That is, you the under market value property owner can write a mortgage yourself to your home’s occupant.
The same terms apply as when you get a mortgage from a bank. Payments are made over time with an interest charge, taxes and insurance must be escrowed.
In my under market value properties with owner financing, I charge 10% interest, 30 year term. My buyers may refinance when they like.
Here are some of the advantages of owner financing for the below market value property investor (pay attention, out of state investment property searchers!):
Owner financed investment property can sell very quickly to your buyer. There is no bank involved, so after you do your due diligence on the buyer and get their down payment, you can go to closing right away. Once I have the buyers’ proof of income, I usually close on my owner finance investment properties in two weeks.
Owner financed investment property has a very good rate of return because you have no maintenance costs.
Owner finance investment property has a lot of peace of mind because I do not worry about what the next repair on the house will cost me.
In Texas, owner finance investment property is easy to foreclose on. If the buyer defaults, I repossess the house in 60 days and resell it.
Owner finance investment property is very attractive as an out of state investment property, because you are not a landlord. You just collect your monthly payment from your buyer electronically each month. It is great passive cash flow for the out of state investor.
The above advantages of owner finance investment property have made me quite wealthy at the young age of 38. I strongly advise all under market value property investors to consider owner financing instead of renting.
Now, if you are an out of state property investor, you might wonder, what would this mean for me? Well, let’s take a look at this San Antonio under market value property:
Address: 2229 W Hermosa Dr. San Antonio, TX 78201
Year Built: 1948
Description: Below market value property sale, 2 beds 1 bath, 769 sqft, lot size: .14 acres yearly taxes: estimated repairs: 35K (convert to 3 BR).
Max After Repair Value: $129,000.00.
Cash Price: $69,900.
Your cash outlay for this under market value investment property would be $105,000. The rate of return for an owner finance investment property here would be ~11%. Your monthly income would be $900 per month after you pay taxes and insurance.
You have no other expenses.
Meanwhile, if you rent this property, you will also net approximately $900 per month, but you will also have a property management fee of approximately $95 per month, plus repair expenses of $500 to $1000 per year. Your ROI will drop to approximately 10%.
Of course, some under market value property investors buy Texas investment properties to enjoy depreciation and writing off expenses for tax purposes, and there is nothing wrong with that! Personally, I prefer the pure passive cash flow from owner financing investment properties.
If you are an investor or possible investor in California, you probably know the answer to that question! Many of my out of state investors in California cannot believe the sky high cost of investment properties in many of the high population areas of California, such as San Francisco, Los Angeles and San Diego. Great places to live, but for positive cash flow investing? Not so much! California investment property is very expensive.
If you are thinking about buying an out of state investment property for passive income, here is a good simple guide that can help:
How to Select Your Out of State Investing Market for Passive Income
Where you are going to invest in under market value properties depends on your real estate investing goals. Are you a flipper or a buy and hold investor? If you hang around my site long, you’ll learn I retired early with buy and hold investment properties that are owner financed. I’m a big believer in buy and hold long term cash flow – that is how I financially retired at just 28 in San Antonio – one of the best cities to invest in real estate, in my humble opinion.
Anyway, a good buy and hold market for passive income might not be the best flipping market. Here in San Antonio TX, flipping has gotten tough as the economy is booming as of January 2016; it’s hard for flippers to get properties cheap enough to make a good profit. For buy and hold investing though, I still make 10-12% per year, or $500-$700 per month in positive cash flow.
As you think about where to buy out of state investment property and under market value properties, consider:
State law: Is the state friendly to property owners? You want to invest in a state that makes it easy to evict tenants or to foreclose. State that are tenant friendly, such as CA, make it so hard to evict or foreclose, you could lose your shirt.
Price to rent: What does rent cost compared to the price to buy? In my town, it’s 16.90, while in San Francisco it’s 30.05. Whoa! No wonder so many CA investors are investing in out of state investment properties.
These are not all the factors to consider when you are buying an out of state investment property instead of California investment property, but if those three areas look favorable, you probably could do well in that market and financially retire early as I did, in one of the best cities to invest in real estate. San Antonio investment property is excellent for cash flow.
Ok…..so let’s take a quick break from the investing talk. Time for a picture of our TexasCashFlow.com mascot – Teddy!
Ok, back to the program!
How To Find Out Of State Investment Properties and Under Market Value Properties
Now that you know which market to buy your below market value investment properties, how are you going to locate that house? Most investors I know do it two ways:
They find a good real estate agent investor who is hooked up with excellent contractors, property inspectors, title company, real estate attorneys.
They find a good turnkey property provider. The house has been totally rehabbed and usually has tenants or buyers in place.
Which of these routes you go with will depend upon your investing goals again. Some out of state property investors want to have absolutely no headaches or management worries, so they just buy turnkey properties. Other out of state investors think that method is too expensive, so they manage their own rehabs and property management.
If you decide to find your own below market value properties in your chosen market, here’s what you’re looking at:
Buying Below Market Property Yourself
You’ll get the house at a low price
High cap rate or ROI
The house will not be producing income during the rehab and the time it takes to find a renter or an owner finance buyer
Rehab costs could shoot up if you don’t have reliable partners
Harder to manage the rehab and management from a distance
Difficulty in controlling material costs
Buying Turnkey Property
Tenant or buyer may already be in place
No work for you
Cost of material more predictable and stable
You know the quality of work you will get
Whole investment team is in place
Higher initial cost
Lower ROI or cap rate
How big a difference are we looking at between buying a run down under market value house and buying a turnkey? Let’s take a look:
Run down property: Estate sale, $30k purchase, $30k in rehab – will produce 13% ROI with owner financing or renting.
Turnkey property: $80k purchase price, no repairs, will produce 9-10% ROI with owner financing or renting.
So which will it be? Most people would say you obviously go for the better ROI with the under market value property you do yourself. But remember, you are going to have to do a heck of a lot more work – at a distance – with the fixer upper property. A turnkey property will earn lower ROI, but it a lot less stress. At the very least, you might consider a good turnkey property if you are a beginner in real estate investing. That way, you can make some good positive cash flow as you develop your own investment property team.
It all boils down to how you look at investing in real estate. Investing by definition means using something to get some type of return. You just have to decide if you want to use just your money to get a return, or use your time AND money to get a potentially higher return.
Choose wisely based upon your personal investing goals, and you will hopefully be able to be financially retired on your time table.
Personally, if I were a usual buyer of California investment property, San Francisco investment property, Los Angeles investment property or San Diego investment property, I would strongly consider buying out of state investment property. Investment property is all about real estate cash flow…..it’s something you can rely on year in and year out, unlike hoping for appreciation.
That’s right. If Teddy knows that trading time for money sucks, you should be able to figure it out too. Passive income is the way to go – with under market value properties – at least 20% below market value. Who wants to sit bored in a cubicle or office for most of their working life? It’s a form of slavery, even if you are well paid.
I stopped trading my time for money at a very young age – 23 in fact. That was the year I bought my first under market investment properties in San Antonio (I’m 38 now). I financially retired at 28, in San Antonio, one of the best cities to invest in real estate.
And I probably had it a lot tougher than you do….by this I mean, I didn’t have a lot of capital to start with. I actually had to borrow capital at 8% from a private investor to buy much of my early portfolio in fixer upper houses. Yet I had plenty of passive income in under market value properties within a year of starting.
But a guy or gal like you…..you make $200,000 per year or more out there in California or Washington….you most likely have some capital stored up so that you can buy under market value investment properties, and STOP trading your time for money. This type of out of state investment property is perfect for you. Passive income fast.
Here is a quick plan to stop trading your time for money TODAY. I am going to assume you have some capital to work with (if you don’t, go find some private investors to borrow money from like I did).
If you live in a high cost area, strongly consider buying an out of state investment property.
This under market value investment property is one that I have scouted out carefully in a very hot part of 78201, which is north of down town San Antonio. It is seeing a lot of young professionals moving in and property values are shooting up. There is a good chance you could get a young professional buying this under market value property from you, or a hardworking blue collar family:
Address: 2229 W Hermosa Dr. San Antonio, TX 78201
Year Built: 1948
Description: Distressed property sale, 2 beds 1 bath, 769 sqft, lot size: .14 acres yearly taxes: estimated repairs: 35K (convert to 3 BR).
Max After Repair Value: $129,000.00.
Cash Price: $69,900 firm.
Exit Strategy: Owner finance 10% interest rate, $5000 down, 30 year note, $1100 per month PITI. Plenty of positive cash flow.
10% ROI no maintenance.
Here’s how I was able to financially retire at 28 in one of the best cities to invest in real estate – I bought under market value properties just like these with cash or with borrowed cash. I do $35,000 in rehab (I now have a professional construction company that does this for me – no more getting my hands dirty). Then I resell the house with owner financing to a qualified buyer. What I do is super simple, and yet, so many people cannot see it !
The above out of state investment property will make you $1000-1100 per month, assuming you fund the deal with cash from your $200,000 or whatever job. In time you will be able to financially retire.
That’s it. Buy, rehab, resell, and collect the cash flow. It IS that simple. Lather, rinse and repeat. If I did it, Teddy says you can become financially retired too:
Greetings from San Antonio, TX! It is a lovely, sunny and chilly day in south Texas. I just got back from a construction site on the south of town with my friend Ted:
Teddy is our new Cavalier King Charles Spaniel, one of the friendliest and most loving breeds of dogs around. He’s such a happy little guy and loves to play all day !
Anyway, as I was overseeing this $30,000 rehab (which I am converting from a 2 bedroom to a 3 bedroom), I got to thinking about how far I’ve come since I started in under market value real estate investing in 2001.
I was able through a lot of hard work in San Antonio investment properties to retire financially at the young age of 28. Didn’t have much money, had $40,000 in debt from college. But in a few years’ time, I owned dozens of little bitty single family homes in San Antonio. In cash. I have lots of passive income.
Now my life is awesome :). I have plenty of monthly cash flow coming in from my below market value, owner financed houses. I could have listened to my parents and worked in a cubicle for the next 40 years, but I decided to ignore that. I’m sure glad I did and invested in under market value properties.
But what about you? Many people in America toil for decades in jobs where they are bored and listless….just counting down the days when they can retire.
Man. That. Sucks.
It does not have to be that way. The best way to live is how I am living today – with self determination, choices and autonomy, and passive income. I get to choose how to spend my days. If I wanted to, I could sit on a beach and chill for the next 20 years or whatever. I have that kind of cash flow. But I keep investing in under market value, positive cash flow investments in San Antonio because I love it and I want to help others. Buying and selling distressed properties makes my team money, makes me money, and I help people get into a house.
You too can change your life if you are unhappy with it. In my opinion, one of the best ways to change your life is to invest in San Antonio investment properties. If you do it right, you can within a few years have a substantial cash flow that you don’t have to work for.
How to invest? Well, I personally buy cheap houses below market value in San Antonio TX and seller finance them. I’m not a rental guy, not that there is anything wrong with that. Owner finance is just a lot simpler.
Of course, you need to have cash to do what I do. If you don’t have cash, go borrow some from a private investor. That’s really how I got rolling in 2001 – I was able to borrow $2 million from a private investor over two years. It sounds tough, but really, if you go and ask enough people, you can eventually borrow enough capital at a reasonable interest rate to buy your first house.
Before the market crash, I owned more than 100 rental properties. Like many investors, I once thought that owning rental properties was the only way to make money in real estate investing.
What I found was, I always was dealing with some sort of problem with the distressed property. It didn’t matter that I had property managers. When you own 100 houses, you always have to deal with a repair, a late bill, a vacancy, paperwork and so on.
I also found it was hard to know what my cash flow on each house was each month. Writing checks for new water heaters and fridges gets old fast!
It was around 2009 that one of my mentors talked to me about how he had retired with millions in real estate: He only owner finances his fixer upper homes.
Rather than being a landlord responsible for property upkeep and repairs, there are more efficient ways to generate monthly cash flow.
Be the Bank!
Think about your own house. Each month you send an electronic payment (or check) to your mortgage company or bank. Your bank doesn’t have to maintain the property – you do. Since you are buying the property from the bank on terms, it is naturally to your benefit to maintain the property. The bank knows that statistically, homeowners are much more likely to keep their houses in good repair than renters. That’s what makes holding mortgage notes so attractive.
My mentor taught me that I could be the bank for people who do not have the credit history to qualify for a regular mortgage loan. I carry the loan on the distressed property for 30 years just like the bank, and the new owner of the house simply pays me a mortgage payment each month that includes taxes and insurance.
My mentor told me, why should you spend $10s of thousands on rehabbing a property when you can have the end buyer do most of it? Owner finance investment property is smart.
The end buyer usually has a vested interest in maintaining their property, as they own it.
How a Typical Owner Finance Property Deal Looks:
$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 property investment with positive cash flow north of downtown San Antonio TX is in a heavily revitalizing area. It was bought by the investor for $62,000.
The under market value property 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 for this under market value property was $72,000.
Within 50 days of the completion of rehab, it was sold with owner financing with the following terms:
$89,900 final price
30 year note
$937/month PITI positive cash flow
Cap rate 12.3%
After I converted most of my under market value properties to owner finance, most of my worries about my properties disappeared. The owner maintains it and I simply enjoy the monthly cash flow from each property into my bank account.
Most people don’t seem to ever consider owner financing their property investment, probably because they don’t know about it.
The keys to success in owner finance property are simple:
Carefully documenting the income of the potential buyer and verifying their work history
Follow the Dodd Frank law, which mandates that you must collect proof of their income and document their work history.
You can have a Texas licensed loan originator do this for you for a $750 or so fee (we have one on staff).
The bottom line on owner finance investment property is you enjoy cash flow without maintenance and the buyer enjoys buying their own home at last – a true win-win for everyone.