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What Should I Look for In a Wholesaler That Sells Under Market Value Properties?

As a very successful wholesaler of below market value properties in Texas, I know what many under market value property investors are looking for when they buy a property:

ROI and nothing else.

I definitely do understand why below market value property investors buying out of state investment property want to make a good rate of return! Many of my California cash buyers get tired of making 3% returns on their insanely expensive investment properties, so obviously they want to make as high a return as possible.

But as my mascot Teddy says:

teddy roi

Smart boy! 🙂 Currently, my under market value properties in San Antonio TX, we are seeing prices in the $60,000 range with $25,000 to $30,000 in rehab, which nets an annual rate of return of 11-12% typically. Some investors may not think this is enough, but I can tell you this: I was able to financially retire at age 28 by making 10-12% per year on under market value buy and hold investments, and $5000-$10,000 on flips.

Here is a good example of a great below market value property I own:

Front

  • Address: 914 W Hutchins Pl, San Antonio, TX 78221-2513
  • Year Built: 1950
  • Description: Add more Cash Flow properties to your portfolio, large fenced yard with mature tress, 9, 3 beds, 1 bath, 1300 sqft,  Yearly Taxes: $2,000.00, Estimated Yearly Insurance: $700, located south of beautiful downtown, well established neighborhood, parks, and schools, Estimated Repairs: 30-35K, flooring, electrical/plumbing up to code, bath/kitchen update, paint in/out, central HVAC, etc. Max ARV 109K with owner finance.
  • ARV: $119,000-$125,000 with owner finance
  • Cash Price: $59,900 firm.
  • Exit Strategy:Owner Finance with 30K repairs: 5-10K down, $1095 monthly PI/TI, 30 year amortization, 10% interest, Price: 109K; or Rent with 30K rehab: $1095.00; Or paint clean Jazz with 15K in repairs and owner finance for 87K.
    review sold and rental comps.

Now, many under market value investors will look at that return, which is around 11-12% and say, ‘Yeah, that’s pretty good, but I can go to XXXXX and make 15% ROI.’

I understand the sentiment, but if all you care about is ROI with below market value property investing, you could be headed for trouble. I’m sure there are some great $5000 properties that you can buy in Detroit! Good luck with that.

What I have learned in 15 years of buying and selling under market value properties is that there are other factors in play when you buy a property from a wholesaler:

  • How many rehabs have they done in the last 10 years and how long have they been in business?
  • How experienced are they in doing rehabs?
  • How accurate are their rehab numbers?
  • How experienced are they in finding quality tenants and owner finance buyers?
  • Are there ARV numbers accurate and is the house being prices with the market?

Those are just a few things that you should carefully consider besides the rate of return on your under market value property. After all, earning ‘16%’ doesn’t sound so good if you are having constant problems with vacancies, property damages and the rehab costs $30,000 more than was estimated.

A top notch wholesaler is an expert in the neighborhoods in which he works. He has done hundreds of deals and rehabs in those areas and knows exactly what a rehab will cost and how much to spend. He also knows what the house will sell for when it’s all said and done.

My point is that you should consider the experience and quality of the wholesaler you are working with, not just the raw, stated rate of return.

 

 

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How You Can Earn 12% ROI on An Under Market Value Property Without Repairs

Most under market value or wholesale property investors I know buy houses with mortgages and rent them out. I used to heavily purchase under market value properties and rent them out, as well.

However, about 10 years ago, one of my real estate investing mentors pointed something critical out to me: John, you’re in San Antonio TX. You have all these blue collar workers you are renting houses to. Why not just owner finance the under market value property to them and let them do most of the repairs?

Wow, what a great idea, I thought! Most of the time, when you purchase a whole sale under market value investment property, you spend $30,000 or more doing the rehab and then you have to work to find good tenants. And we all know some of the disadvantages of rental properties:

  • Leaking roofs, electrical problems, broken hot water heaters, busted toilets.
  • Damage by tenants
  • Tenants that don’t pay and stay in the property
  • Vacancies
  • Problems with property managers, not to mention the expense

I had all of these problems at one time or another with my 200 rental properties. However, in 2008, I started to convert all of my below market value rental properties to owner financing.

Here’s how I turned my renters into owner finance buyers:

  • I sent each renter a letter asking if they wanted to buy the below market value property.
  • People who wanted to buy it had to send me all of their financial documents so that I could properly qualify them per Dodd Frank rules.
  • People who did not qualify or did not want to buy the property left when their lease was up.
  • Those who wanted to buy the property put $5000 down and agreed to my terms – 10% interest, 30 year note, $600-995 per month PITI.

Once the occupants had bought the properties, they were responsible for all of the maintenance of the under market value whole sale property. I no longer had to be a landlord! What a great deal. Pure passive income every month and no landlording.

If I ever have to foreclose on the below market value property, I’m in TX, and it’s easy to foreclose here – a non-judicial foreclosure state.

And that, my fellow under market value investors, is how you can earn 12% per year on a below market value property and never have to do repairs. That is all I do in my wholesale property business in San Antonio TX now – owner financing. Below is a perfect example of how you can earn a high ROI without maintaining the property:

This distressed 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, even in fixer upper homes.

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 property investment 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%

If you have questions about owner financing property in San Antonio (one of the best cities to invest in real estate) or anywhere else, please contact me.

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How Do I Get Started in Wholesaling Under Market Value Properties?

I’m a wholesaler of under market value properties in San Antonio TX, and I know that many people who want to get started in real estate investing turn to wholesaling.

Many investors do so because they want to save up enough money so that they can start to invest in under market value properties themselves. There are some ways to invest in houses without much money down, but I do not prefer this type of investing. I buy all of my under market value properties in cash. Buying cash real estate is more secure, and I’m not interested in holding mortgages on investment properties.

So What Is Wholesaling Anyway?

Wholesaling below market value properties means that you the investor purchase a distressed property, or get the property under contract, and then sell it, or assign the contract as fast as you can.

I do this several times per month in my below market value wholesale property business in San Antonio. I find the below market value house often in an estate sale, get it under contract, and then I wholesale the under market value property to a cash investor from California. He usually fixes up the house for about $30,000, which I do for him, and then we resell it with owner financing for 12% annual return.

The vital key to wholesaling successfully is finding wholesale properties below market value so that there is still money to be made for the end buyer.

Note: You need to use caution when you are assigning contracts on below market value properties! Some states will consider finding either a buyer or seller as real estate agent duties. It could be considered as the act of a real estate agent when you assign the contract. You do not want to be accused of practicing real estate without your license. Be sure you know your state laws before you engage in wholesaling activities.

I’m a real estate agent in TX, so I don’t have these concerns. Getting your real estate license is a good option if you are going to be a regular under market value real estate investor.

How Do I Find Wholesale Properties?

The key to this whole game is to find under market value properties. Some of the ways that I find good wholesale properties are listed below.

MLS

This is difficult but occasionally I will be able to wholesale a property of the MLS. Most under market value property investors are all over the MLS so it can be hard to get these properties cheap enough to make them work in a wholesale deal. One option here is to just get your real estate license so that you can make commissions off of these MLS deals.

Off market properties wholesaling

– This is where you are going to make most of your money in wholesaling. This means that the person wants to sell their house for a variety of reasons but it is not listed for sale. The owners could be sick, going through job or relationship problems but have not listed the house for sale yet. They just need the right people to find them and make an offer.

There are several options for finding good off market properties in your area:

  • Purchase from good wholesalers: You may find that finding your own wholesale properties can be really tough as there is a lot of competition. But there are some really good and experienced wholesalers out there that you can buy under market value properties from, and still make a good profit. In my case, I always have 10 or more under market value properties for sale. I have more than 15 years of experience with below market value properties, and I know a good deal that both I and the wholesale buyer can make profits from. I make sure that my wholesale buyers always are going to make a good profit of 10% or more so they come back and buy more.
  • Direct marketing: You send postcards, letters, put up bandit signs and put up websites to attempt to get desperate sellers to call you to sell you their under market value property.
  • Drive for dollars: You drive around neighborhoods looking for empty homes that you can get under contract below market vale.
  • Network: You may see many ads where people claim to have off market houses for sale from the banks. Watch out as most banks are not going to sell an individual house unless they use MLS. I use a lot of networking with other wholesalers, agents and investors in San Antonio to find good under market value properties to wholesale.
  • Go to REIA meetings: You may be able to locate other wholesalers and investors with under market value, off market properties at these events.
  • Direct mail: Some wholesalers send out direct mailings and buy under market value properties and off market properties in this way. They will often send out letters to owners who are not living locally and also to owners who inherited the property. I am a real estate agent, and I can also list the house for sale that I cannot buy under market value.
  • Advertise: Many below market value property investors and wholesale property investors advertise for buying houses with bandit signs and billboards.

Becoming a Successful Wholesaler Is Work

I am a wholesaler of below market value properties myself, and finding good properties that both you and the buyer can profit from is tough. But you can make some money by wholesaling properties so that you can raise money to invest in properties yourself.

What About Assigning Contracts?

Every sales contract has a clause that states it may be assigned. This means that anyone can come into the deal and become the buyer without any permission from the seller. So, you the wholesaler can sell the contract to another under market value property investor and not buy the house.

How Do I Find Buyers for Wholesale Properties?

Once you find a good below market value property, you have to find a cash buyer. In most cases, the profit margins on wholesale property deals are slim and you cannot pay a real estate commission. You have to find cash buyers so that you can make money on these wholesale deals. You also need to be able to close fast so that you can assign that contract.

REIA meetings are good ways to find cash buyers. I sometimes check recent property sales in San Antonio to see who has bought houses for cash in my area. I get letters sometimes from other wholesalers who find me because I buy houses for cash every year.

Going to trustee sales, tax sales and auctions are good places to find cash buyers for your wholesale properties.

No doubt, finding cash buyers for wholesale properties is challenging. I find many cash buyers for my wholesale properties in California.

The good news is, when you close a successful wholesale property deal, you can make $2000 or more. If you have any questions about wholesaling below market value properties, please contact me. I have 15 years of experience doing this, and I probably can offer some helpful insights.

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Which Are the Best Texas Cities to Invest in Real Estate?

If you are considering to purchase under market value, out of state investment property, you probably will be considering the state of Texas as a possibility. Texas generally offers some great benefits for out of state property investors and has some of the best cities to invest in real estate.

Forbes recently recognized Texas as a great place to buy under market value investment properties. In fact, FOUR of its Top 10 Best Buy Cities in 2015 for real estate were in Texas. Forbes analyzed more than 300 housing markets and Texas turned out to be a great place to invest in real estate. Let’s take a look at each one:

#1 Austin

Forbes rated Austin #1 in its Top 10 Best Cities to Invest in for 2015 with its impressive population growth of 8.9% and job growth of 3.6%, which is far better than the national average of 2%.

Milken Institute’s Growth Comparison for Austin, 2nd Best-Performing City in US in 2014

austin

More figures about Austin to consider for out of state property investors:

  • MSA is Austin/Round Rock TX
  • Population is 1.8 million
  • Average home price is $261,000
  • Population growth from 2010-13 was 8.9%
  • Job growth annually is 3.6%
  • Unemployment is 4.2%
  • Home price to rent ratio is 19

Of course all this growth is driving housing prices higher. Austin house prices are 8% over the typical income for the region. But under market value investors  should take heart because the higher house prices in this area are due the demand, not a housing bubble and over inflation.

Austin is not reliant upon energy for most of its economy so the oil crash should not be a major factor here.

#3 Houston

MSA is Houston-Bayton-Sugarland TX. As is the case in Texas generally, Houston has a business friendly environment, no state income tax for people or corporations and a very educated population.

Houston investors made gross returns of 18% in 2015.

Houston also has strong growth in jobs, a booming population and low housing prices. The average price here currently is $214,000. Some experts say the housing market in Houston is still undervalued, so if you are looking for under market value property to invest in, you could do well in Houston.

Remember, in every real estate investment market, there is a strong correlation between the price of homes and the median income. When prices go high above that level, the market is overpriced and you will have a hard time finding under market value property that will produce passive income. If houses are under valued, you should feel confident that you will make a solid rate of return with investment property. Houston is a solid out of state property investment option.

Also note that the median age of inventory in 2015 for Houston was only 54 days.

I would watch to see what is going to happen to the Houston market in 2016 as oil prices continue to drop. Houston’s economy has a lot to do with energy exploration. The rental market is driven largely by transient oil and gas workers, so we’ll see how the Houston market responds to lower oil prices this year.

#5 Dallas

MSA is Dallas-Plano-Irving TX. The population of Dallas is growing at at least 6% per year and will continue for the next few years at least. It also has a job growth rate of 3%, and this is being driven by a boom in high tech companies. One of these is One Technologies LP, which is an online credit monitoring service that was ranked in 2014 as the quickest growing private firm in Dallas.

Investors made almost a 20% return here before expenses in 2015, which is due to strong appreciation in prices and high rents.

Under market value property investors should note that 13 privately held corporations worth $1 billion or more are in the Dallas metro area, such as Dean Foods, Exxon Mobil, Kimberly Clark, Neiman Marcus, Southwest Airlines and Texas Instruments.

In 2015, new home closings rose 20% in Dallas from a year earlier.

#6 San Antonio

MSA is San Antonio TX. San Antonio is where I have invested for most of my below market value investment career since 2001. I continue to invest in under market value properties here, rehab them and resell with owner financing. Here’s why I continue to believe that San Antonio is one of the best cities to invest in real estate:

  • Prices are still low, even with the economic boom. The average home price here is $189,000. Even with higher prices, I still buy below market value properties for $50,000, do $25,000 in rehab and sell with owner financing for $99,000. That still makes me an 11% return, which is excellent passive income.
  • Booming economy, with the biggest growth in construction employment from 2014 to 15. Even though oil prices have effectively crashed in the last year, I have no shortage of buyers for my under market value properties. Only 2-3% of our economy depends upon oil and gas. My workers may get laid off from oil work, but they find other blue collar employment.
  • Strong job outlook, with a 3.5% job growth rate in 2015.
  • Growing population – San Antonio is the #9 fastest growing city, according to Forbes. This means strong demand for owner finance and rental properties, and is a great option for out of state property investment.

If you want a good example of how good under market value investment properties can be in San Antonio, here is one:

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 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.

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%
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Why I Chose San Antonio As My Out of State Investment City

Whether you are a new below market value real estate investor or an experienced hand, a very important part of your investing success is to select the best out of state investment property. For many investors, the best place to invest in below market value property is not where they live.

sa

When many of our investors started buying under market value real estate in San Antonio, they had tried to buy in other cities, but found them too expensive.

They chose San Antonio investment properties for these reasons:

  • Incredibly low prices: I could buy under market value houses in San Antonio for $25,000, do $10,000 in rehab, and resell with owner financing for $49,900. That’s an amazing return. Even today, with prices higher, I still can make 11% ROI on these under market value houses with a price of $50,000.
  • Strong economy. Bizjournal.com recently stated that San Antonio had the largest growth in construction employment from 2014 to 2015. This reflects the strong job and population growth that has shown no signs of slowing.
  • Growing population – Forbes has ranked it as the 9th fastest growing city in the US. This of course means there will be strong demand for houses for sale and houses for rent. From 2011-2012, San Antonio’s population grew almost 2%!
  • Strong job outlook: Even though there is less growth than previously because of the slump in oil prices, San Antonio is still leading Texas for job growth as of early 2016. The city job growth rate still is a healthy 3.5%. One of the reasons I chose San Antonio as a city to invest in below market value property is that only 2-3% of its job base is involved in energy production.

Here is a fine example of the type of under market value property I buy in San Antonio:

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 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.

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%

If you choose San Antonio as your out of state investment property location, you will need to find a good Realtor and/or wholesaler to locate quality properties for you. My advice on that is to find a good wholesaler who has been working in the city for more than 10 years and has done several hundred transactions.

The wholesaler will make a 2-3% profit when he sells the under market value house to you, but the best wholesalers will leave you plenty of meat on the bone to make strong passive income. With a good team in place San Antonio is really the best out of state investment city, in my view.

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How I Earn Totally Passive Income With Under Market Value, Owner Financed Properties

I frequently see lots of articles about how ‘passive income isn’t as passive as you think’ related to real estate investing. Here is a good example.

The author points out how often investing in under market value investment properties is not as passive as one might think. She does make some great points about the problems with managing under market value rental properties:

  • You have to deal with random phone calls about the roof leaking or the toilet being stopped up in your below market value rental property.
  • You need to check up on your rental properties for regular maintenance issues that if left untended, can cause you major repair issues (such as a leaking gutter).
  • Looking for new tenants every year
  • Even if you hire a property manager, you still will have to deal with extra expenses, problem renters, maintenance problems, and yes, dealing with problems with property managers.

As a big investor in under market value properties in Texas, I am very familiar with the problems of renting out properties. At one time, I owned and managed more than 200 rental properties. There are no problems with under market value rental properties that I haven’t seen!

l20b61845-m0xd-w640_h480_q80

That’s why I converted all of my below market value rentals to owner finance properties about five years ago. On my  San Antonio Texas investment properties now, I am ‘the bank’ to the occupants of the houses.

On each of those 200 San Antonio Texas investment properties,  I executed a promissory note for the qualified occupant at 10% interest, 30 year term, no pre-payment penalty if they want to refinance. My buyers send me electronic mortgage payments each month.

This type of under market value property investing has several advantages over rental properties, especially as an out of state investment property:

  • Truly passive income. I never have to worry about a single repair on any property that I own. My buyers maintain the properties as they are buying them from me on terms. Most of my San Antonio buyers are blue collar workers, so they have the skills to keep up the houses.
  • No vacancy concerns. Most under market value property investors have to worry about vacancies every year. Not me. As long as my buyers pay on time, I never have to worry about getting another occupant in the house. If I have to foreclose, the house is vacated in 60 days and I resell it. I have resold some houses three time.
  • No phone calls. My occupants ‘own’ the under market value houses, so I just hold the note.
  • I can sell the note on the below market value property if I need cash. Many people do not know this about owner financing. If you do not want to carry a long term debt instrument, you always can resell it on the open market.

Short summary: Owner financing under market value properties is a fantastic passive income instrument. It is especially suitable for out of state investment property seekers. Imagine being able to count on monthly passive income without being a landlord! That’s exactly what you have with owner financing.

 

 

 

 

 

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Should I Pay for a Real Estate Investing Coach?

Key Takeaways

This article appears on Inman News.

  • Many times, the first free class offered by an investing coach is just to lure you into more classes.
  • It’s better to find an investor who has been in the business for a decade or more and has done 500 or more deals.
  • You must study the market constantly and stick to your niche.

Many beginners in real estate investing in under market value properties are lured into hiring a real estate coach or guru who promises to teach them how to be a successful investor — for a price.

Most often, these real estate coaches or gurus offer a lower-cost first seminar about flipping houses, which is just selling the next part of the program — the full real estate coaching system that might cost $10,000, $20,000 or more.

Is one of these real estate coaching programs worth it? Generally, beginning investors should use caution when paying thousands of dollars for any type of coaching or guru program. In my view, much of that money would be better spent on buying a good under market value, out of state investment property!

The bottom line on these programs is that a lot more goes into being a successful real estate investor than learning a slick system from an expert.
A lot more goes into being a successful RE investor than learning a slick system from an expert.

These real estate investing coaching programs don’t usually teach you the truth of real estate investing:

  • Becoming successful in this business takes a lot of work — a lot of work.
  • Most aspiring real estate investors never even do a below market value deal, let alone make any money at it.
  • A huge part of being a successful long-term investor comes from developing a stellar reputation in your market.
  • Being successful in investing comes from establishing a proven team of real estate professionals at affordable prices, including rehabbers, closers, agents, title companies and more.
  • The vast majority of successful investors are experts in their local area, and that takes years of work in under market value properties.

None of the above can be taught in a five or 10 day class by a real estate investing coach.
How I became a successful investor

I have developed a successful investing system of owner financing in Texas that allowed me to financially retire at a young age. I did gain much knowledge and support from free mentors in real estate, but I never paid any coach to teach me anything.

Over the years, I have spent thousands of hours studying my local real estate market. I know exactly what is going on in my zip codes, such as 78201, 78210 and 78207. My knowledge means I know exactly how much to pay for a house and how much to rehab it. That knowledge takes years to develop in the best cities to invest in real estate.

My reputation in my town also took a long time to nurture. People know who I am because I close fast on deals — in 10 days or less — with cash. The best deals often find me because I have spent years becoming a respected expert in distressed houses in my city, and I always do what I say I am going to do.

I discuss my success only to point out that getting to this level took a lot of work, and didn’t come through paying a coach or guru a wad of money to teach me the secrets of investing.
Tips to succeed in real estate investing

Here are a few tips to help you succeed at real estate investing:

  • Partner with an experienced investor to teach you the ropes in your city. Offer to help him or her with business to learn how to become successful. You should never pay someone to teach you.
  • Ask your investor friends who taught them to be successful.
  • Focus on a niche. There are many ways to succeed, and fail, in real estate investing. Focus on one or two areas of real estate investing and never deviate. My niche is owner-financed houses from $60,000 to $100,000. That is the only type of property I buy and sell.
  • If you are in an expensive area, consider buying an out of state investment property in a cheaper area with a team you totally trust.
  • Find a free mentor who has done at least 500 deals and been in business more than 10 years. Those are the people who can teach you what you need to know — but don’t pay for it.

So in summation: no, don’t hire a real estate investing coach. It’s likely that your money is more valuable to that coach than any knowledge he or she might impart upon you.

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What Are Some Considerations When Buying Under Market Value Property?

As an experienced under market value property investor in San Antonio, I love to get a great bargain. Of course, just because the house is being sold below market value does not mean it is a great buy.

When I find a potential under market value property that I may buy, I keep in mind why people usually sell houses for less than they are worth:

  • The under market value property needs a lot of rehab. This is usually one of the reasons the property is being sold so inexpensively. Most of the houses that I buy under market value need at least $20,000 in repairs. Buying below market value property that needs rehab is fine, as long as you are able to do the work cost effectively. I own a construction company, so I can usually do the $40,000 rehab for a fraction of that amount.
  • Divorce – people split up and will sell a house for less than it is worth.
  • Foreclosure – Mortgage companies may repossess a property and will often sell the properties at auctions. I always advise new under market value property investors to be wary of auctions. Many of the buyers at these events are retail buyers, and they will drive up the price on that below market value property. If you pay too much, you will never make any positive cash flow.
  • Estate sales – I get most of my below market value properties through estate sales. Usually there are several heirs and they are willing to accept a low price to just get the house sold. Of course, my offer on the below market value property takes into consideration the repairs that must be performed.
Front
An under market value property before my rehab.
20151215_145743
After rehab – being sold for $119,900.

When you are considering buying an under market value, out of state investment property, be certain that you do very careful due diligence. Newer investors routinely pay too much and under estimate expenses. So long, cash flow!

Remember:

  • Do a careful personal inspection of the under market value property, and look around the neighborhood as well. Check the condition of most of the other houses around it. Is it the ugliest house in the neighborhood? It could be expensive to rehab to get it up to par.
  • Check comps for houses that have sold in the area in the last six months. The best way to do this is to have a real estate agent investor who can help you compare house values. I’m a real estate agent myself so checking comps is easy.
  • Check the rental and mortgage prices in the area of the below market value property. Your real estate agent can run rental comps in the MLS. Personally, I do owner finance on my under market value properties, and I try to keep the monthly payment around the rents in that area.
  • Get a really good idea of what the rehab expenses will be. I have seen so many investors lose money because the costs of rehabbing the property doubled.
  • If you are concerned about the expenses of owning rental property, consider owner financing your under market value investment properties like I do. This is an especially good move for an under market value investor who wants an out of state investment property.  You have no worries about expenses as your buyer take care of the asset.

Also be certain to research which city you are going to invest in. Some of the best cities to invest in real estate include Kansas City, Indianapolis, San Antonio, and Charlotte.

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Why San Antonio Is One of The Best Cities to Invest in Real Estate

I first came to San Antonio as an under market value property investor years ago. Buying inexpensive, below market value investment property has enabled me to live a great, rewarding life.  I have been able to make a good income and I continue to invest in under market value property today, which helps to revitalize San Antonio, one of the best cities to invest in real estate. In fact, I know many investors who used to buy only California investment property who now buy here.

Overall, San Antonio is one of the best cities to invest in real estate because of:

  • A rapidly growing population attracted to San Antonio and Texas low tax, pro business environment
  • Strong job growth even in down real estate markets. Even in the big downturn in 2008, San Antonio unemployment never went above 7% and now is down under 5%.
  • Diverse job base. San Antonio is not just about gas and oil. We also have a lot of manufacturing jobs, including Toyota, high tech employment and military bases.
  • Large population of hardworking blue collar workers, which drivers demand for owner finance properties and rental properties.

Coming into 2016, experts think that we will eclipse total home sales in 2015, which was 24,948, according to the San Antonio Board of Realtors.

sabor

Those three key drivers of home purchases – growth in jobs, steady mortgage prices and increasing home value, are not showing any signs of slowing in San Antonio real estate.

In fact, we actually are seeing not enough new homes being built to meet the demand. This is good news for the out of state investment property buyer – it increases demand and prices for our under market value investment properties!

I can definitely tell you that this is true about San Antonio real estate: My below market value investment properties that were $40,000 two years ago are now $60,000, and I usually sell my owner finance houses in under 60 days. Still, my many out of state investment property buyers earn 12% ROI on these under market value houses. Anyone considering, say, California investment property, would be happy with these numbers.

As of now, the median home price in San Antonio, one of the best cities to invest in real estate, is up 6.8% from 2014, but still is only $192,000. Try to buy a house for $192,000 in California!

My best guess is that property values will continue to climb in San Antonio for at least two more years. It is a great time to buy San Antonio investment properties!

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5 Reasons I Like Owner Finance Investment Properties Better Than Rental Investment Properties

I’m a 21 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.

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!):

  1. 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.
  2. Owner financed investment property has a very good rate of return because you have no maintenance costs.
  3. 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.
  4. 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.
  5. 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:

edison front

  • 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.