Tag: cash investor

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Many real estate investors automatically assume that when they buy real estate property, that they need to be a landlord. Why this is, I am not completely sure. I do know that in my previous investing, I too made this faulty assumption. That mistake led me to real estate investing that went from a dream to a nightmare in short order.

Back in Virginia, I was a landlord of two investment properties and an apartment building with 15 apartments. When the economy was ok, the income was ok and we even made some money. However, we were in lower end units, and as soon as the market really went south in 2007 and 2008, we soon ran into problems. I could no longer find good renters, and could no longer afford to make repairs.

I ended up getting renters in these buildings that I did not really want to take. It was essential to keep the mortgages paid and everything running without my eating away my savings. At this sad point in my time as a landlord, I deal with some of the worst things that have ever happened to me in business. And here they are:

#1 – I Took On Criminals As Property Managers

Desperate times, desperate measures. I had lost my quality property manager for the low end apartment building, and the building was an hour from where I lived. An onsite manager was essential. So, I brought in a couple who I ‘thought’ were good people and could properly manage the building.

All was well for the first month. Then I began to get the rent money delivery later and later each week. And then one week, I didn’t hear from them for several days and they would not answer their phone. It turned out that they had been ARRESTED at a DUI checkpoint and were in jail, with my rent money.

As it turns out, they both had a criminal record and were drug addicts. When they got stopped at the checkpoint, they both ran for the bushes! So they were arrested.
I got a call from a tenant and he told me the property managers hadn’t been around in days. Eventually I did recover the rent money from the jail. Needless to say, I had to find another property manager, and the building never generated positive cash flow again.

Now I only buy houses like these, and let the occupant maintain them.

#2 – My First Property Manager Took Off and Left Me, Too!

The reason #1 happened was that my first live-in property manager also didn’t work out. He kept the property mostly full, but as time went on, the rent money also got later and later, and there was some missing every few weeks. I am pretty sure he was ‘borrowing’ some of the rent money which somehow never seemed to find its way back in my pocket!

In this case, this property manager eventually simply bugged out. He took off and left the place, and left me in a rather desperate situation, which led to the above disaster I already mentioned.

Actually, you could say there was a THIRD worst thing that happened to me as a landlord. I allowed myself to get into the above situations at all.

The lessons I learned from these debacles was, at the time, to NEVER buy real estate again. That was foolish. What I SHOULD have learned was not to buy that type of real estate again and to allow myself into a situation where I was desperate and forced by default to rely on unreliable people for my living.

Later, when I moved to Texas, I learned another lesson: Stop being a landlord for crying out loud with mortgages! Buy cheap houses for cash and seller finance those things! Leave the maintenance to the occupant of the home.

Today, I earn $700 per month on each owner financed house and I never have to fix a thing. Or rely on a questionable property manager!

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Are you considering the purchase of rental property and becoming a landlord? Don’t. Landlording stinks. I mean it. It stinks. Landlording is stressful, time consuming, and in many cases, a financial drain. I know of what I speak.

In my first (disastrous) foray into real estate investing, I purchased a 15 unit commercial property and two single family homes. The mortgage on each was $1200, $1250, and $2720, respectively.

With a strong economy, money flowed into my bank account. Life was grand. Here was me:

However, once the market took a dive in 2008, I soon found myself with several disastrous problems:

1. My renters stopped paying rent.

2. Repairs costs piled up.

3. Those mortgages were due and I didn’t have the rent money to cover it.

4. My savings started covering my rental mortgages.

It was at about this point I started to look more like this:

After three years of agony, stress and losing $50,000+, I finally sold off the properties at a loss and mercifully was able to move on with life. A lot poorer of bank account, but richer in experience in what NOT to do in real estate. The biggest thing I would not do is to ever be a landlord again.

Below are some of the dangers of landlording that tripped me up. Also, if you ARE a landlord, it’s not all lost. I offer some tips for current landlords who want to improve their financial, and mental, state:

1. Renter Damages: I had renters who clogged my toilets with sanitary napkins, which also clogged the septic tank lines. $500 for the plumber each time.

Tip for Landlords – Find a good property manager that you can trust that keeps a close eye on your asset and renters. Or, be very handy with repairs so you can handle them yourself. That’s a BIG money saver. If you can’t or don’t like to fix plumbing, roof and electrical problems, you are behind the 8 ball at the start, as I was.

If you can’t afford a good PM or are not near your property, you probably want to stop being a landlord ASAP because trouble is coming your way. There are less stressful and more profitable ways to make money in real estate.

This house below is one I bought two years ago. It was an old rental. Surprised?

My first Texas property – it was an old rental. Scroll down to see how it looks now.

2. Constant Repairs: Related to the above point. My life as a landlord was to play a monthly lottery of Will I Make Money This Month? Between broken water heaters, leaking roofs, electrical problems and clogged toilets, a month in the black was rare.

Tip for Landlords – Keep your property in good repair to avoid expensive headaches! Also, rent to the best tenants you possibly can, as they will care for your house better. Stay away from low end rental properties; between late rent, evictions and constant repairs, it will drain you financially and emotionally. Buy higher end properties that attract better clientele. Yes, it’s harder to make profits on high end homes, but there are fewer problems. Put down bigger down payments so your return is higher.

Or ideally, get the heck out of being a landlord and consider other ways to make money in real estate.

3. Rehab costs. I spent thousands of dollars on rehabbing houses that just got run down by the renter. Rehabbing houses is stressful and expensive. I didn’t get into real estate investing to be stressed out. Being a Cleveland Browns fan is enough stress for me.

Tip for Landlords – The best situation is to be a contractor yourself and able to handle your own rehab. Also, contract with an expert real estate agent/investor who can find you below market value properties in decent condition. There are scads of bankrupt former landlords who grossly overpaid contractors on rehab jobs. Don’t be one of them. Oh, and don’t over rehab your property – another classic landlord mistake. Your expert agent/investor should know how much to rehab any property you buy.

Bonus Tip for Landlords – Buy your properties in cash! I know that can be hard, but the benefit is never stressing about a mortgage payment.

Bonus Tip II for Landlords – If you have a mortgage on your property, does it fit the 1% rule? That is, does the monthly rent equal 1% of your TOTAL purchase price (including closing costs and rehab/repairs)? If not, you could be headed for big trouble. The 1% rule is a general guideline that many rental investors follow. Some rental investors opt for 2% in lower priced, riskier neighborhoods.

I know many a landlord who is happy with their $200 a month in cash flow. If that’s me, I’d be very worried. When the good times run out, you’re losing money.

Landlording CAN be profitable, but as my tips above indicate, there are a lot of variables that can turn a profit into a loss – fast. That’s why I think landlording stinks, and there are much better ways to earn money – as in 10-15% annually without maintenance costs.

I discuss one of those no-stress options in this Linkedin Pulse post.

Note – Here’s how that house above looks now. The occupant rehabbed it, not me. I’m not a landlord :).

 

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We’re in the affordable home market in San Antonio TX, and it used to be quite easy to resell distressed homes with owner financing with little to no repairs, such as my first one here:

I bought that one for $51,000 (about 30% under FMV) and resold it with seller financing for $79,000, IIRC, 9% int., 5k down. No repairs were done by me on this one.

(Dodd Frank rules followed, FMV charged to owner finance buyer, value based upon sold comps in the neighborhood).

Our old model was – buy a distressed house in certain areas, no repairs, resell it with seller financing, 10-15% ROI typically for investor. That’s how it used to be.

These days, things have changed. Another property was purchased for $49,500, also 30% under FMV, below:

This one was a 3/1, 1 car garage, built in the late 50s. It was nicer than the house above. We put it on the market to sell with seller financing:

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

We probably had 100 people look at it over 3-4 months. No one wanted it. This was a new experience for us. What the heck was going on?

It turned out that a few miles away, there was a new luxury apartment complex with units for about $800-1200 per month that were really nice. Our theory was that people were getting pickier as the economy gets better and are opting for better housing.

So, we altered our model a bit.

We did a partial rehab on this house – AC, paint in and out, kitchen and bath rehabbed with new flooring, tile and countertops, light fixtures and outlets. Total rehab was $11,000.

Then we put it back on the market.

It sold with seller financing with the above terms in less than 60 days. Even with rehab, the investor clears 13% ROI with no further repairs or maint.

Lessons learned:

• Markets change – people get fussier as they have more money and better jobs
• Have the investor do a $5-10k light rehab that ensures the roof and foundation are ok, plumbing works, basic electrical works and paint touch up. This will get the house sold much faster.
• Keep a close eye on revitalization going on near your house – you may have to upgrade to keep up with the competition

Eventually, the market in San Antonio will go down, and we expect that we will be able to resell houses without repairs again. For now, however, we do light rehabs and our investors still make 10-12% ROI. Not bad when you are doing no maintenance on the property :).

 

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After I bought my 30th investment property in 2008, I considered myself financially retired with more than $20,000 per month in cash flow.

I didn’t arrive at financial retirement at such a young age due to my family wealth. I grew up poor in a dusty, small town in south Texas, and my folks sometimes chose between paying the electric bill or buying groceries that week. Most of my families still are blue collar $12 an hour laborers – mechanics, electricians, plumbers.

After college, I wasn’t any better off than they were. Saddled with $40,000 of college debt, I set my sights on real estate investing in San Antonio, Texas.

Over the next 10 years, I learned three important habits that enabled my real estate portfolio to multiply from one house, to five, to 10, 20 and more.

Whatever your industry – real estate, music, aerospace or textiles – your chances of retiring years before your friends or family will soar if you do these things:

#1 You Work Tirelessly

To be successful in any field, there is no substitute for applying maximum amounts of effort during every waking moment. Many high-performing CEOs report that they wake up at approximately 6:15 am, and often clock 18-hour days.

I am here to tell you that those CEOs are dead on the money. In my first five years in real estate investing, I clocked more 18 hour days than I can remember.

Most days were packed with calling dozens and sometimes more than 100 people, looking for capital to borrow to buy more houses. I never gave up. Sometimes I would have to talk to a chain of 10 people before I found the person who had $50,000 to lend at 10%.

Lesson: Be the first one in your office and the last one out. Work while your competitors are sleeping.

#2 You Reject Popular Thinking

As John Maxwell writes in his best seller How Successful People Think, high achievers think differently. Specifically, they reject popular thinking and go against the grain. Sometimes it may be uncomfortable, and that’s ok.

In my case, I completely reject the notion that real estate investors should buy nice houses in nice neighborhoods.

Local investors in my city know me as the ‘junk house guy.’ I buy for cash flow and for price. Condition of the asset is mostly irrelevant. I also only owner finance my houses, instead of renting, so I minimize my upfront repair and ongoing maintenance costs.
I see the value in investments that many others fail to see, and I developed a business model that took full advantage of this fact.

Here are two examples of how I have reaped six figure profits in a year on deals that other investors rejected:

#1: $15,000 Junk House Made Me $14,000

I once bought a junker 3 bedroom house for $15,000 that no one else wanted. A month later, I sold it for $20,000 to another investor for a $5000 profit. He then sold that house with owner financing at a 12% profit per year, and he’s bought three other houses from me since. I’ve made about $3000 on each of those deals. Bottom line: $14,000 profit on a house the conventional investors rejected.

#2: I Bought a Tiny, 1 Bedroom ‘Rejects’ and Made 11% ROI

I often buy 1 bedroom, 1 bath houses. These are houses that virtually no other investor in my city wants. I buy them 30% under market value or more, and then I add one or two bedrooms. Then, I sell it owner finance with $3000 down to a blue collar worker with a steady job. I make 11% or 12% a year on those deals.

Lesson: Reject conventional thinking. Embrace opportunities that others run from and don’t see. It can make you millions of dollars.

#3 You Surround Yourself With Positive, Focused People

Noted positive psychology researcher Barbara Frederickson performed fascinating research that showed the benefits of positive thinking on our brains. In her study, she created five research subject groups, and showed each one different film clips

The first two groups viewed movie clips that generated positive feelings and emotions, such as happy couples with their children. Group 3 saw images that were neutral – this was the control group.

The last two groups saw film clips that created negative feelings and emotions: people arguing, children crying etc. Afterwards, each group was asked to imagine themselves in a situation where they would have feelings similar to the clips they saw. They were asked to write down what they would have done.

Research subjects who saw negative things wrote the fewest answers. Subjects who saw happy and positive images wrote down many more responses.
Her research showed that when we experience positive feelings – joy, happiness, optimism, love – we open ourselves up to more of life’s possibilities. Positive emotions open your mind to more possibilities.

I agree with Frederickson’s findings.

When I first entered real estate, I was 23 years-old. I had college debt and little money. My goal was to make $1000 per week. Back then, that was mind-blowing money to me.

As I got deeper into real estate, I found experienced real estate investors who mentored me. They had much bigger goals. They wanted to make $10,000 a week, $20,000 a week. $50,000 a week!

These mentors were extremely positive, encouraging, and focused on becoming wealthy. I saw them reaching their goals with joy and enthusiasm, I realized that I could do it, as well. They also taught me to reinvest most of my real estate profits into more houses. That reinvesting made my portfolio grow much faster.

They also urged me to become an expert in the local real estate market and in negotiating under market value deals. I spent years studying my neighborhoods and today, I can usually know the value of a house in my zip codes without comps.

They taught me to be patient in building wealth. That is, focus on making small profits on multiple deals, not home run profits on one deal. I learned from my positive mentors how to flip houses and make $5000 per deal. I’d then do 50 houses in a year and make $250,000. That’s serious money here in Texas.

Lesson: Mingle with positive, goal-oriented people, and their positive emotions, energy and ideas will rub off on you.

No matter your station in life, you can apply these lessons to your benefit. And they can lead to incredible happiness and wealth. Just remember to pass on these positive habits to others, so they can reap the harvest, as well.

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Many of our investors were able to buy cheap investment properties in  San Antonio for cash and owner financing them. They have no landlording or maintenance expenses. This saves a lot of stress and money.

Mahy of our investors can buy all cash, but not everyone can or wants to do that. That’s ok!

The good news is that you can build a massive real estate portfolio in affordable houses with 20% down conventional financing! And if you still have your day job, that’s fine. You can use that steady W-2 income to get conventional financing and buy an entire block of affordable houses!

Then, with that cash flow, you can retire if you like :). Or, you can continue to have a blast in real estate investing, our investors do!

Here’s how to use 20% financing to build your portfolio of affordable houses:
Step 1

Buy an affordable home in decent condition that you can obtain conventional financing on. In my city, I recommend houses in the $50,000 – $60,000 range such as this one. It’s inexpensive, but in livable condition.

Ideally, buy three of these houses at once so you can turbo charge your cash flow growth.
Step 2

Get the houses with 30 year mortgages and put 20% down. That’s $11,000 per house.

So, you have three $44,000 mortgages at ~5%. That’s $236 per month for each mortgage. Taxes and insurance on each property is $140, so your monthly payment is $376 per house.

Rehab on each house will be approximately $5000, completed in three weeks or less.
Step 3

Find a well-qualified, owner finance buyer for the house (I can help you with this in my city). I prefer this strategy to renting the house out. This saves repair costs and property management headaches.

The buyer has to be qualified with a good job, steady income, bank statements, W-2s and pay stubs.

Monthly cash flow from your buyer is $800.

After you pay your mortgages and tax/insurance, you have monthly cash flow of approximately $425 per month per house.
Cash-on-Cash Return Year 1:
32% per property.

In year two, it’s 46%.
Step 4

Your monthly cash flow on those three houses is $1275 per month. After a year, you can take your $15,000 in cash flow and buy another house and do the same thing.

Most of my investors with an income of over $100,000 per year are able to use this model to get to $5000 monthly cash flow after three years. They buy at least two houses per year.

Some take as long as five years, but most investors with a decent full time job and good credit can use this system.

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I have completed more than 500 rehabs on $30-70k distressed properties in San Antonio TX in my real estate investing career. In the early years, I was in there swinging a hammer, floating floors and hanging drywall with my crew. I’m out of that now, but all that hands-on work taught me the importance of doing a good rehab – but knowing when to stop! If you over do it, watch out:

I have seen dozens of real estate investors spend $10-$30,000 or more than they should on a rehab. This is the most common mistake that new real estate investors make. This can doom your project, and you can avoid it by…..well, just keep reading 🙂

Staying reasonable on rehab is especially important when you are dealing with distressed, under market value properties, as I do. I buy a house for 20% under market value, perform a light rehab, and resell it with owner financing to make about a 12% return annually for my investors. Such as this house we did in 2014.

But note: The level of rehab I do TOTALLY depends on the area! I kept the rehab on this house in zip code 78212 north of downtown San Antonio in line with the neighborhood, which meant nice flooring, new light fixtures, paint in and out, and minor foundation work on the front corner, or about $10,000.

The house sold about 5 weeks after the light rehab and makes the investor 12.3% per year with no property management expenses.

My investor’s return would have plummeted if I had overdone the rehab with a new roof and AC, so I’m very careful to stay on budget and in line with the other homes on the street.

Want to avoid over rehabbing your properties and dooming your real estate investing career? It all comes down to this:
Know Thy Neighborhood, Investor!

I buy and sell over 100 houses per year in neighborhoods around downtown San Antonio, particularly north, west and south of downtown. So, I pretty much know how houses in these zip codes (78201, 78212, 78214, 78207, 78244 among them) are appointed.

Also, my construction crew has been with me for 11 years and they live in these areas. They also provide me with detailed advice on what to fix and what to leave alone, based upon their and their friends’ and families’ experiences.

1219 Perez

The house above is in 78207, which is a rising area, but not as good currently as the house above that in 78201. That means that the rehab budget is much more spartan. In this case, we just want the roof, foundation, plumbing and electric working. So the rehab looked like this:

• $1500 for paint in and out, including painting floors
• $1500 for raising foundation

•  $1000 for plumbing
• $1000 clean up

There was no need to do nice flooring, granite or tile in this house, based upon what the houses on the street have. I know that because of all the years of experience I have in this area.

Spending more than $5000 in rehab on this house is unnecessary. Granite? Forget it. Tile? No way. As is, this house sold with owner financing and makes the investor 11% per year with no property maintenance costs. Knowing when to stop on rehab is what makes my investors serious, long term, buy and hold cash flow.

On the other hand, if you don’t do ENOUGH rehab in nicer neighborhoods, the house will sit and sit. This house in 78201 is in a rapidly appreciating spot north of downtown:

This one required $10,000 in rehab because of what the other houses around it have: granite in kitchen, tile flooring, new light fixtures, tile in bathroom, new flooring, new stain on old wood flooring, and new HVAC:

This house sold the week after we finished the rehab, and earns my investor 12.9% ROI without property management expenses. If I had skimped on this rehab to save the investor money, the house would still be on the market.

So, not losing on rehab comes down to intimately understanding the neighborhoods in which you purchase. Frankly, that takes many years of experience and dozens of deals under your belt. If you don’t have that level of experience, I strongly advise you to partner with an expert investor and licensed agent in your city. He or she can advise you on how much rehab to perform, without overdoing it. You want a licensed agent who also is a very active investor in your neighborhoods.

And if you can do that, you will be well on your way to making solid long term cash flow on your investments, and maybe you can even financially retire early, like I did. 🙂

 

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I got rich in buy and hold real estate at the tender age of 28. I did it through the rigorous application of two simple baseball concepts:
Bunts and base hits.

I’m referring to small real estate deals that net me $3000, $4000 or maybe $5000. I grew over $30,000+ per month of stable cash flow through smacking blooper bunt and base hit real estate deals!

But most conventional, wanna-be-rich real estate investors I run into never learned about hitting bunts and base hits.

Many of them attended the $20, 544 real estate guru seminar that taught them to look for the monster deal….to wind up for the monster, 600-foot, over the left field fence blast.
Ka-POW!

Understandable. But nonsense, say I.

Driving in bushels of little base hit real estate deals during most ‘ball games’ is what made me wealthy. Not swing for the fence, monster shots every other ‘baseball season.’ Again: I focus on $3000 or $5000 transactions, not on the monster $30,000 score once in a while.
Lesson: I built my real estate career on buy and hold, long term cash flow. NOT on big renovation flips!

Flips are fine sometimes and are good in a crashing market. But the going gets VERY tough in an appreciating market. To make money, you have to find the one in a million deal 50% under market value. Everyone wants that, so consequently, you do few deals.

For instance, here in San Antonio, the market is hot – the 19th hottest market in the US according to Realtor.com. Flippers are having a very hard time finding deals they can make money on. Everyone wants top dollar for their house.

So while the flippers and other big hitters are running around looking for the grand slam, I do 50 little deals a year that make me $4000 or $5000 each. Mostly I make $400 or $500 per month on my long term buy and hold deals. Occasionally, I clean up a house quick and flip it to another investor for $5000.

But the focus is on bunts and base hits, not homers. Look at it like this: How many grand slams do we see in one baseball career? Alex Rodrguez is the all time leader with 24.

And how many base hits do we see in a single baseball career? Pete Rose leads for the ages with 4,256.
See my point?

So, my advice to every residential real estate investor is this: Score on lots of base hit deals, not on the rare grand slam deal.

Here’s a good example of how I do it every single day: This house on Colima Avenue in San Antonio isn’t a beauty.

In summer 2014, I had no problem picking up this house for $15,000 cash. No one wanted it. ‘Bulldoze that junker,’ they said. Two months later, I sold it for $20,000 to a California investor.

Six weeks after that, he sold it owner finance to a blue collar worker for $400 a month (I almost always owner finance my houses; no repair costs). I found him that buyer so I made another $1000. So, on a ‘junk house’ deal that no one wanted, I made $6000.

In a year, I’ll do 20 or 30 deals like that. That’s $100,000 or $150,000. On top of my $30,000+ per month in cash flow.
Advice

My advice to investors is to let the other investors wind up for the mega blast grand slam deals that come along once every three years. Most of the time, they’ll swing and miss. In my view, it’s better to take the little $4000 and $5000 per deal bunts and base hits and keep growing your cash flow.

Action Items:

Focus on steady cash flow, not on flips. Flipping is very cyclical and depends on state of the market. Lots can go wrong on a flip. Steady cash flow will make you rich.
Find cheap single family house deals that are 20% or 30% under market value. Buy in cash if you can. If not, buy with 20% down conventional finance.
Owner finance those houses to qualified buyers per Dodd Frank rules.
Supplement that with a quick, simple flip to an investor every year for $4000 or $6000. Just clean up the house and resell it quick.
Reinvest 90% of your profits into more deals.

Let me know if you have questions or comments below. You also can contact me through our website.

 

I truly love the real estate deals that other investors won’t touch. Over the years, I’ve probably made at least $2 million dollars off of other investors’ rejects!

I am not saying this to boast – I am being frank because I want you to understand the opportunity that you have if you open your eyes to opportunity others are blind to.

One of my earliest mentors taught me to look for profitable deals in ugly, distressed properties. I have mostly built my career on little distressed houses that alone make me $400 or $600 a month. But altogether, those little houses make me tens of thousands per month in cash flow, which is what allowed me to financially retire so young.

Here are some ‘junk house’ deals that other investors turned their noses up at that I turned around and made terrific money on:

#1 Colima Avenue Made Me $6500

I bought this ‘junk house’ for $15,000 when no one else in my town seemed to want it. This allowed me to buy it more than 30% under market value! I sold it to an investor in California for $20,000, which was 30% under market value. I made a $5000 profit on the sale, plus a $1000 commission. He had it repainted in and out and the door secured, and other minor fixes. That cost him $5000 total in repairs. Then he resold it with owner financing.

Terms were $3000 down, $400 per month, with a final price of
$39,900. This deal is making the investor 12% ROI, and made me over $6000. And no one wanted it because it was ugly!

#2 Eichman Road Property Made Me $13,500

Last year I bought this ‘junk house’ on two acres south of San Antonio TX. I paid $24,000 for it. It was a hoarder house, so it apparently scared off other investors.

I sold it to another California investor for $36,000, making me $12,000, and $1500 for the commission. He put $10,000 into it for cleaning, painting, plumbing and running a city water line. It was sold owner finance for $5000 down, $795 per month, $72,000 final price. He is making 11% ROI on this deal with no property maintenance – on a property no one wanted! Not a bad deal.

Lessons Learned

I am often able to make money on houses that other people reject and for which there are fewer buyers. Many investors are scared off by appearances and don’t see the underlying value that is obvious to me. The few buyers for some of these houses means that I can get the property at 30% or even 40% under market value. So, on the resale, I can make a tremendous return! What you should do: Try to work with a top notch real estate investor who knows your neighborhoods and can help you find way under market value deals that other people don’t want. There could be gold there.
Ugly houses can be deceptively lucrative investments! You can get properties deeply discounted in some cases. With owner financing, you then can off load most of the rehab cost to your buyer. What you should do: Buy under market value distressed properties in markets that are inexpensive and have a lot of blue collar workers who are eager to own a house and fix it themselves.
Don’t be always afraid of foundation and roof problems. Common investor advice is to avoid these houses. Those are some of my best deals! No one wants them so you can get an incredible deal. There is a big difference between a minor foundation issue and a major one. I have the experience to tell the difference. Most of the foundation problems I buy can be fixed for $1500 to $2000. What you should do: Look for ‘junk houses’ in areas with good owner finance buyers even if they have reported ‘foundation’ problems. You really could get a great return!

 

I am a very active investment property buyer and seller in San Antonio TX. One of the keys to my success the last 15 years is that I NEVER charge an investor the highest possible price for one of my properties. I make sure he or she makes plenty of money too, even if it means I make less!

One of my investing partners – who has only been working with me for two years – recently was baffled about why I refused to charge an investor as much money as possible on a transaction.

Let’s take a look at the property in question. The house below in San Antonio on La Violeta St. actually has two small houses on one lot:

One house is a 3/2 that needed only $8000 in repairs, and the other one is a 2/1 that was rehabbed and ready to be occupied. The renter in that house wanted to buy it with owner financing – $5000 down, $995 per month PITI, 10% interest.
The wholesale price? Just $55,000.

As you can guess, there was a huge demand for this property when I released it to our buyers’ list last January. We had 25 people call us to buy this house. This was a great opportunity for many real estate investors/wholesalers to increase the price by $10,000 or even $20,000 and pocket the rest.
The final price I charged: $55,000.

My business partner was baffled by me not raising the price on this fantastic deal. Here’s why I didn’t increase the price, and why I never charge top dollar for these hot deals.

The most important thing to do as a wholesaler is to get a new real estate investor a FANTASTIC first deal. At the $55,000 price, my investor was able to owner finance that property for $85,000, netting him nearly 15% return annually, with no maintenance costs!

Since I sold my CA cash buyer that house in January, do you know how many more houses he has bought? 9!

Here is a case study on one of them that makes him a 12% return.

So, by not getting greedy on the first house, I have been able to make thousands of dollars more. And the investor has made even MORE money than he would have if he had just bought one or two houses. That investor also has referred other investors to me, who have bought several houses.
I refuse to get greedy. I share the wealth with everyone involved. In the end I make more money, and so does everyone else!

New investors usually are in a rush to make as much money as possible. I take a 180 degree opposite view: I want to make money SLOWLY :). Because I know from 15 years of experience that getting rich in real estate takes time, and the wise investor will make MORE money every time by taking the long view of things.

Take Away: Don’t be in an all-fired hurry to make as much money as humanly possible on 1 deal! Don’t try to make $20k on one deal every year. Try to make $3000 on FIFTY deals a year! Treat your investors and money partners like gold, and never overcharge them. They will come back to you again, and again and again.

Have comments or questions? Please share below!

 

In my many years as a successful real estate investor, I have heard investors say a lot of things…..many smart things…..and quite a few silly things!

I understand – most of us don’t know much when we first start investing in San Antonio investment properties. Back when I started, I didn’t know pier and beam from PITI from a lease option! Over the years, I have gained a lot of experience. I also have found some terrific, wealthy mentors at real estate conferences across the US who guided me, and still do.

Still, I thought it would be helpful to some of the new investors out there if I related some of the silliest things I hear investors say! Sometimes, their limited knowledge and resulting rookie questions become an obstacle to successful investing, so maybe seeing them here can help you.

I certainly hope so.

#1 “Why Is This House So Expensive????? Last Year It Was $15,000 Less!”

I am trying to think of something more irrelevant in real estate investing than what the price of a property was last year…….sorry, I cannot think of anything.

What the price of an asset was earlier than today is of no consequence, investors. Real estate markets change dramatically in days, weeks, months, and certainly in a year or more!

In my San Antonio TX market, things have changes DRAMATICALLY in a year.

It has become one of the stronger real estate markets in the country, but still is very affordable. That said, one of our distressed houses that sold for $29,000 cash a year ago recently sold for $59,000 owner finance. The reason is that the market simply has appreciated a good deal in that time. People here have more work and more money in their pockets.

So naturally, investors are going to pay more for their real estate investments. An investor who is stuck in the past – thinking about what he or she would have paid last year – is going to lose out on a LOT of deals in a hot market.

Here is an example: I have a CA investor who recently bought this house north of downtown – cash – for $65,000.

He is a serious, experienced investor. How do I know that? He didn’t ask me ONCE what the house was worth last year (it probably would have sold for $50,000 this time last year). That, he knew, makes not a whit of difference. All he cared about was getting a good price TODAY. He did. And on this property, he is making 12.9% per year right now.

Take Away: Don’t think for a second about what that deal was valued at yesterday or a year ago. Look at current market conditions and comps and make your buying decision accordingly. Focusing on the past allows 12% ROI deals to slip through your fingers.

#2 “How Much Did YOU Pay for This House?”

This silly question is obviously related to the one above. The common theme is focusing on the PAST, and not focusing on what you can make on the property in the FUTURE.

Sometimes I want to tell the new investor, I paid $1 for it. And I’m charging you $25,000. 🙂

Seriously, I have had investors give away properties to me for a few thousand dollars because they needed to unload it. I turned around and charged $18,000 for it – the current market price. I have had people sell me car lots for 1/3 of their value because they needed the money, and then I turned around and sold it at a 200% profit.

And that is completely and totally fair. I would expect any experienced investor I work with to do the same. Those examples are rare, but they do happen.

Here is an example: I bought this house that no one wanted for $15,000 cash:

My investor bought it from me for $20,000, a $5000 profit for me. He then had $5000 in light rehab done on it. Subsequently, it was sold with owner financing for $39,900, the fair market price for the home.

The investor never asked me what I paid for it, because all he cared about was what HE would make on it. That’s the right attitude.

Take Away: EVERYONE makes money in a good real estate transaction. That’s not only normal, it’s how it should be. Don’t worry about what the investor bought it for. Worry about how you can make money on it. If the numbers make sense, buy.

#3 “That House Is So Ugly! I Can’t Buy It!”

You can retire young by buying the ugly houses that most people reject. Last fall, I bought the below ‘junk property’ south of San Antonio for $25,000 cash:

It was a hoarder house on 2 acres that the occupants desperately needed to sell, so I got it for a fantastic price. Other investors scurried off because it was ‘ugly.’

I then sold the property for $36,000 cash to an investor, who put $10,000 into it. He then sold it owner finance for $72,000. It is going to be a really lovely homestead for the couple who bought it.

My total profit on an ‘ugly house’ that no one wanted: $12,000.

Take Away: Ugly properties can be fantastic bargains, especially ones with roof and foundation problems. Most investors run for the hills. This means you can get an incredible deal. My advice on ugly houses is to do 5-10k in repairs to make them livable, and then owner finance them. Leave the finish repairs to the occupant.