out of state investment properties

March 30, 2016March 31, 2016

The Most Important Thing I Tell New San Antonio Investors Is…

I talk to many new San Antonio real estate investors every week, and I am talking to more than ever this past month. San Antonio TX is now on the radar for a lot of out of state property investors.

There are many new San Antonio wholesale property investors coming into the market every month. The reason is that San Antonio is booming.

Real estate prices are up but still affordable. The population is growing, unemployment is low, and wages continue to rise. Houses are selling quickly in the hot parts of town as well.

And while the prices are higher than two years ago, it still is very possible to make positive cash flow on under market value San Antonio properties.

If there is anything I would tell the new San Antonio real estate investor it would be this:

Don’t be greedy, and have realistic expectations!

I often talk to investors from out of state who are used to investing in more expensive areas, and earning $25,000 on a flip. Or I’ll talk to a Midwestern investor who thinks he can make 20% on a buy and hold here.

I’ve been working as a real estate investor in San Antonio real estate since 2001, and I have made many millions of dollars by making $7000 on a flip and $12% per year on a $650 per month buy and hold.

I am very happy to make those types of returns. I basically do lots of these small San Antonio investment property deals each year. Each flip makes me $7000 or $10,000, or each buy and hold makes me 11% or 12% per year, and I am fine with that.

Too many investors focus on doing a few grand slam deals each year. What they should be doing in San Antonio real estate investing is making a solid return on dozens of deals each year!

If you want to make $25,000 or $50,000 on a flip, you need to move into big projects, ones that go for $200,000 or more. And that my friends gets a lot more complicated and expensive than my little $50,000 or $60,000 San Antonio wholesale property deals.

It’s also more risky. In 2008 when the market tanked, I got stuck with a bunch of $1 million San Antonio real estate investments that were no longer worth what I paid for them. That’s what can happen when you are trying to flip expensive homes at or near market value.

Buying little under market value San Antonio houses such as mine is a lot safer. You just have to be happy making $10,000 on a flip.

I currently have several good $10,000 San Antonio flips available, and these are excellent returns that you can make a lot of money on. You should not pass on a deal because you will not make $30,000 on a flip. I advise doing at least 4 per year and making 40-50k. Then use that cash to buy San Antonio buy and hold property.

Below is an excellent 10k San Antonio flip property you should consider:

Address: 820 South San Manuel St., San Antonio TX
Year Built: 1950
Description: Under market value investment property, three bedroom, one bath that has 928 square feet. Beautiful home with TWO exterior storage units – this is a MAJOR selling point for the end buyer; most buyers are blue collar contractors, and they need their tools to be completely secure.
Max After Repair Value: $99,000.
Cash Price: $69,000.
Exit Strategy: Owner finance this out of state investment property with positive cash flow with only $10,000 in repairs completed in 30 days – $900 per month, $5000 down, 30 year note, 10% interest. This San Antonio investment property offers passive cash flow with no maintenance.
Alternative Exit Strategy: $15,000 in repairs and flip/resell retail – maximum ARV is $99,000. Profit $10,000.

January 22, 2016

How Do You Buy Under Market Value Properties in Another Market?

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:

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

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
$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%

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.

January 5, 2016January 14, 2016

Buy and Hold or Flip Out of State Investment Properties?

Anyone who is involved in real estate investing for long will eventually ask him or herself a critical question:

Should I buy and hold or flip San Antonio investment properties?

Flipping houses has become very popular in the last decade, probably due to all the Flip That House type shows on TV. On the other hand is buy and hold investing, which is probably the oldest way to make money in real estate investing.

So which should you do? Well, it depends!

Overview of Flipping Houses

The basic definition of flipping a house is buying a property under market value (20-50% usually), improving it, and then reselling it for a profit. To gain maximum financial advantage, the goal is to sell the house as quickly as possible after the rehab.

A good house flipper in under market value houses will try to buy, rehab and resell the under market value property as quickly as he can. The reason is that holding a piece of real estate without any income coming in costs money. Some of ‘soft costs’ of holding a flip property include:

Property taxes
Utilities
Hard money finance charges
Any repair and maintenance

House flippers try to hold the property as little as possible. In the flips I have done in the last year, I held my San Antonio investment properties for about three months each.

Overview of Buy and Hold Investing with Out of State Investment Properties

This type of investing with below market value properties involves purchasing the under market value house, making some amount of improvements, and then keeping the house for rental or owner finance income. To pay for the monthly costs of holding the property in most cases, the house will be rented to a tenant. Typical holding costs for a buy and hold property are:

Financing
Taxes
Utilities
Property taxes
Maintenance costs

It should be noted here that there are other forms of buy and hold investing, which is the type we usually do. That is, we buy and hold the property in cash, and owner finance the under market value house to a qualified buyer.

The advantage of this type of buy and hold investing with out of state investment properties is that there are no maintenance costs. Also, without a mortgage, this type of under market value investing is usually less risky, especially in a downturn.

Pros of Flipping

Short term profits: You can, ideally, realize your profits in a few weeks or months. Your cash will not be tied up in an under market value property for very long, and you can move on to another deal.
If you can flip a house in under six months and make at least 15% profit, you have done very well.
Good ROI, if you know how to rehab an under market value property without overdoing it.
No renters or landlord headaches.

Cons of Flipping

Making money at it takes a lot of work. The reality shows make it look easy. Flipping a house and making money isn’t as easy as it looks.
Unexpected costs: Anyone who rehabs under market value houses for a living will run into unexpected additional costs. This can be especially damaging when you are trying to make quick profits.
Rehab problems: You might think it will take a week to do that roof, but it takes six weeks. That adds to your time line and when you will be able to make a profit.
In an appreciating market, you may have trouble finding under market value houses that are truly flippable.

Pros of Buying and Holding

Creating wealth: You can really build wealth over time with buy and hold investing, especially with owner financing rather than renting under market value property. Real estate also will generally increase in value over time, which can make you very well off.
Steady cash flow: If you own several properties that each make $800 per month, this is a nice way to earn a living.
No worry about selling short term: You can usually wait out the inevitable downturn in the market as you are enjoying the cash flow from the property. A flipper could end up in trouble if the market crashes in the middle of a project.

Cons of Buying and Holding

Market changes: If you need cash fast, you could need to sell your under market value property but the market dipped so you lose money.
Legal problems: Tenants can be a pain in the neck, which is why we mostly owner finance our houses. We only carry the note on our houses, so we have no tenant issues at all.
Struggles with being a landlord: A buy and hold rental property can turn into a negative cash flow situation easily if you do not buy the property at the right price, and if there are expensive repairs. Vacancies are another big problem in bad markets. Again, that is the plus of investing with owner financing and buying cash – no mortgages and no tenants.
Property management responsibilities for rentals

Overall, in our experience, we prefer buying and holding with owner finance over flipping. Flipping is great if we need to get more cash to buy and hold more houses, but it is not a long term wealth creation solution for us for Texas cash flow.

November 19, 2015January 14, 2016

3 ways to stay positive in the midst of a storm

Key Takeaways

Listening to positive and inspiring people keeps your spirits up in rough times.
Staying positive can lead to new business opportunities.
Stay away from negative real estate investors especially online forums.

This article now appears in Inman Select.

Maintaining a positive attitude in San Antonio investment properties has been key to my long-term success since 2001. My mentors taught me that staying relentlessly positive in my investing would propel me through rough waters.

And have I ever been through some rough Class-4 rapids in my day.

But let’s back up for a second. Before the real estate crash of 2008, I focused largely on $1 million homes in San Antonio, Texas, which I rehabbed and resold for a 30 percent profit. Those were the days — rehab a house in four months and sell it for a $325,000 profit.
Learn from tough times

Then one morning in 2008, I called my local bank to borrow an additional $250,000 for two rehabs. The voice on the other end of the phone said, sorry — we aren’t loaning money on under market value San Antonio investment properties anymore.

What? And that was when it all started to fall apart. It was nearly impossible to borrow money, though I owned 100 houses free and clear and had an eight-year success record.

But I had a bigger problem. I was stuck with $1 million worth of under market value houses that I couldn’t sell. No one could qualify for mortgages, and the market crash had dropped their value to under $800,000.

I had many sleepless nights. Despair crept up on me as my bank account shrank.
Focus on positive speakers

Even though I was losing money left and right at this time, I still managed to keep a positive, can-do attitude with my out of state investment properties.

That’s easy to say, but how did I do it? I listened every day to positive speeches and sermons from famous speakers and pastors.

Being a Christian, I listened every day to Joel Osteen; I found his uplifting sermons about prosperity in all aspects of life to be a huge lift for me.

Also, I listened daily to the leader of Christian Business Leaders International, Bob Harrison, who is also known as the No. 1 increase authority in America.

Harrison has been through trying financial times as well. But his optimism has carried him through, and he is now one of the leading business speakers in the world.
Lead with optimism and find new opportunities

Maintaining an optimistic outlook didn’t just get me through the market crash. It also opened new horizons for me in real estate investing.

I discovered something shocking: the expensive $1-million houses are the riskiest investments. When the market dips, the demand for those homes plummets, as do the prices.

On the other hand, my little, bitty $50,000 three-bedroom, one-bathroom out of state investment property sells just the same no matter what’s happening in the market.

The demand was always there for these small under-market-value houses, and each one made — and continues to make — me $600 to $800 per month on owner financing.

So, the crash and staying positive throughout it led me to an amazing new business opportunity — buying and selling distressed homes and owner-financing them. Even better, the crash allowed me to snatch up 100 of these houses for about $20,000 each, and they now sell for $50,000 each or more.
The crash and staying positive throughout it led me to an amazing new business opportunity.
3 tips for staying positive

It’s vital to maintain a positive, can-do spirit in your real estate investing, no matter what. This is what makes you stick to it when other investors give up. Here’s my advice:

1. When things are bad, listen to uplifting and motivational speakers

Find positive business mentors online that can inspire you and keep you motivated. Zig Ziglar is another great one.

2. Remove yourself from negative environments, especially online forums

I love the Internet, but there is a lot of negativity on some real estate investing websites. Many people just want to moan about how bad things are — it makes them feel better.

I don’t have even one second of time for this kind of talk. Associate with positive, can-do real estate investors only. And by the way, I made plenty of money in real estate without a website or ever being online at all.

3. Shadow a successful, positive mentor

Whatever city you are in, you can locate a good real estate mentor to inspire you. Why would he or she talk to you? Because you have something to offer.

Offer to help them with hanging signs, making calls or doing office work in exchange for learning from them. I met most of my mentors at real estate meetings in San Antonio, and their positive attitude rubbed off on me.

Maintaining an optimistic outlook in down times led me to even better real estate success in under market value properties, so always keep your chin up.

November 10, 2015January 12, 2016

Why You Should Ignore Popular Advice About Real Estate Investing

This article now appears on Inman News.

Key Takeaways

Ignore what your eyes tell you about property’s appearance: study the numbers, cost of repairs and the area.
Pay 20 percent to 30 percent under market value or move on to another deal.
Buying in poorer areas means less competition for the deal, and it could make you 12 percent ROI or better.

There are so many myths out there about purchasing distressed properties in what people often call “problem” neighborhoods. Raise your hand if you ever heard this before: “Don’t ever buy a real estate investment in a bad neighborhood.”

I hear it all the time. It’s baloney. Many of the best San Antonio investment properties are in so-so areaa.

If you just trust your eyes and only buy in nice areas, your chances for making money are slim. For instance, a major real estate investing company is a perfectly good organization that focuses on selling rental properties and related training.

In a recent blog, however, the company said this: “The whole idea of buying property for investment is to buy in hot or an up-and-coming neighborhood. Don’t waste your time or money investing in a property located in a poor or declining area.”

It is correct in the sense that you should definitely buy in an up-and-coming neighborhood. I do that all the time when I buy under-market value houses in San Antonio.

I study the market and find the neighborhood near a hot area that I think is going to get hot next, and I snatch up $40,000 houses for cash before they go up to $80,000. I make 10 percent to 15 percent a year on most of these best San Antonio investment properties.

However, the rest of the quote is questionable: “The whole idea of buying property for investment is to buy in hot or an up-and-coming neighborhood.” If this means paying anywhere near market value, I don’t agree at all. That’s how investors end up making zero cash flow.

I will buy a 20 percent to 30 percent under-market-value house in a hot, affordable neighborhood (under $80,000 wholesale is my strategy). That makes a lot of sense. That type of deal will produce excellent, positive cash flow if you don’t over rehab.

For example, a California investor bought this three-bedroom, one-and-a-half bathroom house in a rising area north of downtown San Antonio:

The investor bought it from me for $62,000 — approximately 30 percent under market value — and did $10,000 in repairs. He resold it with seller financing with $5,000 down, $89,900 price, $937 per month property, taxes and insurance (PITI). That’s 12 percent ROI.

This company might consider this a poor neighborhood, but my investor doesn’t have to repair the house, and he makes 12 percent on his money. What a great out of state real estate investment.

“Don’t waste your time or money investing in a property located in a poor or declining area.” I don’t buy in declining areas, but what defines a poor area?

Does that include households that make $2,500 or $3,000 per month? That’s 90 percent of the owner-finance buyers that helped me to financially retire before I was 30 on distressed sales.

The majority of the neighborhoods that I invest in are considered poor areas, but they are on the way up, as the city is pouring revitalization dollars into parks, green space, walking paths and more.

For instance, this three-bedroom, one-bathroom home west of downtown is in a so-so area:

Sure, it’s not pretty, but smart investors ignore what their eyes tell them and study the numbers, the nature of the repairs and the area. The repairs on this house to resell it were minor, and the nearby area has seen millions and millions of dollars in new construction and city funding.

The investor purchased it from me for $29,900 — about 30 percent under market value. After $7,000 for paint inside and out, foundation repair and clean up, it sold with seller financing for $5,000 down, $55,000, $550 per month PITI. That’s 11 percent ROI.

And this is in an area that most investors would consider poor. It is, however, on the way up.

Of course, you cannot simply go into any poor area and start buying cheap, distressed sales with positive cash flow. That’s also a path to ruin. But if you only purchase investment properties in nicer areas, you will be fighting a lot of investors for any of the few deals that generate cash flow. That drives prices up to market value and beyond, and you can kiss your profits good bye.

Invest in distressed, fixer upper homes or under market-value properties for true positive cash flow, but be certain to:

Carefully study the market to learn which area is near a hot area and will likely go up in value in the next year.
Get the property for at least 20 percent under market value to leave room for a profit of at least 25 percent on a flip and 10 percent ROI on a buy-and-hold.
Buy out of state investment properties in areas that are less expensive, especially in B and C neighborhoods.
Owner finance the property to a qualified buyer — save yourself thousands in rehab costs. Do enough to sell the house and leave the rest to the new owner.

If you invest carefully in properties in poor or bad areas, you will end up with cash flow that all the poser investors simply dream of.