Tag: property investment

This article is now on Inman News.

Takeaways:

• Find an inexpensive, stable real estate market and become a local property expert.
• Find private investors and a mentor who has done more than 500 deals to help you learn.
• Owner-financed real estate is always profitable.

Many of our investors in San Antonio financially retired when they were relatively young. They developed positive cash flow in investment properties without coming from money.

They were able to build nice portfolios of distressed properties in Texas in cash.

Here’s how you can do it too:

1. Find an inexpensive, stable real estate market

When most of our investors started, they were in college and didn’t have a lot of money. Some of them came to Texas and tried to invest in Austin; even 20 years ago, it was expensive. But many investors we have looked to San Antonio investment properties.

• $30,000 houses.
• Lots of blue-collar workers.
• Diverse and healthy job market, not just oil and gas.

This is a very good city for fixer upper homes under market value. I bought my first house for $25,000, rehabbed it for $5,000 and made 10 percent annually by renting it out. That was the beginning.

Lesson learned: Avoid real estate markets with high entry costs if your capital is limited. Lower-cost cities are much easier for beginners to invest, especially in distressed sales.
Avoid real estate markets with high entry costs if your capital is limited.

2. Find private money

So our investors would often have one or two properties but little in the bank. What to do? Make calls and find private money. You also can go to real estate meetings and look for capital.

It isn’t easy, but you can find some investors who will loan you money at reasonable rates; some of our investors have done that. It’s how they built a large portfolio of San Antonio distressed properties.

Lesson learned: Be ready and able to make hundreds of phone calls and knock on many doors to find private capital.

3. Become a local market expert

In the early years, many of our investors swung a hammer and did many rehabs themselves. Doing the work myself taught them to understand the little houses they invest in so they could become distressed property experts.

They learned what a San Antonio rehab should cost on an investment property and to never overspend on a rehab. Overspending on rehabs can kill your real estate career.

Some of our investors became real estate agents so they could source their own deals, and find deals at least 20% under market value.

Lesson learned: Learn your local market so you can get houses well under market value. Can’t find them in a hot market? OK, then go to a dozen real estate meetings in the next three months, and find an expert real estate investor who can help you find those deals.

Offer to help them with their business — anything from making calls to hanging bandit signs — in exchange for helping you find under-market-value deals.
Find an expert investor to help you find deals, and offer to help the investor with business.

4. Find a good real estate mentor

Starting in real estate investing without a mentor is like playing tennis without a racket. Every single rookie investor should work with an experienced, successful investor mentor who has done hundreds of deals and succeeded in boom and bust real estate markets. I found several in distressed sales.

You can find mentors at city real estate meetings. You also can go to real estate investor meetings in other towns. You can connect with a lot of rich investors with networking.

Lesson learned: Find a mentor who has been in the business for 10 years, has done 500 or more deals, and has made profits in the most recent real estate downturn. That’s someone you want to work with.

5. Invest for cash flow with owner financing

In 2005, one of our successful mentors taught me that rental real estate often is profitable, but done right, owner-financed real estate is always profitable.

So many investors stopped rehabbing and renting properties that year, and changed to owner-finance only.

Now, they buy for cash, do $10,000 or $20,000 in rehab, and resell the home with owner financing to a buyer with $5000 down.

This model has no ongoing maintenance or property management costs. Each house puts $500-$700 a month into their bank accounts, and they don’t have to do anything.

Every one of their investment properties has positive cash flow, and was bought solely for monthly cash flow from owner financing. Most don’t buy for appreciation.

Lesson learned: Think about investing strategies other than renting out houses. Owner financing is much less stressful, and the cash flow is more stable.
Owner financing is much less stressful, and the cash flow is more stable.

Following those five essential tips is what many of our investment property investors to retire early, and you can too!

This article now appears on Inman News.

Key Takeaways

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Popular thinking rejects my model, naturally:

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

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

Here is a typical property that I buy:

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

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

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

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

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

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

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

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

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

So should you:

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

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