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: $65,000.
Exit Strategy: Owner finance this out of state investment property with positive cash flow with only $10,000 in repairs completed in 30 days – $99,000, $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: Buy at $65,000, remodel $15,000, rent $995 per month.
Investors, you will never see a San Francisco investment property, Los Angeles investment property or a Seattle investment property at this price point and rate of return!
I have made my real estate investing career in buying and selling under market value properties in San Antonio TX.
I like to lovingly refer to my properties as ‘junk houses.’ I love that most investors see them as ‘junk’ and run away from them. I have made millions off of ‘junk houses’ that other investors are scared of.
The smart investor just has to look beyond the exterior ugliness and see the potential of the house and the neighborhood.
I just had yet another under market value success story I wanted to share with you. My out of state investment property investor bought this ‘junk’ house for $25,000 in November:
It had sat empty for years and was part of an estate sale. Now this house was ugly, no question about it. But it is located in an up and coming neighborhood in 78207, where the city of San Antonio has spent millions of dollars putting in running trails, parks, shopping plazas, green space and so on. This ‘junk’ house is only 2 miles from downtown and all the tourist attractions of the city.
Yet this under market value house sat for months and no investor wanted it. I grabbed it and quickly resold it to an out of state investment property investor.
Right next door to this ‘junk’ house were these owner occupied homes:
Those houses right next door are worth more than $100,000, but no one wants my under market value ‘junk’ house because it’s temporarily ugly:
The conventional investor wanting real estate cash flow cannot see past the ugliness, but I saw the potential here because of the neighborhood revitalization and the nice houses around it.
So, I sold this house for $25,000 to an out of state investment property investor who did $27,000 in rehab (which I did for him in 30 days), which included:
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
Note that I own a construction company, and my rehabs are typically 2/3 of the price of most companies’ rehabs.
Note that this is a seller financed property, not a rental property.
Below are the after rehab pics of this San Antonio investment property:
The ARV on this below market value property is $79,900. We just finished the rehab in the middle of January 2016. And, by early February, we already had an owner finance buyer for it: $5000 down, $800 per month, $79,000 final price, 10% interest, 30 year note.
The house was on the market for less than a month. So on a $52,000 investment, the out of state property investor will earn about 15% ROI with no more repairs because we owner financed the house.
This is the kind of under market value investing I do – I buy ‘junk’ houses that other investors reject and turn them into little gold mines.
Most of my investors wanting real estate cash flow usually buy Seattle investment property California investment property, San Diego investment property, Los Angeles investment property, or San Francisco investment property, and are shocked at the type of returns you can get here in San Antonio TX with San Antonio investment property – with no repairs!
Many of my out of state property investors come to San Antonio TX from San Francisco. They find it is very difficult to find affordable San Francisco investment property that will produce passive cash flow.
According to Forbes, 2016 is an excellent time to pick up under market value properties for cash flow in many undervalued markets. One of the most undervalued investor markets is San Antonio, which comes in at #6 on their list with a median price of only $189,000. It also is rated as their #4 boom town.
San Antonio is a much more affordable place than San Francisco to buy under market value properties.
San Antonio is where I have bought hundreds of under market value properties since 2000. I have made millions of dollars off of below market value, $50,000 houses that many investors would laugh at.
It’s much easier to make real estate cash flow on investment properties in the undervalued market of San Antonio. It is IMHO one of the best cities to invest in real estate given its growing population, affordable real estate, low taxes, and strong economy.
San Francisco Investment Property Hugely Overvalued = No Cash Flow
Meanwhile, San Francisco houses and San Francisco investment property is among the most overvalued in the US, according to Forbes. That magazine states that five of the most overvalued investment property markets are in California: San Francisco, San Diego, San Jose, and Los Angeles.
What is driving the lack of affordable investment property in San Francisco? There simply is not enough supply of market value properties for home buyers, which means that California investment property is just too expensive to produce real estate cash flow.
One of the reasons for that, Forbes says, is that many Chinese buyers have come into San Francisco and bought up San Francisco investment properties, paying full cash offers.
Another source says that San Francisco price to rent and price to income ratios have gone up by 25% from 2012 until 2015. The median price for a San Francisco house is $548,000 and is up 24% from a year ago.
In fact, San Francisco investment property houses are getting near to levels that were during the bubble years of 2006 and 2007. That was when prices in San Francisco were near $665,000.
I do not know how San Francisco investment property buyers can survive in that market, or California investment property generally. If you buy for appreciation, maybe you can do well, but that is far too risky for me.
I am an under market value, buy and hold, real estate cash flow investor.
A Good Example of Under Market Value, Cash Flow Property
Like I said earlier, I buy and sell under market value properties that many wealthy investors laugh at.
For example, this below market value San Antonio investment property was sold to my investor for only $25,000:
No one wanted this ‘junk house.’ I did! I saw the $100,000 houses next door lived in by the owners, and all of the revitalization going on in this area of San Antonio on the near west side.
Many out of state investment property buyers looking for real estate cash flow would never buy this house. My investor did for $25k, and then I did $27k in rehab:
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
The ARV on this below market value property is $79,900. We just finished the rehab in the middle of January 2016. And guess what? By early February, we already had an owner finance buyer for it: $5000 down, $850 per month, $79,000 final price, 10% interest, 30 year note.
That is what you can do with investment properties in an under valued market here with San Antonio investment property. Anyone who buys San Francisco investment property or Los Angeles investment property or Seattle investment property will never see these types of returns or prices.
Many home buyers and under market value property investors in the Seattle WA area have been looking for the last couple of years for affordable homes not too far away from downtown. But Seattle real estate is out of reach for many investors.
I have been reading that it is very tough going. According to Redfin’s Real Time Housing Market Tracker, it is very difficult to find under market value investment property in and around Seattle. In fact, you will have a hard time buying anything under market value within 50 miles of the city.
Redfin reported last year that Seattle actually pulled even with housing-starved San Francisco for the first time in history. Also, Seattle was reported to have the lowest home inventory ever, making it hard to find affordable Seattle investment property.
The nationwide view for housing generally was better in 2015, with prices going up an average of 10% overall. Only 18% of houses were sold above market value around the US.
But in Seattle….ouch. Last March, the median sales price in Seattle was $380,000. This was an 11% rise from the year before. The Seattle cash buyer does not know where to go for cash flow!
If you are an under market property Seattle investor, you are going to have a very difficult time producing passive cash flow a Seattle investment property.
Welcome To Texas, New Seattle Out of State Investment Property Investors!
I sold this ‘junk’ house for $25k, rehabbed it for 27k, and resold it for a 12% ROI for the investor in just one month. It sold for $89,900.
This year, I have actually picked up two near out of state property investors from the Seattle area looking for real estate cash flow. As it turns out, both of them were having an impossible time finding affordable properties that could generate cash flow.
As is often the case, these out of state investors have good jobs that make them $200,000 or more per year, but they must work 50 hours or more per week, and travel for 1/4 of the year or more. They want passive cash flow on below market value property, and that is what I do in San Antonio TX.
Usually, when a new investor comes in from out of state, such as California or Washington, I will put them into a nicer under market value property in a hot area. North of downtown San Antonio in 78201 is especially hot. Lots of young professionals are moving in there as it is so near downtown and all of the nightlife and tourist activities.
In many cases, I resell these below market value houses after rehab of 10-25k in days or weeks for 12%+ real estate cash flow. Here’s a great San Antonio investment property:
Address: 2229 W Hermosa Dr. San Antonio, TX 78201
Year Built: 1948
Description: Under market value property sale in hot north of downtown neighborhood, 2 beds 1 bath, 769 sqft, built: 1948, lot size: .14 acres yearly taxes: $1,200.00, estimated yearly insurance: $800.00, estimated repairs on this distressed sale: 35K, includes new HVAC, converting to 3 BR, updated kitchen, flooring, paint in/out, exterior skirt, roof, room addition, appliances, paint out door storage exterior, trash, lawn maintenance.
Max After Repair Value: $129,000.00 with owner financing, comps are for 3/1.
Cash Price: $69,900 firm.
Exit Strategy: Owner finance this out of state investment property with positive cash flow with $35,000 in repairs, $1295 per month, 10% interest rate, $5000 down, 30 year note. Or, do $15k rehab – HVAC, paint in and out, flooring, resell for $105,000, $1050 per month.
I have made my real estate investing career in buying and selling under market value properties in San Antonio TX that most investors are afraid of.
The under market value properties for real estate cash flow that I buy are scary looking, but you just have to look beyond the exterior ugliness and see the potential of the house and the neighborhood.
I just had yet another under market value success story I wanted to share with you. My out of state investment property investor bought this ‘junk’ house for $25,000 in November:
It had sat empty for years and was part of an estate sale. Now this house was ugly, no question about it. But it is located in an up and coming neighborhood in 78207, where the city of San Antonio has spent millions of dollars putting in running trails, parks, shopping plazas, green space and so on. This ‘junk’ house is only 2 miles from downtown and all the tourist attractions of the city.
Yet this under market value house sat for months and no investor wanted it. I grabbed it and now my investor has excellent real estate cash flow.
Right next door to this ‘junk’ house were these owner occupied homes:
Those houses right next door are worth more than $100,000, but no one wants my under market value ‘junk’ house because it’s temporarily ugly:
The conventional investor cannot see past the ugliness, but I saw the potential here because of the neighborhood revitalization and the nice houses around it.
So, I sold this house for $25,000 to an out of state investment property investor who did $20,000 in rehab (which I did for him in 30 days), which included:
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
Below are the after rehab pics:
The ARV on this below market value property is $65,000. We just finished the rehab in the middle of January 2016. And guess what? By early February, we already had an owner finance buyer for it: $5000 down, $650 per month, $65,000 final price, 10% interest, 30 year note.
The house was on the market for less than a month. So on a $45,000 investment, the out of state property investor will earn about 12% ROI with no more repairs because we owner financed the house.
This is the kind of under market value investing I do – I buy ‘junk’ houses that other investors reject and turn them into little gold mines with steady, no maintenance real estate cash flow.
I buy and sell wholesale properties in San Antonio TX every week that most investors say I should have just torn down. ‘Why would anybody buy an out of state investment property that looks like THAT?’
LOL! I have made millions of dollars in my 15 year, under market value property investing career, and most of it was on cheap, ‘junk’ houses selling for well below market value. Ugly houses that typical investors run screaming from.
I own dozens of previously ‘junk’ houses that I bought under market value that looked very rough, such as the distressed property you see below for real estate cash flow.
Take a hard look at that photo. Does that photo make you want to run away and hide? If so, sorry, but you are making a serious mistake. You can purchase under market value properties just like that one for $29,900. Then, you do not rent it.
No. Instead, you owner finance it to a blue collar, hard working buyer that we qualify for you. As long as the buyer can prove they are working steadily and have $5000 down payment, they can buy this house.
Here is where it gets even better for the below market value property investor: You can often sell a house such as the one below AS IS to an owner finance buyer. You might spend $1000 or $2000 to clean it up, but other than that, you often can sell the house as is.
I just sold this house with NO REPAIRS with owner financing in Jan. 2016, $500 per month, $5000 down.
So, if you buy ‘junk’ houses such as the one below for $29,900 and do no repairs, and then owner finance it for about $49,900, $500 per month. You can enjoy at least 12% ROI and never do any repairs! Not bad for excellent real estate cash flow.
Or, do $30k in rehab and resell it for $5000 down, $895 per month, $89,900 final price.
Either way, you are making an outstanding rate of return on an under market value investment property that most investors foolishly avoid.
If you want to get really wealthy with an out of state investment property, buy a dozen or more of these little, ‘junk’ distressed, San Antonio investment properties and owner finance them as I did. You will get $500 to $600 per month on each if you do no repairs, or $800 to $900 per month if you do the rehab. It’s up to you!
Address: 228 Yucca, San Antonio, Texas 78207
Year Built: 1950
Description: Booming San Antonio Market, very popular location west of downtown, this is a 2/1 that has a lot of potential, perfect for a young family. This is a great location and wholesale property, only a few minutes west of downtown and the Riverwalk. Property sits on a beautiful large lot, plenty of room for growth or a wonderful playground and garden.
Max After Repair Value: $89,900
Cash Price: $29,900 firm.
Exit Strategy: Owner Finance with 35K repairs: 5-10k down, $895 monthly P/I, or owner finance as is, $500 per month, 30 year amortization, 10% interest, Price: 89.9K, can sell note after 1 year; or rent: $900 monthly with 38K in repairs.
Notes: We recommend that you owner finance this house because you will have no maintenance expenses.
The majority of my buyers for real estate cash flow are former buyers of California investment property, San Francisco investment property, Los Angeles investment property and San Diego investment property. San Antonio investment properties are hard to beat for cash flow and low cost, especially when you do not have to do maintenance on them.
But remember, this is seller financed property, not a rental property.
If you are a real estate investor in California or another high-cost area, you probably are considering an out-of-state investment property. In the costly cities of San Francisco and Los Angeles, many real estate investors are priced out of the market.
This recent graphic of San Francisco housing prices tells the tale:
Investing in a market like that is brutal unless your closets are full of cash. Here in Texas, I have been blessed to build a big portfolio of under market value investment properties that are very low priced.
If you are ever considering an out-of-state investment property purchase, below are some pointers:
How to choose your out-of-state market
The best locales to invest in under market value properties depends on what you want to achieve. Do you want to flip for quick cash or buy and hold long term? I always want long term real estate cash flow.
Also, I favor investing in under market value, buy-and-hold properties — usually with seller financing. Long-term cash flow is, in my opinion, the best vehicle for massive wealth accumulation.
Anyway, note that a good buy-and-hold market might not be so great for flipping. In my home market of San Antonio, flipping is getting harder as prices rise.
Many flippers I know are starved of under market value deals that can turn them a decent profit. On the other hand, buy-and-hold investors like me are doing well; 10 to 12 percent ROI is still routine for my portfolio.
As you mull where to purchase your out-of-state investment property, consider these points:
State laws:Is your potential out-of-state market friendly to under market value property owners? I advise you to invest only in states that have landlord and owner-friendly laws. I want to be able to evict non-paying tenants and foreclose easily on defaulting buyers. Texas is property owner-friendly.
Population and economic trends:Is the state growing or shrinking in population? How is the job market? As an example, according to CNN Money, Texas is seeingrapid population growthand a strong job market.Forbes stated in a Jan. 14 articlethat four of its 53 boomtowns are in Texas: San Antonio, Houston, Austin and Dallas. A state with strong population and job growth will have plenty of renters and buyers needing houses.
Price-to-rent ratios:What does it cost to rent a house compared to buying one? CNN has a helpful graph on price-to-rent ratios.San Francisco and Honolulu have the highest ratios— over 30 — while Detroit is lowest at around 10. Generally, I recommend buying in a market with a moderate price-to-rent ratio.
This is not an exhaustive list of considerations for buying out-of-state investment properties. However, if those three points look solid, odds are you will produce positive cash flow in that area.
How to locate a good out-of-state investment property
If you have a good idea of your best city to invest in, how do you know which under market value property to buy? Most investors go one of two routes:
Find a great real estate agent or investor who knows how to scout for good under market value properties and wholesale property. Hopefully, he or she will network with top-notch property inspectors, rehabbers, title companies and a real estate attorneys.
Find a reliable turnkey property company. These under market value properties have been 100 percent rehabbed and often have tenants already in place.
Which route do you choose? It depends. Many out-of-state property investors want zero headaches or stress and don’t want wholesale property. So they purchase turnkey properties.
Other investors want to save money, so they find their own under market value properties and coordinate their own rehabs and property management.
If you handle your own investment properties out of state, consider:
Upsides
You get the house cheap
High ROI
You control rehab costs
Downsides
The house has zero cash flow during your rehab and time to find the occupant
Rehab costs might skyrocket if your partners on site are not top tier
It’s difficult to manage rehab from 1,000 miles away
Material costs can increase when you do one rehab at a time
If you buy turnkey, consider:
Upsides
There’s no rehab to worry about
An occupant is in place
There’s no muss or fuss on your part
Material costs are standardized
The quality of work is there for you to see from the start
The entire investment team is in place
Downsides
Higher upfront cost
Lower ROI
How much is the difference between buying an under market value property yourself or a turnkey property? In my experience, I can do the rehab on a distressed property for half of what a typical rehab crew will charge.
That can make a difference of 2 to 3 percent in ROI per year. That adds up over time. However, I’m a full-time investor with a construction company. My rehabs cost less because I do 100 per year. You might not be able to do that, so a turnkey might make more sense.
For the beginner, I might lean toward buying solid turnkey company in a low-cost market as a first out-of-state investment property. That will help you dip your feet into the investing waters with some positive cash flow, then you can grow into building your own under market value investment team. Above all else, look for solid real estate cash flow from your distressed properties to get the best start in real estate.
Lots of people want to know: stock market or real estate? Real estate or stock market? Anyone who knows me – an under market value property investor in San Antonio TX who owner finances everything – knows that I always will prefer real estate investing over the stock market.
Investing in real estate right can make you a millionaire at a young age. Some of us used to invest in the stock market but lost our rears in the early 2000s, not to mention 2008.
Many people think that if we put enough cash into the stock market, we will be able to retire and not incur a great deal of risk. The problem is that it often takes 30 years to invest enough, and you never know when you are going to be about to retire, and suddenly the market dives. When that happens, many would be retirees end up having to work another 10 years or more.
The low interest rates in the last few years mean that elderly people often have 50% of their money or more in stocks. This is often because they took such a hit in the big economic downturn in 2008. Now they have to take a lot more risk with stocks.
For me, once I got out of the stock market with my $50,000 and invested in real estate, I become wealthier much faster. I began in 2001 and had 40k of college debt, but by investing in below market value properties, I was able to be essentially retired at age 28 with 20k+ per month of cash flow.
I find that investing in under market value property just produces more steady cash flow than any other vehicle. I never have to ask invest in stock market or real estate, invest in real estate or stock market. It’s 100% under market value real estate for me.
I always choose real estate over the stock market because my returns are like this property below:
$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 out of state investment property 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 out of state investment 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%
I will make nearly 13% per year without repairs on this under market value property until the buyer decides to refinance. Most stock portfolios cannot produce that type of steady return. That is why I always recommend investing in real estate instead of the stock market. Invest in real estate or stock market? For me it is not a choice at all.
Investing in under market value properties wisely can bring you passive income year after year. It’s such an attractive notion that many real estate investors end up getting overeager and jump into real estate investing too quickly without enough thought, and they make big mistakes.
I see a lot of new real estate investors make major mistakes especially when the market gets hot, such as it is now in San Antonio TX where I invest in below market value properties. New investors jump in when things are ‘hot’ and they make a lot of errors, and many get out quickly.
I have made millions of dollars in under market value property in San Antonio TX, but there are lots of mistakes rookies can make.
Here are some of the biggest mistakes I see real estate investors making when investing in under market value properties:
#1 Listening to Someone Who Has Never Invested in Under Market Value Property
There are plenty of people out there who have never invested outside of their 401k and will tell you how awful it is to invest in real estate. Or, if they have invested in under market value real estate, they probably made some of the errors you will see here. You should ignore people who just generally bad mouth investing in real estate. I financially retired with distressed properties in San Antonio TX at age 28, so I know investing in real estate can work!
There also are people who are actively investing in real estate who just trash the business. They must have made a lot of mistakes and are losing money. You should ignore them too.
#2 Listening to a Person Who Wants to Sell You a $30,000 Real Estate Investing Program
On the other end of the spectrum, you have people who are overly enthusiastic about investing in below market value properties. If you will only buy their expensive training program, they will show you how to make a million dollars in real estate this year. Most of those programs are taught by ‘gurus’ who do not actively invest in real estate.
In most cases, there is nothing in that $30,000 program that you cannot find out mostly for free online or from free mentors. If you must spend some money to learn the business, consider paying a local expert investor a few thousand dollars to teach you how to invest in under market value property.
I have personally spent thousands of hours learning my local market in 78207, 78210, 78201 and a few other zip codes in San Antonio. No one knows my under market value neighborhoods better than I do. It is that knowledge that allows me to find really good distressed property deals.
The key to being successful in real estate investing is learning your local market so you get good deals under market value in areas that people want to live in. You also need to be able to build an expert team of contractors, agents, investors, real estate attorney, title company, etc. That’s the key to success in real estate investing, not an expensive program.
The other option is to partner with an expert wholesale property team in your city who finds you the best under market value properties. There are plenty of good ones out there. In my case, I buy the distressed properties for cash after doing careful research on the house and the area.
Then I resell the house to an investor, do the $30,000 in repairs for them, and resell it with owner financing. This is a good strategy for the out of state property investor who does not have the time to be a landlord or to become an expert in the market.
#3 Buying Under Market Value Property for Appreciation
When you buy real estate and wait for it to appreciate, you aren’t really a real estate investor. You are a speculator. Now there is nothing wrong with speculating in real estate; I have bought some land outside San Antonio before and waited for it to appreciate and I did ok.
I also bought a car dealership at 1/2 price and waited a year and then resold it for a 100% profit. But buying for appreciation is not my main business. And here’s the key – I have passive income coming in from my investment properties, so I can afford to speculate.
Many under market value real estate investors will get into the business without a lot of cash and will buy a property waiting for it to appreciate in value. This is big trouble waiting to happen. That property may be producing negative cash flow, that is, costing you money every month, while you wait for it to appreciate.
I do not care if my under market value properties appreciate or not. If they do, fine, if not, fine. I still am making 12% per year on my properties without maintenance (I owner finance everything I own).
The bottom line on appreciation is you never know exactly when house values are going to go up or down. Betting the farm on that is a risk I am not interested in.
It also is not a good idea to buy a fix/flip house and hope for appreciation. The market has to keep going up in value for you to turn a profit. A ton of flippers went bankrupt in the last crash doing this.
I mostly buy and hold my investment properties in San Antonio, truly one of the best cities to invest in real estate (strong economy, cheap under market value properties, growing population). But when I do buy a flip property, I buy it 20% under market value or more so I am well protected from a downturn in the market.
#4 Underestimating Repairs on Under Market Value Property
This is one of the killers of new real estate investors – they spend too much on repairing the house. It is easy for even experts to underestimate the repairs needed on a property. I own a construction company and I usually do about $20,000 of rehab on an under market value property.
But sometimes when I get in there, I see that the foundation needs more work than I thought. Fortunately, I can afford it and I always add about $5000 or $7000 to the cost of the rehab to be safe.
New investors will very often vastly under estimate repair costs, and overpay a retail priced contracting crew for the work. There goes your profit. I’ve done nearly 1000 deals in my career with thousands of properties, so I know what a rehab is going to cost.
I also owner finance my houses to blue collar workers, so I repair the house enough to get it sold, and leave the rest of the work to the end buyer.
Remember to not over improve the house. People tend to want to make the house as nice as where they live. You do not want to make the house any nicer than houses on that street.
I do not advise new under market value property investors buy an old house on their own. The older the home, the more fixes it will need. And that old house may eat up all your profits in repair costs. You really should partner with an expert real estate investor in your city to make sure you make money on your first deals.
#5 Overpricing Your Below Market Value Property When You Sell It
A new investor often will pay too much for the house, under estimate the repairs, spend too much on the rehab, and then overprice the house when they sell it on a flip. That house could sit for months and be difficult to sell.
I am not a regular flipper as it gets harder and harder to make a profit when the market is appreciating, such as it is now in Texas. I find that I can make more money in more real estate market situations with buy and hold, owner finance.
Everyone enjoys getting a higher rate of return on their under market value property, which is why many investors look for out of state investment properties – meaning investing in lower cost markets than say, northern California.
But there is no question that there is some risk involved in investing outside of your home territory. This can get particularly dicey if you are investing in out of state investment property for appreciation. As a financially retired real estate investor in Texas, I never bought under market value properties for appreciation. Never! It is just too risky.
I always buy my below market value properties in San Antonio TX for regular, steady cash flow.
When buying out of state property, it is easy to be lured into a questionable market by low prices and promises of high rates of return. Here are some of the pitfalls you may run into when investing out of state:
Your under market value wholesaler may tell you that the property can rent or owner finance for a higher monthly amount than the market supports. You should make sure that the rental and sold comps for the property support the proposed monthly payment. Note that you can eliminate most repairs on a property if you owner finance the house rather than rent it out.
Under market value buyers in some out of state real estate markets are shocked to find out that they cannot sell the house as quickly as they like. Some developers in some states may restrict selling a property in the first year. I always buy under market value properties in C neighborhoods in San Antonio, so I do not have this issue.
You buy an under market value property out of state and you discover that you are not allowed to lease it. Sometimes a homeowner’s association will pass a new restriction that limits leasing a property. Most of the neighborhoods I buy my below market value properties have no HOA.
Extra costs for investing out of state. Other states and localities may have higher taxes and transfer fees. In Texas, we do have higher property taxes as we have no state income tax.
Under market value houses in out of state markets may not appreciate as quickly as what you were promised. I never buy below market value properties for appreciation, so any appreciation is just icing on the cake for me.
Property management companies may not manage your out of state investment property effectively. I always recommend that out of state investors owner finance properties when they buy them from me to eliminate property maintenance issues.
Generally make certain that you do your due diligence when buying out of state investment property under market value. Do careful research on property values and price to rent ratios for the specific neighborhoods you are considering.
