under market value property – Page 3

February 6, 2016February 16, 2016

A $25,000 ‘Junk House’ Case Study – 15% ROI for Out of State Investor

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!

February 5, 2016February 10, 2016

Looking for Real Estate Cash Flow in Under Market Value Property in Seattle? Good Luck!

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.

These San Antonio investment properties are reselling fast right now; in fact, I just rehabbed and resold this under market value house in a few weeks after rehab was done.

February 3, 2016February 7, 2016

A $25,000 “Junk” Under Market Value House Success Story in San Antonio

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:

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.

January 30, 2016February 16, 2016

How $29,900 ‘Junk,’ Under Market Value Properties Can Make You Wealthy

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.

Front — 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.

January 29, 2016February 7, 2016

Should I Buy An Out of State Investment 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 seeing rapid population growth and a strong job market. Forbes stated in a Jan. 14 article that 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.

January 29, 2016January 29, 2016

Forbes: San Antonio TX Is #3 Best City to Invest in Real Estate, Beating Austin TX!

According to a recent survey by Forbes magazine, San Antonio TX is one of the best cities to invest in real estate. According to Forbes, San Antonio has all of the features of a good city to invest in real estate, or to buy a home to live in:

Strong job growth
Strong growth in population
Home price appreciation

San Antonio also is still considered to be under valued. Forbes stated that Texas has three cities on the list. Note that the average home price in San Antonio is only $201,000. Of course, the under market value properties that I buy are usually from $25,000 to $70,000.

Also, the cities in Texas that get more play than San Antonio – Dallas and Austin – are #6 and #7 on the list respectively, with much higher housing prices. Austin’s average home price is a high $281,000, which makes it not as good a city to invest in real estate. I avoided investing in Austin years ago and found San Antonio much more affordable with good cash flow.

One of the big benefits of investing in under market value property in San Antonio TX as an out of state property investor is that this area does not experience major booms and busts like other cities. The last recession hit much of the country hard, but the downturn here was quite shallow. Texas has rebounded strongly in the last five years, and most of the jobs created in the US have been in TX.

The energy boom with higher oil prices helped to fuel San Antonio growth, but even with cheap oil now, San Antonio still is doing well as we have a very diverse economy. San Antonio is home to many financial firms and data centers, Forbes adds. And, the year over year job growth in San Antonio is higher than Austin 3.7% vs. 3.3%.

Forbes thinks that Texas will be a good place to invest for years for out of state property investors , especially San Antonio, until houses are over market value. However, I always buy my investment properties under market value, and I see no sign that this is going to change.

What kind of under market value property do I buy? Here’s a great example:

Address: 1609 W Travis St, San Antonio, Texas 78207
Year Built: 1950
Description: Booming San Antonio Market out of state investment property, very popular location west of downtown, 1609 W Travis St, San Antonio, Texas 78207-3567, 3 beds, 1 bath, 1100 sqft, estimated repairs: 38K, includes paint in/out, new HVAC, flooring, foundation, update kitchen/bath, etc.
Max After Repair Value: $89,900
Cash Price: $35,000 firm.
Exit Strategy: Owner Finance with 35K repairs: 5-10k down, $895 monthly P/I, 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 out of state investment property because you will have no maintenance expenses. ROI will be ~10%.
Contact us for more information or to make offer.
Sold and Rental Comps: Rental Comps 1609 W Travis Sold Comps 1609 W Travis St

This type of under market value property in San Antonio is exactly what helped me to financially retire at 28 years old. It really is the best city to invest in real estate.

January 28, 2016January 31, 2016

How $20,000 ‘Junk’ Under Market Value Properties Make Me Rich

Many under market value real estate investors cannot believe that I have become very wealthy by buying and selling below market value ‘junk’ houses for $20,000 or $30,000. The fact is, I have bought and sold hundreds of these distressed properties in the last 15 years in San Antonio TX.

There always is very strong demand for these little, profitable under market value houses. We have so many blue collar, Hispanic workers here who have rented forever and want to buy a house but do not have credit. I consider it a great opportunity to work with these people so that they can buy their own house.

Just because the house is unattractive to you or I does not mean it does not hold value for some buyers. Most of my under market value buyers are contractors, and they can repair the house and turn it into a very livable little home. These are great little houses for the out of state investment property investor. Note that the house is always sold at fair market value, never above fair market value.

For example, the house below was said by some people to be worthy of a tear down. They are not wise investors; I have been criticized on ‘investor websites’ such as Bigger Pockets for this type of investing. Frankly, they are fools – conventional thinking, 20% down, rental property investors.

I have made a few million dollars off of these ‘junk’ owner finance properties that many so-called ‘investors’ overlook, and provide a house for a hard working person to live in. But note – investing in under market value properties and owner financing them takes cash. It’s an advanced investing system for out of state property investors with cash.

Most of my blue collar worker buyers had rented for years, and some of them had truly ‘slumlord’ type landlords; I’ve heard the stories from my buyers. Buying a house via owner financing such as this can be a better option for some workers, as long as the house is priced at fair market value.

Here are the details:

front 3 — $20,000 cash purchase, $5000 in rehab, 65 DOM, sold for $39,900 owner finance (Fair Market Value), ROI 12%.

This is an example of our lower priced affordable home, but still an excellent investment in property. These houses will sell in our neighborhoods in San Antonio TX. It is a 4/1 on Colima Ave. in the 78207 zip code. It was purchased by the out of state investment property investor for $20,000 cash, which was well under market value. He had it repainted in and out and the door secured, and other minor fixes. That cost him $5000 total in repairs.

Houses in this range and location do not require major repairs and upgrades to resell.

We then sold the house with owner financing to a qualified end buyer. The buyer was qualified according to SAFE Act – documented income, tax returns, pay stubs, employment verified. All Dodd Frank underwriting rules were followed.

Terms:

$3000 down
$400 per month PI/TI
30 year amortization
10% interest (legal in TX – sorry Bigger Pockets!)
No prepayment penalty
No balloon
Final price: $39,900 (FMV)
ROI: 12%

Note: The final price for the owner finance buyer is FMV and DOES NOT constitute ‘predatory lending,’ which is illegal per Dodd Frank regulations. Sold comps in the neighborhood on properties of similar size, age and condition are approximately $39,900 to $49,900 – if elec and water work and roof is not leaking.

A CMA was run on similar houses within a two mile radius. Max value in that area for similar houses is $99,900 for an immaculate property that has been updated.

More photos of this below market value property:

It has been occupied by a blue collar, owner finance buyer for a year, and I know that many repairs have been made to it. All the while, it has returned 12% ROI of passive income to the investor.

Buying and selling these little ‘junk’ under market value properties has been very good to me, and can be for you, too. You also can buy nicer homes here in San Antonio and do the same thing, if this type of property is not your cup of tea – such as this under market value property.

January 27, 2016January 30, 2016

$25,000 Under Market Value Property – San Antonio TX 12% ROI

One of the best ways to make passive income in real estate investing is under market value properties. Every one of the houses that I buy in San Antonio TX are at least 20% under market value. By buying a property that is under market value, you always know that you will be well protected if there is a downturn in the market while you are working on the wholesale property.

Most of my below market value houses in San Antonio TX might be called ‘junk houses,’ but there are three things you should understand:

I owner finance my houses to mostly blue collar Hispanic contractors, who greatly value the opportunity to own their own home without any banks involved.
There are 500,000 or more blue collar Hispanic workers living in the communities I buy under market value properties. There always is a strong market for owner financing these distressed homes.
These under market value investment properties can easily produce an investment return of 11-12% without any maintenance. In some cases, these below market value investment properties can be sold without any repairs at all; I just sold a distressed, $25,000 house this week to a blue collar worker for $45,000, $5000 down.

In short, these below market value investment properties in San Antonio, Texas are an excellent source of cash flow that have made me wealthy. Here is a nice $25,000 wholesale property that will make at least 12% ROI if rehab is done. I also can market it with a quick $2000 clean up and the ROI could be 14% or more:

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: $25,000 firm.
Exit Strategy: Owner Finance with 35K repairs: 5-10k down, $895 monthly P/I, 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.

January 24, 2016January 24, 2016

Should I Invest in the Stock Market or Real Estate?

To invest in the stock market or real estate? Many people are asking themselves that question right now as their stock portfolios take a beating. I have been on both sides of this and have a strong opinion.

In the last 20 years, I have invested in under market value real estate as well as the stock market. I have reached a firm conclusion: Investors generally speaking are better off to invest in real estate over the stock market.

Even though I have done well at times when the stock market increased in value in the early 2000s, I have been able to make much more steady passive income from investing in below market value properties.

Conventional thinking investors think that if we invest sufficient cash into the stock market, they will be able to stop working with little risk. The big problem that most people have is how many years it takes to invest and the big ups and downs of the stock market.

Invest in the Stock Market or Real Estate?

Given the low interest rates we have seen for the last eight years, many older people are far more invested in stocks than they ever thought they would be. This is understandable as they need to grow their portfolio so they do not run out of money. But there is a lot more risk by investing in stocks rather than bonds.

With under market value real estate, you can stop working much earlier and safer than the stock market, if you do it right. Take me: I started out in 2001 with $40,000 of college debt and was financially retired in real estate by 2007 with $20,000 per month in passive income from investment properties. I did invest in the stock market early on and made nearly $100,000; of course I lost half of it in the stock market dive after 9/11. That is when I started to look at investing in under market value real estate in San Antonio.

Investing in real estate instead of the stock market has many advantages:

Leveraging your money, if you decide to get mortgages and rent out the property (this is not what I do, but many do so)
Long term, steady cash flow- every one of my under market value properties produces $600-900 per month of steady cash flow without repairs.
Tax breaks – rental property owners enjoy many tax write offs and depreciation write offs.
If you know what you’re doing (or working with an expert), you can buy under market value properties in real estate and make 10% a year or more, year after year.

It Is Tough to Retire Reliably By Investing in the Stock Market

The US government and most traditional investing models tell us to invest in stocks and mutual funds. Over time, the stock market generally goes up in value. I learned this the same as everyone else and I first invested in the stock market when I graduated from Northeastern University 16 years ago.

I quickly got frustrated with this because I found that while I had years where I made 15% per year, I also had terrible years, such as right after 9/11, when I was negative growth and lost 10s of thousands of dollars.

I also ran the numbers in retirement calculators and was amazed at how long and how much I would be investing before I could ever stop working.

Even worse, I was just spitballing when I would die, and I also had to take a guess at what my investment return would be. If I lived longer than I thought or didn’t get the return I thought, I’d run out of money!

Then I Discovered How Real Estate Investing Is Better Than the Stock Market

I have been investing in below market value property since 2001. After I lost 50% of my net worth in the stock market after 9/11, I left Boston (where I went to college) and came home to TX. I soon discovered something amazing: I could buy houses under market value in San Antonio by 30% or more. With some rehab, I could rent them out or owner finance them and make a steady 10% per year, or even 15% in some cases.

Investing in Real Estate Provides Cashflow!

When you buy your under market value properties, look at how much passive income they produces. I see at least $600 per month of cash flow on my deals. I buy my houses in cash and owner finance them at 10% so I have no repair costs. I prefer investing with owner financing than renting so I have more cash flow and no maintenance.

The cash flow from my under market value properties continues year after year. I only hold the note on the property, so I never have to be a landlord. Once you have enough of these houses, you can retire. I actually did ‘financially retire’ at 28 once I had $20,000 per month in cash flow.

Now, some stock market investments will generate cash flow, but rarely are dividends going to give you a steady 10-15% annual return. You might see a 15% return on your stocks, but that is just on paper and you will see no cash gain until you sell. Meanwhile, I am getting steady cash flow every year from my below market value houses.

If you rent out your properties, you also enjoy appreciation of the asset (all of my houses are now owner financed, though).

How I Get Great Returns in Real Estate Investing

Everything comes down to buying a house under market value. As a Texas real estate agent with 15 years of experience, I am very skilled at finding these houses and negotiating a price that provides me or my investor with at least a 10% annual return. Many of these below market value houses are REOs, short sales or estate sales. The seller may want to get rid of it and just recover some cash.

I buy my houses at least 20% under market value. So if I buy a $50,000 house, I have to see at least $10,000 in equity when I close.

Note that it does cost more to buy and sell houses than it does to sell your stock. But if you are smart and buy under market value, you will more than make up for that.

Rental Properties Have Major Tax Advantages

I no longer rent out my properties, but no doubt, many of my investors do rent them out and enjoy great tax benefits. Under market value properties may be depreciated, so the cost of the house, repairs and any improvements can over time be depreciated. According to the IRS, you can deduct your depreciated value of the house from your yearly taxes over 26.5 yrs. If the house is $100k, you could deduct about $3700 from your income each year, which would save you about $1000 per year in taxes.

One Downside of Rental Properties

They require management and repairs. You cannot just buy a rental property and forget about it, like a stock share. But with my system of owner financing, I can pretty much buy the house and get a buyer in there, and it pays me monthly cash flow, even better than a stock.

My Rate of Return Over 15 Years Beats the Stock Market

I own more than 50 owner financed properties in San Antonio TX, and over 15 years, I have made over 13% on average from all of my properties, ranging from $500 to $900 per month in pure cash flow without any repairs.

From 1950 until 2009, the stock market returned an average of 7%, and that mostly is on paper, so you have to sell to realize the gain. Meanwhile, I make 10 to 15% per year on my under market value, owner financed properties in San Antonio.

Also, the stock market has very bad years, such as 2001 and 2002, when the stock market dropped 10% to 20% per year. If you were on the cusp of retiring those years and lost 50% of your net worth, you were out of luck. I know people in that situation. And I was making 13% per year or so at that time on my houses. Demand for my under market value properties only goes up in a downturn, too.

If I would have to invest more than $500,000 per year at 7% interest in a tax deferred account to generate the cash flow that I have in under market value real estate. I would have to continue to invest that every year. I have more than $40,000 in cash flow coming in every month right now from my properties without investing a dime more.

So, when you think to invest in real estate or the stock market, I think the conclusion is pretty clear – investing in under market value real estate makes a lot of sense long term, due to the rate of return and the passive cash flow – especially if you owner finance the properties.

January 23, 2016May 29, 2021

Five Big Mistakes To Avoid When Investing in Under Market Value Property

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.

Here’s a great example of the kind of under market value investing I do.

#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.