In February, we sold one of our cash investor’s properties in San Antonio by owner finance to a homestead buyer. Are you surprised, given its appearance? Many investors would pass by a house that looks like this – the conventional rental investors at www.biggerpockets.com were outraged that we sold this house to a buyer. But what would you expect from a bunch of landlords with mortgages? Conventional thinkers – enjoy your $200 a month in cash flow and your repairs! 🙂
As the picture shows, this is a rough 4 bedroom, 1 bath located on Colima Avenue on the near west side of San Antonio. It has approximately 1400 square feet and obviously needs a lot of work.
Our investor bought this property one month ago for $20,000 and spent approximately $5000 to make minor repairs and to paint it inside and out.
Many of the investors that I talk to have told me that they would demo this house; obviously, no one would ever live in such a place!
That is an understandable reaction. But it is a mistake and a lack of understanding of the affordable home demand in our city – we should not view these properties from the point of view of how we the investors live, but how our end clients live. This house presents an excellent opportunity for a blue collar contractor who has rented for years and never thought he could own a home.
We have made a very profitable career out of buying houses such as these that other investors pass on. We love the fact that other investors recoil in horror at these houses!
We had dozens of calls from owner finance buyer candidates for this house.
We are able to buy and resell these houses effectively in San Antonio because of our end buyers – mostly blue collar, contractor Hispanics who love to buy cheap, run down homes and fix them up.
While this house looks very rough to most investors, the right owner finance buyer sees it as an opportunity to own a home cheap and to fix it up into a nice little house.
The end buyer on this home was thrilled to get it, believe it or not. He had the $3000 down payment in a McDonalds bag, and has documented income which we carefully verify per the SAFE Act. He already has the keys and is starting to rehab it.
Terms on this deal:
- $3000 down payment
- 10% interest
- $400 per month
- No prepayment penalty, no balloon
- 30 year note
- Final price: $39,900 (FMV)
All Dodd Frank underwriting rules are followed in buyer qualification process.
Owner finance price is FMV and IS NOT ‘predatory’ lending, which is highly illegal.
Our investor is going to make a 12-13% cap rate on this property, after tax/ins are paid. He has no other expenses.
Despite what some investors think, you can do extremely well on cheap, distressed houses, and not maintain them.
Note: This strategy may or may not work in your specific market. The strategy works well in our San Antonio affordable home market, your experience may differ. Any REI strategy has risks, and this one is no different. Be sure that you follow all applicable laws and regulations in your area. Dodd Frank rules require that all potential owner finance buyers be fully qualified to ensure their ability to repay the loan.