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Utter Real Estate Investing Failure in 3 Easy Steps

The numbers are stark: Almost 95% of ‘real estate investors’ fail. They never do a single deal. Or they quit after six months, or they lose money. “Real estate is tough racket,” they say as they trudge off to their day job.

Meanwhile, I have been a successful real estate investor for many years. I have personally seen hundreds of aspiring investors come and go over that span. But I’ve continued to buy under-market value property in San Antonio for years. What do I do that so many other investors don’t?

For me, real estate investing is simple mathematics. Here’s how I do it:

I invest in a home 20% under market value with cash.
I do $5000-$10,000 in rehab (never, ever over rehabbing)
I resell it at 100% market value with owner financing.

That’s it, friends. There is no magic formula or strategy. It is just elementary mathematics that produces excellent returns on the funds invested, such as this home in San Antonio:

park3

Purchased for $65,000 cash.

  • $10,000 in rehab.
  • Resold w/owner financing @ $99,000 (FMV).
  • ROI: 12.9%

But the people who fail in real estate investing don’t do that. They do silly things that lead to failure. If you want to fail in this business in three simple steps, this is a typical path:

#1 Chase the Easy Buck

Many aspiring real estate investors jump into the market when times are good. Or maybe they saw a TV flipping show or attended a ‘real estate guru’ class in their town. Real estate investing is portrayed as simple and easy, and you can be rich in a few months.

Baloney. Don’t get me wrong: My system above IS simple, but it took me YEARS of work, developing knowledge of my market and my houses, and growing a good reputation in my city so that I find those under market value deals. I had many millionaire mentors along the way that showed me how to find those great deals.

You don’t do that quickly. It takes years of work. So, take a class, read a book, make an offer, and try to get rich quick and easy. You’ll fail.

Take Away: Becoming rich in real estate is at least a 5-year process. Jumpstart your progress by working with a top-notch real estate investor in your city. Offer him your time and service in exchange for learning the ropes.

#2 Don’t Work Hard

As mentioned above, real estate for me is ‘easy’, but it’s largely because I worked my ass off in the early years. I’m talking 200 phone calls a week searching for money, tearing out dry wall and painting houses myself eight hours per day….it was a ton of work.

And I didn’t come into real estate with any advantages. I had to work for everything I had. After busting my tail for months, I found investors willing to lend me money on a per project basis, and split the profits 50/50. That got me really going.

On the other hand, real estate investor failures don’t work hard and make excuses.

  • ‘I’m too busy with my day job.’
  • ‘I don’t have cash.’
  • ‘My credit stinks.’
  • ‘I don’t have any connections.’

BS! Every one of us in America has the same exact shot to succeed in real estate. Successful investors often didn’t have money or connections in the beginning. They just never gave up and worked like dogs till they got their first profitable deal done.

Take Away: Make real estate investing a full-time job if you can. If you still have a day job, fine, but spend at least 15-20 hours per week on your business. And take your business seriously: Get business cards, a checking account, website and a registered business name. If you don’t take yourself seriously, no one else will.

#3 Focus on Too Many Things

I attend many real estate investing networking events (I attended 4-5 per week in my early years, looking for private cash). Last year I was at a small networking event in San Antonio with half a dozen landlords. They didn’t really know who I was. One of the attendees was a mostly real estate investing failure. I told him how I invest:

Buy distressed houses 20% under market value, resell at 100% market value, make 12-13% ROI with no maintenance costs.

Now I’ve done this for years and have done pretty well. I’m very focused on this small real estate investing niche. And what does the mostly failed investor say to me? ‘You know, it’s kinda risky to put all your eggs in one basket. I’d go buy an apartment building and a trailer park to diversify.’

Frankly, I had to stifle my laughter! Most real estate failures don’t focus on one or two areas; they focus on EVERYTHING! If you try to become an ‘expert’ on a dozen different areas of real estate, you’ll fail. You’re spread too thin, and you are never going to really learn one or two real estate areas well.

A huge factor in my cash flow success has been micro focusing on distressed real estate with owner financing in San Antonio. That’s all I do. My entire team is focused on affordable housing in my city, and my entire network is built around the same. That one small niche and being an expert in it has made me wealthy.

Take Away: Get FOCUSED. Become an expert in your niche, whether that’s trailer parks, 4 plexes or distressed single-family homes. Any of those can make you wealthy if you become an expert and develop a successful team and network. Work with an expert in your desired niche and focus on nothing else.

That is a typical path to real estate investing failure. Don’t take that path! Find an expert mentor, work your butt off, and focus completely on a profitable real estate niche in your area, and you will be a success!

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3 Reasons San Antonio TX Beats Austin in Real Estate Investing

When I first started my real estate investing career years ago, I considered Austin but eventually settled on San Antonio.

Why? After all, Austin gets all the press, such as this latest list , promoting Austin TX as the best city to invest in in the US. Lists like these are probably why many California cash buyers I talk to first want to only invest in Austin. Compared to investing in San Francisco, Austin is a steal. But San Antonio is much better!

Investors should rethink their plans. Prices are skyrocketing in Austin, and the market is overvalued. Statistics state that the median house price in Austin is $269,000 as of August 2015, which was an increase of 8% from a year ago. Meanwhile, down here in San Antonio, we can still  buy houses for $60,000 and get 12% ROI in many cases.

It is true that median prices are also up in The Alamo City – with a median price of approximately $240,000 in August 2015. This has caused the prices in my neighborhoods – including zip codes 78207, 78210, and 78201, to increase into the $50,000-$70,000 range.

In the early 2000s, it was hard to find a decent distressed house for under $40,000 in Austin. And down here in San Antonio, back in 2001, there were $30,000 houses all over in good zip codes.

Below are some other reasons to buy wholesale properties in San Antonio:

#1 Cap Rate, Cap Rate, Cap Rate!

It really just largely comes down to that. In San Antonio right now, I can still purchase investment properties such as this one on Southport Ave. in 78223:

Purchase price for the investor was only $49,500, or 30% under FMV. It’s a 3 BR 1 bath, and the investor put $11,300 into the rehab. Total cost was $60,800.

The return on this investment with owner financing is an excellent 13.8% cap rate. Such houses in Austin will be at least $80,000 or more. This due to the fact that the median income in Austin is over $52,000 per year; in San Antonio, it’s only $41,000.

#2 San Antonio’s Workforce – Blue Collar

Austin is a growing tech hub, and while that is a great thing for Texas (Google Fiber is coming to San Antonio in part due to its proximity to Austin), the higher cost of housing there drives out many of the blue collar workers that are so common in my city.

San Antonio is growing quickly, even with the decline in oil prices in 2015. In fact, it is showing more rapid millennial grown than Houston, Austin and Dallas! The reason for this is that the industrial base here goes far beyond the oil and gas industry, which gets so much of the headlines. Job growth in San Antonio remains strong, and so is consumer confidence.

San Antonio also boasts of a booming medical and biomedical industry, actually accounting for the majority of the city’s economy. And five of the top 10 tourist spots in Texas are here.

Some of the biggest employers in San Antonio include:

  • The US Army
  • HEB
  • USAA
  • Frost Bank
  • Rackspace
  • Toyota Motors

There also is a huge population of blue collar, Hispanic workers who make $3000-$5000 per month here, and they always are looking for an affordable home to live in.

Those blue collar buyers are the foundation of my real estate investing business! No matter if the economy is great or not so great, I always am able to find qualified buyers for my owner financed properties, such as this great deal in 78201.

The steadiness of the San Antonio job market means that this city is always a good place to find stable, lower income workers that can make regular monthly payments. That means 10-15% returns for real estate investors – no matter the market.

#3 San Antonio’s Workforce – Hispanic, Family Oriented

Some investors mistakenly think that a higher income city is a better place to invest. I disagree. The median income in San Antonio is lower than Austin, largely due to the fact we have so many blue collar Hispanics here. These are hard working, family oriented people who often are 2nd, 3rd or 4th generation Americans, yet they have stayed in San Antonio and have worked blue collar jobs for decades.

These folks make up the backbone of our owner finance buyers. We know Iwhen we qualify a buyer with $5000 down payment, and steady, documented income, we usually have a buyer who will pay for years.

So, don’t believe all of the Austin hype you read in the national media. For steady, solid returns, and relatively low prices of $50,000 to $75,000, you cannot beat the Alamo City.

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12 Random Thoughts For Successful Real Estate Investing

After years of investing success in San Antonio wholesale properties, some random thoughts:

#1 I would much rather make $5000 on 50 deals than $50,000 on one deal.

Many real estate investors spend far too much time chasing the big score on investment properties. That’s why after five years, they’ve done 2 deals. After a few years in the business, many of our investors have done dozens or hundreds of deals. It can make more sense to do more deals for less money on each one than trying to hit a home run on a handful of deals each year.

#2 We embrace the ugly deals that most investors don’t want.

An early mentor told me to go LOOKING for houses with ‘foundation problems.’ Most investors won’t even look at a house with a ‘foundation problem.’ It turns out that many of those problems are $5000 or less fixes. You can make a lot of money on houses with foundation issues, especially on pier and beam homes.

We also will buy many burned out homes, if the price is right.

#3 You do not have to be a landlord to be a successful investor.

Many investors do well with rental properties, and there’s nothing wrong with that. But many of our investors only do owner finance properties. We do maybe $10,000 or $20,000 in repairs, then resell it with owner financing at 10% interest.

The buyer fixes up the property himself and the neighborhood improves. And we investors make money, so everyone wins.

#4 Keep a positive attitude in real estate

You can always find pessimists in the real estate industry. It’s wise to only associate with positive, successful, can-do people in this industry. If you do that, you’re more likely to succeed.

#5 Over rehabbing properties destroys many real estate careers.

When you walk into a run down house, it is very tempting to spend $50,000. This often isn’t a good idea.

Do enough rehab to sell the house with owner financing, and leave the rest to the buyer. I recommend making sure the plumbing and electrical work, roof doesn’t leak, and give everything a fresh coat of paint, perhaps put in new vinyl flooring, but that’s usually all.

Doing just enough rehab to resell the house is the secret. Don’t do more than that.

#6 What the house was worth last year is meaningless.

Real estate markets change overnight. What matters is what the house is worth compared to similar houses in the same neighborhood – right now!

Some investors won’t buy a house that can make them 12% a year because the house costs $10,000 more than a year ago.

It’s best to not worry about what the house was worth yesterday. Focus on getting a good under market value deal in today’s market.

#7 Cheap, steady real estate markets beat the big boom/bust markets.

Austin TX is going crazy these days, with median house prices over $270,000 and climbing. We have bought in Austin, but it’s pricey.

San Antonio properties are always less expensive than Austin and Dallas. Prices are up a good deal in 2021 so you have to do some shopping. But deals are there!

#8 We never charge top price for a real estate investment.

We have had properties that I sold for $55,000 that we could have sold for $70,000. I sold it for $55,000. Why? Because we want the investor to get an incredible first deal, and then come back and buy 10 more.

If you want to do well in real estate investments, focus on the long game, make some money, but be sure you treat everyone right.

#9 Buy real estate for monthly cash flow, not for long term appreciation.

If our investment properties appreciate, that’s great. But most of our investors buy for cash flow.

Investing for appreciation CAN work, but it’s complicated and often depends upon things outside the investor’s control. It’s like this – why risk the low percentage/high reward trick shot in billiards if you can make the straight shot in the left corner pocket every single time? That’s how I look at real estate.

Many of our real estate investors in San Antonio own dozens of houses that produce $300 or $400 a month in cash flow. That’s what they care about the most, not appreciation.

#10 Always buy your houses under market value or don’t buy.

We never pay market value for any property we buy. If we cannot buy it for at least 20% less than market value, we move on. Buying under market value protects the investor in a down market, and makes it easier to turn a profit.

Many real estate investing careers are gutted by rookies buying houses at or above market value. If you can’t get a deal, move on.

#11 We often buy distressed houses in cash, no mortgages.

Buying in all cash means no stress if we have a foreclosure or vacancy. It also means that we can buy any house we like; you can’t finance houses under $50,000, and it gets very complex getting financing on many houses under $75,000.

#12 We make a buy or no buy decision immediately and stick to it.

One of the most important parts of our success is our local reputation. People know we’re serious investors and if we say we will buy a house, we do it and pay within two weeks.

Guard your reputation in your city like gold, and it will pay you back for decades.

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6 Reasons Owner Financing Property Beats Renting

Most new real estate investors follow the same path: They invest their hard-earned cash into single family homes with mortgages, repair/rehab, and rent them out.

Often, they buy cheaper houses built in 1950 or earlier because the rate of return on them is higher. However, the expenses and repair headaches on them are also higher. I know investors who have bought class C rental houses. After the initial renters left, the repair costs ate the investors alive and they couldn’t rent out the houses again.

What most new investors don’t know is that you can owner finance your property rather than rent it out. That is, your occupant is purchasing the property from you the investor over time (10-30 years typically). This means the occupant has an ownership interest in the property, a sizable down payment, and is incentivized to maintain and improve the asset.

There are six main advantages to owner financing over renting property:

Minimal Repair Expenses

When you first acquire the asset, you may need to complete a light rehab of $5000 or $10,000. If you rented it out, you likely would have to do a much fuller and more costly rehab. With owner finance, you do a minor rehab, and then the qualified buyer is responsible for completing repairs and maintaining the home. Naturally, your ‘qualified’ buyer is only as good as you make it. You should find a buyer with a good, steady work history and with enough disposable income that they can afford to repair the property.

Steady, Predictable Cash Flow

Because you have no repair expenses, you know what your cash flow per property will be each month. After taxes and insurance are paid, the rest of the cash flow goes into your bank account.

Fast Foreclosures in Many States

Some states allow you to foreclose in 60-90 days for $1000 or less, if the buyer defaults. Then, you may get the house back and resell it. There are owner finance investors who have resold the same house three times – $5000 down, $1000 per month. Check the foreclosure rules in your state.

Secondary Sources of Cash Flow

As mentioned above, you can reacquire the property in foreclosure, and resell the home with another down payment. Also, some buyers may pay late each month, which allows you to charge a late fee with every payment, therefore increasing your yield.

Property Increases in Value

Generally, as the owner occupant improves the property, the value will increase. If the buyer ever defaults, you get an asset back that is worth more than when you bought it. You then may sell the property for a higher price and larger down payment.

Neighborhood Improves

Bringing homeowners into an affordable home area helps to raise the standards of the entire community. As more homeowners move in, entire blocks of houses improve and crime decreases. This in turn raises property values and the general appeal of the area.

Whether the investor purchases the house in cash or has a wraparound mortgage on the asset, owner financing is an extremely valuable and important tool in the investor kit for building long term wealth.

 

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How To Retire Young With Under Market Value Properties

Hello investors and ‘maybe’ investors! Thanks for visiting my little website about under market value properties in San Antonio TX. It is these little bitty affordable homes that allowed  many people to retire young. You can, too!

#1 I Discovered an Inexpensive, Stable Real Estate Market

sa

Before investing in San Antonio, many of our investment property investors considered Austin, but that’s an expensive market, even years ago. But San Antonios is only an hour south and is a great market for owner financing.

During the market crash of 2008-9, the prices of these homes dropped, and and many investors were able to pick up a dozen at 50% under market value. That also helped to grow our investors’ real estate portfolio.

Lesson Learned: Steer clear of real estate markets with high entry costs. Lower cost cities are much easier for investors with limited capital.

#2 We Found Reasonably Priced Private Money

cash

After you get your first house or two, you may not have any more cash. But where should you look? One way to do it is to just make phone calls looking for private money. Another is to go to investor meetings and get to know people with money.

Eventually, through all phone calls and networking meetings, some  investors found people willing to loan money at reasonable interest rates. When you can find that source, it makes everything a lot easier.  However, you also can borrow money from your own home or IRA, if you have a good under market value deal and keep the rehab reasonable.

Note – many of us prefer to invest all cash, but there ARE other options. You can, for example, buy nicer houses for $75,000 or so and do 20% down conventional finance, and then owner finance them. Cash flow is ~$300-400 per month with no maintenance.

: Be prepared to do a lot of work and make a lot of phone calls to find private money. It’s easiest of course if you have family willing to loan you money on reasonable terms. If not, get on the phone, and go to real estate meetings every week.

#3 Become A Real Estate Market Expert In Your City

expert

One of the keys to success is to buy houses many other investors run screaming from! You can buy houses that don’t look that great, do some minor rehab, and owner finance the investment property to a willing buyer.

Other investors early in their careers rehabbed homes themselves and got to know the market in the city. This helps you get a great idea of what homes in many parts of San Antonio are worth. Then, you know how much a San Antonio fixer upper needs in rehab and what to spend without overspending.

You also can earn your real estate license, and spend many hours studying prices of houses. One of the most important parts of being a successful investor is getting a house at least at 20% under market value.

Lesson Learned: Study your local market so you can buy houses under market value. Can’t find those kinds of deals? Consider working with an expert real estate investor in your market who can help you find those deals! Offer to help him or her with their business in exchange for turning you on to good, under market value deals.

#4 Find Good Real Estate Mentors

mentor

Getting started in real estate without successful mentors is like going fishing without fishing tackle! Every beginner real estate investor should work with very successful and experienced mentors. You can find mentors at real estate meetings in San Antonio and also at real estate conferences in other cities.

Lesson Learned: Find mentors and real estate partners who have done several hundred deals and have done well in both boom and bust markets. Working alone in real estate as a rookie is a recipe for disaster.

#5  Invest in Cash, for Cash Flow Only – With Owner Financed Real Estate

no

One of the most important lessons some of use learned from our mentors is to owner finance many properties instead of rent them out.

Under the advice of our mentors, we stopped rehabbing and renting out houses. In many cases, we used an owner finance model only.

Today, we buy a San Antonio investment property for cash for about $50,000 or $60,000, do $10000 in rehab, and then resell the property with owner financing to a qualified buyer. There are no overhead costs or property management costs associated with this exit strategy.

(You CAN do owner finance with conventional financing, 20% down, and still earn $300-$400 per month in cash flow.)

Lesson Learned: Consider investing strategies other than renting out property. Owner financing houses is less stressful and is clearer cut in terms of monthly cash flow.

Want to learn more how to do make real estate cash flow on San Antonio investment property? Contact me at jmpickett@gmail.com.

And remember, most of our out of state investment property investors used to buy California investment property, San Diego investment property, San Francisco investment property, and Los Angeles investment property. Here in San Antonio, they usually make 12-15% ROI for great real estate cash flow – without maintenance costs.

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How I Invest $55,000 Cash in Real Estate and Sleep Like a Baby

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There are as many ways to invest in real estate as there are fish in the sea (and many real estate investing train wrecks that can cost you big time). For me, however, I have very specific requirements for my $55,000 cash, and one in in particular is vital – being able to sleep like one of these:

Specifically, I do not want stress, hassle or headaches with my real estate investing. Also, it is very important for me to make a good return over 10%, AND to be able to be profitable in ANY real estate market – from red hot to crashing and burning.

So How to Invest and Sleep A Baby?

After more than 10 years of investing – and making more than a few mistakes – I have found the best way to meet my requirements is to invest my $55,000 cash in single family homes in certain lower-cost American markets for long term cash flow. Sounds risky, right? Wrong. Here’s why:

I make a rate of return 12-15% with no overhead expenses.

I am protected in a real estate crash. If I buy right, I purchase at 70-80% of the house’s market value. So, if the house is worth approximately $80,000, I will not pay more than about $55,000. Purchasing the asset under market value ensures that I am protected in a bear market. It is people who buy at or even above market value that end up losing everything they own in a market crash.

This type of real estate INCREASES in demand in a bear real estate market, at least in the markets I buy in. Why? Because when the engineer with the $325,000 house loses his job, he still needs a place to live. But now he makes only $37,000 a year. Affordable single family homes are the answer for his needs.

No overhead costs with owner financing, rather than renting out the property. As mentioned above, a key requirement for me is to sleep like a baby at night. That is difficult for me when I am a landlord. With owner financing (and doing my homework on finding a good end buyer!), I am secure knowing I will make my $800 per month with no expenses or maintenance headaches.

Relatively stable real estate prices. It is true that the asset will depreciate in value in a crash, however, the $55,000 house will likely only depreciate to $35,000 or $40,000. This was what happened in my city in the last downturn. And keep in mind that my goal is cash flow anyway, not appreciation. The lower prices allow me to buy more, cheaper homes for more cash flow.

A $55,000, 15.8% ROI Example

Here is a distressed property in San Antonio TX that I am going to acquire for $55,000, with an actual value of approximately $80,000.

eg

It is located near the San Antonio Riverwalk, and requires only $1000 in rehab before I owner finance it. Here are the numbers:

  • Purchase price: $51,500
  • Closing: $1000
  • Commission: $1500
  • Rehab/clean up: $1000
  • Total Cash Outlay: $55,000

Now I will owner finance this property to a buyer I qualify to ensure they have a steady job and documented income. A $5000 down payment is also required. Terms:

  • $900 per month, including taxes and insurance
  • Price: $89,900
  • 10% interest
  • 30 year note
  • Taxes and insurance total $175 per month
  • $8700 total income per year
  • 15.8% rate of return in first year
  • Maintenance costs: zero

And so, for me, investing in distressed properties under market value with owner financing really is one of the most sensible investments for $55,000 cash. It makes me an excellent return, I’m protected in a market crash, and I can sleep like……well…….

What are your thoughts about how I’m investing my $55,000? Please comment below.

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Have You Ever Tried THIS to Find Your Real Estate Investing Mentor?

You probably are going to fail in real estate investing – without a mentor.

Your chances of success soar, however, once you find that (free) mentor. To find him or her, please dispense with the desperation tactics of the rookie investor hordes: posting in real estate forums something like this:

“I need a mentor!”

Why would an experienced real estate investor choose to work with you, one of thousands of strangers wanting a mentor? You must expend some EFFORT to locate your mentor.

So….The Secret to Finding a Real Estate Investor Mentor Is……

Hold that thought. Back up.

Who first mentored you in life? At home, it probably was your parents. In high school, maybe your government teacher or volley ball coach. In college, probably your English professor.

And at work, that first really outstanding boss you had, maybe? Let’s hone in there: Why did he put you under his wing? Possibly because he observed qualities and talents in you that gave him the urge to help and further your career?

What do all of these situations share?

Your previous mentors knew you well and observed your positive qualities – right up close. They knew you intimately first, and then the mentoring relationship sprouted from those roots.

So to find your (free) real estate investing mentor, get the heck off the online forums and develop relationships with people in real estate!

Here’s what you need to do right now:

Establish productive, mutually beneficial relationships with experienced investors in your city (or in another city). Go to real estate networking meetings for months. Talk, network and share ideas with everyone there. Learn who the BIG investor players are in town. This may take weeks or months. That’s fine. Remember: These meetings are crawling with rookies looking for mentors. You need to show you’re serious, so keep showing up, networking and asking questions.

Once you identify the BIG ONES, make yourself an asset to them. Help the investor in a selfless way. Offer to post bandit signs, answer emails, pick up building supplies, scout for buyer and seller leads. Volunteer for all the grimy, dirty work. It won’t make you money, at first, but you will absorb real estate investing gold – information from a seasoned expert.

(In my case, I help my mentor by posting bandit signs, putting properties into the MLS, manage the website, and take phone calls from potential buyers)

3. Never ask for anything in return. Just think about how you can help the mentor succeed even more. In that process, you will learn a LOT. Since I have been mentored by my expert, my knowledge of owner finance real estate has increased 1000000%! I am using this knowledge today to do deals and make money in real estate.

4. Don’t offer the investor to share a deal with them in exchange for X hours of their time. That’s meaningless. 90% of ‘real estate investors’ never do a deal. The expert knows that. Make yourself VALUABLE to the expert by helping them with their business. That is how you add value to this situation, and you in turn will learn how to become a successful investor.

5. You don’t necessarily have to have a mentor in your city. A good, expert investor mentor can be incredibly valuable in any market! As long as he or she is experienced and successful, you can benefit tremendously. If you’re looking for a good, free mentor outside your area, let’s talk sometime!

Getting your hands dirty and putting yourself out there through these steps will find you a good mentor. And when you do get a good mentor, you could enjoy some unforeseen benefits! In my case, my mentor turned me onto this incredible deal that makes me 16% per year – with no property maintenance costs.

How did YOU find your real estate investing mentor? Share in the comments below.

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How My Distressed Real Estate Properties Crush Your Stock Portfolio

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“If you challenge conventional wisdom, you will find ways to do things much better than they are currently done.” – Michael Lewis, Moneyball: The Art of Winning an Unfair Game.


Before I discovered real estate investing, I lapped up the conventional investor wisdom: If you invest for retirement, buy stocks and mutual funds in a 401k.


So I invested in the stock market. While I did ok, I felt out of control. Stocks go up. Stocks go down. I had so little control over my portfolio. I never felt secure in my investments.


I also noticed that my best stocks only paid an annual dividend of 3-4%. That’s puny.


I thought: There must be superior ways to secure my future with higher ROI and steady monthly cash flow. And that is real estate.


Real Estate Is Better


‘Hold up’, you say. ‘You’re carping about the risky stock market, low returns and you think REAL ESTATE is better? Do you know how many people lose their shirts in real estate?’

Let me hazard a guess – when I mention real estate and cash flow, what do you think of first? Probably rental properties. Being a landlord. Repairs. Vacancies. Headaches.

That’s what the conventional wisdom tells us: ‘Real estate investing’ equals ‘rental property investing.’That isn’t what I’m talking about.

What I AM Talking About: Distressed, Owner Financed Real Estate


A major key to success in real estate is finding a good strategy, and then finding property that fits that strategy. That is what I’ve done with a type of real estate investing that just crushes the stock market year after year. And that is owner financed inexpensive single family homes.


This type of investing is steady, safe and low stress:

  • I buy under market value houses in town for $40,000-$65,000 – cash.
  • I perform a ‘light’ rehab of $5000 or so per property.
  • I do NOT rent the property. I seller finance the property to a qualified buyer with a steady job, documented income and a
  • $5000-$10,000 down payment.
  • I only ‘carry the mortgage note’ on these investment properties.

Advantages:

  • Simplicity – Owner financed real estate profits are extremely easy to calculate
  • Add up annual cash flow.
  • Subtract property taxes and insurance.
  • Divide by property purchase price.
  • There’s your ROI. 10-14% is common.
  • Reliability – Steady cash flow of $500-750 per month.
  • No repairs or maintenance.
  • I am NOT a landlord.
  • Only expenses I pay are property taxes and property insurance.
  • No stress and complete peace of mind.

Here are my houses and their returns – after taxes/insurance are paid:

Property 1

$51k purchase, 16.4% ROI.

Property 2

$72k purchase, 12.3% ROI

Property 3

$43k purchase, 16.5% ROI

The bottom line on my distressed property portfolio:

  • 3, $50-$60,000 houses
  • Bought for cash and owner financed to qualified buyers with
  • $5000 down minimum.
  • Total return average: 15.06% ROI
  • Repairs: None. Ever.
  • Total cash flow per year: $23,450.

My cash flow is rock steady and doesn’t vary. In a few years, when the stock market inevitably dives and investors are in a panic, I’ll continue to pocket my 14.1% annually.

Summary


My distressed real estate portfolio simply crushes the typical stock portfolio. It is more profitable, less stressful, and much less prone to market fluctuations than the stock market. It also does not suffer from the problems of rental property investing: vacancies, repairs and maintenance.


Regular investors can stick to the conventional wisdom. Me, I’ll take the unconventional and enjoy 14% per year – for life.

 

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How We Sold a $20,000 ‘Junk’ House With Owner Financing – 12% ROI

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! 🙂

front 3

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.

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3 Bulletproof Reasons I Never Buy Rental Properties

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Real estate investing for most investors usually means renting out houses. And for many landlords, they often are tempted to buy cheaper homes with theoretically higher rates of return (with correspondingly higher rates of repairs and headaches).

I used to landlord, but never again. Rather, I now work in residential real estate without repairs, landlording, or any overhead costs at all. What type of investing, you ask?

I buy affordable residential investment properties for cash in affordable markets, and owner finance them to qualified buyers. This was my first house in San Antonio I bought and owner financed to a carefully qualified buyer ($5000 down, $810 per month, 20 year note, income fully documented, stable work history):

My first non-rental property when I bought it in 2013 for $51,000 (see original back porch in photo at top of page). A train wreck. Scroll down to see what it looks like today (Occupant paid for rehab not me).

My focus in real estate investing is NOT asset appreciation, but pure, no overhead cash flow. This type of investing is what I prefer today for three reasons:

First, I provide a philanthropic service to my community with home ownership. My buyers are hardworking families with a stable job and good, documented income, as well as a sizable down payment.

Most of my buyers rent a home for most of their lives. My real estate investing program in Texas provides them with an opportunity to own their home. This in turn helps to raise up entire neighborhoods, as more and more people buy their own homes. Note that TX is an easy foreclosure state, so if they default, I simply resell the house again in 60 or 90 days with another down payment going into my bank account.

Second, I am not responsible for property maintenance. I have no overhead costs as landlords do. As the note holder on this distressed investment property, all I do is collect the monthly payment electronically. The buyer living in the home maintains the house, so I as the note investor sleep like a baby. That family is nearly always a blue collar, contractor type with the skills and desire to fix up their home. This also means that investors need not live in this area to invest. Below is a property I bought for $50,000. The end buyer has poured $25,000 into the house, and it’s now worth over $125,000.

hollywood

The same house in April 2015. Buyer put $25,000 of rehab into it. If I ever have to foreclose, I will resell the house $10,000 down, $1300-1400 per month, rather than $5000 down, $800 per month as I do now.

Third, I earn a solid rate of return with a cash real estate purchase with no mortgage. Buying affordable homes in San Antonio, Texas means that I can buy a home for only $40,000-$70,000. The rate of return on each property is at least 10%, and can reach 15%. I enjoy passive, monthly cash flow without maintenance costs. Here is a typical deal in our market with a 12.3% ROI.

Currently I am waiting to buy more of these houses until the market goes into the next down turn. A major advantage of this type of investing in distressed houses is that the business only gets better in a crash. The $60,000 house becomes a $40,000 house and I can buy up ever MORE of these for more cash flow :).

When you consider these facts, I think you can see why I prefer to seller financing affordable real estate properties in my market over rental properties. Seller financing your investment rather than renting offers you a high rate of return, no overhead costs, with no property management stress.