Tag: rental property

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I have completed more than 500 rehabs on $30-70k distressed properties in San Antonio TX in my real estate investing career. In the early years, I was in there swinging a hammer, floating floors and hanging drywall with my crew. I’m out of that now, but all that hands-on work taught me the importance of doing a good rehab – but knowing when to stop! If you over do it, watch out:

I have seen dozens of real estate investors spend $10-$30,000 or more than they should on a rehab. This is the most common mistake that new real estate investors make. This can doom your project, and you can avoid it by…..well, just keep reading 🙂

Staying reasonable on rehab is especially important when you are dealing with distressed, under market value properties, as I do. I buy a house for 20% under market value, perform a light rehab, and resell it with owner financing to make about a 12% return annually for my investors. Such as this house we did in 2014.

But note: The level of rehab I do TOTALLY depends on the area! I kept the rehab on this house in zip code 78212 north of downtown San Antonio in line with the neighborhood, which meant nice flooring, new light fixtures, paint in and out, and minor foundation work on the front corner, or about $10,000.

The house sold about 5 weeks after the light rehab and makes the investor 12.3% per year with no property management expenses.

My investor’s return would have plummeted if I had overdone the rehab with a new roof and AC, so I’m very careful to stay on budget and in line with the other homes on the street.

Want to avoid over rehabbing your properties and dooming your real estate investing career? It all comes down to this:
Know Thy Neighborhood, Investor!

I buy and sell over 100 houses per year in neighborhoods around downtown San Antonio, particularly north, west and south of downtown. So, I pretty much know how houses in these zip codes (78201, 78212, 78214, 78207, 78244 among them) are appointed.

Also, my construction crew has been with me for 11 years and they live in these areas. They also provide me with detailed advice on what to fix and what to leave alone, based upon their and their friends’ and families’ experiences.

1219 Perez

The house above is in 78207, which is a rising area, but not as good currently as the house above that in 78201. That means that the rehab budget is much more spartan. In this case, we just want the roof, foundation, plumbing and electric working. So the rehab looked like this:

• $1500 for paint in and out, including painting floors
• $1500 for raising foundation

•  $1000 for plumbing
• $1000 clean up

There was no need to do nice flooring, granite or tile in this house, based upon what the houses on the street have. I know that because of all the years of experience I have in this area.

Spending more than $5000 in rehab on this house is unnecessary. Granite? Forget it. Tile? No way. As is, this house sold with owner financing and makes the investor 11% per year with no property maintenance costs. Knowing when to stop on rehab is what makes my investors serious, long term, buy and hold cash flow.

On the other hand, if you don’t do ENOUGH rehab in nicer neighborhoods, the house will sit and sit. This house in 78201 is in a rapidly appreciating spot north of downtown:

This one required $10,000 in rehab because of what the other houses around it have: granite in kitchen, tile flooring, new light fixtures, tile in bathroom, new flooring, new stain on old wood flooring, and new HVAC:

This house sold the week after we finished the rehab, and earns my investor 12.9% ROI without property management expenses. If I had skimped on this rehab to save the investor money, the house would still be on the market.

So, not losing on rehab comes down to intimately understanding the neighborhoods in which you purchase. Frankly, that takes many years of experience and dozens of deals under your belt. If you don’t have that level of experience, I strongly advise you to partner with an expert investor and licensed agent in your city. He or she can advise you on how much rehab to perform, without overdoing it. You want a licensed agent who also is a very active investor in your neighborhoods.

And if you can do that, you will be well on your way to making solid long term cash flow on your investments, and maybe you can even financially retire early, like I did. 🙂

 

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I got rich in buy and hold real estate at the tender age of 28. I did it through the rigorous application of two simple baseball concepts:
Bunts and base hits.

I’m referring to small real estate deals that net me $3000, $4000 or maybe $5000. I grew over $30,000+ per month of stable cash flow through smacking blooper bunt and base hit real estate deals!

But most conventional, wanna-be-rich real estate investors I run into never learned about hitting bunts and base hits.

Many of them attended the $20, 544 real estate guru seminar that taught them to look for the monster deal….to wind up for the monster, 600-foot, over the left field fence blast.
Ka-POW!

Understandable. But nonsense, say I.

Driving in bushels of little base hit real estate deals during most ‘ball games’ is what made me wealthy. Not swing for the fence, monster shots every other ‘baseball season.’ Again: I focus on $3000 or $5000 transactions, not on the monster $30,000 score once in a while.
Lesson: I built my real estate career on buy and hold, long term cash flow. NOT on big renovation flips!

Flips are fine sometimes and are good in a crashing market. But the going gets VERY tough in an appreciating market. To make money, you have to find the one in a million deal 50% under market value. Everyone wants that, so consequently, you do few deals.

For instance, here in San Antonio, the market is hot – the 19th hottest market in the US according to Realtor.com. Flippers are having a very hard time finding deals they can make money on. Everyone wants top dollar for their house.

So while the flippers and other big hitters are running around looking for the grand slam, I do 50 little deals a year that make me $4000 or $5000 each. Mostly I make $400 or $500 per month on my long term buy and hold deals. Occasionally, I clean up a house quick and flip it to another investor for $5000.

But the focus is on bunts and base hits, not homers. Look at it like this: How many grand slams do we see in one baseball career? Alex Rodrguez is the all time leader with 24.

And how many base hits do we see in a single baseball career? Pete Rose leads for the ages with 4,256.
See my point?

So, my advice to every residential real estate investor is this: Score on lots of base hit deals, not on the rare grand slam deal.

Here’s a good example of how I do it every single day: This house on Colima Avenue in San Antonio isn’t a beauty.

In summer 2014, I had no problem picking up this house for $15,000 cash. No one wanted it. ‘Bulldoze that junker,’ they said. Two months later, I sold it for $20,000 to a California investor.

Six weeks after that, he sold it owner finance to a blue collar worker for $400 a month (I almost always owner finance my houses; no repair costs). I found him that buyer so I made another $1000. So, on a ‘junk house’ deal that no one wanted, I made $6000.

In a year, I’ll do 20 or 30 deals like that. That’s $100,000 or $150,000. On top of my $30,000+ per month in cash flow.
Advice

My advice to investors is to let the other investors wind up for the mega blast grand slam deals that come along once every three years. Most of the time, they’ll swing and miss. In my view, it’s better to take the little $4000 and $5000 per deal bunts and base hits and keep growing your cash flow.

Action Items:

Focus on steady cash flow, not on flips. Flipping is very cyclical and depends on state of the market. Lots can go wrong on a flip. Steady cash flow will make you rich.
Find cheap single family house deals that are 20% or 30% under market value. Buy in cash if you can. If not, buy with 20% down conventional finance.
Owner finance those houses to qualified buyers per Dodd Frank rules.
Supplement that with a quick, simple flip to an investor every year for $4000 or $6000. Just clean up the house and resell it quick.
Reinvest 90% of your profits into more deals.

Let me know if you have questions or comments below. You also can contact me through our website.

 

I truly love the real estate deals that other investors won’t touch. Over the years, I’ve probably made at least $2 million dollars off of other investors’ rejects!

I am not saying this to boast – I am being frank because I want you to understand the opportunity that you have if you open your eyes to opportunity others are blind to.

One of my earliest mentors taught me to look for profitable deals in ugly, distressed properties. I have mostly built my career on little distressed houses that alone make me $400 or $600 a month. But altogether, those little houses make me tens of thousands per month in cash flow, which is what allowed me to financially retire so young.

Here are some ‘junk house’ deals that other investors turned their noses up at that I turned around and made terrific money on:

#1 Colima Avenue Made Me $6500

I bought this ‘junk house’ for $15,000 when no one else in my town seemed to want it. This allowed me to buy it more than 30% under market value! I sold it to an investor in California for $20,000, which was 30% under market value. I made a $5000 profit on the sale, plus a $1000 commission. He had it repainted in and out and the door secured, and other minor fixes. That cost him $5000 total in repairs. Then he resold it with owner financing.

Terms were $3000 down, $400 per month, with a final price of
$39,900. This deal is making the investor 12% ROI, and made me over $6000. And no one wanted it because it was ugly!

#2 Eichman Road Property Made Me $13,500

Last year I bought this ‘junk house’ on two acres south of San Antonio TX. I paid $24,000 for it. It was a hoarder house, so it apparently scared off other investors.

I sold it to another California investor for $36,000, making me $12,000, and $1500 for the commission. He put $10,000 into it for cleaning, painting, plumbing and running a city water line. It was sold owner finance for $5000 down, $795 per month, $72,000 final price. He is making 11% ROI on this deal with no property maintenance – on a property no one wanted! Not a bad deal.

Lessons Learned

I am often able to make money on houses that other people reject and for which there are fewer buyers. Many investors are scared off by appearances and don’t see the underlying value that is obvious to me. The few buyers for some of these houses means that I can get the property at 30% or even 40% under market value. So, on the resale, I can make a tremendous return! What you should do: Try to work with a top notch real estate investor who knows your neighborhoods and can help you find way under market value deals that other people don’t want. There could be gold there.
Ugly houses can be deceptively lucrative investments! You can get properties deeply discounted in some cases. With owner financing, you then can off load most of the rehab cost to your buyer. What you should do: Buy under market value distressed properties in markets that are inexpensive and have a lot of blue collar workers who are eager to own a house and fix it themselves.
Don’t be always afraid of foundation and roof problems. Common investor advice is to avoid these houses. Those are some of my best deals! No one wants them so you can get an incredible deal. There is a big difference between a minor foundation issue and a major one. I have the experience to tell the difference. Most of the foundation problems I buy can be fixed for $1500 to $2000. What you should do: Look for ‘junk houses’ in areas with good owner finance buyers even if they have reported ‘foundation’ problems. You really could get a great return!

 

I am a very active investment property buyer and seller in San Antonio TX. One of the keys to my success the last 15 years is that I NEVER charge an investor the highest possible price for one of my properties. I make sure he or she makes plenty of money too, even if it means I make less!

One of my investing partners – who has only been working with me for two years – recently was baffled about why I refused to charge an investor as much money as possible on a transaction.

Let’s take a look at the property in question. The house below in San Antonio on La Violeta St. actually has two small houses on one lot:

One house is a 3/2 that needed only $8000 in repairs, and the other one is a 2/1 that was rehabbed and ready to be occupied. The renter in that house wanted to buy it with owner financing – $5000 down, $995 per month PITI, 10% interest.
The wholesale price? Just $55,000.

As you can guess, there was a huge demand for this property when I released it to our buyers’ list last January. We had 25 people call us to buy this house. This was a great opportunity for many real estate investors/wholesalers to increase the price by $10,000 or even $20,000 and pocket the rest.
The final price I charged: $55,000.

My business partner was baffled by me not raising the price on this fantastic deal. Here’s why I didn’t increase the price, and why I never charge top dollar for these hot deals.

The most important thing to do as a wholesaler is to get a new real estate investor a FANTASTIC first deal. At the $55,000 price, my investor was able to owner finance that property for $85,000, netting him nearly 15% return annually, with no maintenance costs!

Since I sold my CA cash buyer that house in January, do you know how many more houses he has bought? 9!

Here is a case study on one of them that makes him a 12% return.

So, by not getting greedy on the first house, I have been able to make thousands of dollars more. And the investor has made even MORE money than he would have if he had just bought one or two houses. That investor also has referred other investors to me, who have bought several houses.
I refuse to get greedy. I share the wealth with everyone involved. In the end I make more money, and so does everyone else!

New investors usually are in a rush to make as much money as possible. I take a 180 degree opposite view: I want to make money SLOWLY :). Because I know from 15 years of experience that getting rich in real estate takes time, and the wise investor will make MORE money every time by taking the long view of things.

Take Away: Don’t be in an all-fired hurry to make as much money as humanly possible on 1 deal! Don’t try to make $20k on one deal every year. Try to make $3000 on FIFTY deals a year! Treat your investors and money partners like gold, and never overcharge them. They will come back to you again, and again and again.

Have comments or questions? Please share below!

 

In my many years as a successful real estate investor, I have heard investors say a lot of things…..many smart things…..and quite a few silly things!

I understand – most of us don’t know much when we first start investing in San Antonio investment properties. Back when I started, I didn’t know pier and beam from PITI from a lease option! Over the years, I have gained a lot of experience. I also have found some terrific, wealthy mentors at real estate conferences across the US who guided me, and still do.

Still, I thought it would be helpful to some of the new investors out there if I related some of the silliest things I hear investors say! Sometimes, their limited knowledge and resulting rookie questions become an obstacle to successful investing, so maybe seeing them here can help you.

I certainly hope so.

#1 “Why Is This House So Expensive????? Last Year It Was $15,000 Less!”

I am trying to think of something more irrelevant in real estate investing than what the price of a property was last year…….sorry, I cannot think of anything.

What the price of an asset was earlier than today is of no consequence, investors. Real estate markets change dramatically in days, weeks, months, and certainly in a year or more!

In my San Antonio TX market, things have changes DRAMATICALLY in a year.

It has become one of the stronger real estate markets in the country, but still is very affordable. That said, one of our distressed houses that sold for $29,000 cash a year ago recently sold for $59,000 owner finance. The reason is that the market simply has appreciated a good deal in that time. People here have more work and more money in their pockets.

So naturally, investors are going to pay more for their real estate investments. An investor who is stuck in the past – thinking about what he or she would have paid last year – is going to lose out on a LOT of deals in a hot market.

Here is an example: I have a CA investor who recently bought this house north of downtown – cash – for $65,000.

He is a serious, experienced investor. How do I know that? He didn’t ask me ONCE what the house was worth last year (it probably would have sold for $50,000 this time last year). That, he knew, makes not a whit of difference. All he cared about was getting a good price TODAY. He did. And on this property, he is making 12.9% per year right now.

Take Away: Don’t think for a second about what that deal was valued at yesterday or a year ago. Look at current market conditions and comps and make your buying decision accordingly. Focusing on the past allows 12% ROI deals to slip through your fingers.

#2 “How Much Did YOU Pay for This House?”

This silly question is obviously related to the one above. The common theme is focusing on the PAST, and not focusing on what you can make on the property in the FUTURE.

Sometimes I want to tell the new investor, I paid $1 for it. And I’m charging you $25,000. 🙂

Seriously, I have had investors give away properties to me for a few thousand dollars because they needed to unload it. I turned around and charged $18,000 for it – the current market price. I have had people sell me car lots for 1/3 of their value because they needed the money, and then I turned around and sold it at a 200% profit.

And that is completely and totally fair. I would expect any experienced investor I work with to do the same. Those examples are rare, but they do happen.

Here is an example: I bought this house that no one wanted for $15,000 cash:

My investor bought it from me for $20,000, a $5000 profit for me. He then had $5000 in light rehab done on it. Subsequently, it was sold with owner financing for $39,900, the fair market price for the home.

The investor never asked me what I paid for it, because all he cared about was what HE would make on it. That’s the right attitude.

Take Away: EVERYONE makes money in a good real estate transaction. That’s not only normal, it’s how it should be. Don’t worry about what the investor bought it for. Worry about how you can make money on it. If the numbers make sense, buy.

#3 “That House Is So Ugly! I Can’t Buy It!”

You can retire young by buying the ugly houses that most people reject. Last fall, I bought the below ‘junk property’ south of San Antonio for $25,000 cash:

It was a hoarder house on 2 acres that the occupants desperately needed to sell, so I got it for a fantastic price. Other investors scurried off because it was ‘ugly.’

I then sold the property for $36,000 cash to an investor, who put $10,000 into it. He then sold it owner finance for $72,000. It is going to be a really lovely homestead for the couple who bought it.

My total profit on an ‘ugly house’ that no one wanted: $12,000.

Take Away: Ugly properties can be fantastic bargains, especially ones with roof and foundation problems. Most investors run for the hills. This means you can get an incredible deal. My advice on ugly houses is to do 5-10k in repairs to make them livable, and then owner finance them. Leave the finish repairs to the occupant.

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:

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!

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.