Dilliner, PA · Member since 2015 · 50 posts · 14 votes
Is there anyone else using the same strategy as Sharad in episode 155, for buying cheap properties all cash and using little or no debt? To anyone that has used this strategy, have you been able to quit your job yet and what would you say the pros/cons are?
Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Taylor K. I only buy under $50K, mainly under $30K and almost all cash. I am doing very well with it. 2016 was really my first year as a full-time investor. Purchased 8 properties, flipped several for good profit and reinvested in more properties, sold a few with seller financing and have 2 that were just purchased all cash the past few weeks.
On Dec 31 this is where I'm at from last year-
Started 2016 with $30K to invest
Have $90K built up in Notes Receivable on my seller financed sells (Plus that's only the principle, add another potential 10.0% APR for the next 10 years)
Have 2 recently purchased properties worth combined $95K
One thing I will add to what I did was that when I started out the market was a lot different than it is now. The prices have gone up and the houses that I was purchasing for $30k don't exist at that price point anymore.
I will be curious to hear what other people have to say.
If there is anything I can help with, please let me know.
@Sharad M. in your opinion, how much have house prices gone up since you started in 2010-2011 in our area (NWI) you think? Def agree harder to find deals in this area than it used to be, More hustle is involved. I can see it plateauing soon though, maybe even dipping some in the next few years, IMO.
The prices have gone up 30-40% since I started investing. The market is still good to invest in compared other markets and ROI but not where it was few years ago. Not sure if we will ever get to that price point in this generation again, IMO.
Real Estate Investor · Austin, TX · Member since 2016 · 52 posts · 63 votes
9y
I still like to buy really cheap houses like this when I come across them (which isn't nearly as frequently as it use to be). My favorite strategy is to buy and sell them as-is offering owner finance. I get a great mark-up and a stellar return!
Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Taylor K. I only buy under $50K, mainly under $30K and almost all cash. I am doing very well with it. 2016 was really my first year as a full-time investor. Purchased 8 properties, flipped several for good profit and reinvested in more properties, sold a few with seller financing and have 2 that were just purchased all cash the past few weeks.
On Dec 31 this is where I'm at from last year-
Started 2016 with $30K to invest
Have $90K built up in Notes Receivable on my seller financed sells (Plus that's only the principle, add another potential 10.0% APR for the next 10 years)
Have 2 recently purchased properties worth combined $95K
Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Account Closed hit the nail on the head. By selling them with owner financing, you can get premium price, plus draw a good on-going return. I plan to do a lot more of that in 2017.
I missed the 2nd part of your question. I didn't hear the podcast but cheap properties served as the foundation of my business when I first started and I have been a full-time real estate investor for 7+ years...........and I still love them.
Its a little more advanced but they are perfect for a self-directed IRA.
Not for beginners, but @Sharad M. do you ever owner finance land? Its obviously much different but I have had success with it as well. Again, I do NOT recommend this for anyone new.
Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
9y
@Taylor K. I like to buy cheap properties. Many people here start screaming "CAPEX!" over and over when people say cheap properties are a good investment. I guess it depends on the market.
In SOME parts of the Dallas area, the following is still possible SOMETIMES.
1) Pay $30,000 for a house.
2) Spend $3000 to fix it up.
3) Rent it for $950 a month to a single elderly person that is easy to get along with.
4) Property might be vacant for 2 or 3 days when the tenant leaves.
Most out of state investors seem to be happy buying retail in our market. That is a huge mistake. It tends to go like this.
1) Pay $200,000 for a house. ($40,000 down payment)
2) House rents for $1500 a month.
3) House is vacant about two months out of the year.
Of course, many people are assuming the new $200,000 will appreciate more than the property bought for $30,000. Not hardly. Once the property is an established rental in our area we get offers basically none stop without the property being on the market. After the property has rented for about two years I can pull out about 100 times rent against the equity at the local bank or I could list it for about $115,000 - $120,000.
Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Account Closed funny you mentioned using self-directed IRA, I just established a Solo401K myself to start buying a lot of these properties in and sell them on Notes. Its insane how much your money can grow when using a tax deferred plan.
I'm amazed more people aren't doing seller financing. The returns are very high, especially if you purchase good deals. When you add in the down payment recouped from the new buyer, plus the premium sales price, plus ongoing interest, the return on Net-Cash invested is more then you can get anywhere else. Plus you don't deal with landlord issues and its very easy to move properties.
Completely agree man! Awesome job on the self-directed account. I have also done lease-to-own that I convert to seller financing as well.
Strange timing, but I have an article being published on the benefits of owner financing tomorrow morning. I'll try and remember and post to this forum.
Excited to see so many people utilizing this strategy - its by far one of my favorites!!!!
Developer · Indianapolis, IN · Member since 2012 · 259 posts · 129 votes
9y
@Jeff Filali and @Account Closed, can you share how you do the paperwork for a seller finance? I've done a land contract before, which fell through and was a mess. What have you found to work? Some of my long term tenants may be interested in doing this.
It is fairly easy with the right paperwork and a good title company.
I start with the Owner Finance Addendum that is promulgated by the Texas Real Estate Commission. Your state's commission (or similar entity) probably has a similar contract. If not, almost any r/e attny can get you an addendum. I sign that along with a standard sales contract with the buyer.
Next, the title company then prepares all of the standard documentation and has an attorney also prepare either a mortgage or real estate lien note and a deed of trust.
The DOT and note are filed at the County Courthouse (in Texas) and are a matter of public record so you have a recorded FIRST position in the property.
What is great about the texas addendum is that you can require that the buyer must have your consent to lease, sale, or convey the property. In other words, they must get your written approval to do anything with the property other than live in it.
I like the real estate lien note that my attny uses because it has a default provision where 10% of the remaining prin bal is tacked on for attny fees if the buyer defaults on the note.
Its definitely worth a 15 min conversation with a r/e attny in your state because each state has different laws/regulations regarding owner financing.
I agree with your thinking in regards to long-term tenants. A requirement I've used is that the renter must keep the property in perfect condition and must always pay on time in order to be eligible for the owner financing at the end of the lease (usually long-term).
Developer · Indianapolis, IN · Member since 2012 · 259 posts · 129 votes
9y
Thank you very much for your advice. I will talk to my attorney and see if I can get my hands on the paperwork. Definitely something that I would consider!
Does anyone have problems with tenant buyers destroying the house? That would be one reservation I'd have about handing over the reigns regarding maintenance. I could see a lot of tenants trying to fix or delay things DIY style to save money.
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
9y
I have not listened to that episode, but hopefully it addresses the fun in managing war zone properties. I am not discouraging anyone, but you should certainly know if you have the stomach to deal with those properties before buying them.
Property Manager · Rochester, NY · Member since 2015 · 243 posts · 62 votes
9y
Very educational I see some bigger investors in my area getting into this. I have bought owner finance deal with very little money involved and rented it. Terms were beneficial at time. Have been on other end yet but would like to get involved sometime great market here for it. I myself currently own 9 units and closing on 5 more this month and 2 under contract for next month. I'm interested in getting to know more. I stay local in my new York market though. Great advise and thanks
Investor · Laurel, MD · Member since 2014 · 251 posts · 140 votes
9y
@Taylor K. I buy sub 30k properties and rent them out. One I closed on last month was actually only 9k. The returns are very nice and I have already beat my income from the military. I had the opportunity to get out as my contact was up last may but choose to extend for a bit, because right now I am able to juggle both so why not keep double dipping and put the extra income towards future deals.
The pros:
Great return
You are able to get places cash so not dealing with a loan officer
The deals move as quick as you can come up with the money
You own places free and clear
The Cons:
There is usually a lot of time that needs to go into making them rent ready
You will have more issues than a newer home as the sub 30's tend to be older homes
Getting rent on time or at all. I would never do what I am doing with out the guaranteed rent of Section 8.
Sugar Grove, IL · Member since 2015 · 51 posts · 17 votes
9y
Love this thread. I just made my first purchase last fall - a single family for $26k. I don't know if I'd call it a "sub $30K property" since my rehab budget is $30k. When all is said and done I'll have close to $60k in with an ARV of $100k. Plan right now is BRRR.
@Account Closed - I'm assuming you're seeing the same thing in NWI as we are in the Aurora area (West/Southwest burbs). By the summer of 2015 most houses aren't staying on the market more than 3 weeks before an offer is made and they are getting 93% of asking price. It took the far west an additional year or two to recover than the rest of Chicagoland.
Because of the high sale rate and the prices coming back I've been forced to buy much more rural, about an hour from my house. Nothing in my immediate area is listed below $50k unless you're looking at a D neighborhood. C and above start at $70k (and those will require a lot of work).
Real Estate Broker · Milwaukee, WI · Member since 2014 · 17 posts · 3 votes
9y
I'm a new investor and a realtor in Milwaukee. A couple of years ago I found 10 properties for an out-of-state investor under $20k where they put in about $3k and rented for $800-900/mo. I don't have and couldn't share their exact numbers but they are making a good return. It isn't clear how they monitor maintenance of their properties. They have a property manager and have complained about getting city notices for repairs.
I just converted retirement funds to a Solo K and I am considering the cheap-buy option for rental. I think property management is the biggest challenge. Of course, tenants can be a challenge too. These are areas where tenants are probably getting around $8hr. So it is a challenge for tenants to keep up with the rent. There is a great new book called, "Evicted" by Matthew Desmond that describes the tenant and landlord challenges.
@Bob crane. I'm in the same general area as Sharad even though I'm a beginner and he's the expert and knows the markets better and he's correct in about 30% higher than back in 2010. Now if your buying cheap properties it's still profitable. My first deal was on MLS surprisingly this year but I paid cash and bid the 2nd day on market and got accepted offer within 3 days after negotiations. It's a decent deal. End up all in at 51k and ARV of 70k or a little higher I'm hoping after appraisal. That's 70% of ARV. I'll still cash flow the 2% rule too so it still has profits. 95% of MLS in my area are way over priced to turn profits and those r the c and d areas. The a and b areas are DEFINITELY at or higher than pre recession prices. I'm in an A areaof NWI. Built my house in 2013 areas read I gained equity of about 40k just living there. That's how hot the good areas of NWI are right now bc Illinois residents flocking over bc of taxes. I'm hoping investor interest goes down bc its a feeding frenzy right now and I'm not going to pay these prices. Now if you can find a great wholesaler, sheriff's sale deal, foreclosure, or drive for dollars you can find deals still in our areas, but it takes alot more hustle. Good think I don't rely on this for my income. The slow roll for me. Slow and steady, acquiring solid properties by finding the diamonds in the rough. Hoping for 3 houses a year at least is the goal. Buy and hold . BRRR strategy. Also I'm self managing and also doing the rehab I can myself to save costs while these prices are so high. I believe it'll plateau soon. The investors paying top dollars will eventually realize there's no profits at those prices and givve up the game I hope so then more deals will be available in the future. Nothing like in 2010 but still a good chunk of change if you hustle and do homework. I'm in no hurry.
Real Estate Investor · Arlington, VA · Member since 2012 · 300 posts · 277 votes
9y
Personally, I dont think this market is good for everyone. If you're uncomfortable being in low income minority areas, or dealing with different people from different lower class demographic, you can make things worse. People pick up on the fact that you're uncomfortable for those reasons, and it get's their back up. At least, it gets my back. But, yes, it can work. Just dont think they're all the same. The trick is learning the nuances of each.
Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
9y
Not all sub 30K properties are in lower class/income areas. Many of these can be purchased in rural/semi-rural areas in which many are starving for good rental properties. Here is an example of one I currently have under contract outside the Lubbock area for $29k. It will take $1000 or so to get rent ready and should rent in the $900-1000 range
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
9y
Originally posted by @Account Closed:
@Taylor K. I like to buy cheap properties. Many people here start screaming "CAPEX!" over and over when people say cheap properties are a good investment. I guess it depends on the market.
In SOME parts of the Dallas area, the following is still possible SOMETIMES.
1) Pay $30,000 for a house.
2) Spend $3000 to fix it up.
3) Rent it for $950 a month to a single elderly person that is easy to get along with.
4) Property might be vacant for 2 or 3 days when the tenant leaves.
Most out of state investors seem to be happy buying retail in our market. That is a huge mistake. It tends to go like this.
1) Pay $200,000 for a house. ($40,000 down payment)
2) House rents for $1500 a month.
3) House is vacant about two months out of the year.
Of course, many people are assuming the new $200,000 will appreciate more than the property bought for $30,000. Not hardly. Once the property is an established rental in our area we get offers basically none stop without the property being on the market. After the property has rented for about two years I can pull out about 100 times rent against the equity at the local bank or I could list it for about $115,000 - $120,000.
Assuming quality/sf to quality/sf, you're saying the house that is 200K doesn't appreciate as much as the house that is 30K? Why would the 200K house be 200K compared to the 30K house if it wasn't for the economy or area? Man had I known, I would have invested all my money into shacks in Ohio instead of luxury real estate in Seattle...