All Forum Posts by: Matt Smith

Thank you for posting.  This is what I would do assuming it is a free and clear property:

1) Rent-to-Own with an option to buy...as two documents.  Even though it needs work, there may be someone willing to take on the repairs as tenant buyers.  A non refundable option deposit of whatever reasonable amount someone is willing to pay in your market.  If the condition is just too bad for this, and rules & regulations prevent this, consider #2.

2) Seller Finance with a reasonable down payment and carry the note for the difference.  Verify income and do credit and background check to ensure it is being sold to the right people.  Once a buyer arrives, transfer the title and carry the note for the balance.  Set the interest rate at 10%.  Amortize the loan for 5-10 years, whatever makes most sense for you in terms of selling.  Once you do this, your note will have a percieved cash value to a note investor.  If you would like to cash out, advertise the note for sale, or seek out a note investor.  They will try to buy lower than face value.  If you can accept 60%-70% of the face value of the note, then no problem; however, I'd keep the note for the monthly cash flow in that case.  If this will not work in your case, see #3.

3) Sell 1/2 of your House.  I'm not sure why more investors don't do this.  This may work a few ways.  A) Sell 1/2 to an investor for all cash, just make sure the 1/2 will at least repair/rehab the home back to being on par with the high end rents in the area.  If the investor needs more security before investing, attempt to find a tenant who can agree to lease for higher end amount based on comps once the repairs are done, then sell 1/2 to investor now that you have Letter of Intent from tenant.  Or, convince an investor that the numbers will work great, once the repairs are done and it's move in ready.  Provide comps.  If it's too much to ask an investor to buy half, consider enticing them by offering more of the rental income for the first year, if you can be in a position to do so.

I've had mixed results working with family on real estate issues in times of need.  Check with anyone, everyone.  Consider advertising on Facebook to at least get the word out to local community.  Ask the neighbors (all neighbors) starting with the adjoining properties to see if they are interested.  Someone, somewhere needs your house for living, or for investment.

Good luck!

Rural investing for buy and hold has been very good to me over the years. Houston numbers falling short compared to the profits I've been seeing from small towns. Why buy and hold? Prices lower and rents good. As for financing, or refinancing, this is where the problems arise. Unless it's in the path of progress, banks will balk at lending, or refinancing. Comps will be tricky. So for buy and hold, absolutley. For flips, and or BRRR, maybe be prepared to hold in case they end up on the market too long. I invest in Brazoria, Kenedy, Karnes City, and Houston.

The only bad side I've experienced is selling, and/or refinancing. My rural holdings would not pass the BRRR test in terms of being able to refi. Creative real estate investing doesn't sit well with the local banks, or the big banks for that matter. I think it's because of the lower population, lower demand, and inconsistant comparables. But for Long Term Holding? That's the way to go. All of my holdings are sub-$100k purchases. One property rents on average for $2500+ a month on a NN lease, and the taxes and debt service (seller finance deal) are so low, I'm still keeping $1700+/mo. Because its commercial, rental income factors in to the value. I doubt I'd be able to sell for $180k today, with rents at $3k. I know this because I've advertised it for sale around that price range recently with no interest. My guess is that it's rural, and therefore obscure to investors, and to the locals who say the price is too high. This is why I do commercial. I have never seen anything that comes close to these numbers in the bigger cities in Texas...commercial, or residential. As for my wife...she was definitely not on board with me taking on seller finance debt to buy a warehouse, until it leased for $3k/mo a few short months later. She also wasn't on board with my plan to acquire multiple properties with enough surplus positive cash flow to exceed both of our previous full time jobs. She doens't criticize the concept too much these days.

@Scott H.

Texas Rural investing has been profitable for me since 2011. Two acquisitions over the past 5 months, so far, have been rewarding. I invest in towns near larger cities that offer good jobs. One of these investments is on a very busy Tx St Hwy and would make a great commercial property--it's currently leased as a duplex. Not sure how the numbers work up in Indiana, but if it's anything like Texas, the best profits can be made in the rural parts. Bank Owned and Foreclosures are way down, so everyone looking to invest end up going straight to the MLS. Then they lose that deal because something like Blackstone comes in with all cash offer at, or slightly higher than asking price. This is what I've witnessed in Houston among foreign investors looking for cash deals.

But, when it comes to rural areas, the investors I know, even the pros, are not interested.  I don't get it.  I find better construction in these Texas rural parts for a lot less money, and rural sellers are more likely to favor seller financing.  If rural commercial can be acquired seller finance and it's in the path of progress, then that it the best scenario in my opinion.

I'm with ya on this one.  

Investment Info:

Large multi-family (5+ units) commercial investment investment in Kenedy.

3500 sf Warehouse purchased for long term hold positioning. This smaller warehouse is adjoining a larger warehouse. Since it was vacant, and the extra space would become valuable for storage and parking for the big warehouse next door, I tracked down the owner and was able to negotiate a very favorable seller finance deal. Though has only leased 1.5 yrs of the 3 yrs owned, it is worth the holding costs.

What made you interested in investing in this type of deal?

After acquiring a larger corner lot warehouse, I thought adding this smaller adjoining warehouse would be a good long term move. It provided more land space, storage, and parking.

How did you find this deal and how did you negotiate it?

This warehouse adjoins a larger warehouse I purchased. There was no signs on it, so I asked the neighbors around town who the owner was. Not long after, I was able to negotiate a seller finance deal. This smaller warehouse was, and still is (being worked on now) in rough shape. I showed the seller how much I was spending on the bigger warehouse next door and that I'd be strapped for cash for a while. He agreed to sell with no interest.

How did you finance this deal?

This was a seller finance deal for very low down payment and very low monthly payments. The seller was very generous in working with me on this deal...especially when he offered to sell straight payments, no interest. As I've mentioned in other posts, the properties I buy and the cash I put in are lower than you might expect.

How did you add value to the deal?

The only work performed after acquiring was cleaning out. It's been in sweep clean condition ever since. Though this warehouse is rough inside, it still serves a purpose for storage and parking.

What was the outcome?

I was able to include this warehouse along with the larger one for additional income. It provided the tenant with extra space, and parking. They were also able to utilize the utilities.

Lessons learned? Challenges?

This was early on in my investing career, but I got over the mental blocks by thinking outside the box. This warehouse was vacant, and I wanted to buy it, but didn't have the funds available. I asked around to find out who the owners were until I was in touch with them directly. The seller's generosity made this deal possible. But, it would have never happened if I didn't ask. Even though I didn't have the funds, I asked: How can I buy this? Will the seller Finance? Can we be creative?

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

There were no agents involved in this deal; however, there was invaluable help from the neighbors and locals who were kind enough to tell me about the warehouse, and put me in touch with the owners. Small town generosity is really quite special, and even though this property has been cash-flow negative for 2 out of 3 yrs, it is worth it to me long term to have along with the big one.

I can't help but think of this as a new attempt for lenders curb house hacking efforts for VRBOs and AirBnbs, which they may view as a business.  An insurance issue?  Never seen or heard of this fine print before.  Time to start paying more attention to these things moving forward.  Thank you for sharing.

Investment Info:

Single-family residence wholesale investment in Houston.

This was a SFH (tear down) listed as "potential rehab" in a hot market Houston neighborhood. It was put under contract and assigned to the best possible buyer...the corner lot auto repair shop that this property adjoined. The price was negotiated as "lot value" only, and low enough to be a deal when prices were rising quickly. The Buyer Auto Shop added an additional 6,000+ sf to his already 12,000+ sf commercial corner lot at a busy intersection.

What made you interested in investing in this type of deal?

This deal had high DOM (days on market). I felt that a good price could be negotiated based on lot value, and would be a great addition to the corner lot next door...if they would be interested. My strategy was to assign this deal to the neighbor.

How did you find this deal and how did you negotiate it?

This is a neighborhood deal with a realtor sign in the front yard. Most investors, I'm guessing, couldn't get the numbers to work for a rehab, and passed on it. I knew it would add tremendous value to the adjoining neighbor lot, who happened to be my neighborhood mechanic. The question was posed, and the owner of the Auto Shop was very interested. He happened to be a cash buyer who was in the market for a real estate deal. The deal was negotiated from Cash offer, quick close.

How did you finance this deal?

This was an assignment to a small business cash buyer.

How did you add value to the deal?

The Auto Shop was not aware that the property was for sale, even though it was right next door. When I informed the owner that next door was for sale, he was interested. He knew the perceived value this additional 6,000+ sf lot would add to his commercial corner lot. Whereas other investors couldn't justify rehabbing, and developers focused on bigger deals, it was a perfect match for this auto shop Owner to expand on what he already had.

What was the outcome?

The Auto Shop Owner (Buyer) tore down the SFH and now has one large 18,000+ sf commercial corner lot in a desirable neighborhood in Houston.

Lessons learned? Challenges?

Agents may list a SFH with best intentions to maximize the profits for their clients, but may not realize the real cost of the improvements. The numbers likely scared the rehab investors away. Realizing this, and focusing on the Lot Value Only, we were able to find a cash buyer, THEN get under contract and close the deal. Lesson learned? Always Ask. Consider checking with the neighboring owners first. Their daily routine makes it easy to overlook what might be avail., even if next door.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

There was a listing agent involved who was very helpful in negotiations.

Notes? Most common reaction I get from my pool of family and friends is "sounds like a scam." 

You know how frustrated people get when they don't understand. They won't even hear me out when I attempt to show how the banks do it.

Anyway, I'm here to talk notes anytime, or sell notes anytime. 

I'm in process of getting really creative with some real estate offerings. 

Let's talk about it.

It seems the market is cooling.  I know many in the Houston area who are not seeing the returns of years past.  Perhaps the same in growth cities around the nation.  I can't help but think that before the crash, regardless of the causes, there was a certain supply.  Then during the crash, building declined, and all existing homes likely dried up due to natural disaster events (Texas flooding a few years back, and then again with Harvey).  Factor in other natural disasters that have knocked off some inventory and it seems like a shortage.  Furthermore, the shortage of foreclosures and shadow inventory has left investors bidding prices up on auction offerings.

I'm on board with MrAlanKendall's philosophy:

https://www.youtube.com/watch?v=nKq1STLI17g

If banks turn the lending hose on, prices could continue increasing.  It seems unlikely that real estate will x2, x4, or more at this time, but it's happened before and it will happen again...eventually.  That's why I'm holding long term positions.  As long as cash flowing, any increase in value is just bonus. 

Investment Info:

Large multi-family (5+ units) commercial investment investment in Kenedy.

Bought a single screen theater in a small town and flipped it a year later for 50x. A pure luck play from a Craigslist Ad resulted in my very low offer being accepted. To be fair, the theater was in very bad condition, and low estimate repairs ran around $100k-$150k. I owe my real estate investing career to the gentleman who sold me the theater, and the gentleman who offered to buy it a year later.

What made you interested in investing in this type of deal?

I saw this old theater while passing through a small town one weekend. It was of interest to me because I had just wrapped shooting an ultra-ultra low, no budget movie and had this wild idea that maybe I could get this theater, or another small town theater, to show my movie. Then I could claim theatrical distribution to hype up my little movie (incomplete to this day, btw. And it sucks, but the acting was great!)

How did you find this deal and how did you negotiate it?

I found this deal on craigslist after someone tipped me off to some oil activity going on in the region. They encouraged me to buy some mineral rights, if I could find some. A quick craigslist search for mineral rights brought up this Single Screen theater for sale. I could hardly believe it was the same one I had noticed in passing 1-2 years prior. Since I couldn't afford the asking price, I offered what I could afford. It was accepted. I bought the theater along with the mineral rights.

How did you finance this deal?

This was an all cash deal. Please keep in mind that when I say all cash deal for any of my deals, we are not talking much. This deal was so low that those familiar with it consider it to be the best once in a lifetime deal they've ever heard of.

How did you add value to the deal?

No work was done to the theater, but I did use the marquee to advertise my website. The heavy traffic through this main street downtown provided for a healthy website ranking at the time. Consider this for any tear-down property with heavy traffic.

What was the outcome?

A year later I was contacted by a gentleman who purchased the next door adjoining building. He offered to buy it cash. It was sold for a large down payment, and I carried the note for the balance. I still own the mineral rights.

Lessons learned? Challenges?

This was my first deal and I was embarrassed to offer what I did. My offer was accepted. I figured that the mineral rights that came with it would be worth what I offered. When I consulted with friends and family, they discouraged me from buying because the building was a liability. They had a point, but you gotta know in your gut when you've got a winner. This winning grand slam provided capital to launch my real estate investing career.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

The purchase I made was between the seller and I, only. No title insurance, no closing, just meet up with cash and sign everything over. The buyer I sold it to was a licensed real estate agent, but his main gig was construction.