More Home Sellers Starting to Work With Cash Buyers in Southern Texas

More Home Sellers Starting to Work With Cash Buyers in Southern Texas

Cash real estate buyers in greater San Antonio are reporting a significant uptick in activity post-Covid as more homeowners are realizing the benefits of conducting real estate transactions in this manner.

While cash buyers have always made up a portion of real estate transactions, albeit a small one, their market share is growing in recent years due to economic conditions and rising real estate fees associated with selling real estate in southern Texas and around the country.

“We’ve been experiencing this uptick in activity, really ever since Covid-19 restrictions were lifted in the San Antonio metropolitan area,” says Will Pritchard, owner of Home Again San Antonio. “Our buying opportunities thus far in 2023 are much more than they were even a year or two ago. We expect this will continue as cash buyers become a larger percentage of the overall market share for San Antonio area real estate.”

While the majority of real estate transactions in southern Texas continue to be handled through a licensed real estate agent, more home buyers are beginning to turn to cash buyers as a way to streamline the home selling process.

Saving real estate commissions is a major consideration for these types of buyers, but it’s not the only one. Selling quickly and easily via a cash buyer also avoids the need for holding open houses and multiple showings, while also alleviating the need for staging your home or even having to hire a photographer and/or videographer to showcase the property for marketing purposes.

With the San Antonio real estate market continuing to appreciate, home sellers can save a significant amount of money in fees and commissions by bypassing a Realtor altogether and instead contacting a reputable cash buyer in the local market.

“For years, individuals in our business were held back due to bad publicity and often unfair connotations that were associated with cash real estate buyers,” says Pritchard. “But through the hard work of many of us, most of that has been dealt with and alleviated in recent years.

“I think what we’re experiencing over the last few months is a direct result of the work we’ve done over the years to overcome this previously bad reputation in the industry. What we do is offer homeowners a fair price for their properties and a way to complete the transaction in a fast, easy and mutually beneficial way.”

To learn much more about San Antonio’s leading cash buyer of real estate and how you can also sell your home the quick, easy and stress-free way, call Home Again San Antonio at 210-640-0166 or visit them online at homeagainsa.com.

Remove the Stress of Selling Your Home by Using a Cash Buyer

Remove the Stress of Selling Your Home by Using a Cash Buyer

Have you ever sat down and thought about how stressful selling a home can be? While buying a residential property is usually a joyful experience, selling one can invoke all sorts of stress and headaches throughout the process.

Selling your property via a cash buyer can alleviate much, if not all, of this unneeded stress and angst from your life. It’s so easy to do, which more and more people around the United States are discovering each and every year.

Just think about some of the stressful parts of the process that you won’t have to deal with if you’re selling your home via a private deal with a cash buyer.

Here is just a sampling of what you can avoid:

Open Houses

If you don’t like the idea of people having a pseudo party in your house when you aren’t even there, then using a cash buyer could be for you.

Most Realtors like to have open houses at their listings, which means they’ll literally be inviting anyone and everyone to walk through your property on a certain date and time.

This means, of course, that you’ll need to make the house immaculate beforehand and find somewhere to be for several hours on the day of the event.

And if it’s just one Realtor on-site, which is usually the case, there’s no way he or she can be with all of the guests all of the time. And do you really want people going through your things and traipsing through your property when you’re not around?

Using a cash buyer means no open houses are needed because you already have your buyer lined up and ready to go.

Staging

Most real estate experts recommend staging your home when trying to sell it, which often means buying or renting furniture and other items to shine your property in the best possible light.

This takes a lot of work on the part of the homeowner and can also cost a good amount of money if you’re really taking the time and doing it right.

Then you also have to keep these staged areas clean and looking presentable for when people come by to take a tour of your home.

This is another part of the process that can be saved by working with a cash buyer. There’s no need to stage and no need to impress anyone, you just need an agreement in place and then the patience to wait for settlement.

Photos and Videos

A lot of real estate companies these days go all out in terms of professional photographs and videos as this gives them a way to expertly market your home to the public.

But these photos and videos are anything but free and can often add several hundred or even more than a thousand dollars to the bottom-line costs when selling your home.

A cash buyer will likely come out and take a few photos of your property during inspection, but this won’t be done by a professional and you won’t get stuck paying the bill for them either.

Commissions

Selling your home to a cash buyer also means paying no real estate commissions on the transaction. And let’s face it, 6-7 percent of what could be up to a few hundred thousand dollars is a good amount of money.

The higher the dollar amount, the more stress that can be added to the process as you’re seeing that money go to someone other than yourself.

This is yet another reason to consider using a cash buyer for your real estate sale.

How You Can Avoid Foreclosure by Using a Cash Buyer

How You Can Avoid Foreclosure by Using a Cash Buyer

It’s been a tough couple of years as countries and citizens around the world have been dealing with the unique challenges of COVID-related restrictions and the accompanying economic fallout that’s come along with them.

In the United States, these challenges have largely been centered around people’s homes and the expenses that come with purchasing and maintaining your own personal residence.

While issues still pale in comparison to the economic crisis of 2008, which was largely fueled by home prices and subprime mortgages, many people are still at risk of losing their homes due to income challenges and employment issues related to the pandemic.

If you’re at risk of losing your home to foreclosure, you should take action today to avoid your lending institution from taking this step. Banks generally don’t want to foreclose on your home any more than you want to be foreclosed upon and almost always view this as a last step in the process.

Banks and credit unions are not in the business of owning homes, they’re in the business of making money via interest paid on mortgage loans. If you’re willing to work with them, you can usually figure something out.

But in lieu of working with your bank, you do have a couple of options. One choice is holding a so-called “short sale,” where you generally sell your home and pay back some, but usually not all, of your mortgage and hope this satisfies the bank.

You can also simply walk away from your home and take the hit on your credit report. This isn’t a great option, but some people do go this route.

But one newly popular method of saving yourself from foreclosure and the years-long hit on your credit rating that comes along with it, is to sell your home to a cash buyer. Not that long ago, this idea was considered anything but mainstream and not taken very seriously either by people in the industry or by homeowners needing to sell their property.

But that was then and this is now. Cash transactions have become much more commonplace in the United States over the course of the last decade or so, and they’re probably going to continue gaining market share over the next 10-20 years.

It’s a very stress-free and easy way to sell your home in the 21st century and there are more and more companies popping up from coast to coast that specialize in these quick and hassle-free transactions.

If you’re behind on your mortgage and the bank isn’t giving you a whole lot of options, finding a reputable cash buyer in your area to work with has a lot of merit. Do a little research, find one you feel is above board and give them a call.

A foreclosure on your credit report is not a good look and not a road you want to go down unless you’ve exhausted all other possibilities. Find a cash buyer today and avoid going through a foreclosure process with your lending institution.

It will pay dividends in not only the long run, but in the short term as well.

Good luck!

How People are Ditching Realtors for Cash Buyers and How Easy it is

How People are Ditching Realtors for Cash Buyers and How Easy it is

Millions of real estate transactions occur every year in the United States and in other developed countries around the world.

The vast majority of these transactions, at least in the United States, are completed in partnership with real estate agents who are members of the National Association of Realtors (NAR). In other words, these are individuals who are trained in the field of real estate and who earn their living via commissions that are paid at the end of the selling/buying process.

By and large, these trained real estate agents give their clients a value added service that is paid for at the end of the transactions. And they’re generally compensated very well for their efforts.

But while you certainly receive a decent return for your investment when working with licensed Realtors, what if we told you that you could save several thousand dollars when selling your home by bypassing one altogether?

And we’re not talking about putting a “For Sale By Owner” sign in your yard and attempting to weave your way through the real estate process on your own. Some people do that, however, with varying levels of success and failure.

But what we’re contemplating today is selling your home by using a cash buyer, someone who can write a check for your home and let you walk away with cash in your pocket in a much shorter period of time than going through the traditional sales route.

It really is as easy as it sounds, which is why more and more homeowners are taking this path every year in the United States.

The way this type of real estate transaction generally plays out is that the seller will call a company that buys homes for cash in their town or city. This call is usually a result of an advertisement or promotional material the person has seen at one time or another.

The person on the other end of the line will gather information and then schedule a time for an inspector to come out and have a look at the property. After taking notes and snapping some photographs, they’ll put an offer together and present it in writing to the homeowner.

If the offer is accepted or if negotiations need to take place first, this is generally a pretty quick part of the process. Once an agreement is in place, the ball starts rolling toward receiving a settlement date and closing on the sale.

On average, cash sales move much quicker through the system. The reason is obvious – there are no banks and red tape to deal with.

You have an agreement in place, you show up at the settlement table, you sign the papers and you walk away with a nice, fat check in your pocket at the end of the day.

We make this entire process sound quite easy because it really is quite easy. The hardest part is taking that first step and meeting with a qualified representative who can help guide you through every step of the selling process.

This home-selling method is really becoming the most modern and least complicated way of selling real estate in the United States.

If you have a home you want to sell, you owe it to yourself to look into the cash buyer option before making any final decisions on selling your home.

We think you’ll find it just as easy as what we’ve described here today.

Selling Your House As-Is: How Real Estate Investors Can Help You Avoid Costly Repairs

Selling Your House As-Is: How Real Estate Investors Can Help You Avoid Costly Repairs

It’s a question that’s stood the test of time and has no convenient “one size fits all answer” – do I spend money on repairs before putting my home on the market or do I keep that cash and accept a smaller sales price for the property?

It’s a complex query and only the homeowner can decide what’s best for him or her based on the answers to several questions. What kind of timeframe are you looking at? What is the current cost of needed materials? How complex are the repairs and/or renovations?

These are all things you need to ask and answer, either by yourself or after consulting with your family. In the end, the answer might be to skip the repairs altogether and turn to a real estate investor for a quick and mutually beneficial sale.

Going the investor route will save you time and can also avoid having to put needed repair costs on credit cards or paying for them via home equity and/or personal loans. This is a great option for many as it can put cash in your pocket in an accelerated time frame and allow for a fresh start at a different location.

If you’re selling your home without first making needed repairs, you’ll be selling it in “as-is” condition, meaning any issues that turn up via an inspection will be handled by the buyer. In this case, that means a real estate investor.

If your home is listed in “as-is” condition, and is marketed as such, most investors, as well as people coming to look at your home, are already going to be aware that potential issues are likely. They’ll be viewing the home with this mindset and with full knowledge of the property’s current condition.

Just be sure to disclose any issues you won’t be taking care of on your own. Real estate investors don’t mind buying distressed properties, but they do expect honesty on the part of the homeowner.

This isn’t to say they won’t buy the home anyway, they very well might. But for a smooth transaction that can benefit both parties, you want to be honest and upfront about the condition of your property.

Investors fully expect and actually seek out these types of situations in the marketplace. It’s not always about the money either; there are many reasons why someone might not want to complete repairs on a property before putting the “For Sale” sign in the front yard.

Some of the more popular reasons for bypassing repair projects include:

  • No Time. The world moves at a fast pace and sometimes people just don’t have the time to finish everything on their to-do list. No judgment here, sometimes you have to do what you have to do.

  • No Desire. Sometimes people simply don’t want to work on a fixer-upper, particularly if it was an inheritance or isn’t their primary home. A quick sale is very appealing to people who fall into this category.

  • No Need. Every now and then a seller will have a buyer lined up before the home is even listed for sale. In this case, it’s a quick transaction and any needed repairs can be taken care of after settlement.

  • No Money. This has already been discussed but we’re including it in this list anyway. This is the most common reason why someone might not want to do repairs on a property they’re getting ready to sell anyway.

If you’ve decided you’re going to sell your home in “as-is” condition, do your homework, come up with a plan, complete all disclosure forms and then begin searching for a buyer.

Many times, this means an investor. Be prepared for this likelihood from Day One and proceed accordingly.

 

Triplex Triple Play

Triplex Triple Play

Here is one of our more creative deals spelled out. I hope it helps you envision ways that deals may be structured. Let’s see how many different structures are working together to make this deal. 

First, our second rental, which was the first one that was bought explicitly as an investment property, had appreciated and taxes were going up (the first rental was my bachelor pad). We talked about the sale of this second rental in the blog post called “Farewell to a Teacher”. We made the decision to sell in an effort to get some better cash flowing properties. I always tend to regret selling property but this one did ultimately help us boost cash flow, which was our goal. 

 

This is the property we sold (rental #2)

During the ownership of that second rental we were able to strip some equity through a cash out refinance and reap 30,000 dollars in 2018. This was tax-free money and was used to help in the purchase of two other properties. The 30,000 was more than our original down payment on this house so we now owned this second rental for zero money – kind of like an extended BRRRR deal. If BRRRR is unfamiliar to you, check out this article that breaks down the BRRRR Strategy. At this point the cash flow decreased to 170 dollars per month after PITI, not accounting for vacancy and repairs so it would end up just barely breaking even over the long run.

In August of 2020 we decided to sell and see what we could get for it to move into a better cash flow position. We sold for 185K and netted 57K at closing. This would be taxable income as well as cost some depreciation recapture. The only way around that tax burden was to do a 1031 tax-deferred exchange. This would be our first one so we started to look for replacement properties with an eye for properties that would cash flow better. 

As we asked around for advice our wise investor friend, Rick Pozos over at The Pozos Report asked us why we hadn’t been shopping for replacement properties before we completed our sale. We replied that we were busy traveling and it hadn’t been a real priority. With only 45 days to identify our replacement property in the midst of a seller’s market, time was definitely not on our side. The 45 days is an IRS rule and there is also a 180 day timeframe in which you must close on the identified property. Tip: confer with a 1031 intermediary well ahead of selling your property so that you don’t break any rules, such as taking money into your own bank account, thus voiding this tax deferral. 

We found a triplex property on the MLS that was back on market and listed for 195,000. We offered 160,000 and the seller countered with 180,000. This is where terms can make the deal. If we bought it fir 160k and held with private money for six months to get the required seasoning to refinance it, we would end up paying about 8k in interest. So we agreed to their price if they would carry the note or seller finance it for seven months at zero interest. They agreed!

 

The front house of the Triplex

The effect of this was that we would pay 7,000 dollars straight to principal this reducing the amount to refinance to 117,000 (remember we had a big down payment on this one). Then we hit a big snag. The zoning was not appropriate for a triplex and the bank would only do a loan at 65% LTV (loan to value) instead of our usual 75%. Luckily this would still work to pay off the underlying loan and give us healthy cash flow. 

We realized that this zoning limited our value to re-sell if we should ever decide to so we went one step further. We petitioned the city for “conditional use” zoning which, if approved would essentially permit this property to be used as a triplex as it had been for many years. It cost a thousand dollars to apply and we wrote letters and knocked on doors of neighbors to explain what we were doing because the city would be checking with them to see if there were any objections.

Ultimately we were approved for conditional use which should increase resale value and the ability of future buyers to get financing on this property. Thus it was a value-add by zoning change rather than material improvements to the property.

After all is said and done, we figure our profit from the sale of 57,000 is now over 70,000 in equity and we have deferred the taxes for a long time. Our cash flow went from zero to well over 700 dollars a month after all expenses. We consider this a big win and it came about from making offers all the time and being creative by combining strategies. No two deals will come together the same way but I hope this gives you some ideas about how you might use creativity to create value; which is what we aim to do as investors.

Midnight Infomercial House COVID Edition

Midnight Infomercial House COVID Edition

By now, you all know how I feel about spreading negativity – I don’t like it.  Wait, was that negative? I try my best to keep my state of mind positive. Lately I have good days and bad but my family is what brings me back to good. I’ve read so much negativity about people having to spend time with their families lately and it’s downright sad. We all have some fear about the future regarding the virus and the economy but I, for one, am getting to know my kids in different ways. We’re eating better and exercising more outside. I am talking to friends and family on the phone and using FaceTime to show grandparents their growing grandkids and “grandchicks” as our daughter calls her new baby chicks – when talking to her grandparents.

When we face any challenge I like to try to figure out what I can learn from it.  In this situation I feel like we are in a game of freeze tag where the life we were each building froze in place and whatever position we were in is the one we’re going to be in for a while.  This, to me, is a lesson to take with us moving forward.  As we are always trying to grow and plan for the future, we need to try to live a life we love in the present as if we might get frozen in it at any moment. What a great reminder to design a life you love at every stage.

I have also been reminded how little we need to be happy.  I don’t know when we’ve last filled the gas tank and we’ve really only bought food – and we have never been happier.  

So what does this have to do with the Midnight Infomercial House? We don’t want to act like everything is perfect and that there is no fear or anxiety in our house.  There certainly is.  We do have anxiety about making mortgage payments while some of our great tenants are struggling with job loss.  But what I am going to focus my thoughts on are the tenants like the ones in the Midnight Infomercial House.  This is a sweet couple who didn’t reach out to tell us they couldn’t pay the rent but emailed us to check on us, by name, during this difficult time.  They asked how I was doing with my job and mentioned that they were well, if not just a tad stir crazy.  It was such a kind gesture and meant so much to us. 

We bought that house to solve their problem and it was a home run for us. The purchase was built on a relationship we formed.  They achieved use of their equity and a fixed monthly payment.  We achieved a rental with no money out of pocket.  They get to stay in their home for as long as they choose to. 

While we may not have as much growth as some investors who use pressure to try to buy deals, we feel good about the deals we do buy and are certain that the sellers and renters would sell to, or rent from us again.  Having that solid relationship means that our tenants don’t want us to fail any more than we want them to fail.  I know that those who are still employed are going to pay the rent.  And if they all pay, we are hopeful that we can help those tenants who are truly in a tight spot right now. As for April, all of our tenants paid in full and on time except two, who paid about half of their rent. 

If we can help those who are having a difficult time, we will probably have even more loyal renters after this situation resolves.  I don’t know if Karma is the correct word but treating tenants like people has come back around to us many times over. This business isn’t easy – nothing worth doing is but it is easy to treat people kindly. We have to be firm with rental due dates to establish the rules but we fulfill repairs quickly and treat our tenants like the great people they are.  We charge late fees but we send Christmas cards.  We charge application fees but we give gift cards and flowers for house warming gifts.  We each play a role in this relationship.  Right now is our chance to remind those who can pay that rent is due and to offer some grace and assistance to those we can afford to help.  To those people who did nothing wrong but who were frozen in a less favorable position than we were for this sometimes cruel game of freeze-tag.

This isn’t intended to be a humble brag piece about our ability to help.  We aren’t rich and we do have mortgages to pay.  We’re scared – like everyone else. We may not be able to help all of those tenants who are struggling before this thing is over. We may not even be able to keep our houses.  We think we built our business prudently but we certainly didn’t build it with a pandemic plan. We don’t know where this ends.  But we still can affect so much of this situation by how we choose to act and what we choose to focus on. We will not lose our sense of humanity.  We will not lose our family.  We will not lose our faith – in God or people. We will not focus on the fear or the unknowns.  We will focus on the gift of this time with our family. We will focus on the country we are lucky enough to live in that offers relief to those who are hurting. We will focus on the kind tenants who care enough to check on us. 

This virus is a “leveler” of sorts.  Right now we all are eating meals in our homes, reading and watching too much T.V.  Some are in nicer homes than others but first class seats don’t matter when planes don’t fly. Luxury cars don’t matter when we have nowhere to go. We are fighting a virus that shows us exactly how connected we are despite how much we try to act like we aren’t.  We are wearing homemade masks we know won’t protect us much but that may protect someone else from us. The rich and the poor are both applying for relief. We are all adapting to the positions we were frozen in. But we aren’t mentally frozen. We have decisions to make regarding how we move forward daily and in what we choose to look at – to look for. 

Growing up with parents who were intellectual academics I learned so much but I didn’t learn about Capitalism other than from a fairly critical perspective. I have since learned that businesses can have purpose.  Now is our chance to see how big our purpose can be. Let’s cross our fingers, check the wind, and see how we can help. People first. Profit second. Damn hippie values I just can’t completely shake – and I don’t want to. Please be safe as you continue through these uncertain times.  If you are struggling during this time I challenge you to write down one new thing every morning that you are grateful for and, as always, keep the main thing the main thing.  We will get through this!

 

Pryme Homes Interview link is here: https://www.facebook.com/watch/?v=221565805737261

Consider subscribing to their podcast for more great content at An Investor’s Journey Podcast

Private Money means Plenty of Money

Private Money means Plenty of Money

Listeners to the Best Real Estate Investing Advice Ever Show:  Thank you for coming to check out our blog!  The direction our conversation went on the show tended toward private money and I want to give you a bit more here on that topic.  Read along to see why I would loan to a complete stranger.  If you missed the show you can find the link by clicking HERE. See older posts for other lessons we’ve learned along the way. Subscribe if you like what you read. My book recommendation for this post is The Millionaire Next Door by Thomas J. Stanley and William D. Danko.  The people portrayed in this classic money book are your potential lenders.

That FIRST Private Money Deal Before:

When I’m asked what the biggest factor to our success has been, I generally state the fact that we took action and follow that with “PRIVATE MONEY”! You see, saving money on a firefighter and educator’s salary was slow and it took a few years between rental house purchases due to the need to save up down payments and renovations. See this post for more on those. We were still excited and believed in the goal so we trudged along working overtime and scraping together all the funds we could.

And AFTER:

Private money was like gasoline on the fire we had been slowly stoking. In our case, private money found us. We talked with friends about our small business with excitement and enthusiasm and it got them interested. One couple asked us if we would be interested in partnering and we explained how a debt partner could work. This was based solely on what we had read because we had never done this before.

They were in! We didn’t have a lot of confidence so we didn’t even ask for the full purchase price and we funded the difference plus the repairs. Luckily we had some savings at that point. The most amazing thing to us was that as soon as we paid them off they texted us “go find another one of those”! We were taken aback. We tapped into our network and found another deal and this time we asked for purchase AND renovation funds.  They didn’t hesitate. Now they were investing in US more than the deal.  This may be the biggest difference in private money and hard money – two terms that are often used interchangeably.  Hard money lenders are generally sophisticated lenders who know real estate well.  This can be a good thing in that they are going to underwrite your deal. If they don’t want to do the deal, you may take that as a sign that it isn’t as profitable as you thought it was.  Private lenders can be other real estate investors (some of ours are) and they will ask thorough questions about the deal before committing. But many are people in other industries who won’t have the same level of sophistication regarding real estate.  This makes lending simpler sometimes but it puts the onus on you to underwrite the deal and make sure you understand the risks. You may have to do more “educating” of your lender on what the deal will look like and how their investment is protected.

Our non real estate investor lenders now typically lend after one text with an address and an estimated ARV (after repaired value). We tell them the amount and they wire the money. They get first lien position and love the returns. I tell you this to show you how this can seem so daunting at first but can become so easy. Gaining the trust of your lenders and building momentum is critical.

So what do you do if you don’t have experience? Go get some.  How can you do this? Offer to help other investors for free. Just give them value. Maybe you know something about websites or marketing or painting houses. Don’t ask for them to give you something. By being close to them you’ll gain experience. Or bring a good deal to another investor and partner with them and let them bring the money and expertise.  Even if you don’t profit, you’ll have a deal under your belt.

Your modern-day resume is what you post on social media.  Make it smart.  Make it positive.  When you walk a property, take pictures and make a post about something you learned.  Don’t get mired into politics unless they are more important to you than half of your audience that could be lenders to your business. My theory is that I’ll vote as my political contribution but social media is for family picture, adding value to others, and attracting deals and lenders. If you are posting polarizing articles, you could ostracize half of the network you have access to. Think about this from the lenders’ perspective if they happen to hold different political opinions than you.

How can you make your loan more attractive if you are having trouble getting anyone to loan to you? Why would I loan to a stranger? If the loan to value (LTV) were very low (50% LTV) and I had first position lien on a property I would like to own, I’d loan the money if everything else checked out (including a look at their social media). In this case, if they default I would have a house for half price.  Do you see how this reduces risk for the lender? But how do you get the LTV that low? By getting amazing deals or by kicking in some capital of your own. 

Where can you find the capital to contribute? Unsecured loans are risky but an option. Less risky: Take on an equity partner to bring some cash and you do the work.  Look at everything you own.  Do you have equity in a car? A boat? A retirement account? Collectibles? The ability to earn money from a side gig? Uber? Tutoring? Any place that you can find money. Recently access to retirement accounts has changed as part of the CARES act and some of the penalties have been lifted for accessing money in qualifying account types. Taxes still apply though.  This is a temporary change and expires soon so act fast if this could benefit you.

Some private lenders don’t even know that they have money to lend. Seriously! Most of the people I talk to don’t know anything about self-directed IRAs or how to use them. If you learn more about this strategy, you may “create” lenders who didn’t even know they had money to lend. We gladly paid high interest rates to our lenders’ IRAs and then realized we could do the same thing they were doing and began lending to other investors we knew from our retirement account. Some of our lenders have become borrowers too. The rules prohibit us from lending to ourselves so this arrangement works out to be a true win/win. If you are interested in lending please reach out to us as we are co-lending with other lenders to provide loans to more investors and to keep our money working for us. This allows us to lend alongside other people who may not have enough funds to fund an entire deal or who may want to diversify amongst several projects.

Why does any of this matter? It matters because reliable private money that can fund quickly can be the difference in closing deals quickly and not closing them at all; the difference in getting great deals where timing matters and competing with the entire marketplace for properties that can wait on the slow money. Flaking out on a closing with a wholesaler because the funds weren’t available can mar your reputation in the relatively small world of investors. Don’t let this happen. Communicate regularly with your lenders without being annoying. You need to know if they have a change of heart or finances before you need them to fund a deal with short notice. Eventually you will develop multiple private lenders and can rotate between them and have backups.  If you have several people express interest, nurture all of those relationships so that one can be utilized if the first cannot fund. This should be the ultimate goal: to have several lenders whose money you can put to work on different deals but not a lot of lenders that you’ll never need to tap. Later you will begin to eliminate lenders who are more hassle to deal with or who charge higher interest rates and add more that work well with you and your business. As you build that track record, you become less of a risk to lenders and thus may be able to pay lower interest rates as risk and interest tend to be directly correlated.  

If you want to read more about our inspiration and our “Big Why” you can read what planted the seed.

If you take anything from the podcast or this post, I hope it is that there is plenty of private money available. You can tap into it. It may be on your first deal or your 20th deal, but it’s a tool worth developing. Private money has absolutely been critical to our business. Although we’ve borrowed and paid back somewhere close to two million dollars, we have re-used a lot of those dollars and many of the lenders could not fund that all at once.  It was borrowing and paying-off and borrowing again to get to that amount.  So rather than thinking you need a contact with 2 million in liquid cash, think more about needing someone with 75-150k cash (depending on your location and cost of deals) or retirement accounts that can be self-directed. You need to believe in yourself and your ability to help lenders. You need to come to understand that you have something to offer lenders; not just something you need from them.  You are offering an opportunity! Best of luck and as my grandfather always used to say, “keep the main thing the main thing.”

How We Found Our Deals

How We Found Our Deals

One of the biggest questions I get asked is how we find our deals.  I thought I’d write about this topic at the request of one of the blog readers.  Thanks for the question, Josiah!  

When we first started doing this thing, deals could be found on the MLS pretty easily.  It wasn’t a seller’s market like it is at the time of this writing; in the middle of 2019.  There are still deals to be found there perhaps but we mainly buy off-market deals these days.  I’m going to list the ways we have found our deals here for a very small marketing budget.

We are huge believers in networking.  We have young kids or we’d be out at more meetups each week.  But in keeping with our “keeping the main thing the main thing” philosophy, we balance the meetups with family time.  Some of you may have seen us at a meetup dragging two cute kids along.  We’re those people.  In meeting people at these events, we have found people liquidating properties that we’ve bought from them.  We’ve also met some good wholesalers who we have bought multiple properties from.  All of these deals came from free meetups or low fee REIA groups.  I would say that these connections have led directly to about 5 of our properties and two of our private lenders.  I cannot emphasize enough the value of these groups.  The one thing I would suggest, that I didn’t do initially, is to go to these meetups with the idea of talking to people.  And don’t talk to the same people each time.  As comfortable as it is to mingle with people you are familiar with; you are not building your network as broadly as possible if you do this.  Instead, set up a time to meet with those closer connections at a later time to dig deeper into what you have in common but do what your mama said not to: talk to strangers!  Tell everyone what you are looking for and what you are interested in.  Connect on social media sites and follow the businesses of your new acquaintances to see who is doing what.  You’ll soon see that there are lots of people who attend and a small percentage who are doing deals.  Some of those who aren’t doing deals never will and some just haven’t YET.  

The most surprising thing we found was how willing other investors were to give us tips and suggestions.  Almost everyone we met shared things with us to help our business.  It wasn’t the competitive atmosphere I had imagined.  These people seemed to truly believe in the abundance theory.

Wholesaler.  What does that word evoke for you?  If you are a retailer of some product, a wholesaler is usually the person or company that supplies you with the product that you sell.  This is pretty much what a real estate wholesaler is.  They find properties before they make it to market and they get them under contract and sell their rights to the contract to investors.  Wholesalers can be a great source of deals.  They market by many methods and earn their fees by their hustle.  But just because the deal is from a wholesaler doesn’t mean it is a good deal.  You must vet the deal for yourself.  

Like just about any trade, wholesalers are individuals that run from true professionals to less than ideal business partners.  When you agree to buy these deals, the fee the wholesaler will earn is normally not divulged but it may be seen at closing.  DO NOT complain about the fee.  If the deal is good enough for you as you agreed to buy it, then the wholesaler earned their fee.  We have paid from 3,000 to 25,000 dollars on individual deals.  At first the 25K fee stung but the deal still worked for us. And then we realized that unless we want to set up a big marketing machine, we will have to pay others for their work.  It’s only fair.  We might have paid too much for a few deals too but we wouldn’t be here without a few mediocre deals that helped us get better at our trade.  But time makes them all better!

Door knocking brought us our easiest BRRRR deal to date.

This deal cost us zero dollars and has had truly zero vacancy and minimal repairs.  We still meet all of the neighbors of the houses we buy but we haven’t found any other projects this way YET!  We will!  The sellers told us they sold to us because they trusted us.  I am the worst salesman you’ve ever met.  I rely on building a relationship with a seller and offering them several options. Us buying the house is usually two or three of the options with different terms; along with some options that don’t involve us.  They can pick what works for them.  We are honest and transparent and never pressure sellers in what may be the biggest decision of their financial lives.  We may not be the biggest rental property owners in Texas but we do pretty well and we sleep well at night knowing we can hold our head high and that all of our sellers would speak highly of what we offered and how we treated them.  For us it is about building genuine trust and treating people with respect and finding ways to solve their problems.  Hint: it’s not always about the money.

MLS.  We have bought three rentals off of MLS but not in a few years.  There are a lot of strategies to make offers on these.  Some pursue expired listings.  Some throw out lots of low offers and see what sticks.  I haven’t done any of these but I’m sure there are deals to be mined off of MLS still.

Text message campaign.  This was an effort that produced one great lead.  We’re early into the testing of this method but it works!  In fact, just about everything works when done consistently.  The text lead that converted to a sale was actually sent to the sister of our seller who had already sold her property but mentioned her sister had a property she wanted to sell.  And we hit it off with her immediately.  The house was a little different than our normal type but we now know that when you find a good deal, you find a way to capitalize on it.  This was one of those.  And now we may actually end up owner-financing it to one of our favorite people: our primary contractor (and his beautiful family).  We’ll be doing more of this along with all of the other methods listed here.  

Referrals.  This method is a great way to produce leads.  This could fall under networking but it’s a little different to me because these are realtors or other acquaintances that see what we are doing and send us a lead.  Often these are deals that wouldn’t be a good fit for a retail listing.  We always pay a healthy referral fee to these friends of ours who think of us when they find a house like we buy.  We want them to think of us every time they come across a stinky, crooked or occasionally, a pretty house.  

So why do we share this information?  Because there are enough deals to go around and we feel like we’ve found something good and it just feels good to share it with other people.  We believe that sharing positivity comes back in ways we never would expect.  If you want to hear some real woo-woo stuff, stick around for my post about the power of attraction and my personal “mirror” theory.  For now, take some of these ideas and use them.  See what happens.  Help someone with something you are strong in, without expectation of repayment, and see what happens.  Smile and talk to strangers and see what happens.  Tell people what you are looking for and see what happens.  Put out some positivity and see what happens.  

Thanks for the question, Josiah.  And as always, “Keep The Main Thing the Main Thing!”

Cash Flow With and Without Debt

Cash Flow With and Without Debt

Cash Flow of Smart Debt Guy vs. Cash Guy.

The previous post was about equity growth but consider cash flow and tax benefits too.

Depreciation

Smart debt guy gets to depreciate five houses.  Cash guy depreciates one house.  Assuming all of these 100K houses have an improvement (structure) value of 80k and land value of 20k.  This means that each house has an annual depreciation of $2,909.09.  The schedule for depreciation of residential property is over 27.5 years.  This means that you can claim a deduction of this amount even though you likely saw some appreciation in value.  So Smart Debt guy claims a total of 14,545.45 in total depreciation for the year.  Cash guy only claims 2,909.09 in depreciation.  This is a reduction in their income which equals less taxes paid. 

Smart Debt Guy’s cash flow

We’ll assume a rate of 5% on these mortgages for Smart Debt guy.  The loans will be 30 year fixed-rate.  This means that the payment for P&I (Principle and Interest) is 402.62.  We’ll assume 70 dollars per month for property insurance and 125 dollars per month for taxes.  This means the total payment PITI (principal, interest, taxes and insurance) equals 597.62.  We’ll assume this is a one percent deal which means it rents for 1% of purchase price so 1,000 dollars per month.  This means that the gross cash flow per house is $402.38 with leverage.  Now with cash what is it?  Well, we still have taxes and insurance so it will be $805.  So Smart Debt Guy makes $2,011.90 in monthly gross cash flow over his portfolio compared to Cash Guy’s $805.  We won’t get into the other expenses such as vacancy, maintenance, and capital expenses in great detail as there is a lot of disagreement on what should be estimated for each of these.  Consider it a safe bet that at least a couple hundred dollars per month should be set aside for these expenses (subtract 200 dollars from the cash flow of each house).  This would change the numbers to net cash flows of $605 for Cash Guy vs. $1,011.90 for Smart Leverage Guy. This brings the actual numbers closer.  But what about pay down? $90.12 per month goes towards our favorite forgotten bank account called “equity” for each house in Smart Debt Guy’s portfolio.  This is the “P” of “PITI”.  This adds another $450.60 in equity gain monthly over Smart Debt Guy’s portfolio.  Cash Guy does not get this because he paid for all of his equity up front.

Year #1 for both fellas

Let’s assume stagnant growth with no appreciation in year one.  

Cash Guy’s situation after one year

This means that Cash Guy makes $7,260 in cash flow, $2,909.09 in depreciation and no equity growth. After claiming the depreciation ($2909.09) , he has taxable income of $4,350.91 (net cash flow minus depreciation).  

Cash Guy made $7,260 in cash flow and zero in equity growth.  He’ll protect some of his income from taxes by claiming depreciation and will end up with a taxable income of $4,350.91

Smart Debt Guy’s situation after one year

Let’s look at Smart Debt Guy’s cash flow.  He’s got $12,142.80 in cash flow, $14,545.45 in write-offs for depreciation for a net taxable income of NEGATIVE $ 2,402.65 and positive equity growth of $5,767.20 (from debt pay down by tenants).  He has a taxable income of negative $2,402.65.  Mind blown, right?!!  This loss can be used to offset income from other sources with compliance with all tax laws (seek advice from a CPA – I’m not one).  But I’m right. Haha.

This means that Smart Debt Guy increased his net worth by a total of $17,910 (cash flow + debt pay down) but is showing a legitimate loss for tax purposes.  

Year #2 with a gain of 5% in house prices but stagnant rent growth

How does this affect ol’ Smart Debt Guy and Cash Guy?  Well Cash Guy sees an increase of 5000 dollars, or 5% ROI.  Otherwise his situation remains the same as last year.  

Smart Debt Guy Sees an increase in his net worth of 25,000 dollars, or 50% ROI (remember from our last post he invested 10,000 in each property or 50,000 total).  And this is just from the increase in equity from appreciation.  He also sees debt paydown (additional increase in equity) of $6,313.55 across his portfolio.  Again he will claim a loss for tax purposes but will see  an actual massive increase to his net worth.

Neither investor has a change in their tax status this year as they haven’t sold a property or seen a capital gain.  What do they do if this continues?  One day they could each pull equity out in the form of a cash-out refinance tax-free.  Loans are tax free!  I think if these guys hang out together for long Cash Guy may even see the value in using a little debt to get more leverage working for him.  

Year #2 with a loss – let’s replay year 2 as though it actually was a year of loss.

Let’s assume we are back at our starting values and in year two we see a 5% decline in value.  What happens to our friends’ portfolios?  Cash guy loses $5,000 in equity.  Cash Guy’s loss is in equity he paid for when he purchased the house. 

Smart Debt Guy loses $25,000 in equity.   Smart Debt Guy’s loss is in equity he created.  He can lose another ten percent in value before getting into the 10k he invested in each property.  This is a tough concept to explain but for each house he essentially borrowed the first 75,000 dollars in value per house, paid for the next 10,000 in value, and created the last 15,000 in value.  So if he sells at this 5% loss point he will sell for $95,000 and pay off a loan for 72,630.77 (original loan amount minus principal payments made over two years).  This will result in $22,369.23 to Smart Debt Guy per house.  But he only paid $10,000 for each house.  So he will profit $12,369.23 per house or $61,846.15 after a year of “loss” in the market.

I hope this helps you to see the way that debt can leverage you to greater returns.

Oversimplification

This is an oversimplification for the sake of explaining a difficult concept.  All of these numbers can be manipulated to see different results.  We also did not account for closing costs – which are significant for real estate transactions.  Also, the depreciation that was claimed will be recaptured at the time of sale.  UNLESS….. you do a 1031 exchange to defer the taxes and reinvest in more property.  Isn’t this stuff exciting!?  We will get into 1031 exchanges in the future but I think this is a good stopping place for today.  This post has a lot of numbers in it.  I recommend that you re-read it if you don’t understand any part of it and leave a question in the comments section if I can offer some clarification.

For every investment there is an opportunity cost.  There is the thing you could have invested that money in instead.  Long-term real estate is a unique opportunity because the rules are slanted in your favor compared to other types of investment.  You have the tax code that clearly favors it and you have access to leverage that makes a mediocre investment a truly amazing opportunity as was demonstrated through our friends Cash Guy and Smart Debt Guy.  

Remember that debt can equal risk.  Putting money in the bank to be eroded by inflation can also be a risk.  Not ever taking any chances or being afraid to try something may be the biggest risk of all as this is akin to not fully living.  It doesn’t have to be real estate but I urge you to follow your passions and interests.  And of course, “Keep the main thing the main thing.”