Alright, I’m ready to move on a little faster of a pace than the “new every two” I’ve been on. I will be able to pull around $30,000 of equity out of a rental property (possibly more out of my personal property if I absolutely have to). I need a strategy to use that to build some capital. The plan is probably to first try and wholesale the property. Plan B is to flip the property if I don’t have any takers on the wholesale, so I will need to set aside some of the cash for that.
My question is how should I go about finding a property in this price range? Should I be hitting up tax auctions? I’m in Houston area where property values are naturally lower so I don’t think it is absurd to think about getting a decent place, outside of a war zone, at this price. MLS just doesn’t have anything I’m interested in.
The best deals are deals were you are direct to the seller. I would go grassroots and do the free marketing things if you have time. Go to Google ad words and find 15-20 keywords that people selling their house you your area would type in take them and write a compelling articles and submit it then turn that into free classified ads,. blog post, post on real estate social sites and make flyers and go to REIA meetings you will find houses. Or build relationships with a good assets manager or REO agent.
I think if you are just looking for one or two deals it might be in your best interest to just start talking to wholesalers in your area. If you are building a business around it then you should start using guerrilla marketing tactics to keep your advertising budget at a minimum. There is a great book on the subject called The Real Estate Investors Guide To Guerrilla Marketing.
PUT IT TOWARDS YOUR EDUCATION. Use it to find out the real players in your area and find out how they are moving properties fast. Where their source of funding is coming from, etc.
If you are relying just upon your own funds you will never be able to turn and burn more properties. You will have to play the waiting game. IF you want to be in the major leagues, you need to find out what major leaguers are doing.
Instead of using your money, try using OPM other people’s money. When you use your personal funds you limit yourself to the amount of money you have available. But if you use OPM other peoples money then you unlock the vault to your own private bank.
Take some of the $30,000 you have and invest that money in an education in real estate investing. It will pay you time & time again. Also invest in software and automated systems to effectively & efficiently run your business.
When I first started I was only using OPM. If I had waited to scrape up my own money, I would probably have been waiting for 10 more years… if I ever started.
My start was rocky, but it prepared me to keep going when other investors, who were still depending on conventional financing, were running out out of money; waiting to sell property; attempting to refinance cash out from others; and generally remaining at the mercy of banks, if not left sitting on their hands…
Later, even with money and credit I still couldn’t get financing on a million dollar plus project back in the early 1990’s. Thankfully a commercial real estate agent introduced me to a financing scheme that depended on neither cash, down payments, credit, or banks. I’ve used that financing approach over and over since then.
If you limit yourself to conventional financing strategies and techniques, after a while you’ll be screwed …and get really flat hands… Just saying.
So what’s the answer? I can put up bandit signs, I can drive sellers to my website but how can I close the deal? Even with sub2 I would have to catch up somebody’s payments. What’s the strategy for this market? Will your methods 20 years ago work right now? If you were starting out right now, what would you be focusing on?
I would actually recommend paying CASH for the mobile homes — you can get them for as little as $3k-5k piece — and then sell them on a note for 3x your basis at say 12.75% interest and you’ll make a killing.
$30k is not that much money at all. So, if I were you, I would focus purely on wholesaling. Paying cash for wholesale deals is an excellent idea … as you have no leverage, and less risk. But you can still make incredible returns.
My question is how should I go about finding a property in this price range?
The best deals, are deals you find yourself…and direct mail works great for that. I have bought many sub-$30k deals with CASH, which I use in my own rental portfolio, using that method. I could of flipped these deals to other investors…but my small business makes me tons of cash, so having a lack of cash is not one of my problems. Also, to be clear, I don’t own one mobile home - all my properties are single family homes (houses, townhomes, condos, etc). I have, however, researched the mobile home business intensely and I plan on owning many mobile home parks down the road. Right now I buy single family properties in lower to lower-middle income areas that are beginning to see a large influx in hispanics. These tend to be formally lower income black neighborhoods. In Texas, where the hispanics go into low income neighborhoods, property values tend to increase and rents go up. Why? For many reasons - here are a few - (a) they open businesses in formerly poor areas, (b) they are very family oriented, so their kids / cousins / brothers / sisters / etc all tend to live close [sometimes in the same house, though that is rarer than it was many years ago], (c) they will work 7-days a week, 12 hours a day, to feed their families…in turn causing them to be more economically productive than the people who resided in the neighborhood before, and in turn improving the neighborhood. The cycle of bringing more money into a region of a city, opening businesses, creating more jobs, causing more people to want to live there, etc … causes property values to go up and rents to go up. There is a great example of this in an area of Dallas called Southwest Oak Cliff. I am investing in a different part of Dallas right now, that is up & coming the same way currently that SW Oak Cliff did 10-15 years ago.
I imagine the best area for you to invest in will be a specific geographic area inside of Houston itself, or a very old suburb (ie Alvin or Galveston - like in the older areas away from the beach?). Avoid Sugarland, Pearland or almost any suburb north of Spring, TX (I imagine)…skip any newer suburb, or anything that could be declared a majority middle-income or better city. YOU know your geographic area better than I do, so spend some time looking on the MLS for great deals. If you start finding $30k, $40k single family homes on the MLS in a certain area of Houston…drive through the area and see what you think. If you see a lot of homes that are NOT boarded up, and you see a lot of hispanics, etc - then that may be your target area. Those same $40k MLS listed homes you can easily get for $20k cash…that’s when direct mail will come in handy.
Should I be hitting up tax auctions?
I would stick with direct mail, but tax auctions might be OK, however I have found most tax liens on the good properties are paid before they come up for auction.
I flip upper end houses. It usually takes less cash than to buy a 1997 Honda Civic. However, I can sell these houses in a matter of days, because I’m only willing to buy houses from motivated sellers; that need no work; have little equity, and are easy to resell.
What I don’t do is pay all cash for wrecks and then hope I didn’t screw up and end up having it become a forced rental house …and then to add insult to injury have to spend thousands of dollars fixing up the place …and then hope nobody breaks in and steals my stuff or vandalizes my house before I get it rented or sold.
There’s limitless ways to make money. For me, it’s all about making money with the least amount of risk, the least amount of actual cash, and with the biggest upside possible.
I’ve found that using OPM is the magic charm. Part of using OPM is using other people’s financing. That’s what I’ve become a specialist at. It’s not for everyone however. Why? Because it goes against the grain. In fact, I was a hard core conventionally-minded investor at the beginning, after watching (and participating with) my parents scraping up down payments by buying school buses in Utah and reselling them to churches in CA. I drove countless school buses from some forgettable town in Utah before parking them in some storage lot in Garden Grove, CA waiting for some church school to buy them. If not that, then it was selling crap at swap meets. It worked, but man, there was an easier way I later discovered.
And I became curious about the other ways, because the ways we had been doing it got even harder with new laws against importing vehicles from out of state, and spending all day in the sun babysitting swap meet booths. Blech.
You can imagine how long it would take today to come up with 20% down on even a cheapo, inland house here in CA without some serious down payment generation capability. Forget that.
Of course you might ask, how can anyone make money investing in houses with no equity, even only putting up Honda Civic sized down payments? Well, it’s about selling financing and getting the Civic sized down payment back, plus thousands more in an extremely short amount to time.
It’s one step beyond flipping and one step short of long term holding. It’s buying and seller financing in the short term, in return for the cash for long term holding. It’s like McDonald’s selling hamburgers today in order to buy real estate tomorrow, as Ray Kroc once described his business model.
So, I buy and seller finance real estate today in order to buy more real estate for long term tomorrow. To put it the oppose way, “I don’t invest in real estate to flip houses. I flip houses to invest in real estate.”
That’s a long answer…to the question you didn’t ask which was, “What would you be focusing on, if you were starting right now?”
What’s the goal? Income generation or wealth accumulation?
If it was income generation, I would first decide on the income level. Then I would work backward as I discovered how much any given investment would push off each year, and then adjust my acquisition trajectory to match my goals.
The rest of this answer is so simplistic I hate to write this, but once you’ve discovered how much real estate you need to control to achieve the income goal you set for yourself, then it’s a matter of borrowing money to buy real estate. The rate of wealth building depends on both your willingness and capability of solving problems. The better you become at solving problems, the more money you’ll both make and attract to yourself …and the faster you’ll do it.
That’s why I like small apartment projects. I am an excellent property manager. I am an excellent manager of people, too, which is 99.5% of both real estate investing and management. So, when I find a building that is mismanaged to the point where the owners are ready to lose it, I make irresistible offers to them, that allow me to get in light, apply my management skills, attract partners with the cash I may not have, turn the project around and either sell it, or refinance it, whichever makes more sense.
You could do this same thing. As a practical matter, you need to use every bait possible to find the sellers that are ready to deal on your terms and throw the rest back, until they’re hungrier. This includes direct mail, bandit signs, business cards, networking, and simply continuing to do the basics ad nauseum.
I also really do love driving neighborhoods. My partner and I do this about every four months or so. We take note of properties we’ve made offers on, deals we’ve lost, and then the emerging deals. However, really the most efficient way to find deals that few others would know about, is through direct mail. Anything that gets sellers to call you is superior to about any other thing I’m aware of.
After a while your referral rate might become meaningful enough to make you take things for granted.
So the bottom line is to decide on what the long term goal is, establish interim goals, make short term goals, and then gauge your progress and adjust.
Whether, you use OPM or your own is up to you. Think about this: Donald Trump did not emerge from effective Bankruptcy in 1981 by depending on his own cash. In fact he burned a couple of associates that wouldn’t help him borrow the OPM he needed to recover from his position.
Meantime, his wealth accumulation, income, and assets were all built using OPM. As an aside, Trump had good ideas that attracted the money, not just a “need” for it. If he had only a “need” for money, but no good ideas; ideas that would “trump” his current financial position (pun intended), then he would probably become a source note for someone’s book on, “How Not To Get Rich In Real Estate.”