141 Dickson (rent then sell)

141 Dickson (rent then sell)

147 Dickson street - year 1982. Two bedroom one bath, with a one bedroom garage apt. purchase price of $28,000.00 with $4,000 down and owner financing at 10%. Twenty year amortization with a ten year balloon payment. Payments of $231.61 per month. Taxes were $245 per year, and make ready, was $729 including a used stove and ice box. Rent collected was $200 for the house, and $150 for the apartment.

Positive cash flow after tax allowance and payment was $97.97 per month. a 24% return on the $5,000 cash invested (down payment, plus make ready). A good return except that I had half of my $10,000 tied up in one home.

The advantages were:
1. Owner financed.
2. No credit check.
3. Reduced closing cost and no points.
4. At the time 10% was a good interest rate.
5. No tax or insurance escrow.
6. Positive cash flow.

I sold this home two years later to free up my cash. Today, with credit cards being so widely in use, I would have borrowed the money and kept the house. I sold the house for $32,000 after closing cost and real estate commissions I made $1,200, plus another $700 because I called the note holder and asked her to discount the note if I paid her off early. She agreed to take $700 less.
The return was good and I learned a lot, but I do wish I could have kept the property, the owner today gets $1,150.00 a month rent from the property. I was on my third house by then and needed the money to complete that project. This house was purchased through a real estate agent, thus the high down payment to cover the sales commission.

1018 Grosvenor (Rent, Hold, Sell)

1018 Grosvenor (Rent, Hold, Sell) A house with two bedrooms, one bathroom, and a small garage apartment. (1982) The house was rented for $175 per month and the renter had been there seven years, the rear apartment was empty. The price was $32,000 with no down. I countered with $1,000 down and 10% interest on a 20-year note. The monthly payments were $299.16 per month.

The owner wanted interest income and no more landlord problems. They added a due-on-sale clause* and a pre-payment penalty of 5%, declining 1% a year after five years so that the house would not be re-sold quickly. I paid the $1,000 down, because I did not want the seller going to the closing and having to write a check. Paying something down makes for good relations, and less chance of the seller wanting me to pay their closing cost.

The advantages were:

1. Owner financed.

2. No credit check.

3. Reduced closing cost and no points.

4. At the time 10% was a good interest rate.

5. No tax and insurance escrow.

6. Low down.

7. Positive cash flow.

I raised the rent on the front house to $275.00 per month, the renter moved out after six months. I then rented the house for $295.00 per month. I rented the back apartment at $150.00 per month. Over the past twenty years this house has provided me tax savings, and a small positive cash flow.

After about five years, the rear detached apartment was torn down as the cost of repairs to keep it in a livable condition would be more than the rent could produce in ten years, plus tearing it down ended the parking problem. After owning this home for 15 years I sold it to the tenant on a contract for deed for $38,000 with $2,000 down on a Twenty-Five-year loan at 8% interest. The principal and interest payments of $365 per month will total $109,000 over Twenty-five years. As the house is paid for (by the renters over the years) the $365 a month is all profit. Here is a case were the renters over the years paid for an asset that will continue to pay me for many more years.

At the time I purchased this home mortgage interest rates were at 21%. The good news for real estate buyers back then was that property owners could not sell due to the high interest rates, and owner financing was the only way to sell a house. Today with low interest rates, you have to explain the advantages of owner financing to the sellers, but it can be done. * A due on sale clause requires that the mortgage be paid in full if the owner resells the property.

806 Dodic (fix and sell)

806 Dodic (fix and sell)

This property had three bedrooms, two baths, on a corner lot with a fenced yard and a carport. (1983) Purchase price of $15,000 with $1,000 down, owner carry note, 10% interest for 15 years, with payments of $150.44 per month.

After I purchased this house I took my wife over to see it. Her comments were "No way" "We do not own this" "You didn't" Yes, my dear, we do, and I did, "Oh my God" And then silence as I gave her a tour of our diamond in the very, very, rough.

The front yard looked dead and the wasps had several nest under the eaves. The paint was peeling, the downspout was missing, and the window screens were torn or gone. When you opened the front door there was a pathway through the living room with trash piled two feet deep from wall to wall. The walls were two or three shades of tan from stains with brown streaks caused by roaches. All three bedrooms were the same, with the exception of two broken windows and two missing closet doors. In one bathroom the white commode was an off-yellow with a dark brown stained interior and, to make it worse, this bathroom had a tree branch sticking through the ceiling (with the resulting water damage). The other bathroom had a brown interior commode with no tank lid. The combination tub/shower surround had missing ceramic tiles and there were no handles on the bathtub faucet. The kitchen Formica counter tops needed replacing and the kitchen cabinets had roach stains so bad we could not clean them short of chemically stripping every surface. The carport had a hole in the plywood ceiling and a oil stained floor. The backyard chain link fences were leaning about 20 degrees, the gates were off the hinges, weeds were chest high, and the dirt had pulled away from the foundation leaving large cracks or gaps. The smell, oh! The smell.

Every night and weekend for the next six months my wife, my mother in law, and I cleaned and fixed up the place. First we ordered a construction size dumpster, we filled it up three times with trash to make room so that we could work. A roofer was hired to patch the roof. We then started with the bathrooms so that we could get the water turned on. We could not get the commodes clean, even with acid, so we replaced them. We put new vinyl tiles on the floors. The missing bath tiles were replaced and the rest cleaned. New faucets were added to the tub shower. New faucets were put on the sinks. We installed new medicine cabinets, new ceiling light fixtures, and we painted the walls.

The bedrooms needed new paint, new light fixtures, new floor trim, and new self stick floor tiles over the old tiles. The closets had by-pass doors, we replaced them with mirrored doors which made the rooms feel larger. The kitchen cabinets would not clean up and we could not get rid of the odor. I replaced them.

I was driving by a 76 lumber store and saw a banner that said store-closing sale. They had a cabinet display that was larger then I needed so I made a deal to take the display for $1100, and my cabinet problem was solved. Some new paint, floor tiles, a new light fixture, and casing trim around the ceiling for an added touch and the kitchen was transformed. Outside we painted, replaced the down spouts, new screens on all windows, straightened the fence, spread a truck load of dirt in the back yard, and seeded new grass. Total improvement cost was $7,000 plus our time.

When we finished our first major overhaul, the placed looked so good that my wife refused to rent it. We put the house on the market and it sold in two weeks time for $37,000 with a new VA loan. We walked away from closing with a check for $19,500 after paying the sales commission and closing cost.

This deal came from passing out cards that say "I buy houses" I had given the seller one of my business cards six months earlier.Â

2135 S.E. Loop 410 (Commercial Land)

2135 S.E. Loop 410 (Commercial Land)

One of my Businesses builds and sells portable buildings. (1988) I needed a property to which we could relocate the business. I found a 1.86 acre track of bare land on a major expressway for $130,000, owner carry note at 10% interest with $16,000 down.

The seller offered to finance the deal with a twenty-year loan amortization, and a five-year balloon note on the balance. In addition to the down payment, we would also need money for driveways, water, sewer extensions, re-platting, and for electrical power line extensions. The improvements would be $16,000 (they actually ended up being closer to $18,000). I knew when I purchased this property I was paying too much in a down market but my lease was up where I was and I needed a place to move in 90 days. I also needed owner financing as the banks were not doing any deals at the time.

I cashed my and my wife's IRA's, and took my brother-in-law on as a partner on the land. He jumped at the chance because, for the prior eight years, everyone in the family knew we were making money on real estate. They wanted in. I leased this property to my company for enough to cover the payments, and taxes.

Four years later a sign went up on the property next door. A bank had re-possessed 1.5 acres with a balance owed of $70,000 on a $90,000 loan. I sent the bank a letter offering to buy the property for $40,000 if they would finance it with 10% down at 10% interest. I further stated that this was a standing offer good any time. About two years later in walked a real estate agent carrying that letter. With no cash on hand, I used a credit card for the down payment and I purchased the property. This time without a partner. The two properties together made for a large property (3.36 acres), at a good averaged price.

By the this time I had held the original 1.86 acre property eight years. I had paid down the mortgage a little, dollar cost averaged the cost per square foot by buying the 1.5 acres next door, and inflation had increased the overall value to $198,000

At this time we had decided to move my business, so I put up a for lease sign. A mobile home sales company offered to lease the property. As I needed money now (my business was losing money at the time), I struck a deal. Here is the deal I struck. A two-year lease at $2,300 per month with four two-year renewals, at each renewal the rent would increase $200 per month. They would get a $200 per month discount off the first years rent if they pre-paid the entire year. All improvements, maintenance, taxes, and insurance were their responsibility. This is known as a triple net commercial lease.

The Mobile home sales company put in $95,000 worth of improvements to the land, paid me a year in advance, and they have since renewed the lease three times. I got the cash I needed at the time and a $95,000 increase in my net worth on the improvements alone. The following year I re-financed the land paying off the original loans and taking out $60,000 in equity. The appraiser used the income approach to value the property at $300,000.

Since purchasing this property the area has improved greatly with new businesses near by and a new super Wal-mart is under construction across the expressway .

(2002) A 1.5 acre piece of land adjacent to our property is on the market at $298,000. Even if they only get $250,000 (it sold to a bank) for the property next door that would revalue our property at $557,000. ($250,000 divided by 1.5 acres X 3.36 acres = $557,000)

As you can see owning this property for the past ten years has paid us several different ways. Our future plans call for this property to be redeveloped as a mini storage, or motel, or fast food pad site, or strip center when the leases expire unless a better deal comes along. In the meantime I am re-financing again at a 6.5 % interest rate on a ten-year amortization with another five-year balloon. This will reduce the payment and allow for a larger monthly cash flow.

Update: (April 1st. 2003) The renter finally surrendered the lease back to me. I will now have to pay the taxes and payments from other sources until the property is leased or sold or developed.

Update: (April 1st. 2004) We will be doing a self-storage project on this property. See the self storage case study on this web site for more details.

Update: (Oct 1st. 2004) I leased out 40,405 square feet of the property. The rent amount is $2500.00 per month with an option to the lessee to buy at $300,000. I have 2.45 acres left on which I can build the self-storage facility.

Update: 2008 sold the place for $900,000

F.M. 1937 (Distress property)

F.M. 1937 (Distress property)

(1995) Every few months I would give out one of my "I buy houses" cards to the clerks at a 7-11 store near my house. One day a lady called and said that she had a house for sale for $10,500 dollars. I knew the property. The house on it was in such bad condition I figured the house as a total loss. The value would be in the land. She explained that her father had died leaving her the house with $8,500 in back taxes due. She need to get $2,000 out of the deal so she could not take a penny less then $10,500. I met this lady at the title company 30 minutes later, filled out and signed an offer to buy, and opened the escrow for a cash purchase. The young lady needed $500. that day. The deal was: purchase price $10,000 all cash. Purchased "as is" with $100 in escrow, closing in five days with a check handed to the seller to cover the $500.00 she wanted. Buyer to pay all closing cost.

My risk was that the taxes were more than she said, (I did have the statements she gave me) and if the deal fell apart I would be out the $500.00 I gave her.

I now needed to raise $9,900 plus closing cost of about $300 in five days. First stop was my wife's credit union. I was informed it would take two weeks and cost about $1500 for inspections, appraisals, application fees, etc. I asked if there was any other way of doing this. The loan officer suggested a signature loan for $10,000 at 8% interest, and that would take about thirty minutes. I walked away with the money that I needed and no lien on the property. Because the savings and loan employees have to follow their company's rules, they ended up with an unsecured loan when they could have had a first mortgage lien. This deal still makes me smile at the lunacy of it. The deal closed without a hitch.

Some people I know who heard how much I paid for this property thought I had paid too much. Because I had walked the property, and checked out that leaning old house through all those weeds, I knew some things they did not. The land was 1.5 acres in a wedge shape configuration, with two old oak trees.

For six months I made payments on my loan. One day a man showed up at my home offering to buy the place. I said no, not for sale. He came back every week until I finally offered to it sell to him for $18,000 with 50% down and 14% interest on the balance. He was back the next week with $9,000 and I was out one property.

I made a 40% profit in six months. I had $9,000 cash on hand, with a note payable to me at 14% interest for the balance. I did not have to use any of the sale proceeds to pay my savings and loan as they did not have a lien. The buyer paid me every month for 30 months then re-financed and paid me off.

When those same people who criticized me for buying the place found out what it had been sold for, they said they wanted in on the next deal. I told them I would show them how to find their own deals. Only one person ever took me up on my offer.

Northeast Parkway (office building)

N. E. Parkway (office building)

(2001) This building was purchased as an investment that I expect to hold more than five years. A 5800 square foot, story and a half office building. Cost of the building was $425,000 with $25,000 more for improvements. When we conducted the due diligence we found about $20,000 worth of repairs and deferred maintenance that needed to be done to the building.

We found this by hiring a professional building inspector to check the building. Moisture was found to be in the walls on the single story section of the building, this was not detectable without the use of a moisture meter. The leaks were caused by bad roof flashing that the roof inspector had missed when he inspected the building. Correcting the problem involves re-roofing that area of the roof, removing the sheet rock on the exterior walls, replacing the insulation, drying out the walls, re-sheet rock, texture and paint. The sellers credited me for the repair cost.

I also did $40,000 in improvements that we actually got done for $26,000 by sub-contracting them ourselves. They consisted of a new interior wall with a door and windows. We added 16 covered parking spaces on the existing parking lot and some miscellaneous construction to the interior. $20,000, of the $26,000, was financed in the loan. I sub-contracted out the $20,000 in repairs, thus saving $8,000 on them.

I leased part of the building to one of my companies and plan to rent out the rest on the open market. Anticipated rent is $68,000 per year with a positive cash flow of $12,000 a year when completely occupied. The goal is to increase the value of the building to $550,000 as a tenant occupied structure, pay down the loan over the next five years, and then trade up to a larger building, or apartment building. I could also consider buying the lot behind my building and constructing another office building.

Since I purchased this building, a new Lowe's home improvement center and a new Super Wal-mart have been announced to begin construction one block away. This improvement to the area will help increase the value of my building.

Up Date 2008:The office building is bringing in $72,000 per year and is for sale for $620,000

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3419 Northeast Parkway, San Antonio, Texas

Tom & Cathy's 2nd Home

Tom & Cathy's 2nd Home
(Tom is a teachers aide and Cathy is a nurse)

Cathy wanted to invest in real estate really bad. With their limited income, they were looking for a place to start. Several years ago they purchased their current home with owner financing. After some five years of paying the payments, they took out a home improvement loan and fixed up the place. They were now ready for another home.

Checking with all the banks for list of bank re-possessed properties, they found a home just out of town that needed work. The bank would finance the home, price $60,000 with $5000 down, and give them $5,000 back at closing to make the repairs. They purchased the house and spent the $5,000 on a new foundation for the pier and beam home.

How they financed the improvements?

They could sell the first home and use the proceeds to fix up the new house. They could take out a home improvement loan against the new house or they could refinance the old home, paying off the two outstanding loans, and get cash back (equity) based on the new improved value. That would give them the money to repair the new house at a desirable, first mortgage interest rate.

Here is what they did. They re-financed the home they lived in combing the old home improvement loan and the old first mortgage together, and took out $20,000 equity. They got $600 off the old first mortgage by asking the original note holder for a discount. They now had the cash for the repairs and a new lower interest rate then they had been paying. Their plan is to move into the new house after they fix it up and rent out the old house. As they have cash from the re-financing to do the repair work, they can be their own contractor and save money by doing a lot of the work on the new house themselves.

Cathy and Tom ended up with a zero down deal and got into the rental business, which Cathy really wanted to do. These young people will do very well because they are willing to do the work and take a property others rejected. They used creative financing to get the deal done. I predict they will come out very well in the end. It is all about attitude.

Update 2006: I drove by the property the other day and it looks great from the road.