Ever heard of the Latin phrase “Caveat Emptor”? It means “Buyer Beware”.
There are so many newbie wholesalers in the market who want to sell a house in Houston that a lot of “deals” are just not deals at all. Some are just plain dangerous to take on. The current wave of multi-level marketing is “educating” wholesalers and setting them up for failure. I’ve been strung along by some pretending to be a “friend” of the seller, and unethical middlemen who have never declared to the seller that they, the wholesaler, will not be buying the property. I’ve had wholesalers lie to me to complete a deal. I’ve almost been to court because of bad wholesalers selling Houston properties.
Good Wholesalers of Realty in Houston
Most wholesalers that I work with are very ethical and provide a very valuable service. They are an indispensable part of my real estate investing business, and make it so that I don’t have to go out and hunt real estate as much as I used to.
The good wholesalers are the ones who:
disclose to their seller that they are seeking to wholesale the property, and/or
they are cash buyers who can close on the property if an buyer is not found on time for the target investments property.
A good wholesaler will disclose to the seller what they are doing so that there are no tricks, no cons, and no misunderstandings with their Houston house.
Evaluate the Investments Property
Your main job in buying from a wholesaler is to be able to evaluate each investments property to make sure it is profitable for YOU.
Don’t allow the fear that a wholesaler may be unethical deter you from buying wholesale deals. Think about it, when you are dealing directly with a motivated home owner, do you know if they are ethical? Of course not. And, a lot aren’t. I’ve had sellers tell me they owe $50k on a house, and when I pull the title report there’s $150k in liens.
When you hunt real estate bargains, look at a wholesaler just like any other home seller in the field; no better, no worse. You don’t try to buy a house from a homeowner, and ask them to tell you whether it’s a good deal or not. It’s like asking a car salesman if you should buy a new car. Their answer is “Of Course!”. You expect them to advertise the best points, and then you will make the decision, based on your own due diligence, if it makes sense or not. Approach buying a wholesale house in Houston the same way.
Do Your Due Diligence on Realty in Houston
When you receive a wholesaler’s ad for a property, your first job is to decide whether to pursue it further or not. Quickly weed out those that do not meet your investment criteria. If you are not interested in the deal at this point, there is no need to verify any of the info.
If you want rehabs in Spring and the ad is for an apartment building in the Medical Center, you can quickly rule that property out. But, if the property does meet your criteria, then verify all the information. Use your own investment formulas, and create the offer that makes financial sense for your investing business to get rich in Houston.
How Much Profit Should a Wholesaler Make on Houston Properties?
When buying from a wholesaler, find the buying price that works for you. Don’t worry about the size of the assignment fee that the wholesaler is making. As long as the deal works for your numbers, and you close on the deal, the wholesaler will be eager to bring you business again and help make you a little more “Houston Rich”.
Sometimes it may seem like the wholesaler makes a lot of money for taking none of the financial risk and without doing anything to the Houston house (usually not even taking title). But, you have to take into consideration the marketing effort that goes into attracting the motivated sellers, and the time requirement to sift through all of the deals, inspect all the houses, and negotiate all the deals, just to find the few that provide significant profit for both parties.
An investor I know recently shared this:
“I’ve purchased quite a few wholesale deals in my career. I’ve never cared what the wholesaler made because I negotiated a deal that worked for me and my business. Regardless of what the wholesaler made, I was happy with my profits. I didn’t care if he made hardly any profit, or if he made a huge profit. It was irrelevant to my calculations. All that mattered was that 1) I was getting a good deal, and 2) that it fit my property investments goals.”
If you can purchase at a price that makes financial sense, the wholesaler’s profit should not matter. If it is large, that just means that he or she did a good job locating and negotiating a great deal which made it possible for you to have this opportunity to make money from the deal. But, if you balk at the wholesale assignment fee or try to nickel and dime them down a few more grand, you may very well convince that wholesaler not to do business with you again. I’ve already scratched a couple of investors off my list just because they tried to change the deal at the closing table because they didn’t like that I was making $4-5k on the property; as much money from the deal as Houston Realtors would have for listing it.
Creative Closings for Property Investments
If you are bringing a lender into the picture and having to get financing, you may have to work with the wholesaler to structure the deal to get passed some lending requirements. There are creative ways to avoid seasoning issues and assignment fees on the Hud1, and you will need to work with the wholesaler and the seller to get it done. Cash is king in this business, but a good wholesaler will work with you if you have your T’s crossed and I’s dotted to have your financing in place.
Good luck!
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So, it’s either really late at night or really early in the morning depending on how you look at it. I’m having one of those sleepless nights…the one where you’ve lost your drive/motivation/passion and you don’t remember where you left it. The “Is this all there is?” question has ran across my mind about a dozen times in the last hour, and each time the answer is different. I don’t know if this has anything to do with me closing in on a birthday with a zero on the end, or if it is just my lack of satisfaction for not accomplishing more with my time. I get things done; a LOT actually. However, I don’t feel the same level of satisfaction from it that I once did. I’m living my ideal life about 90% of the time. Getting to 100% of the time wouldn’t be worth the effort to me, nor would I actually feel good about spending that much money on entertainment when I could donate it to some worthy charities, or just pay off the national debt.
When I first started out making property investments, I felt satisfied providing good working-class people with good houses to live in with fair rents, and treating them well. Last year I felt satisfied buying houses in need of rehabbing, getting them fixed up and rented to good families, and helping improve the working-class neighborhood one boarded up house at a time. I still feel a slight sense of accomplishment when I see one of my houses fully rehabbed and a good family getting ready to move in, but I don’t feel the satisfaction I used to. Now I do wholesaling as an additional revenue stream for my business, and while making a few grand here and there while helping investors find good deals without having to spend all their time trying to hunt real estate is nice, I still don’t feel that level of satisfaction. Do you know what I mean?
I used to have hobbies, most of which were just time-wasters. Sure it’s fun to conquer the world in a game, but its a fake accomplishment(sorry all you WOW people out there, but spending 3 hours with your online buddies to kill a dragon isn’t something that should fill you with a great sense of accomplishment). I try to use my time more productively now, and do a pretty good job at it. But, something is still missing. I still feel dissatisfied. I feel like I am ready to move up to the next level of achievement. I’m ready to make a bigger difference than I have been. Now, the only question is “How?”. 
I’m interested to hear from you; what really gives you satisfaction from making a difference? Don’t just limit it to property investments. I’d like to hear what everyone does to make a difference, from volunteering to build houses with Habitat for Humanity, to singing in your church choir. Share your story!
Thanks for reading my rant 
-MM
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Have you ever had one of those situations where you weighed all the pros and cons, like they said good ‘ol Ben Franklin did, and then make the choice that has the best pros?
Well, I was trying that and it wasn’t working…
I have a few homes that I picked up sub 2 and one of them had been sitting empty for over two months now. My total payment (PITI) is approx. $800 and I’ve had probably a hundred calls on it. It is a 4-bedroom/2.5 bath with a 2 car garage, updated kitchen and baths, and despite all the interest I’ve had, no one has had any NROC (Non-Refundable Option Consideration) to put down on the house. I’m becoming a motivated landlord. I use what has been a great strategy for filling these things and getting huge option money, but for this house it just hasn’t been working.
I received a call from a lady who would pay the $4500 option cash but was going to do it over time; paying $2,000 now and then $1600 per month for 5 months, $500 over what I’m charging in rent, until she’s paid all the option cash down. The $1,100/month rent she’s willing to pay was $300 over my bottom line, so I was motivated to be a little bit creative.
Doesn’t sound too bad, right?
Well, it wasn’t until I had her credit run by TenantCheck and was told that she has the worst credit they’ve every seen; this was TENANT CHECK…THAT’S ALL THEY DO! Bad checks, evictions, repos, 20+ collections; every negative thing you could have on a credit report, she had. I bet her score was something that would make you cry for days if you came within 100 points of it! Haha.
Decisions, Decisions……
I accepted the $2,000 down as non-refundable option cash, and didn’t give them the keys until after they paid the $1600 in two weeks on move-in day.
Now, here is where the black belt level investor stuff comes in:
Instead of having my option agreement state that she’s going to pay the $500 increments that she agreed to over several months, I’m just making the lease at $1,600 for a limited time and then giving her a rent credit towards the purchase price of the home.
This allows me to evict her if she doesn’t have the full $1,600 each month. If I did a $1,100 lease and $500 option money and they paid me the rent but not the option money, guess what? Can’t evict. This gives me some much-needed protection and ensures that if I don’t get all my money, both NROC and rent, she’ll be out the door.
Here’s a brutal fact for everyone doing lease options:
If you think your credit-wrecked tenant buyers are going to work really hard to clean up their credit, put on a deck, finish the basement, and buy your house during the time your option allows; take off your ruby red slippers, Dorothy, because you’re in OZ.
My personal experience is that 90% of tenant buyers will be getting the boot or taking off before they buy one of your property investments to call their home. Lease/Option is the smart and lazy man’s Buy and Hold. Just remember to cross all your T’s and dot all your I’s because lease-options in Texas can get really messy if you make even the smallest mistake.
I know a fellow investor who did a sandwich lease-option and missed having a disclaimer that he “may or may not be the title holder to the property”. The judge decided he committed fraud when he tried to have the deadbeat tenants evicted and the tenants decided to sue him after not paying their rent for 3 months. Not only did he end up paying the owner of the property thousands of dollars to continue making the payments, but the tenants won treble damages (triple what they had paid him over the course of the year and a half they had rented it). He owed them nearly $50,000 by the time the dust settled all because of not including a small disclaimer. Don’t let that happen to you!
No repairs, no fix up, get some NROC, better treatment of the property and the teeny weeny, itsy bitsy, chance that they’ll make your Houston house their own little piece of heaven some day and exercise their option.
I’d love to hear any comments on how I’ve structured this deal or any suggestions on other options you may do.
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This is the first in a series of posts on improving your business exposure on Facebook. While my primary focus is realty in Houston, and some property investments in Ohio, this tip will work for any type of business you are trying to promote on Facebook. Keep an eye out for part two in our series of Facebook Fan Page Quick Tips.
For those of you who are trying to use Facebook to promote your real estate investing business, you need to have a Fan Page. Fan pages allow you to have an unlimited number of people follow it vs. your personal profile has a 5,000 friend limit. Groups are good too, but fan pages can grow quickly if the stupid video of the monkey falling off a tree you posted goes viral. You don’t want to just post self promoting stuff on your page. Make sure for every self promo you do, you post at least a half a dozen non-promo content things such as quotes, tips, and useful article links. This will help keep your audience interested in what you are posting, and help you to not just come off as someone who is pitching products or service all the time. No one wants to be friends with someone who does nothing but try to sell them stuff.
Now for the really cool part… Once you have 25 or more people “like” your page, you can then request to have a unique page name from Facebook. This is awesome when you’re branding your business. Ours is: http://www.facebook.com/secrethoustonrealestatedeals
Good LUCK(Laboring Upon Correct Knowledge) my fellow real estate investors! We’re all in this together!
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Like all landlords with a decent number of properties in Houston, I have vacant houses almost every month. If you are a landlord and don’t have vacancies, you are either the luckiest landlord ever, you aren’t charging nearly enough for rent, or you don’t have many properties. Most of my houses are in blue collar neighborhoods, and as most of you are aware, there are quite a few copper thieves breaking into houses to strip the plumbing and wiring to sell to a recycling facility for a couple of hundred dollars. Here are a few of the best tips to prevent break-ins in your vacant houses, and help you to stay Rich in Houston with good property investments.
First and foremost is making sure the day that the tenants move out you go over and secure the property. Start by changing the locks out. If the house has an alarm, make sure it is turned on. Make sure all the windows are locked, and have at least curtains or blinds in them to prevent anyone from seeing inside to know the house is vacant. If it is in a low income area, boarding up the windows with plywood as well as bracing the back door with 2x4s may be acceptable. In some areas it will draw attention from the city and you will get code violations, but you usually have a month or more to remedy the situation, which should be enough time to get the property re-rented.
Once the property is secure, you’ll want to make it look like there are still people living there, or at least at the property doing repair work. Making sure the lawn stays mowed, and the mail and newspaper are no longer delivered will prevent some of the most obvious signs of vacancy. Putting a muddy pair of size 13+ work boots on the front porch will give the appearance that there is a very big handyman inside doing some work, and rarely will someone try to break in to steal copper if they think they might run up against the person who wears those boots. You can pick large used boots up at Goodwill for $5 if you don’t have some old work boots of your own to leave on the front porch.
Next, make a run to Home Depot or Lowes and pick up a timer for a light switch for $5. When you make your trip to Goodwill, you should also pick up the cheapest lamp you can find, as well as an old radio. If you can’t find a used one, Wal-Mart also has those for around five bucks a piece. Plug the light into the timer in one of the rooms that faces the street, and set it to turn on at sunset and turn off around 1 or 2 am. Preferably you want to put it in an upstairs bedroom, but any room where the light will be visible from the street is good. Next, put the radio in the kitchen and set it to a talk radio station like sports or news . Turn the volume to a normal conversational level, so if anyone listens outside the back door, they will be able to faintly hear people talking inside.
Lastly, a bonus tip if your property is in a low to middle income area. When you put up the yard sign advertising the house for rent, add a sign rider to the top that says “New CPVC Plumbing!”. It will act as a beacon to any copper thief that there are no copper pipes to steal so move on to the next vacant house.
Good luck my fellow Rich Houston house owners!
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Time is money, and my time is more valuable to me than what most people are willing to pay for it, especially tenants. My goal is to provide prospective tenants with as much info in as many ways as possible WITHOUT having to speak with them directly. Ideally, I want them to know the details about my Houston house that they want to call home, the price, the terms, and what it looks like both inside and out before we speak with them. This allows me to spend more time on income-producing activities with my Houston properties and keeps me from burning out.
I’ve seen a lot of people who are just plain horrible at this business. It never ceases to amaze me that with all the seminars, gurus, websites, and all the other resources, so many people are completely ignorant of basic real estate skills. Having vacant houses is one of biggest reasons why people create a huge financial strain on themselves and their real estate investing business. Outdated and/or ineffective marketing tactics can not only be rough on your real estate investing business, but they can completely consume your life. I wouldn’t be surprised to find that if there was a place on divorce papers for “tenant stress” as opposed to “irreconcilable differences”, many Americans would have checked the former.
I have felt this pain firsthand in the past, but I quickly realized that I needed to change my strategy. Before I hired a full time property management firm to manage my houses, these are a few of the best marketing tactics I’ve picked up that have significantly lessened the stress of my business.
1. We use huge, yellow and black, double sided, Rent-to-Own signs at the houses we’re marketing. We usually have a ‘Take One’ box that we hang on the sign filled with flyers with the property info. You want to make sure, without a doubt, that people who drive by your Houston house will see your sign and be able to get immediate information on the property WITHOUT having to talk with you.
2. We do not pick up the phone when a prospective tenant calls us EVER. If you are answering these calls, STOP. For your marriage, STOP. For your sanity, STOP. For your future in this business, STOP. It never ceases to amaze me how many people will talk to people who completely don’t qualify on nearly every aspect of what they’re looking for when qualifying someone. We send all of our prospects to a voice mail system where they punch in the correct extension to hear the message for the property they’re interested in. The voicemail explains the details of the property and our criteria. We guide them to our website that has pictures of the interior. The people who leave a message are now well informed about us and the property and have qualified themselves. The voicemail system is critical and I couldn’t do this business without it.
3. We direct more traffic to our property with large 18”x24” black and yellow directional signs. We put the properties’ addresses on the directional with a black marker and strategically position them at all busy intersections close to the Houston properties we have available to rent. This will do wonders with your number of calls.
4. We always make sure to put our Houston properties in the paper, on Craigslist, and several other websites for extra exposure. We direct them to our voicemail system and let them get more info about the house and the ability to view it on the web.
P.S. My management company still uses most of the strategies I’ve put in place in my business. Why? Because they work! Good LUCK(laboring Upon Correct Knowledge)!
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For those of you who have property investments and have been dubbed Landlord, I share with you the absolute worst case scenario of Buy & Hold real estate investing if you’ve bought Houston properties with good margins.
A few months ago I changed property managers because the previous manager just wasn’t cutting it. The new manager came in, collected some late rents, and kicked out a couple of tenants that needed to go. Out of my 18 investment properties, 11 of them are currently occupied, and 2 of those have slow paying tenants. This month and last month I have $1,000 more in expenses than I do income due to all those vacant houses. I don’t have a j.o.b., and I do like to eat something other than ramen noodles.
So, how am I to survive? Well, it’s quite simple actually; I have a cash reserve built up from the previous months and years of property investments just in case the “worst case scenario” of a bunch of units being vacant at once happens. My cash reserve is enough to cover all expenses each Houston house for 3 months, on top of my own personal living expenses. Without this, I would be exactly where a lot of other less educated investors are; in foreclosure.
Having a good cash reserve is paramount to your Buy & Hold real estate investing success. Without it, a couple of bad months can wipe you out…and don’t expect the federal government to come in with a $700billion bailout for you. You will be just another bad real estate investing story.
We’re all in this together!
-Matt
P.S. Even though my actual cash flow is negative by a grand last month and this month, I am still making a small profit since more than a grand of principal is being paid down on my mortgages. My property manager has found tenants for 2 of my houses that will be moving in on the 1st of next month, and is showing 2 of the other houses this week to other prospective tenants. Once all the units are filled again, I will be cash flowing around $3,000 on the positive side after all expenses.
P.P.S. When bought at the right price with the right terms, even the worst market and economy can’t stop you from succeeding as a Buy & Hold real estate investor.
You can also find me on Facebook at: www.facebook.com/houstonrealestatedeals
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Sometimes, despite your best efforts to sell a rehab property to an end buyer, you just can’t find a buyer who can qualify for a mortgage. These days with new harder to meet rules and restrictions for home buyers looking to get a mortgage, it’s just a lot harder than it used to be to get a good loan, even for a primary residence. Here is one strategy to get around the bank until lending conditions improve, and to generate cash flow in the mean time.
If you do have problems selling your rehabbed houses to an end home buyer but still have lots of people who are interested, you may start thinking about leasing out or renting the Houston house. You’ll still get your money back on that real estate investment, but it will take you a lot longer to get the return. The faster option is to lease to own, also known as rent to own.
Lease to Own on rehab property is a great option for an interested home buyer that can’t qualify right away. It gives the seasoning issue a year or two to make the property comply with even the tightest of seasoning guidelines, and also helps you secure a home buyer for the property immediately. The home buyer will have time to build up their credit and set aside money for a down payment with the mortgage company, and you will have cash coming in every month until it sells.
Lease to Own can be set up in any number of ways. The easiest and safest is when home buyer leases the rehabbed property for 1-3 years with the option to purchase that is exercisable at any time. You collect a non-refundable option payment, typically for 2-3 times as much as a normal security deposit would be. You are able to charge a couple of hundred per month higher than the going rental rate, and put that money aside in an escrow account to be used for the down payment by the buyer. If the buyer fails to complete the purchase, you still get to retain the funds in the escrow account as long as you draw up the option agreement correctly, and you have the opportunity to lease to own the property again to a new buyer for even more. In rehabbing houses, a bird in the hand is worth two in the bush.
As a landlord you are the one who is responsible for maintaining the property for the tenants, which is a huge headache. If you decide to lease to own a rehab property instead, the tenants are the ones responsible for maintaining the property instead, since they are working towards buying the home from you. It’s all very easy to set up in the lease.
If you can’t find a buyer who is able to obtain a mortgage loan, you should definitely consider the option of leasing out your rehabbed houses. It gives the seasoning issue few years to clear. It allows you to collect higher than market rents, and put aside part of the funds as down payment for the buyer if they exercise their option to purchase. It gives the home buyer a few years to increase their earning power and qualify for a loan. And, if they don’t exercise their option, you get to keep the non-refundable option money as well as the money in the escrow account.
Good luck!
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