James has been a successful part-time investor since the 90s when he first got into Houston Real Estate Investing to support his long-term goals. James is building passive income with just one property a year. He sticks with a buy & hold strategy that includes single family homes in a good school district 30 to 45 minutes from where he lives. Since James manages all of his properties, keeping his investments close in proximity is key.
James’ biggest mistake in his investing career is that in the past he hasn’t always stuck to his plan. And according to James, he lost enough money to buy ten more houses (Ouch!). At this point in James’ real estate investing business, he knows how crucial it is to stick to a plan—and that is exactly what he is doing.
James knows that short cuts in real estate investing never work. He knows that doing your homework, doing background research, and doing your due diligence is the combination that leads to success.
We recently sat with James to learn more about the deal he found on MyHouseDeals, his motivation to be a real estate investor, and his long-term investing goals.
Listen to our conversation with James during which he talked about this recent deal, plus…
- How to get long-term high quality tenants
- How to do your due diligence when dealing with wholesalers
- The ONE thing that will always prevent problems and surprises
NOTE: Since James is a Premium Elite member, he received a FULL refund of his up-front membership fee for simply doing a deal! Find out more about our Premium Elite membership here.
Read the full story here…
Tell us about yourself…
How did you get into Houston real estate investing?
Out of necessity. I wanted to be able to reduce my tax base by finding a reduction that I could use to offset income, and real estate is about the only thing out there you can do that with.
Do you want to be a full-time investor?
Probably not. At some point it might enter into the equation, but I work full-time and enjoy what I’m doing. This is just a side job to create passive income for later.
How many deals a year do you do?
Typically about one. I focus mostly on rentals.
The thing is, it’s just passive income. I could go out and buy a rental property and turn around and rent it. In two or three years I can make the kind of money I would on a flip and I would still have the house.
How many properties do you have now? Do you manage all of them yourself?
I’ve got 11 and I manage them all myself.
To be honest with you, I don’t necessarily know if there’s anyway to streamline the management of the properties. I use flip contractors when I can. I’ve got extra contractors if there’s an issue that I have that goes over my head or if something needs to be addressed or in times I’m unavailable. Other than that, there isn’t much to managing them. I do a pretty good job as far as doing repairs on the front-end, so that negates any future emergency calls.
Do you focus on a specific area?
I focus in the northeast part of Houston. That’s really close to where I live and I try not to get much more than 30 or 45 minutes from where I live. That way I can take care of the property easily, and I never have to plan my day to go halfway across town to go check on something.
You said you do one property a year. Is that your goal?
That seems to work for me because it gives me a chance to be able to buy property, get it repaired, get it up and running, get everything reset, and get flush again with cash to be able to find the next deal. I have done properties back to back when I found them, but that’s not the norm.
Do you have any tips on how to get and keep good renters in a property?
I do have long-term tenants, that’s one thing I can say. The average of a renter is about four years or so. I’ve had one tenant stay in the house as long as nine years. I try to invest in areas where there’s not a whole lot of single family rentals, so if the tenants move out I can usually rent it out again the next day. It’s pretty easy to turn.
You’ve been investing since 1992. How do you continue your real estate education?
Right now, podcasts. That seems to be the thing to do now. Back in 2000 or so I acquired my real estate license, so I’m still doing their continuing education and I still carry my license. I’m not an active agent but I do have a broker that holds my license and knows what I’m doing. Essentially what I use it for is just to secure property that I find on MLS to be able to get a little better price. Also the information on the MLS provides me a little bit more detail.
What’s the biggest mistake you’ve made in your Houston real estate investing business so far?
… Not sticking with my plan. My plan back in 1992 was to buy a house every year until I had enough income to retire. I have bought and sold some and I did some flips back then. We continue to hold most of the properties, but my biggest mistake would be that I didn’t continue doing it every year consistently.
Back in the late 90s the stock market was on a rampage and you could make a lot of money if you were in it for that run-up. I kept looking at the real estate in the 90s and it just stayed stagnant from the early 90s up to 2000. The real estate stayed flat—one, two, three percent property increases—so there was no equity play in it at all with the properties. Only cash flow, which is what I’m looking for. The equity play is just a bonus. I pulled the money out and put it in the stock market, so that’s where I concentrated a lot of my investments. Then 2000 rolled around, the housing market started picking up, and the stock market went to crap. I lost money in the stock market, but both my properties were going through the roof. I said I should’ve stayed in real estate and been there all along. I probably lost enough money in the stock market to buy ten more houses.
How do you adjust now with the market softening a bit?
Right now I think the market is still strong, there’s just a ton of investors still involved in it. Back in the early 2000s the difficult part was finding a deal before some of the other big corporations—they were just buying up houses. Even in the auctions, they were paying a number that just didn’t fit my model for what I would pay for a house. I think there was a lot of overspending. I know it crashed in other areas harder back in 2008, 2009, and a lot of people pulled back including myself. I just didn’t see eye to eye with it, so I kind of gave up for awhile.
Tell Us More About this Deal…
What were you looking for when you looked for a deal on MyHouseDeals?
I was looking for a 3/2/2 in a subdivision in the northeast side of town. Nothing too old. I don’t want anything vintage with lead pipe or anything like that. I was looking for something in a neighborhood that’s an established neighborhood, and has a school district in it. In this case, there’s an elementary school right down the street. That seems to be the point I’m looking for.
It’s not unique, but I try to find properties that already have water service so that you don’t have to mess with a septic tank or a well, which can become a money pit.
What price range were you looking for?
This house popped up and was in my price range—the $100k-$150k. This was from a wholesaler and the numbers worked. It was $103,000. I think they listed it at $105k. In the market, the house could probably go for $135 or $140, depending upon how you fix the house up, so I’ve got a little bit of an equity play. My repair costs in this one is going to run around $20,000. That’s just paint, carpet, the normal things. It’s a typical minor rehab. Then I can turn around and put this house on the market and rent it for $1400 a month.
Once I get it in the condition for rent, I can go and get a cash out purchase from Wells Fargo or from a bank so I have access to conventional money. I’ll set up a 15-year loan, 4%-4.5% rate interest with Wells Fargo, and they’ll borrow 70% loan-to-value or value of your investment, whichever is less. I paid $103K, so if I throw $20K into it, they’re going to use $123K as the number. Even though it might assess for $130 or $135, Wells Fargo is going to do the 70% loan-to-value from my equity stake in the property.
I run everything through Wells Fargo right now and I don’t have any issues with them. I’ve got an A-credit rating so I don’t have to worry about using anybody else’s money. I’ve done hard money stuff before and it’s just a really, really expensive. I don’t need to use that right now. I just put my cash in it and I turn around and pull my cash back out.
How does your financing strategy changed over the years?
Right now I don’t have to be near as creative. Secondly I can go out and get these type of deals to where if they need a quick close or something like that I can go out and pay cash for the house. Ten or fifteen years ago that would’ve been impossible. I may have had the down payment, but then I would have to wait the 30 to 45 days to get the loan processed on a distressed property. A lot of times you don’t have that convenience.
Do you always work with the same contractors?
Mostly I do, unless they are tied up or we have some other issues with them. I change contractors over the years, a few here and a few there, but for the most part I’ve got a good core group I’ve worked with over the years.
How do you find good contractors and hang onto them?
It’s been word of mouth. I’ve searched the Yellow Pages or saw some ads out here, but most of it has just been word of mouth.
How do you pull comps on your deals?
I’m a real estate agent so I can pull them right off the MLS.
Did you have any surprises on this deal?
This is the first deal I’ve done with a wholesaler. I guess the only surprise I had in this one was trusting the wholesaler because they didn’t want to escrow with the title company. They wanted the escrow outside of title, so I basically just wagered $2K. I did my due diligence and called some references to make sure these people were for real. Short of a webpage, not a whole lot existed on them so I was very skeptical. I called the title company, who had worked on 2 deals with them in the past. It gave me a little bit more comfort in it.
I gave her a couple hundred dollars just to hold the house, and told her I was going to do some due diligence and they could have the $200 dollars if I decided to walk. Everything checked out, so I went ahead and made a check out to them for $2,000 and gave it to them.
What was their reason for not wanting to do the escrow through the title company?
I think the wholesalers had been screwed in the past. The exact terms they used were that they put the $2,000 in the escrow at the title company, and if for some reason the buyer walks, we’ll sign off on the escrow release of the title company so the wholesaler can get paid for his time and effort in the deal. That’s essentially the way they would do it with the buyer and seller. The seller would actually get the earnest money if the buyer walks on the deal with no reason.
The escrow is basically your put-up money in most deals unless there’s other problems. It’s their business, but I just thought it wasn’t a very secure contract with the seller, and that’s where I was a little uneasy.
I did get a letter from them that said if the seller backs out that they’ll refund my $2,000. I got that in writing, but at that point you just go with your gut. Either that or you’re not going to get the deal. That’s the way it worked.
Do you have any advice for new investors?
Do your homework, that’s one.
Number two is…do your homework.
Number three, do your homework.
I’m not talking about just trusting people, you need to go out and do your homework. To trust in your contractors, do your homework. Check them out. Don’t be naïve on anything or any deal.
If you’re up-front with the person like I was and say, “Look, I sincerely want the house. Here’s a deposit for $200. I want the house. Here’s the condition: I need to do some due diligence because I don’t know you, you don’t know me. I’ll do the due diligence and if everything checks the way you’re saying it is, I’ll follow through.” Then follow through with what you say you’re going to do.
Don’t be naïve and just say, “They’re good people because they drive a new car.” It’s real important that you do that even with your contractors. You don’t give your contractor $4,000-$5,000 to get started. That would be probably a best piece of advice that I would give anybody.
Go out and get a couple of contractors to do things so you can do some comparisons. Different guys are going to give you different estimates. They’re going to have different ideas, so go out and do your homework and then make some clear decisions.
I know a lot of people want to a shortcut in this industry, but I think the shortcuts are what’s going to get you. That goes as far as even qualifying the tenant and bringing your tenant in. Don’t get in a big hurry about. Do your due diligence. Have them give you credit reports and call those people, check those references, have them call you back. If you don’t, you have no one else to blame except yourself.
