Why the 70% Rule is Dead

After moving to Tampa, FL - the real estate guru capital of America - from San Antonio, I keep running into people quoting the 70% rule, I believe coined by Ron Legrand.  But after examination of more than 10,000 transactions our company has conducted nation wide I must say, I think this rule is out of date.

I'm sure this was extremely applicable back in the 80's and 90's before MLS was a thing in the real estate world.  I remember my dad's big binder full of all the active listings and the fax coming in every morning with the listing updates.  He'd spend an hour going through his binder, removing the old listing, and placing the new one in it's place.

You used to really be able to make a killing investing in real estate back then.  Information just wasn't accessible to anyone, even real estate brokers.  In a non disclosure state like Texas where the sales price of real estate is not recorded it must have been absolutely impossible for anyone to conduct any type of real estate business without the consistent help on an agent.  At least the local board of realtors kept records of what houses sold for in their market.

I remember the first iteration of MLS in San Antonio which ran of MS DOS.  With an AOL trial CD and no one picking up the phone in your house you could quickly research what was happening in your area.  Before mapquest (remember that one) you had to have one of the large Mapsco books that gridded the city over and flip between pages trying to find what street you were going to.]

But that's over.  Margins are becoming tighter for real estate investors.  The reason is the ease of access to information.  Moving to Florida is like getting in a DeLorean and shooting thirty years into the future from small town San Anton.  The amount of information available here is staggering - and if you have a real estate license and pay for MLS access you can do some pretty incredible things.

The profits you can make in residential real estate aren't shrinking because the market is hot or cold.  The tools available are making consumers - sellers - more informed than ever before.  It's becoming more difficult to tell someone selling their home to you that you can only pay $50,000 when they know it's worth $120,000.  Of course their are deals out there but because of mass marketing tools such as Zillow, Hubzu, Auction.com, and now even county auction websites, more eyes are on the limited amount of deals out there.

Good ol' Texas... I miss you.  I used to read the actual MLS feed constantly throughout the day and when I saw a deal I'd usually be the first person at the house, the first person with an offer in, and the person who ultimately got the deal.  Tampa seems to have 100 times as many people doing the exact same things I do.  If you think that 70% deals are still out there, I beg to differ.

To the people who tell me, "I only buy houses 70% of value less repairs," I say, "And how many of those deals are you actually doing?"  I can't walk into the grocery store, pick up a sack of potatoes that's advertised for $8.99 and tell them, "I only pay $6 for sacks of potatoes."  The high school cashier is going to look at me like I'm out of my mind.  It just doesn't work like that.

This guy named Adam Smith wrote a book before Legrand called An Inquiry into the Nature and Causes of the Wealth of Nations a few years earlier, 1776 I believe.  What I was beginning to describe earlier was the basis of the efficient-market hypothesis, something most business majors dabble in during college.  To break it down, the more information consumers have in the market place the more efficient the market and thus, the more difficult it is for investors to achieve a sale price of less the actual value (ARV - repairs).

The other factors effecting the market rate for real estate investments are things such as number of competitors, average availability of capital to those parties, the availability of credit, etc.  "The 70% Rule" really has to change depending on what market you're buying in.  Truly buying at 70% of a houses actual value less the repairs will basically always yield you a profit.  Something seriously catastrophic would have to happen for you to lose on that deal.

But the reality is, people aren't paying that.  In super desirable areas such as South Tampa you're paying around 81% of a houses value less repair work.  In wildly undesirable areas such as  South St. Pete, you can't even really get an ARV as all purchases in the area are investor purchases looking to rent the house out to a Section 8 tenant and is focusing more on cap rates than resale values.

In a nation wide study examining our offices in the markets of Atlanta, Austin, Dallas, Denton, Ft. Worth, Houston, Las Angeles, Philadelphia, San Antonio, and Tampa we haven't found a place that's selling a true 70% deal.  Sure, you can inflate the ARV on it ten or twenty thousand dollars, that will get you there.  I love deals where I'm told that a 1,500 sqft house only needs $10,000 in work, something I've never been able to pull off even on my rentals.

In summary the 70% model of buying houses teaches you something in the end.  You need to be careful that you're building enough room into your offers for profits, holding costs, realtor commissions, and closing costs.  You do need to remain competitive however.  If you're constantly getting beat out in multiple offers the market may be bearing less margin for profit than you're trying to achieve.

https://www.biggerpockets.com/renewsblog/2014/02/14/70-rule-bible/
https://www.biggerpockets.com/renewsblog/2012/11/03/flip-houses-formula-math/
https://www.youtube.com/watch?v=JpfnAMRj-2Y

Central St. Pete Flip House

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Price - 89k
Rehab - 38k
ARV - 170k

Great curb appeal, brick streets, great neighborhood, original hardwoods, and LOW DOM just outside downtown Saint Pete. The house needs a little bit of everything and if desired could be turned into a 3 bedroom fairly easily, but should bring the projected value as a 2 bedroom. Once finished the highly desired neighborhood should bring top dollar without being on the market long.

Ryan Harthan Lic # BK3339362
New Western Acquisitions
2880 1st Ave N
St. Petersburg, FL 33713

foreclose, foreclosure, needs work, invest, tlc, handyman, short sale, cash, hard money, Orlando, Tampa, St. Petersburg, Clearwater, Hillsborough, Florida, rental property, need to sell, desperate, needs work, handyman special, investor, investors, investment, price drop, discounted, discount, motivated, cash flow, cashflow, fix and flip, fix & flip, income property

North East St. Pete Flip House

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Price - 145k
Rehab - 37k
ARV - 240k

Perfect floor plan in highly desired North East Saint Petersburg. This house is set up exactly how you would want already, but does need a good amount of exterior work to enhance the curb appeal. With comps having an average DOM under 30 this should be a great project with a great finished product. Contact Ryan Harthan at 727.308.1223 for more information!

Ryan Harthan Lic # BK3339362
New Western Acquisitions
2880 1st Ave N
St. Petersburg, FL 33713

foreclose, foreclosure, needs work, invest, tlc, handyman, short sale, cash, hard money, Orlando, Tampa, St. Petersburg, Clearwater, Hillsborough, Florida, rental property, need to sell, desperate, needs work, handyman special, investor, investors, investment, price drop, discounted, discount, motivated, cash flow, cashflow, fix and flip, fix & flip, income property

Cheap St Pete House

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Highly desirable three bedroom in South St.  Petersburg for less than $30,000. At market rates you can achieve a rental rate of approximately $875/mo but by taking advantage of section 8 of the HUD program a landlord can receive a voucher of up to $1,300/mo cash flow making this a superb investment vehicle!

Contact Ryan Harthan for more information at 727.308.1223

This must be a cash sale.


Ryan Harthan
New Western Acquisitions
Lic # 3339362

foreclose, foreclosure, needs work, invest, tlc, handyman, short sale, cash, hard money, Orlando, Tampa, St. Petersburg, Clearwater, Hillsborough, Florida, rental property, need to sell, desperate, needs work, handyman special, investor, investors, investment, price drop, discounted, discount, motivated, cash flow, cashflow, fix and flip, fix & flip, income property

Off Market Flip House in Disston Heights

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Clean house in Disston Heights. The house already has granite in the kitchen, new A/C, newer roof, and very clean throughout. For a rental this one needs a clean up and touch up. For a flip you are going to want to add a bathroom in the master and do some basic cosmetics and updating. Hurry because this one is going to go quick! Contact Ryan Harthan for more information at 727.308.1223!



foreclose, foreclosure, needs work, invest, tlc, handyman, short sale, cash, hard money, Orlando, Tampa, St. Petersburg, Clearwater, Hillsborough, Florida, rental property, need to sell, desperate, needs work, handyman special, investor, investors, investment, price drop, discounted, discount, motivated, cash flow, cashflow, fix and flip, fix & flip, income property

Off Market Pinellas Property!!!

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Great off market block house in Lakewood Estates. The previous owner had a new roof put on in the past 6 years as well as new windows, and all around has taken great care of the home. To bring this one up to par this house will need a full cosmetic rehab on the inside, a new A/C, and a bathroom added to the master bedroom. Contact Ryan Harthan at 727.308.1223 for more information!

Shore Acres Flip House

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Great spread on an easy rehab within walking distance to the water. This house is going to need a cosmetic rehab inside and out as well as a new roof. With solid comparables on your street, and low DOM this one should be a great flip. Pictures of the comps are included in this packet to show that some of the houses are not updated or finished out very well. Contact Ryan at 727.308.1223 for more information!

Seminole Wholesale deal

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Easy rehab with low DOM in Seminole. The previous owner started the rehab and decided not to finish. The house already has new cabinets and granite in the kitchen, new vanity and granite in one bath, low E windows, newer A/C, and many more improvements started. Finish the easy cosmetics rehab and throw it back on the market for a quick sale. Close 11/30 with Pinellas Equities, LLC.  Contact Ryan for more information 727.308.1223

Investment Real Estate "Don't be afraid to make $30,000+"

DON'T BE AFRAID TO MAKE $30,000+!!!

If you're new to Investment Real Estate you may have heard the saying, 

"Real estate cannot be lost or stolen. Nor can it be carried away. Purchased with common sense, paid in full, and managed with reasonable care, it is about the safest investment in the WORLD." 

- Franklin Roosevelt

That statement couldn't be more true, with the rising and falling of the stock markets and with so much uncertainty in other markets it is a great time to invest in one of the safest, most rewarding markets there is. Let me help you invest in a market that has withstood the test of time.

If you are new to the market or an experienced investor, let us help you by streamlining the entire process for you to make your investment process simple and easy. When it comes to the repairs it is always good to know how much work you are going to put into a property before you purchase it.  And it is imperative to know what the property is going to sell for once the rehab is complete. 

Let us help you with that.   We take out the guess work when it comes to investment real estate and streamline the entire process. To help our investors receive unmatched returns on their investments 

For more information and to see ALL of the distressed properties that we sell, please call Jacob Spain (254)-205-9590

I don't get paid unless you decide to purchase from me!

Click here for off market properties! 

Great Flip/Buy & Hold in The Colony

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Great Flip in Highland Village

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HUGE OPPORTUNITY! This area never gets an updated home as it is so sought after, homeowners just buy as is. It is hard to say how high the value on this property will be as all of your comps are outdated but its obvious to see that $260k is bottom of the market for an inhabitable home here. If you spend closer to $30k in work you should for sure list this closer to the $285-295k price range.

Corinth Property! Off Market

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A '98 build in Corinth!  This is a rehabbers dream!  The property has only had one owner and was kept in good shape, the rehab will be strictly cosmetics and the owners are only selling due to relocation in Florida.  This off-market deal will sell for top dollar on the retail market with extremely low DOM.  Take a look at the surrounding comps and you'll see that investors haven't gotten a chance to scoop in and really rehab these homes so most of these houses are sold from owner to owner.  Your best comp sold for 218 with a minimal rehab done and low DOM so there is definitely room to increase the ARV with a decent rehab.  Don't miss out on this incredible opportunity to capitalize on an inclining market with very little inventory! 

Real Estate Appreciation

     I've been told since college that real estate has the unique quality above all other assets of holding value.  It's tough to lose money owning land and it's tough to lose equity in a long term hold strategy.  I was told that certain areas of my home town, San Antonio, appreciate at a rate of 10% a year.  I'd like to address this misguided belief in increasing values.
     If you believe that your home will go up in value 10% every year for the foreseeable future, what you're effectively saying is that the house you bought for $100,000 today will be worth $1,750,000 by the time you pay off your 30 year note.  I remember the house my parents bought, and the one their parents bought.  Maybe Texas is a little different than the coastal markets but I can't see that be an accurate expectation.
     A 10% increase in value of real property is what most economists would constitute as an adjustment.  It's not appreciation, it's just that the guy who appraised the area the first time got it wrong and the demand was a lot higher than expected.  It doesn't mean that demand will rise at a constant rate, or that supply will continue to be in a shortage.  If that's the case you're looking at real estate in the eyes of the last bubble that happened thinking of all the great things that followed.
     Realistically, the value of real estate can only increase under a certain set of circumstances.  Demand increases - what does that mean?  Do you live inside of downtown Dallas in a single family home?  Are there 50 story buildings going up on both sides of you?  If so, your property value probably went up.  Is there no available vacant lots around you and people are swarming to this part of the city by the horde and are you located close to downtown?  If not, it's probably just an adjustment.
    Banking your investment on appreciation is a mistake.  A Good benchmark for any investor should be the rate of inflation.  If you're property is appreciating faster than the rate of inflation, you're in a bubble or there's a market adjustment happening.
    Word to the wise - Sell when you see these trends.  Buy when you see them in reverse.  Here's a fun fact about finance:  The value of gold to bread hasn't gone up significantly since the beginning of recorded history until innovations such as the industrial revolution.  When the price of gold goes up, it's not really gold getting more valuable so much as the dollar getting less valuable.  Be weary of hefty appreciation models.

Northeast Investment Property

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MEMORIAL DAY WEEKEND SPECIAL! Beautiful corner lot with curb appeal you have to see to believe! Make this 3 bed, 2 bath, 2 car garage your next great investment. With no foundation problems, a brand new roof, and an HVAC blowing snowflakes, you can not go wrong on this easy cosmetic rehab! Call your New West agent today before this one is gone! Call Steven at 210-854-8700

Preparing Your Credit for a Future of Investing in Real Estate

This will be a 7 part blog post that highlights important aspects that residential real estate investors need to know to plan for growth.  Please subscribe to stay updated on each portion as they are released.   Click the link(s) below to find out more about each topic.

DTI

Credit

History of investing

Taxes and Tax Deductions

Management
Cash reserves

Fannie Mae Guidelines and portfolio loans

Why Is Having Good Credit Important?

Being on the wrong end of a credit score can interrupt your investment future and ultimately stop you from seeing your full potential as an investor.  Neglecting indiscretions of the past can disrupt your ability to receive loans and potentially take years to amend.  Waiving a bad credit rating can suggest that you are a risk to investors/lenders.  This risk can not only affect your ability to secure the type of funding you require but make borrowing funds considerably more expensive. 

Developing and Keeping Good Credit

When applying for credit a lender is going to look at a number of things, including your DTI.  They will take a strong look at your 3 digit credit score.  This score is determined by;

•  Past defaults and accounts currently in collections
•  Average age of your existing credit accounts.  
•  Percentage of on time payments
•  Number of accounts on your credit history
•  Revolving credit utilization.
•  Number of recent credit inquiries. 

Here are some tips on each one of these items that will help you make dramatic changes in your credit score. 

Past defaults and accounts currently in collections

If you have an account in collections, know that it will stay on your account history for 7 YEARS AFTER THE LAST ACTION IS TAKEN.   That wording is very important.  If you call up the creditor and pay the $125 old cell phone bill that you may or may not have racked up in college, it will show on your report for 7 years that you HAD an account in collections.  The proper way to take care of an account that is in collections to endure that it doesn't negatively affect your score is to call the creditor and let them know that you don’t recall the cell phone bill and request that they guarantee to you IN WRITING that if you pay this debt that may or may not be yours, they will remove all record of it completely from your credit report.  Only then, should you pay the debt. 

Average age of your existing accounts

This one is easy!   If you have a parent, spouse, or an aunt that is really good with credit you’re home free.  Ask a trusted individual to add you to one of their credit cards that they have had for 10+ years with no balance and perfect payment history.  That’s it!  That’s all you have to do.  Let them know that you don’t want to use the card, you just need to be added to the account, not as a signee but to the actual account.  This will mean giving up your social security number to the credit card company.  Let your trusted family member know that you don’t need to have a copy of the card, you can make your mailing address theirs or take whatever precautions that you need to in order to help them feel warm and fuzzy.  This will increase your average age of credit over all of your accounts and make your score shoot up. 

This will also help you with the following category. 

Percentage of on time payments

If your aunt or spouse had had that particular card for 10+ years and have perfect payment history on it, and let’s say that you have one or two 30 day late payments on your report, this could potentially push you into a different bracket of “percentage of on time payments” and raise your score. Whatever you do, avoid paying anything late.  Most credit agencies don't report a late payment until it is 30 or more days late.  However, don't hide from creditors.  If you know that you are going to be late on a payment, call them early as possible and let them know.  They might be able to work with you.   

Number of accounts on your credit history

A common misconception is that it's a bad thing to have a lot of cards so people tend to close cards that they don't use.  Before you close an account, find out how long you've had it.  If it's a card that you don't use because it charges 18% interest, pay it down to almost nothing and hold on to it so it will raise your average.  If you've owned the card for over 8 years, it's probably raising your average age so closing it would only hurt your score.   The more accounts you have had the better…but you have to balance that with the average age of your accounts.   Not much you can do about this one but luckily, this category doesn't weigh as heavy on your score as other categories.  This is a perfect reason why you shouldn't apply for every credit card that shows up in your mailbox.  This is also the reason that you should stay away from department store credit cards.  More chances than none, the extra 10% you save on the day you purchase that new $120 outfit will be outweighed on the extra percentage point that you are going to have to pay every month on your $120,000 investment property mortgage. 

Revolving credit utilization

Another easy one…figure out what your credit limit is on every credit card you own.   Keep the balance on that card between 1% and 25% of the total limit at all times.   Do balance transfers or whatever you have to do to make this happen.  This is the piece of the puzzle that I've found that most people are missing.  This can make a HUGE difference in your score.  Sometimes 50 points or more.  You never want to have it over 50% and it’s not helping you to have it at 0%.  You want to show creditors that you know how to use credit responsibly.  If you don't have enough money to pay your cards off or enough available credit to do a balance transfer and keep the balance of each card under 25%, then as a last resort, you can ask for an increase on your limit.  Most banks will do a hard inquiry on your report when doing this so only use this as a last resort.  

Number of recent credit inquiries 

You've probably heard the saying “Banks only want to people who don’t need the money.”  This is a very true statement.  If you apply for every credit card that comes in the mail, and apply for a car loan and mortgage and decide to finance that new bed with 0% interest for the "special one day only President’s Day sale", banks are going to look at that as a red flag.   For this category you have to know the difference between a soft and a hard inquiry on your credit report.  A soft inquiry happens when you check your own credit on apps or websites such as Credit Karma, myFICO or LexingtonLaw firm.  Those types of inquiries DO NOT NEGATIVELY affect your credit score.  However, anytime that you are applying for any type of loan, including credit cards, you are doing what’s called a hard inquiry.  A hard inquiry will negatively affect your credit, especially if you apply and do not get the loan/credit card because you get denied or just decide not to.  A hard inquiry will stay on your credit report for 2 years from the day that your credit is pulled by the potential creditor.  There is a way to get these taken off of your report.  Lexington Law Firm has pre-written letters that you can send out to creditors and credit boroughs that demand that they take those inquiries off of your report unless the creditor can prove it was you who made that inquiry.  Most creditors would rather take it off than spend time and resources with an investigation.

If you read nothing else, read this…

Bottom line, know your limit.  Just because you get approved for a certain amount, doesn’t mean that you have to use it all.  There are other factors to consider before applying and accepting a loan that can have a huge impact on your investing future.  Make sure EACH of your credit cards are at least 75% paid off at all times.  And utilize apps and websites like myFICO, Credit Karma and LexingtonLaw Firm and Mint.  They are more of a reference and a monitoring tool than a magical fix all elixir, but if you are proactive with any repair that needs to be done, these websites are great tools that I have used myself and highly recommend. 

Hopefully all of this information helped you understand what you need to do to get your credit score a little higher than it already is. If you have any questions, please leave them in the comments section below or email me at JD.Castillo@NewWestern.com or you can always call me at 214-650-5493.  If you need Investment property or a loan on your next investment deal, we have some of the lowest rates in the nation and I would love to work with you. 

San Antonio: Forgotten Land of Real Estate

     It never ceases to amaze me how often San Antonio is over looked by real estate investors on a national and state level.  Institutional funds and TV shows tend to focus on markets such as Phoenix, Las Vegas, Las Angeles, Dallas, and Houston but what about good ol' San Anton? Let's take a look at some surprising real estate factoids:

• According to some sources the greater San Antonio area has more than two million residents
• San Antonio is the seventh largest city in the country
• There were only 52 recorded sales of houses over one million dollars
• Texas has 4 of the bottom 10 lowest credit scores per city
• San Antonio currently has seven homevestors franchises.  Dallas/Ft. Worth has over fifty
• For "flippers" San Antonio consistently shows 6-10% more equity in properties than similar properties in Dallas and Houston
• San Antonio 
• According to dozens of articles San Antonio consistently ranks as one of the fastest growing markets.
• San Antonio also continuously shows some of the highest rental rates per purchase price of property (Cap rates)
• Texas is widely viewed as the easiest state in America to foreclose on a home (average time of 45 days)
• The city is also widely viewed as one of the most stable markets nation wide
• The average sale price for all houses in San Antonio in 2014 was $209,534 whereas the median was closer to $165,000.  
• Average rental rates for Greater San Antonio were around $1,195 (Zillow)
• The actual sale price of all houses was 82% of the original listed price in 2014
• Average DOM for the entire city was 84 with the median around 70.
• San Antonio also ranks as one of the third most financially irresponsible cities

I'm always curious why the city doesn't get more attention and seems to fly under the radar of the big national markets.  I always here that "San Antonio has always been 20 years behind Dallas and Houston in regards to real estate development." Given that we know how those markets have turned out I encourage every investor to take another look at the home of the Alamo.

http://www.bankrate.com/finance/credit-cards/10-cities-with-the-lowest-credit-scores-2.aspx

http://www.zillow.com/san-antonio-tx/home-values/

http://tpr.org/webclip/san-antonio-makes-top-three-most-financially-irresponsible-us-cities

Must Sell Quick! Motivated and need an offer!

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Clean NW Area home with tons of upside. This property only needs very minor items on the rehab to get into top shape. The days on market are all very low with all comps inthe info packet under 2 months on market for sold comps! Rents are strong as well if an investor is looking for their next fix and hold investment. Don't forget to ask about how you can purchase this property for as little as $22k down by financing with Sherman Bridge Lending! Call today to schedule your showing of this great investment opportunity.

Price - $83,000
Repairs - $8,000
ARV $120,000



Contact Ryan Harthan at 210-710-1617 for more information.  Lic #614596

Woodlake Investment Property

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Woodlake Neighborhood located in the NE area of SA. This property a ton of potential and after ~$20k is put into the property, this could be the gem of the neighborhood. Brick on 3 sides of house and a bonus enclosed patio in the back as well. Very low days on market in this area: 29, 16,34, and 21 days on market for the comps in this info packet!!! Put a little elbow grease into this one and watch it fly off the market! Rents are strong as well between $1,200-1,300/month. Call today to schedule your showing!  


Price - $82,900
Repairs - $20,000
ARV - $140,000



Contact Ryan Harthan at 210-710-1617 for more information.

Testimonial 10/15/14

“It’s been great working with Dustin O’Neill. I’ve bought 2 properties so far and they've been great deals. Really good service and follow up. He always remembers when a property becomes available in the part of town I like. We’ll continue doing business. I would recommend anybody to do business with Dustin at New Western, really professional and straightforward.”

Shavano Park Mansion Flip

Shavano Park Mansion Flip

What a find!  A 16,000 sqft Mansion on 6.17 Acres in Shavano Park.  With an upstairs that still needs to be finished out this house would be the ideal flip for an investor looking to hit it big.  The completed downstairs has an over sized master bed and bath, three car garage, and three bedrooms down stairs.  The unfinished upstairs has an exceptionally large game room, movie theater, and room to build out an additional seven bedrooms and five bathrooms.  Call Ryan Harthan for pricing, access, and more information at 210-710-1617

http://s1228.photobucket.com/user/njkzero/library/Shavano