What Makes a "Sub$30k" House?
I've started a new "Sub$30k" thread in an effort to step away from the chaos that has become a few of the other threads. While I've reviewed most of the opinions contained in their respective comments sections, I'd like to publicly tell everyone my experience, why I feel how I do, and present you finally with a question: "What makes a "Sub$30k" house?
I first started in real estate in 2005 at 23 years old with a $100,000 home purchase. My agent assured me this would be a sound investment and that it would grow over time. I'd read a lot, done what I considered to be a large amount of analysis, had a degree in business, and figured I should plug my nose and jump.
This is the approach that many BP users have advocated for newbies: Buy a more expensive property/cash flow is your enemy/look to appreciation/cheap houses=anathema. Since 2005, that $100k house has been my biggest, most constant headache. The construction quality is awful. Like many other recent builds, this one was thrown together. It needed a new roof after only 9 years. It has had many, many problems. A friend of mine purchased a house in Texas that was recent construction that already has foundation issues 10 years later, while a few of my houses that are older than my grandmother are structurally very sound due to what I consider a higher-quality standard in terms of craftsmanship and also better materials.
As a person first starting out, this experience was absolutely devastating. It felt like every other month I was on the hook for a new major repair, a tenant was threatening to move out because of some problem, and I still had a huge mortgage to contend with. I almost gave up investing and sold it off at a steep loss. That is also what EVERYONE around me said to do. Cut your losses, move on, real estate investment isn't for you. Everyone gets out of it. There is no money to be made with rentals. I began to second guess everything I'd read/done and felt defeated, looking at my bleeding balance sheet. Did I just have bad luck? Was there really no money to be made? What could I have done to avoid this?
But what if I'd invested in a "Sub30k" house as my first? What if I'd had heavy cash flow in a solid working class neighborhood? My property manager/agent of course did not want that. No one wants to manage a house that doesn't bring in a large monthly rent. No one wants to sell a $30k house and collect a paltry 3%.
In my opinion what you have are a lot of salesmen here who push a product. They understand the commission side. If I were selling turnkey properties, I'd be on here telling everyone to let me solve your problems. Let me do all the dirty work and put in the elbow grease. Hand over the lion's share of your profits and I'll gladly make money with your money.
I've since gravitated toward "Sub$30k" houses like this one (Paid $25,000 and did $3,000 in renovation):
What a dump, right? The eaves needed to be painted, it needed some other work, so what? It has rented for $750-775 every month since I bought it and it always rents the first day it becomes vacant. Property taxes and insurance are a combined $80 a month.
I WISH I'd started with this house as my first. I wouldn't have become so gun-shy and waited 3 years to make a subsequent purchase. I'd have been in the market when things were cheaper and my portfolio would be much more impressive now. I'd have developed better skills. I'd have understood that with a portfolio of cash-churners, you can absorb operating costs a lot better much sooner. <--I consider this to be one of the most important lessons to be learned in REI.
By the way, I could sell this "junker" for $70k now and I did not buy it at the bottom of the investment cycle. I put sweat equity into it. I refinished the hardwood floors and Art Deco woodwork. Does that make this a "Sub 30k piece of garbage" or did I merely pay sub $30k for a $70k property? How can we really paint all properties with the same brush and say simply because you pay less than $30k it is a bad investment?
What if someone sold you a Corvette for $5? Would you sell it to me for $10 to double your money? Is it a $5 car?