Real Estate Investing Basics

Newbie Investors: Here’s the Truth You NEED to Know About $30k Properties

Expertise: Landlording & Rental Properties, Real Estate Investing Basics, Personal Development, Business Management
29 Articles Written
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Which sounds better: three properties that bring in $700 a piece for $33,333 each or a property that costs $100,000 and brings in $1,350? Well, just judging from the numbers, it would be easy to say buy the three properties. Most new investors see the low cost of entry and the high price-to-rent ratio, and they assume this is a good property. But there is more to investing than just the numbers.

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There is this whole subculture in real estate investing that invests in under $30k investment properties. Unfortunately, it most often is new investors who got sucked in by the numbers on paper. They haven’t owned the properties long enough to really appreciate what owning $30k properties actually entails.

Let’s analyze certain factors here.

For Advanced Investors Only

If you haven’t owned an investment property before, your first purchase should not be a property under $30K. These are for experienced investors only. I see it too frequently. An out of state investor is told that there is a neighborhood somewhere in the Midwest that has a price-to-rent ratio of greater than 2%. They decide that this is a tremendous opportunity because they just got done reading Rich Dad Poor Dad, so they need to start getting out of the rat race today. They purchase the property more times than not sight unseen and are ready for the checks to start rolling in. Little do they know that they have bought a property in a high crime neighborhood.

Does this story sound familiar? Have you seen this story told countless times on popular real estate forums? If you are going to start investing without any experience, start with something easier. If you are going to do it yourself, start with a property in a B-class neighborhood. The returns won’t be as good, but it will allow you to get comfortable with investing. If you are looking for someone else to guide you through the whole process, make sure you do your due diligence and get comfortable with the company selling you the property.

Try to Stay Local

If you are a new or budding investor, try to start your research by looking at the properties locally. You can talk to real estate agents, investors and other experts to understand the market condition. Look for neighborhoods that have a potential of giving you good returns with high rental demand.

Related: Why I Don’t Buy Houses for $30,000 or Apartments in D-Class Areas

If you don’t want to get your hands dirty, you can look for the right turnkey investment company that could assist you in finding a good deal. It’s easy to meet them because they are in the same city.

If you don’t find any success locally, then you can start looking for properties or turnkey companies in different cities. You will have to make sure that you meet them in person and see the properties before investing in them.

There are many cities out there that can offer properties under $30K, but whether they are worth the price or not is debatable. Some of them won’t be able to generate enough income in the form of returns, whereas others will be in shady neighborhoods or require a lot of maintenance. You need to do your calculations properly before making any decision.

Economics of a Property

Property management is a day to day process. It’s not solely about finding the tenant, renting out the property and collecting monthly rents. It is an everyday activity where you have to deal with all the problems faced by the property, tenant or you. It could be a leak in the faucets or getting rid of bad tenants. Any property requires a lot of care, including preventative maintenance, regular inspections, repairs, and improvements. So when you think about this, think about what you are charging.

The example property brings in $700 a month in rent. You pay your management company $70 per month to manage. No matter the price of the rent, these properties still require the same amount of time to manage, and I would argue that $30k properties require more time. Unfortunately as the property owner, you will have to find a property manager who may need to cut corners to stay profitable.

Also consider the leasing of the property. Typically, property managers charge one month’s rent to fill a vacancy. That is either kept all in house or split with a cooperative broker. At $700 a month, the property manager may try to keep it in house so he can get the whole amount as opposed to splitting it. The cooperative broker might not even show the property because making $350 takes the same amount of energy and time as it takes to rent a property that has twice as high rent. All of these activities take time, and if you are going to pay less for someone’s time, inevitably you are going to get less in return.

Continuing with this theme about the cost of things, what do you think the overall condition of that property is going to be? If you bought the property “turnkey,” how much work do you think was actually done to the property? Our typical rehab cost for a property is around $30K. How do you expect someone to buy the property, rehab it and sell it for a profit if the sales price is $30K?

There is no room for profit. Heck, there’s no room for a rehab budget. Too often, people buy “fully” rehabbed properties, where the seller came in and painted everything and called it “fully rehabbed.” The person who gets stuck with the “fully” rehabbed building is a newbie investor who just bought a money pit.

I don’t know about you, but when I got to the Home Depot when I am looking for materials, I have never seen the aisle for materials for $30k properties. That’s because it doesn’t exist. Replacing a furnace is going to cost at the minimum $1,500 regardless of whether it is a $30K or a $100K property. So when that furnace goes, it’s going to take a much bigger bite out your profits. Just because the price of the property is cheap doesn’t mean the repairs are going to be any less than they normally would be.

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Related: The $30k Rental Property: How to Finance & Profit From Cheap Real Estate

I’m not saying that people shouldn’t buy $30K properties. What I am saying is that to make it work, it requires you to most likely be a local. You’ll want to be able to manage the property yourself and be as hands-on as possible, so that you can squeeze every nickel out of your revenue. Because the actual dollars return is so small, you have to work harder to be extremely efficient. Otherwise, those promised returns will not be there.

If you are not local and not hands-on, you will end up performing the same—if not worse—than on that $100K property you avoided because you thought it was too expensive.

[Editor’s Note: We are republishing this article to help out our newer readers.]

Have you had luck with “cheap” investment properties—or do you have a story of disaster?

Be sure to leave a comment below.

Mark Ainley is an investor, managing broker, and property manager with almost two decades of experience in real estate. Mark found his way into real estate by purchasing and flipping condominiums prior to the great recession, and since, he has built his own portfolio of rentals alongside co-founding GC Realty & Development LLC (GCR&D), a full-service real estate brokerage, property management and investment firm, and GC Realty Investments (GCRI). He has rehabbed and stabilized over 450 properties and currently manages over 900 investment properties throughout the Chicagoland area. Mark was featured on CNBC’s TV show The Deed, which chronicled one of his rehabs. He has also been featured on podcasts like The BiggerPockets Podcast, The Real Estate Mogul Podcast, Joe Fairless, REI Diamonds, and Positive Phil.

    Wilson Churchill from Madison Heights, Michigan
    Replied about 4 years ago
    It really depends on the location. The trick is to find low prices in areas that are not high-crime areas. Different parts of the same city can be vastly different. A trick regarding a furnace replacement is to buy the exact same furnace, if possible, and swap it out.
    Candis Robinson from Cincinnati, OH
    Replied about 4 years ago
    I was just going to ask, maybe the title should be “don’t buy 30k houses in less than B rated neighborhoods”? Unless the rule/fact is you only find 30k properties in less than B rated neighborhoods??? I know someone who buys houses cash via auction in a variety of neighborhoods- none of them high-crime. Btw, where does one find the definition/criteria for the grading of neighborhoods that gets mentioned on so many posts here on BP?
    Wilson Churchill from Madison Heights, Michigan
    Replied about 4 years ago
    I don’t use a letter system. My plan is to stay away from neighborhoods where crack heads will steal anything that they can scrap.
    Lisa Phillips Real Estate Investor from Arlington, VA
    Replied over 3 years ago
    I live by that metric as well for my properties!
    Chuck Knowles from Columbia, SC
    Replied 12 months ago
    Or putting it another way…a property you would NEVER live in, even if you HAD to…
    John Underwood Investor from Greer, South Carolina
    Replied about 4 years ago
    I much prefer to buy a property in a decent area for 25k that rents for $700/month than a 100k property that rents for $900/month. I don’t buy a house if it won’t pay for itself in 3 to 4 years. They are harder to find a good house that is this price, but they are out there and the risk is much less. Just do your do dilegence before purchase. John
    Randy E. Rental Property Investor from Durham, NC
    Replied about 4 years ago
    I agree, John. That 3-4 year timeline is something I also try to follow. At the least, I want the gross return after 4 years to top the purchase price. However, I LOVE LOVE LOVE articles like this one. Anything that convinces other investors not to seek and buy the properties I want is absolute fine with me. There’s enough competition out there as it is.
    James Irwin Investor from Birmingham, Alabama
    Replied about 4 years ago
    Lol
    Denise Brown-Puryear from Julian, North Carolina
    Replied almost 2 years ago
    @Randy E. I totally agree… regarding the competition! We buy 30k and under, renovate and rent. Research, due diligence and sleeper neighborhoods where the population has aged and lovely brick homes are sitting vacant with out of state heirs is our primary market. And just found out that the area where we just made several purchases is undergoing major infrastructure improvements…. but that’s the reason why we began purchasing there about a year ago and we’re not slowing down!
    Mark Ainley Developer from Roselle, IL (Chicago Suburb)
    Replied about 4 years ago
    Great point of view Randy on competition.
    Randy E. Rental Property Investor from Durham, NC
    Replied about 4 years ago
    Thanks, Mark. I think you make some good points, especially regarding newbies buying out-of-state “turnkey” properties without sufficient due diligence on the property, the company, and the neighborhood. On the other hand, I continue to disagree with the apparent standard belief that no inexpensive house that rents for < $800/month can be profitable in the long run due to some combination of "bad" tenants, cap expenditures, and vandalism/theft. It is too simplistic of a philosophy and it doesn't ring very accurate to me. (comments deleted by me because I was running on…) Maybe I'll wake up one day in 2030 and rue the day I ever bought $30K all-in properties. I guess I'll have to wait and see. Right now, in 2015, I'm very thankful to have these properties. And I'm excited to continue to purchase as many as I can, as quickly as I can.
    Mike McKinzie Investor from Westminster, CO
    Replied about 4 years ago
    Good article Mark. To put it in a nutshell, when you buy a $30,000 property, you are “buying a job!’ And it is nearly cost prohibitive to hire that job out to someone else.
    Mark Ainley Developer from Roselle, IL (Chicago Suburb)
    Replied about 4 years ago
    Exactly Mike. It is tough to contract it out. Thanks for your reply!
    Bobby Sharma
    Replied about 4 years ago
    Mark, what does “contract it out” mean in this context?
    Mark Ainley Developer from Roselle, IL (Chicago Suburb)
    Replied about 4 years ago
    “Contract it Out” would mean to sub it out or hire a all of or specific parts of it to a third party.
    Collin Cook Rental Property Investor from Hughes Springs, TX
    Replied about 2 years ago
    Hire a property manager.
    Lisa DuFaux Investor from New Port Richey, Florida
    Replied about 4 years ago
    I agree with Wilson and John…it all depends. In my location (hour north of St. Pete Florida), there are plenty of houses in the $30’s that are in comfortable working class neighborhoods where I’m not afraid to be after dark. They generally rent for around $750 to $800, so decent ROI is a real possibility.
    Rondi Frisch Vendor from Tarpon Springs, Florida
    Replied about 4 years ago
    It seems I’m farming some of the same areas as you Lisa — West Pasco County. I’m a PM based in Clearwater, but I live in North Pinellas. We have a number of exceptionally well performing rentals from Holiday north to Port Richey. If you shop right and harvest distressed property, $30K is the all-in price after rent-ready reno. The sad part of that area is that so much is bank owned, vacant and in sorry need of a caring owner, but the banks won’t budge on their REO list prices or won’t even list them because they are holding too many bad assets in that market.
    Stephen S. Wholesaler from Holiday, Florida
    Replied about 4 years ago
    I could not agree more. I heartily recommend that new-comers, as well as well-seasoned RE investors, never buy $30,000. properties. No one should ever invest in houses like that. In fact; if you ever come across such properties immediately run far away fast to get to somewhere that you can contact me and tell me all about them. stephen —————-
    Mark Ainley Developer from Roselle, IL (Chicago Suburb)
    Replied about 4 years ago
    Thanks Stephen for the reply. We have seen a lot of investors local and out of state jump in and then regret it.
    Wilson Churchill from Madison Heights, Michigan
    Replied about 4 years ago
    There are definitely a lot of “don’t want ’em” landlords out there. They are a great source for deals. I recently bought a house from someone that was renting the home, but had let the tenant go for months without paying the rent or water bill. Management is key, especially in lower income areas. A few years earlier, I bought the house next door from an out-of-state investor that no longer wanted the property.
    Lisa Phillips Real Estate Investor from Arlington, VA
    Replied over 3 years ago
    I would like to know – did those investors o their due diligence? Did they vet the mangement team, neighborhood stats, rental income, inspect the homes? All I would say – there are people who invest in 100-200k properties and lose – it doesnt matter the asset class, its either mentoring with someone who works in these areas successfully, and learning from them – Its out there now on BP for whomever wants to learn these nuances, and easy to find.
    Wade Alderson from Claremore, Oklahoma
    Replied almost 3 years ago
    Amen Lisa
    Denise Brown-Puryear from Julian, North Carolina
    Replied almost 2 years ago
    @Lisa Philips – I totally agree! Due dilligence, research and get to know the area you want to invest in personally. I like properties within 30 minutes of where I live.
    Randy E. Rental Property Investor from Durham, NC
    Replied about 4 years ago
    LMFAO! (but if anyone finds such properties in my area, please contact me and tell me so I can avoid them too.)
    Collin Cook Rental Property Investor from Hughes Springs, TX
    Replied about 2 years ago
    If you can’t find Stephen contact me…lol.
    Anthony Gayden Rental Property Investor from Omaha, NE
    Replied about 4 years ago
    The author seems to forget that a lot of people actually live in the markets where these deals exist. I’m from Kansas City, and could easily buy a $30,000 house and know its in a good area. As a beginner who lives in the area, it is easy. Also to your point on costs, it will be a lot harder to afford to replace a furnace if you only have $100 of cash flow a month compared to $300+ a month on the cheaper property and you spent 3X as much on a down payment.
    Mark Ainley Developer from Roselle, IL (Chicago Suburb)
    Replied about 4 years ago
    Thank you for the response. Anthony, I am very aware that these markets do in fact exist. For the most part neighborhoods that are at the 30k price point are that way for a reason. For a new investor, they need to do more due diligence than look at the price of a property.
    Cassie Bruce Property Manager from Alpharetta, Georgia
    Replied about 4 years ago
    Mark, Great post and will certainly pass along. It is discouraging to purchase a property and not understand all the nuances it brings as a rental property. There is market share for all types of rentals and good investments for the “right investor”. It doesnt matter if the purchase is for section 8 housing, mid income housing, student living housing. The bad investment, is the bad information prior to purchase. A 30k property can be a great investment if you truly understand what the market will bring for that property. (the financial obligation to repair, the type of tenant it will attract and time and finances you have to dedicate.) strongly encourage new investors (or any investor buying in a new area) to speak with a local rental property specialist. A local realtor may be excellent in buying and selling you real estate and locating the 30k properties BUT understanding the rental market, is much more than pulling rental comps prior to purchase. Talk to a local professional property management company, 5-10 min conversation and let them point you in the right direction. They may be able to refer you to a Realtor they trust in rental property purchases. Attend a local NARPM chapter meeting and listen to what the property management professionals are discussing. That is my free advice from a sister investor that has witnessed ALOT of “bad investment deals” in the past 12 years. When you buy a rental property you are buying the neighborhood and schools and tenant they attract. Purchase price is secondary. We have rentals that started as 800 month but now are 1000-1200 over the past 2-3 years. Atlanta is a strong rental market, population continues to increase, demand continues to soar, good schools, quality tenants, quality homes…..that is a good investment. If you are in the ATL and looking for info, let me know. No catch. (I dont buy or sell real estate-except for me:)) I just love to talk about the rental market….
    Justin C Huggins from Clinton, Arkansas
    Replied almost 2 years ago
    This is a very good point. I am working in a new area and was actually provided a map by a property management firm. The map showed where they would manage and where they wouldn’t based on crime rates. Was very helpful for not being familiar with the area.
    Timothy Friars
    Replied about 4 years ago
    Wait…what? How cheap are homes in Kansas City??? Man I have got to look into some properties there now…
    Larry
    Replied about 4 years ago
    I buy the neighborhood ….not the property. I have many $70,000 homes in nice neighborhoods, with a park, no crime, and good police and schools. In these neighborhoods there are a number of homes at $30,000. These are mostly homes of older people and or people with health problems that cant take care of them and they get dilapidated. They are rarely really damaged and have mostly cosmetic needs. With work they can be brought up to neighbor standards. Drive around , knock on a few doors, ask a few questions. Buy the neighborhood.
    Mark Ainley Developer from Roselle, IL (Chicago Suburb)
    Replied about 4 years ago
    Larry, I can’t agree with you more. I buy the neighborhood and not the property to. That is why I mainly invest on the south side of Chicago. I know which neighborhoods are good and which ones are bad. It is not something that can be figured out by looking only at price. In my market, there are great neighborhoods for great prices, but if you look at the national news you would never know that.
    John Hamilton Real Estate Transaction Engineer from Jacksonville, Florida
    Replied about 4 years ago
    Mark, Southside Chicago is rough. I applaud you for knowing the good areas. There aren’t many, but the ones in that area have some good points. Yet, I still can’t see making any good passive cash flow in “that” area. Maybe I’m wrong. I found all kinds of ok deals all day long. But, either the block, square blocks, or whole neighborhood was a NO-GO! Maybe I didn’t give it a fair shake. However, I think it was good for me NOT to get involved. This is the kind of neighborhood that had my Mom screaming at me to get out of the area. Screaming! Granted, it was highly questionable if the deals would be a good investment, but it wasn’t that bad.
    Larry B
    Replied about 4 years ago
    Here is my experience with the $30k, 2-family property that I bought: Purchased in late 2004, no positive cash flow in 2005 because of repair and initial fix-up expenses. Total invested was approximately $30k by the end of 2005 (including initial purchase price and fix-up/repair costs). From 2006 through the end of 2014 I have averaged $5.3k/year in positive cash flow after all expenses (including capital expenses, excluding depreciation). Capital expenditures include: two new furnaces, new hot water heater, new roof. The windows were also replaced but that didn’t cost me anything. This was the first property I bought, it was local (less than 10 miles from where I live), and I manage it myself. Current total rent is $1400/month (i.e., $700 per unit). Overall it has been a pretty good investment.
    Dawn A. Rental Property Investor from Milwaukee, WI
    Replied about 4 years ago
    If people buy lower priced properties out of state, they have to have someone to work with that will help them be profitable. If you have that then you don’t have to be constrained to only buy higher-priced properties.
    Mark Ainley Developer from Roselle, IL (Chicago Suburb)
    Replied about 4 years ago
    I agree with you Dawn. I have always been impressed by how much you have been willing to guide investors through the process in Milwaukee. The problem typically stems from someone who hasn’t done the work to figure out if it is a good property/neighborhood and they are unwilling to pay someone to gain that knowledge.
    Dawn A. Rental Property Investor from Milwaukee, WI
    Replied about 4 years ago
    Because they’d rather overpay by thousands or lose thousands on a bad investment than pay hundreds for the knowledge of someone else. That’s called “penny wise and pound foolish”.
    Kay Gerbig Investor from Howey In The Hills, Florida
    Replied about 4 years ago
    This is the dilemma I’m facing as I attempt to choose my first investment property. Appreciate the input on this subject.
    Curt Smith Rental Property Investor from Clarkston, GA
    Replied about 4 years ago
    We first got into rentals,,, then moved to rent to own in rural areas to avoid competition. We never hear from our renters, never any problems… We bought in the cheapest sections of top high schools. Not 30k but my math says that since I have no turn over costs, undue damage, collections, my honest cap rate is much better than the folks who work the cheaper houses. One needs to consider honest numbers for rentals. I think the demand to buy in the hood would drop off once folks realized that for all the drama, hassel that you actually don’;t make more cash in the pocket with cheap houses (what ever cheap means in your market). You can NEVER go wrong by buying good high school districts. Our rule is over Great Schools rating of 5 or better. If you buy over 7 you’ll never hear from those renters… As long as you screen for young kids and 2 good jobs.
    Ed S. Investor from Indianapolis, Indiana
    Replied about 4 years ago
    $30k properties vary greatly depending on the local market, and even the neighborhoods within a local market. I would not be interested in a $30k property in many cities, but they are cash machines in others. The key is due diligence: local inventory, bed/bath count vs. inventory, rent comps, sales comps, school system, crime heat map, etc. Buying a $30k property sight unseen without conducting the proper due diligence is a fool’s errand. Confidently buying $30k properties after running the numbers and calculating one’s risk can yield great returns.
    Mark Ainley Developer from Roselle, IL (Chicago Suburb)
    Replied about 4 years ago
    Summarized nicely Ed! Most people are unwilling to to put in the time to learn this.
    Lisa Phillips Real Estate Investor from Arlington, VA
    Replied over 3 years ago
    Mark – I think you’re right. However, if you’re unwilling to put in the time to learn this – THAT should be the topic of the article – New investors, if you’re going to get into this asset class, learn the ropes – and luckily, many are, since there are so many more of us investors blogging, teaching, and sharing with others. But, A to D, willingness to learn is important – for my part, I make sure on every post that I explain what those nuances are across state lines and geographies. I see comments every day for those who are newbies who are successful in this class posted on my videos – but they learned the ropes first!
    Reddrick Whatley from Bradenton, Florida
    Replied about 4 years ago
    Would 50k be the best to start off
    Mark Ainley Developer from Roselle, IL (Chicago Suburb)
    Replied about 4 years ago
    Reddrick, I don’t have that answer. Price is only one component of deciding whether a property is a good investment or not. Odds are if you are buying a property for 30k, it is not in a good neighborhood. It doesn’t mean that it can’t be, it just means that it probably isn’t.
    Susan Maneck Investor from Jackson, Mississippi
    Replied about 4 years ago
    As some one who does buy property in the 30-35K range, I have to agree that this is not the kind of purchases you want to make long-distance or with someone who doesn’t have as much skin in the game as you have. I buy properties in neighborhoods that got hard hit by the recession but where still most of the homes are owner occupied. The two houses I own in less quality neighborhoods I paid 15K for and I couldn’t help but notice that most of the owners of the properties in those neighborhood live in California! I’m willing to bet that they were sold those properties sight unseen- for 30-40K and told how great a return they would get on their investment. That’s true, if you can get a long-term tenant that will pay the rent faithfully. But good luck doing that at a distance! People who are financial stable enough to pay the rent the regularly are going to move out as soon as they are able. Fortunately, if they’ve shown themselves to be good tenants I have other options in better neighborhoods to offer them when they start making noises about the neighborhood. So I agree with the op ed, don’t buy 30K properties at a distance.
    Mike Waller remodeling contractor from Leeds, Alabama
    Replied about 4 years ago
    As a new investor I have seen a lot of $30k properties being sold in the B’ham area, especially on CL. But as a contractor I understand why these are so cheap. A few questions from a new investor: The above articles seems to indicate the problem with $30k homes is as a rental, same for flipping? Does the $30k include costs of the rehab or just purchase? And what is considered a “B” neighborhood? Thanks for any help, MIke
    Mark Ainley Developer from Roselle, IL (Chicago Suburb)
    Replied about 4 years ago
    I can’t speak to any neighborhoods other than my local ones. I know from experience in the rough neighborhoods that during the rehab stage you have the same issues with flips and rentals. If the property isn’t secure, and I don’t mean the door is locked, I mean that you have metal contraptions over the windows and doors so people can’t break in and steal the materials. The other issues that you can have that can be consistent is safety of the crew in these neighborhoods. If you look at my first blog, we literally had workers being robbed right in front of the building. If you can figure out the how do it, there is money there.
    Mike Waller remodeling contractor from Leeds, Alabama
    Replied about 4 years ago
    I will check out your first blog, thanks for responding.
    Rob Taylor Realtor from Anniston, AL
    Replied about 4 years ago
    I tend to disagree with this article. This is totally subjective and depends upon the situation. It would take a bone head to purchase a property sight unseen no matter it’s location. Furthermore, you should typically never buy in an area that you are not familiar with. First of all if you don’t know the area then you have no idea how much rent it will bring. It’s true that typically a $30k property will typically be older or have issues. However, it is possible to find foreclosures at this price and do most of the work yourself and get a great return on investment. One of the biggest factors is not only schools but jobs and demand for housing. In some areas people can’t find enough rentals and I agree with the rent to own option because you can’t go wrong. Let them fix everything and if they default kick them out and find someone else. I’ve always avoided manufactured housing but I’ve come to the conclusion that if you are looking for rental property it’s as good or better than a house because at around $30k they are much bigger and much newer than the typical house. I would appreciate any feedback concerning manufactured homes as rental property.
    Anthony Dooley Investor from Columbus, Georgia
    Replied about 4 years ago
    My theory on Mfd Housing is that as a rental, especially in a rural area where it is more of a norm, they are actually better than buying a cheap rental in a city. Rural GA, where I am, there is little no crime, there is less turn over, and tenants are usually lower income, yet honest and hard working. If you are looking for appreciation, then you are a speculator, not an investor. I have a mobile home that I bought for $24,000 and fixed it up a little. It rents for $700 and will continue to do so for many years. Even if the property goes down in value, the rent will not.
    Mark Ainley Developer from Roselle, IL (Chicago Suburb)
    Replied about 4 years ago
    Rob, thanks for the feedback, while I agree with your stance about due diligence, from what I have seen, the vast majority of out of state investors have never seen the property that they buy.
    Mark Ainley Developer from Roselle, IL (Chicago Suburb)
    Replied about 4 years ago
    Rob, thanks for the feedback, while I agree with your stance about due diligence, from what I have seen, the vast majority of out of state investors have never seen the property that they buy.
    Toni Reavis Investor from North Little Rock, Arkansas
    Replied about 4 years ago
    When purchasing $30,000 properties you need to use common sense. I have purchased several and have had a great return on them. I did make the mistake of buying a nice 4 br. house that needed very little work for $15,000 only to discover that it was in the gang neighborhood. The house was shown on 20/20 for their special on Gang Banging in Little Rock!!! I was horrified. I eventually sold it to a minister who was raised in that area. They loved the house, so it all worked out. The others are paid off now and rent for $950 mo. It depends on your situation. I have had better luck with spending some money up front to repair a cheaper house than paying more for a house that someone else has remodeled. Many times they have just covered up problems so that the house looks good. I always get an inspection before I buy, to cover what the cost is going to be. I also manage my own properties. I want to know who is living in my property. Government housing is also profitable and they pre screen the tenants. The rent is automatically deposited every month with no worries about not getting paid. They are typically better renters and stay for many years.
    Lisa Phillips Real Estate Investor from Arlington, VA
    Replied over 3 years ago
    Great post Toni!
    Don Alberts from Frankfort, Illinois
    Replied about 4 years ago
    Everyone this is a good subject for me and new people to investing. I am having mixed feelings on this subject, but with both points of view it is obvious that due diligence is the priority. I appreiciate everyone’s input, and I hope all of you have great success in investing. Have a Great Day. Don
    Anthony Dooley Investor from Columbus, Georgia
    Replied about 4 years ago
    Nobody can tell me that you shouldn’t buy $30K properties, because I have done it and I’ve become a millionaire in about 7 years. Consider the source of these articles. Unless they are from your market, take it as general guidelines. Of course the examples given are the worst possible scenarios. Newbie, out of state, using a property manager, etc. How about know your area, buy it right, renovate/repair prior to renting it out, select your own tenants, manage your properties (mind your own business). These are things I do, have done, and will continue to do. There is no substitute for experience in your market. Don’t believe everything you read. There are exceptions to every rule.
    Larry Russell
    Replied about 4 years ago
    My motto is to buy a < $30k property in a $45k+ neighborhood that requires no more than $5k in rehab costs. The condo community I've purchased in thus far is in a descent area with no reported crimes. Properties in the area are renting from $550 to $750 per month.
    Yolanda Salazar Rental Property Investor from Cleveland, OH
    Replied about 4 years ago
    Hi Larry what areas are you talking about? I am interested. Can you rent out the condos?
    Stephen S. Wholesaler from Holiday, Florida
    Replied about 4 years ago
    Larry, How does that work out with also having to pay the condo association fee? Unless it is very small – doesn’t it take a substantial bite out of the net rent?
    Larry Russell
    Replied about 4 years ago
    In my case, HOA’s are $120 per month and I’m renting my units for $695 per month. With a 5% interest only loan with 20 year amortization, I cash flow over $200 per month and with a 20 year P&I, I cash flow roughly $128 per month.
    Toni Reavis Investor from North Little Rock, Arkansas
    Replied about 4 years ago
    As a rule of thumb, I only buy properties that will create $300 monthly cash flow after all monthly expenses. Why not make the most out of each house? There are times when the house is vacant and there is no cash flow or a major repair. I play it safe and get the highest return possible on each house.
    Sarah Bojorquez
    Replied about 4 years ago
    I paid 29.5 for my home (that I live in) in a Cincinnati suburb. I’ve put about 10k in it and lived here for over a year. I have not seen or heard of any crime in the neighborhood. It is working class, mostly homeowners and a quiet street. Most homes in the area are around 50-60k in value I have lived in the area all of my life and knew what I was getting into. If you take the time to do your research there are plenty of great homes available at low prices.
    Julie
    Replied about 4 years ago
    Rich Dad Poor Dad makes good high level points but is ultimately a scam.
    Julie
    Replied about 4 years ago
    Rich Dad Poor Dad makes good high level points but is ultimately a scam.
    Lester Williams, Jr. Investor from Pittsburgh, Pennsylvania
    Replied about 4 years ago
    I purchased a duplex in a lower income area for $22,000. Put about $12,000 into it. Cash flowed over $1100 / month for 9 years. Needed very little maintenance. Sold it for $42,000.
    Jeffrey P. from Livingston, New Jersey
    Replied about 4 years ago
    Sorry if this is a newbie question (I have only been on the site for a week) but what exactly is a “turnkey investment company”? The area where I feel most comfortable right now would be buying closer to turnkey properties for rental income. I am not currently interested in flipping or looking for anything with a lot of rehab necessary as I don’t know a lot about the “right” places to rehab houses yet but I’ve never heard of turnkey investment companies. A quick Google search returned a website for one in Memphis that almost looks like a website set up for an infomercial.
    Yolanda Salazar Rental Property Investor from Cleveland, OH
    Replied about 4 years ago
    Hi Jeffrey: A turnkey investment company is a company that buys the property usually at a discount , then they rehab property, then they market it to sell it to an investor or home buyer in move in ready condition (usually at a marked up price). What areas are you considering to invest in? I am in Cleveland. Let me know if I can be of assistance.
    Chad W. Investor from Sacramento, California
    Replied about 4 years ago
    Hi Jeffrey, A turnkey company finds the property, buys it, rehabs it (hopefully!) and then sells it to investors, usually packaged with their own in house Property Management company. If you want some candid advice from someone that has purchased a couple and is no longer actively searching out deals, reach out.
    Account Closed from Pawtucket, Rhode Island
    Replied about 4 years ago
    Thanks for the article! I just spent last night researching a large bulk SFR deal in IN, MI and OH. ROI looked wonderful! However they were all PIGS but I didn’t know it until this morning after reading this! LOL I’m learning!! If any investors like these things contact me. I’ve got a GOOD ONE for you! ROI 900%+ with 5% down
    Marylynn B. Rental Property Investor from Frederick, MD
    Replied about 4 years ago
    oh this sounds interesting!! Maybe we can swap stories!
    Gina Vaughn Vendor from Belleville, Illinois
    Replied about 4 years ago
    We sell properties all the time starting at that price range…newly rehabbed I might add. These are in decent neighborhoods and Rent starts at $700 and up. I don’t understand why people would run from what we are offering it wouldn’t make sense not to invest in them.
    Toni Reavis Investor from North Little Rock, Arkansas
    Replied about 4 years ago
    Where are your properties? Do you have any in Little Rock, Arkansas?
    Michael Swan Rental Property Investor from San Diego, CA
    Replied about 4 years ago
    This topic seems to come up often on Bigger Pockets. I just see this sector of real estate as one way to diversify your real estate portfolio. 8 of my 46 from doors are $30,000 or less all in properties in the Midwest like you state. I clear approximately $3,200 .00 tax deferred cash flow from this sector presently. I stay conservative and hold back quite a bit for reserves and also have an incredible local property manager that really knows how to service this particular segment. We invested $240,000 total in this segment and have no loans. We paid all cash. Remember these three rules for investing and you have a very low chance of losing it all. 1. Never lose money. 2. Whatever you buy it must cash flow. 3. You can’t get rich slowly.. Read and learn as much as possible and DON’T fall for late night guru, instant gratification, something for nothing garbage. Invest in areas that are emerging and the people that live in the area are so beat down and don’t even see that they are emerging. Right now I have targeted such an area. All you have to do is make sure you refinance or my personal preference 1031 exchanging all my properties in San Diego, which has appreciated wildly since 2011 and am moving all that equity to an emerging market, with great cash flow. The Multifamily or apartment complex business model is the natural progression. I now have 33 apartment front doors in three apartment complexes. Also, I still have those eight $30,000 all in single family in that same emerging market, but that is just one segment or sector. Don’t make it more than it is. I also still have 5 single family left in San Diego and I am selling one more now and will 1031 exchange that one too. At the same time I teach full-time and 2 nights a week I am also an Adjunct Professor at a Community College in San Diego. If a lowly paid teacher can do this, anybody can!! If you change the way you look at things, the things you look at change right before your eyes. We are only limited by our common sense, which is our accumulation of prejudices achieved by the age of 18. Reality is merely an illusion, albeit a very persistent one. I believe Albert Einstein said these last comments I have made. Do it!! Do it!! Do it!! (movie Dodgeball) Swanny
    Kyle Kelley from West Frankfort, Illinois
    Replied almost 2 years ago
    Where in the Midwest are you buying.
    Bob C. Investor from Littleton, Colorado
    Replied about 4 years ago
    My strategy is to buy relatively expensive houses ($300k) and rent them to highly qualified tenants. I don’t want to deal with low end tenants or low end properties. When I do a $25k remodel I want it respected and appreciated – and charge a premium rent because they love the house. My experience has been that when something needs attention they get it done themselves. My first property was low end and it attracted low end tenants who trashed the house. Just my strategy, and it’s still legal to discriminate against low end people.
    Anthony Dooley Investor from Columbus, Georgia
    Replied almost 3 years ago
    That’s great Bob. You may be earning 5% return on your investment. I can get 10% in the stock market without leaving my house. Hopefully, you will make something on the appreciation, but from 2008 until now, that hasn’t really happened in most markets. Good luck with that strategy.
    Derrick Craig from Memphis, Tennessee
    Replied about 4 years ago
    GREAT ARTICLE!!! @Mark Ainley These are the same properties I too invested in that allowed me to retire at 35 years old!!!
    Lisa Phillips Real Estate Investor from Arlington, VA
    Replied over 3 years ago
    Im following in your footsteps!
    Brian Ploszay Investor from Chicago, ILLINOIS
    Replied about 4 years ago
    I have some of these properties. If…. You get a long staying tenant, who pays and takes care of the place, then it is a home run. About 50% of my cheaper properties achieve this. But… You will end up with properties that are more exposed to evictions, difficult collections and definitely more turn-over capital. I don’t care how good you are, tenants in lower income neighborhoods lose their jobs and have more life issues. These tenants don’t have deep pockets to overcome adversity. Advice… Do not invest in these type of properties unless they are in your home market. It’s okay for a newbie to try a couple, but be prepared for some struggle to make the properties perform. Avoid rapidly declining population areas such as parts of Detroit. Last… There are success stories with these properties. Don’t expect an armchair investment.
    Sean Lucious
    Replied almost 4 years ago
    This article was interesting because I found out about Bigger Pockets from Lisa Phillips who is a Bigger Pockets member but I heard her video blog on YouTube. Now, I am not a real estate investor yet, but, I am math person. So, I do not understand the reason from a number’s point of view if you purchase 30k properties for the long term. I mean, how much money will you lose over 10 to 15 years compared to the actual rents collected in the same time frame. Just to repeat, I am not a real estate investor yet, I just do not understand if you are a buy and hold real estate investor, why wouldn’t 30k properties be good or even an Okay deal?
    Lisa Phillips Real Estate Investor from Arlington, VA
    Replied over 3 years ago
    Nice shout out Sean! I would have to say – I’ve read all the comments here, and I have to say both sides are being argued well from their points of views. The article was the spark, but the commentary from experienced investors here can really help put things in perspective for you! 🙂
    Noa Denova from Syracuse, New York
    Replied almost 4 years ago
    What if it’s a fully occupied duplex that costs $20k and rents for $1300 with $1600 yearly taxes tho? 🙂
    Noa Denova from Syracuse, New York
    Replied almost 4 years ago
    Adding for notifications.
    Alex Sanfilippo from Jacksonville, Florida
    Replied over 3 years ago
    Another great post on this topic, thanks Mark!
    Melissa
    Replied over 3 years ago
    “What I am saying is that to make it work, it requires you to most likely be a local.” I think the most important is to buy a property in a place that enables you to rent it or resell it. Pershaps sometimes it is better to buy in another city.
    Susan Maneck Investor from Jackson, Mississippi
    Replied about 2 years ago
    As someone who buys 30K properties this is the best article I’ve read on it, but you should stress it being for local investors only rather than advanced investors. I started out in the 30K and have basically stayed there, but most of my houses are in walking distance from where I live.
    Brad Nelson from Cleveland, Ohio
    Replied about 2 years ago
    I noticed some of the comments go back a few years. As of late 2017 it is very unlikely you will find a property under 50k that does not need to be bulldozed. I looked at about 50 hoses in Cleveland (known for 30k houses) in the past year. Back in 2015 maybe, but not any more. If it’s not falling over at that price, it’s probably in one of our lovely east side neighborhoods. Along with your paint and broom, bring a bullet proof vest.
    Dan Heuschele Investor from Poway, CA
    Replied about 2 years ago
    I think there is some good advice in the article for the newbie investor but it neglected one aspect that holds true for $30K properties. They have historically appreciation rates that may not even keep up with inflation. This is true for both the property and the rent appreciation. I do realize that there are periods where these properties do appreciate faster than inflation but in the long-term they do not (if they did they would not be $30K properties due to the appreciation). This in effect caps your likely return. It is very tough to generate real wealth on cash flow on such properties. There are only so many you can self-manage. Using a PM significantly diminishes the return. I am not indicating you can not make money on these (if purchased correctly) but that they are a really difficult path to get you wealthy. So I think the article serves the purpose of at least providing the newbie RE investor the information on the hurdles to overcome if choosing this path.
    Jonathan Carter Real Estate Investor from Raleigh, North Carolina
    Replied about 2 years ago
    I recently purchased my first deal. a duplex in a C- area. for 38k. This is a great article to remind new investors about the difficulties investing in 30k properties. Another thing to remember is it could be hard to refinance a small loan many lender don’t do it (but you will find one keep looking). A big reason for me to start with a 30k was I could pay cash without finding a private lender. I wanted the experience with little risk. I’ve learned so much from buying this property and it will help me with future deals. If you can buy a good deal for 30k now I would do that verse waiting a few years to buy a deal 70k property. Just make sure its a good deal. It has been a lot of work but I expected it to be, and I’m learning so much about rehabbing, working with contractors, working with tenants, etc.
    Varun Parkash from Irvine, California
    Replied almost 2 years ago
    I am an out of state investor and it all boils down to 3 simple questions: 1. Would I want an everyday headache that will eat a major chunk of time by buying a bare-bones 30K structure? Usually in pathetic areas with a very very minor chance of appreciation – if any at all. 2. Would i want to deal with Gang-bangers/homies/drug-dealers/penny-pinchers – as tenants? Am i going to be a slum-lord? 3.Do i want to NOT buy in an “emerging market” which is projected to grow immensely in next 10 years and has already shown significant growth signs? The answer to above is NO NO and a BIG NO Hence, i own CLASS A Brand New Properties with 10 rated schools and Quality tenants who call me once per year to extend that lease – of course the fairy tale doesnt stay like this forever – but i can focus a majority of my time in doing my business and other dollar hustling activities than CRYING a river on a broken gas-pipe-leaky toilet or a crazy roof – to each his own – but time is money and i spend it in efforts to line up myself with more properties.
    Anthony Dooley Investor from Columbus, Georgia
    Replied almost 2 years ago
    One of the few things that I agree with from this entire article is “buy local.” Knowing your market is the most important factor in buying right. There are properties in C areas that are distressed that I can buy for $20-30K. Rehab for $10-15K, and rent out for $800. The market value of the property would be around $70K at that point. Most of my portfolio consists of these and they are owned free and clear, so cash flow is excellent. The assumption in the article is that poor, low rent tenants are all bad and require more time and hassle to manage. Not true. With very few exceptions over the last nine years, I have had excellent tenants that pay on time, maintain the property well, and stay for years. This has enabled me to shift from a cash flow focus to asset preservation.