Case Study: Why $30k Real Estate CAN Be Profitable [With Pictures & Numbers!]

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Small single family properties are really great investments to make. However, it is so easy to get caught up in the “theoretical” part of real estate investing that sometimes we fail to take into account how we should go about it when we want to put our words into action. I hope that this particular post showcasing one of my real life examples will give you a much clearer view on the matter and how you should go about investing in a single family property in the real world.

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Whether it’s putting hundreds of offers on listed properties or spending on direct mail or signs, it is best to use a mix of all the different channels of marketing to fill your pipeline of leads. In today’s particular example, this lead came from a sign posted on the street on which the house was located that read, “I buy houses.”

The seller called us asking if we buy houses, and if so, whether we would consider purchasing his. Naturally, I was a little curious, and so I asked for more details on the property during our conversation. It is always important to get to know your potential property prospect as well as possible, so when you’re talking to the seller of the property or its representative, it is best to have a script or specific set of questions to ask. For more help, check out this article.

Related: Real Life Case Study: How One Couple Transitioned From Earned to Passive Income

During this conversation, my main focus was to find out exactly why they were selling and how I could help them get what they needed. After all, it’s not always about money for some people, as proven by this seller. In his case, both of his parents had sadly passed away, and the property was left to him. However, he lived on other side of town and it would be inconvenient for him, hence he wanted it to be sold as soon as possible.

Due Diligence

Fortunately, this property was located in an area we (my business partner and I) love investing in. This particular area is home to the stable working class, with tenants that have the tendency to take care of homes and stay around for the long haul. So I called the seller to set up a time to walk through the property. Walking through the property, I had the chance to see that it needed general updates throughout, such as flooring, painting, central air, plumbing and furnace.

Before Pictures

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This is by far one of my favorite things to do in real estate. The seller’s asking price for the property was $25,000, and I immediately knew that I was looking to start much lower. I always aim low with my offers and work up from there. I base my offers on the amount of renovations we would have to put into the property, which was approximately $15,000 to $18,000. The property itself was pretty outdated.

Hint: I would recommend for those that are newer to bring a contractor with you to help with determining the renovation budget.

The seller explained to me that he was firm on his asking price, although understanding his situation, I knew there would be room for negotiation. I determined that the most I would pay for the property was $18,000, so I decided to offer him $12,000 on the spot while we were together. The seller didn’t counter my offer at the time and instead explained he’d call me if he thought we could work something out.

I wasn’t going to overpay for the property, and I chose not to show my desire to purchase the property by pushing the conversation any further, so we shook hands and left. His motivation to sell and detachment to the property showed in full force when he called me a couple of days later to inform me that he would accept my offer of $12,000. So my final note on property negotiations is to always be prepared. Aside from knowing how to successfully estimate the renovation expenses, you should also do your best to understand the seller’s situation — if there’s motivation, then there’s almost always a great deal to be struck.


This was an all-cash purchase, and we used a title company, making it a very straightforward purchase. So within about seven business days, the property closed, and the seller transferred the possession to us.


Once we sealed the deal, my partner and I did a line by line item budget on property. We then gave the budget to our contractor as a template of the exact work we wanted to be completed. This project took approximately four weeks from start to finish. As always, we took a cookie cutter approach when it came to rehabbing this property. After all, our motto is to keep it simple and don’t spend more than you have to.

When renovating our rental properties, it is our goal to renovate it in a manner that we will not have to deal with any large expenses during the first five years of ownership. This means replacing old roofs, updating plumbing, and installing new HVAC systems if needed. Here is budget to contractor we use.

After Pictures

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The property was on the market 10 days before we acquired an approved tenant. I must say that we struck gold, as we found one great tenant: a mechanical engineer who worked downtown and liked the commute. He and his family signed for a two-year lease at $740/mo.

Related: How to Buy a Profitable 4-Plex Deal: An Investor’s Step-by-Step Case Study

The Numbers

$32,000 All-In (Rehab/Holding Costs + Purchase)

$5,100 Net Rental Income Per Year (See Below for Expense Breakdown)

= 15.9% Cash on Cash Return

Screen Shot 2016-02-09 at 11.17.11 AM


I hope this breakdown of an actual property purchase will benefit you in your endeavors. My partner and I have had tremendous success in our investing career with properties under the $40,000 price point. However, you have to keep in mind that having the right systems and team is crucial.

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

Investors: What do you think of this deal? Do you include cheap real estate in your portfolio? Why or why not?

Leave a comment below!

About Author

Sterling White

With just under a decade of experience in the real estate industry, Sterling currently manages over $10MM in capital, which is deployed across a $26MM real estate portfolio made up of multifamily apartments and single-family homes. Through the company he co-founded, Holdfolio, he owns just under 400 units. Sterling was featured on the BiggerPockets Podcast and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single-family investing and apartment investing to wholesaling and scaling a business.


  1. John Underwood

    I love this price range. They make great rentals and are easy to rent. I have 17 now and they produce passive cash flow.
    The ugly goose that keeps laying the golden egg every month.

    Some people argue against houses in this price range but I am proof positive they work!

        • Rggr N/A

          Hey John,
          Good to hear you’re having success in Greenville. I’m in Charleston and have started looking in that area because it is such a good market and Greenville is doing very well. I’ve been hesitant because I don’t yet know the market trends in that area well enough. Are there areas you would suggest or areas that you would avoid?

    • Wendy Gomez

      Hi all, Awesome article!!!!!!!! can I have some feed back…..I’ve made two property investments both cash each at 25k with rehab repairs of about 6k for each. Each of these homes have been tenant occupied for the past two years at $625 each. there have absolutely been bumps in the road and I have had to invest in other repairs but all in all I feel like both properties have been an excellent choice due to the appreciation value they are both worth around 40-45k right now. I’ve even had offers from buyers. What do you guys think did I make the right choice????

    • Wendy Gomez

      Hi all, can I have some feed back…..I’ve made two property investments both cash each at 25k with rehab repairs of about 6k for each. Each of these homes have been tenant occupied for the past two years at $625 each. there have absolutely been bumps in the road and I have had to invest in other repairs but all in all I feel like both properties have been an excellent choice due to the appreciation value they are both worth around 40-45k right now. I’ve even had offers from buyers. What do you guys think did I make the right choice????

  2. Kyle W.

    One of my best houses was 35k all in and has rented continuously for between 1000-1200 the past 5 years with no vacancies. Another I have 13.5k all in and has rented for continuously for 475 for the last 5 years. Both have way more than paid for themselves, continue to kick off money, and are worth way more than what I have in them! The cheap-o houses can work!

  3. K. Marie P.

    Thanks for the details and the pictures on this deal. Your title says the property is profitable, and your break down shows an all cash purchase with a cash on cash return. Have you owned it long enough to make back your $32K all in or did you refi? If not, wouldn’t you call it projected profit? With your all-in and rents you have six years before you see a profit. Or am I missing something?

    There is definitely money to be made in $30K houses…..but have you made it yet?

    • Sterling White

      Marie that is a excellent observation. I have not refinanced this specific property. This was a recent purchase so have not necessarily make my investment back and then some. However I do have other rentals very similar to this one in which I have reaped the benefits financially.

      Have you purchased rentals at this price point in your career? I would love to hear your experience

      Warm regards,

  4. Matt R.

    Good article. it can be done with hands on. The roofs, hvac, sewer lines can wipe out the cash flow so these should have life left to insure future cash flow. I imagine there is no appreciation on these and investor only resell?

    • Paul Ewing

      Actually these are what used to be called starter homes before everyone was convinced that they should be able to buy a McMansion straight out of college. Working class people can still buy them too and I am sure he could probably sell that place retail in the $50k range if he ever decided to do so. But at that cash flow why sell the goose.

      • Matt R.

        Right on. I had a 30ker and sold it a year later for profit to an investor. I did have it listed the day I bought it as a retail priced home and while it was rented. No takers. I knew it would take many months or could be over a year to actually sell to a homeowner. I see some go the RTO route but with Dodd Frank I decided to pass but that was an option too. I think if you are buying a 3/2 for 30k in 2016 it is likely that is not a place where most buyers are looking to live today. Thus exiting might be challenging. Rent to price ratio is good though.

  5. These houses are awesome! Here in the South they are easy to come across due to the many mills that use to operate in the area. I just acquired 3 separate homes on one (double) lot for 25k.

  6. Maggie Tasseron

    Hi Sterling: Congrats on your good purchase! This is a great investment for someone who is willing to hold onto property looking to make a lump-sum profit down the road. From your figures, it’s impossible to know whether you could have just flipped this property for an immediate profit, but I’m assuming that wasn’t possible. I do understand that your article is written for buy-and-hold investors and hope that readers will benefit from the possibilities you outline.

    • Sterling White

      Thank you for the kind words Maggie. From my partner and I’s previous involvement of selling TK this property would have been sold between 45-55k to investor or 50k(conservative) to home owner. So there was profit up front, but decided to go for the long-term play.

  7. Steve Vaughan

    Thanks for the article, Sterling! I am considering buying in lower-priced markets now. Glad to see some are making it work! In the back of my mind I keep hearing that article about not buying $30k pigs from a well-known contributor on here and have been gun-shy.

    It’s all about the neighborhood. The price/rent ratios in your market can’t be touched in most places. Combine that with great marketing and negotiation to source the deal in an area you like. Great work!

    Do you ever wholesale/sell post-rehab? Thanks!

  8. Sterling White

    Location is critical and PM is a key also when dealing at these price points. I do not wholesale too much at this time. I generally hold onto the good deals that I find. But on the contrary there are times when my hands are full and have to let those good deals go.

  9. Oliver Trojahn

    I have owned 30k, 80k, and 200k houses producing $700, $1,200, and $2,200 in rents respectively. I sold the 30k houses because they are terrible investments with no upside. My 80k and 200k houses produce more cash flow per month, provide principle buy-down, provide tax advantages, and have upside, they have all aspects of a sound real estate investment, the things that make real estate a top investment. A 30k house does not have any of the above described advantages. The cash flow (even though looks good on paper) is also lower than my 80k and 200k houses. This is due to more repair costs, unpaid rent, and vacancies. Most investors in these areas are in denial of this. With that said, even in the above example (lets assume it is accurate), my 80k houses and 200k houses produce more cash flow per month than that all cash purchase in this post. Sterling spent 30k cash and receives $426 in profit per month or 14.2% return on his money. I spent 18k cash as a down-payment and make $450 in profit per month or 30% cash on cash return on my money plus principle buy down, tax advantages, upside, and amazing easy tenants. An 80k house in this example makes twice as much money and after 5-10 years it will would have annualized internal rate of return of 50-60% annually in lieu of 15.6% annually.

    Without leveraging real estate your returns are highly diminished. Cheap houses only have cash flow and even that isn’t as good as it looks. Cash Flow is one aspect of real estate. Do not invest in real estate without the other advantages described above. You would be better off putting your money in the stock market and making 10%. Real Estate is hands on, I want above 20% returns or I wont get up in the morning.

    I do love this post as it is right up my alley with my experiences in 30k houses and more expensive houses.

    Sterling, I love the post and the deal. The deal will make money and 30k houses in general will make money but why settle for 15% when real estate can make you 30%-50%?

    I wouldn’t have bought that house for 1,000 and the reason is I cant pull leverage on it:), nothing but love

    Invest in Real Estate Using Leverage:) Make it happen!

    • Stephen Edwards

      All my houses are in the 30k range and are paid for. These points you are making really spark my interest. Where or how would you recommend I research or learn about advantages of the higher 80k and up return on investment strategies?

    • Matt R.

      I would generally agree with what you are saying. I think if you want to go the 30k route perhaps go with mobile homes. These are even cheaper and are cheap to rehab and such. I mean if your goal is cash flow, why not go with the highest possible vehicles that can produce cash flow. So instead of one 30ker, get 3 to 5 5k-10kers. I know it was said this 30ker would sell to a homeowner for 50k+…..does someone have an example of that? I am sure it exist all over. How long did it take to sell? What were the holding cost to deliver a vacant home to the new buyer…etc.

    • Kyle W.

      I like this post and it makes me think differently about my cheap houses as well. I don’t understand how you can’t pull leverage out of them though. I am able to cash out refi any or all my houses at any time. Can you explain more about not being able to leverage paid off homes?

      • Charles Morgan

        Actually it is possible to leverage lower priced homes with the right lender however it is hard as most banks, etc. don’t like to lend less than $50,000 because of costs involved in the process.
        I am buying lower priced homes with a hard money lender but paying 10.5% on the loan. This does reduce the return but these will be paid off in 5 years making them great cash cows!

        • ozzy smith

          I buy these also. I am however struggling to find a lender that is willing to do long term financing on rentals at this price point. Could you please pass along who you use for this Charles?

    • All I invest in is cheap houses and it works well. The repairs aren’t a factor because I use durable materials in my rehabs. I invest in Philly and Chester areas!! They don’t appreciate as much but at this stage of my career I look for cash flow. Appreciation is icing on the cake there’s no way to predict it but cash flow you can predict. I love this segment of Real Estate????The Elephant of Real Estate???

  10. Brandon Hall

    I know you said you renovate so that you don’t have to replace large components like roof, HVAC, etc within the first five years, but I want to know what the exit strategy is on this house.

    If you are holding for an indefinite period of time, you aren’t earning $425/mo. Why? Because you will have capital expenditures. To get a true understanding of your returns, you need to factor in a capex reserve. This is one key reason as to why $30k properties are generally poor investments compared to higher priced properties that produce larger cash flow/appreciation.

    A roof is a roof and an HVAC is an HVAC. Economies of scale say the higher priced homes producing higher cash flow will be able to take those cap ex hits in stride. I want to be cash flowing $425/mo AFTER taking into account cap ex reserves, not before.

    No doubt money can be made on any investment product. But I think we are not seeing the full picture here.

    • Andy V.

      I absolutely agree with Brandon. Further, I’m not so sure tying up cash to inflate the monthly positive cash flow makes sense as low as interest rates are still today. Obviously that would leave more cash available for more deals. And, by the time you take on the mortgage, should you finance part of it, the monthly cash flow won’t look so rosy.

    • david johnson

      just say the investor has no vacancies, etc for 5 years. very possible. and lets just use $500 net income for an easy number to compute – $500×12 months = $6000. and management? 5-6 years he has all/ almost all his money back out of the deal……i don’t care about ‘capex’ or anything else – that dog hunts for me. appreciation? unless you are planning on selling or getting a loan on the house, who really cares, honestly. i have a few deals just like this – my focus is having ‘free cash flow’ in a few short years post acquisition. take out management fees……and this deal provides ‘free cash flow’ that much sooner.

    • Sterling White

      Thank you for your input Brandon. Have you purchased properties at this price point? I would love to hear your experience. For each property I personally acquire I plan to hold on for the long haul. After rehab on this above deal there is approx. 15-20 worth of equity. If I did decide to exit today.

  11. Joel Owens

    If something is working for you then go for it. Some people enjoy the low income space. It’s not my thing. Those type of investments require a “high touch” approach.

    My clients that are ultra wealthy prefer high quality and will take lesser cash flow in exchange for higher appreciation. When you take the cash flow,plus the larger depreciation, principal pay down, and high equity growth the total return over the years is much higher with higher end type properties.

  12. Andy V.

    I absolutely agree with Brandon. Further, I’m not so sure tying up cash to inflate the monthly positive cash flow makes sense as low as interest rates are still today. Obviously having a mortgage would leave more cash available for more deals. But, by the time you take on the mortgage, should you finance part of it, the monthly cash flow won’t look so rosy.

  13. This is the price range of my properties and I am not sure if they are profitable long term yet. Your insurance is $300.00 per year and I haven’t come close to that low of a number on insurance. Also, the maintenance and vacancy at 20% of rent seems low to me. Maybe I need some pointers here. I am just starting to get aquianted with all these calculations and have been flying blind for 5 years.

  14. Tim White

    Great article and nice write up. I am relatively new to investing however I was able to obtain three rentals last year in this price range and they are all doing good so far. Its nice to know that others are having success with 30K houses.

  15. Dan G.

    The numbers provided in the article above are way off as compared to the numbers provided by Ben Leybovich in his article on avoiding $30,000 “pigs”. I think Ben would argue that $148/month for vacancy, cap ex, and maintenance, combined, is much too low.
    If you budget for 10% vacancy, that comes out to $74 per month in lost rent.
    Ben’s article estimated that cap ex, alone, would be around $250/month, although some people argued in the comments section of that article that the number could be as low as around $150/month.
    Then you also have to budget for maintenance for general repairs like having plumbers come out for clogged toilets or dripping faucets, and also fixing up the place during tenant turnover (I’ve heard the cost will typically exceed the security deposit by $1,000 or more).
    So, when you add it all up, $148/month is probably not realistic, long term, as a budget for vacancy, cap ex, and maintenance. $148 could possibly be realistic for cap ex, alone (roof, AC/heat, water heater, exterior paint, and so on), but then you also have to add in vacancy, maintenance, eviction costs, and so on. That could easily bring the number up from $148 to around $300.
    That will bring your cap rate down to about 10%. Not a terrible return, but much lower than the 15.9% number shown in this article. Also, keep in mind you got a super cheap deal on the house, and the house probably won’t appreciate. So, someone who doesn’t get such a cheap deal will probably earn significantly less than 10% over time. It could work out great for the first few years, but, eventually, when things start breaking down like the roof, heat, exterior paint, and so on, expenses will add up. Make sense?

    • Lance Robinson

      Dan – I am curious to see what Ben has to say. This article was really interesting though. Maybe he can chime in?

      This was also an all cash purchase and I know Ben’s example was with financing (I think) so I wonder in this scenario if it could actually work out.

      Sterling – GREAT article! Thanks for sharing with real life numbers.

    • Sterling White

      Thank you Dan for your comment. Sounds like the investor you mentioned above is ALOT more conservative when running his numbers on properties at this price point.

      Factoring eviction costs is rather absurd. If you are not efficient in screening tenants properly then maybe you can include that number.

  16. Lisa Phillips

    Nice case study! We’ve been leading the charge for this price range for affordable rentals for the last 3 years, and proof is amazing. As you know, many investors turn their nose up at this price range, which has made it more lucrative for those of us who go into that space. Some more social proof is here—property-pictures

    and here

    The only thing I would disagree on is this – make your CAPEX repairs upfront – you’re just hiding the fact that you’re cash flowing if you dont. The result is that when I finally rent these home outs, I am all in with a full renovation from 35k-45k, but the house is in excellent condition (I average about ~250 a year in maintenance, which is minimal). Every home I renovated got a new roof, HVAC, plumbing if needed – and my homes attract the best tenants of that neighborhood. Nice to have someone else leading the charge!!

    • Dan G.

      Even if the house is fully renovated and you are starting with a brand new roof and brand new HVAC, etc. your cap ex and maintenance long term will be much more than $250 year, over time. If a new roof costs $5,000 and conservatively lasts 10 years, that means you have to budget $500 per year, just for the roof. And if a heater costs $2,000 and conservatively lasts 10 years, then you have to budget $200 per year for the HVAC. So, right there, you have to budget $700 per year, just for the roof and HVAC. And there are many other expenses that will recur every several years such as exterior paint, water heater, and so on. Plus, there is often a substantial expense to fix up the house each time a tenant moves out. To make a somewhat accurate prediction of expenses, you need to make a list of everything in the house that will need to be repaired or replaced over the next 30 years or so. That would include replacing the roof in year 10, 20, and 30, so that’s $15,000 right there. And replacing the HVAC three times, so that’s $6,000 over 30 years. Mileage may vary, but it’s smart to be conservative, and the short end of the normal life expectancy of a roof and HVAC is 10 years. When you run the numbers including all these expenses, they aren’t as good as they first look. But you can still make money as long as you get a good price on the house and don’t overpay for repairs/cap ex. But, over the long term, you are probably not going to come close to the 15% cap rate that most people think they are making with these houses.

        • Dan G.

          I live in the Ft. Lauderdale area which has extremes in weather – huge amounts of sun and rain. 15 to 20 years is more typical for replacement. but roofs can definitely start having issues within 10 years. The last house I lived in had a serious leak right around the 10 year mark that cost me $1,500 to fix. My current house is 11 years old and needs a repair of over $1,000. If unlucky, the roof might need to be replaced at 10 years.

  17. Charles Worth

    One thing was missing here. Everyone just assumes this was a PIG but was it? I saw no mention of market value? It probably was a lower tier house worth about what you paid but that is not always true. I know certain areas I looked at in Indy where values had gone up but rents were basically flat so the properties could have $20K in equity right away. Not saying it is a good investment I would have to run the numbers but a property worth $50K that you buy all-in for $30K sounds like a much better deal than a coupon (cash flow) on a house worth $35K that you got for $30K.

  18. Eduardo Demming

    Thanks for this article. I’m in the Northeast so houses in those price points are usually tear downs or need a ton of work, like 100k worth of rehab. I need to take time to study the markets like Indy, KC where I hear you can get decent homes and better tenants in working class area.

  19. Dan Heuschele

    Start with an existing cap rate worksheet then put in your own life expectancy and costs (both life expectancy and associate cost vary by Locale) for your geographic location to determine actual cap expenses. These cost must be calculated into the monthly expenditures and I believe in the cheapest, best weather local exceed $150/unit. Where I invest (San Diego county) it is close to $300/unit.

    At $150/month cap expense your REI still cash flows but not nearly as much as your calculation ($275/month cash flow using $150/month cap expense).

    You also have an asset with ~$18K equity but a value of ~$50K. If it appreciates 10% then your equity has risen $5K.

    If you had instead used the $32K to purchase a $280K rental unit (10% down + closing costs) and financed $248K you would have the following advantages:
    – A cap expense that is little higher than the $50K unit (AC for bigger unit is not much more than small unit, ditto new roof, etc.)
    – mortgage payment applying some to equity
    – 10% appreciation = $28K equity gain (versus $5K on your investment). So better leveraging of your capital.
    – Same number of tenants to deal with. Landlording is not 0 effort task. There is a cap to number of units that can be self managed without hiring help (so far I only have a hired handyman but not much free time).
    – Likely a higher cash flow. If I use a cap expense of $150 month you are cash flowing at @$275/month, I would expect to cash flow more than this on a $280K property). Again leverage your capital.

    Using my calculations you have positive cash flow which is good. You need to analyze whether you could have done better on a more expensive property and I suspect the answer is you could have done better.

    However, I do not indicate this to be discouraging. My first RE investment I would not make today but it made me money and was a better investment than any alternative that I had the knowledge/skillset for at the time. It also was the beginning of a knowledge acquisition that continues with every unit I purchase.

    You are making money; likely more than if you had not done this investment. You have the opportunity to learn. Your blog entry and the associated responses (including this one) provide you something to consider and analyze.

    I think it is a good investment for you with an opportunity to analyze whether you could do better on your next RE investment. Good luck!

  20. Randy Johnson

    I’m in las vegas area and i believe the maintenance and repair cost is low. I’m new at this but in this area the only things I’ve found under 1grand are condos, apartment’s converted into condos. Low end homes are priced starting at about 125 to 130.

  21. Shelly Scruggs

    I have a rental by default and started S&T Property Management this way. I used to live in this property some years ago and kept it. The PM I had downsized so I decided to give property management a try. Wasn’t serious for a number of years and wasn’t thinking about acquiring more properties until retirement age came into play. I m currently repairing it for the next tenant. I m looking to expand my portfolio with buy and holds, eventually trying a flip or two. My purchase cap now is in the 30-40 range. Good to know deals like this still exist. I’m on the East Coast specifically Maryland.

  22. Willem Botha

    This is a great post with lots of info and comments. It is good to know that $30k can be done and actually work. I am sure lots of investors would like to invest in the 80 / 130 / 200 and up market but this is not always an option. In my case (foreign investor) it is no joke to get US$ 30k to 40k together. The exchange rate is not my friend and with a R16 (South African Rand) needed to buy $1 (yes it is as bad as it sounds) this will be my starting point and hopefully work my way up to the more expensive units. Thanks for sharing, it means a great deal to me.

  23. Guled Yousuf

    What are your thoughts on investing in markets like this where home prices are more affordable than my home market. I don’t have any experience in these markets and I understand it may be difficult to invest from a distance, but I’m generally priced out of homes in the area which I live in (bay area/northern California).

  24. Greg Christensen

    Sterling / All – Interesting article and discussion. I have an honest question on these type of properties. Why do so many people pay such a high rent on properties with such a low value? A $32k loan on a 30yr would be less than $200 a month, yet they’re paying >$700?
    Is their credit that bad, are they uniformed, or want to be flexible/transient?
    With that good of a price to rent ratio, I’d have a hard time turning those deals away.

    • Charles Morgan

      Yes, many people have problems buying because of poor credit due to lost jobs, hospital bills, etc. in the past, and/or low income/debt ratio, etc. These are most of my renters. My best rental is a HUD, no income for buying, but she loves the home and I expect it to be a long-term.

  25. Bernard B.

    Here is my .02 cents. So far, not too many people are mentioning the mortgage headache that could go with the higher priced rental properties (200k and above). For example, unless you flip that rental property quick or pay it all off in cash, you are going to have to pay mortgage notes for approximately 15 to 30 years. Think back to 2007, 2008 when a lot of slick ” real estate investors” put down 5% or 10% on high priced rental properties, thinking that they would always have high earning tenants in place. But low and behold , when the bad economy hit, and the downsizing came, many of the “investors” could not carry the expensive mortgage notes for these expensive properties. Even though, they had done the fancy irr,capex, projected appreciation rates, etc. many went bankrupt.
    The 30k ( paid for cash) rental houses my not fancy, but in downward economic cycles, when vacancies happen, it is easier to ride out the storm if you don’t have a huge mortgage payment over your head. Also eventually, everyone will get that evil tenant that will trash the place. If they trash the 30k(paid for cash) rental unit, you shrug your shoulders and “patch it up”. In the more expensive rental units, your blood pressure will rise, if the place is trashed, you will have to pay for the major damages and the mortgage, because your insurance deductible will only cover so much. One final thought on capex for 30k (paid for cash) units, yes roofs can fail, central heat/air can fail, hotwater heater etc,, but if done correctly, the tenant will pay for those things with their rent and there make the rental property even better physically. Please feel free to disagree.

    • John Underwood

      Bernard B.
      I fully agree with your comments.
      I don’t sweat patching a roof or replacing an HVAC component or patching and painting drywall on my 30k houses. They rent fast and have a lot of applicants so I can qualify a good one. Loss of one months rent during a turnover doesn’t break the bank either. I get a bigger deposit or last months rent to protect myself so I rarely go in the red during a turnover.

  26. Bernard B.

    @ Greg Christensen, sometimes a lot of renters can’t raise the initial amount of money for a down payment on a regular house and they have bad credit. So ,one of the only other options is for them to rent. if they want to live in a house, the going rate for some of the 30k rentals start at $500 and go higher. That is just the way it is in the market.

  27. Scott Schultz

    pretty good as long as its all cash, and the equity return down the road is good, their is no Debt Service figured in, I use 10 years at 5% weather i borrow or not, in this case would leave you positive $86/mo. not great but still OK, SFRs are a bit harder to make good returns, but they are liquid, and if purchased right, have much better instant equity than Duplexes. Nice Deal!!!

  28. Does a house purchased for $33K before rehab costs count as a $30K house. I just finished a house in a nice downtown neighborhood of Dayton OH. I had a waiting list to rent it at $900 a month before I was done. I have been operating in this area a while. Vacancy and other projections based on actual data. My cash purchase payback is 8 years. If I finance conventionally for 30 years 25% equity at 5% I’m under 4 years payback. Assuming I can only finance based on my investment: (Numbers are annual in whole dollars)

    Purchase: $33,000
    Rehab: $17,015
    Holding: $2,810

    Refi: $52,825
    Equity: $13,200

    GSI: $10,800
    GOI: $9,936

    Principal $570
    Int: $1,980
    Tax: $2,135 (based on a tax value of $80,000 I will appeal this and win)
    Utilities during Vacancy: $120 (based on actual)
    Capex & Mx $1,295
    Insurance $465 (actual)
    Management: me
    Total Expenses: $4,015
    NOI: $5,920
    Cash Flow: $3,370

    Payback 4 yrs
    Lev Cash on Cash 25%

    ARV projected at $90K

    Don’t believe me? Come to Dayton, I’ll give you a tour, walk you through some neighborhoods and buy you a beer at one of our many microbreweries. I’m not a realtor so I can’t take you through properties.

  29. Andy V.

    Mike , I read your post again and realized you seem to be a bit light on monthly and capex expenses. A sound rule of thumb is 15%/month for regular maintenance and at least another $150/mo for capex. The $1295 you show won’t cover those numbers. Is everything new in the house after your rehab (roof, HVAC, plumbing, etc)? If so, maybe you could cut back just a bit of the monthly expenses. Just don’t let a surprise bite you.

    • Andy, I do appreciate your warning, but really you’ve got to be on the ground in Dayton to believe it and make your own projections. Rules of thumb are a great start but nothing beats local knowledge. Couple examples. Lawn mowing: $10 per mowing, Roofing$100 per square, HVAC 95% gas furnace and 13 seer AC $3,000 installed. Water heater $1,200 installed. I have a good network of service providers. Hauling and cleaning can be had for $12/hr.

  30. Celia Rudder

    We have made significant cash buying in this price range in the Philadelphia area. Houses purchased under 40K that rent for $800 per month. On the other hand, in Tucson, AZ where I live you can purchase a house for 100K and still only get $800 per month in rent. Personally I prefer to purchase 3 houses for 100K in Philly and collect $2400 per month in rent. Cash is king and I always purchase for cash flow over appreciation that is never guaranteed.

  31. Hil Hernandez


    Sterling has outlined a creative niche that produces results and ultimately delivers great cash flow.

    I too have invested in several <30K rentals (in central Texas) with similar results. I don't understand why anyone would argue that this is not a good investment? The cash on cash return equates or exceeds those requiring larger cash investments.

    As long as your purchase price is good, like any deal, you should appreciate great cash flow and equity return upon sale of property. Of course, as Scott Schultz indicated; once you calculate the cost of money or debt service the numbers change substantially. However, what other investment has this type of return while minimizing risk and ability to liquidate with equity!

    Also, don't forget; no mortgage or bank to deal with!!! Regardless, you may have trouble finding banks offering loans for this amount anyway! Invest cash with a partner(s) and share the profit…

  32. Chris Ellis

    After 2 years of holding you mitigate a lot of the tax implications and if you are able to sell it for close to double after fix up; either the rental to the renters or someone wanting to become a landlord. Then you can take your profits and double up your free and clear rentals (if you didn’t have a mortgage) or, get 1 free and clear rental out of the deal.

    Free and clear is the cat’s meow. Get 5 or 6 of these babies in decent markets and you can really enjoy being retired. At that point I would by a rental in some place like Destin that would require a mortgage, buy and sell a flip, put that money down, get a low rate, and let it be a rental except the month I need to “check it out and do some maintenance on it”. Of course, during that time I’m not making money, but my plane flight is a right off, my car rental is a right off, etc., etc., .

    By the way, I bought a house for 40K, putting about 15 in, FMV 97. I think I’ll do okay. Tulsa, Ok. And there a LOTS of them around…but I don’t use contractors. I can do all the work myself, and like doing it.

    • Susan Maneck

      I buy my 30K PIGS free and clear, but after I’ve fixed it up, rented it and owned it for a year, I get a first place HELOC on it. I then use that money to buy my next HELOC free and clear. I own eight properties altogether. Two of them have regular mortgages because one was once my principle residence and the second will one day be my retirement home. Neither one of those properties are PIGS. Two other properties have first place HELOCs. Another two houses are held within my solo401K free and clear because forget about getting no-recourse financing for a 30K house in a retirement account. I have another property with two houses on it that I will try and get a first-place HELOC on this Fall, but right now it is free and clear. The eighth property ? I bought it for 30K with a loan from my solo401K. I live in it. My rental property income about equals my salary right now.

  33. Tyler Chartrand

    Totally agree, I dont see many in that price range here in phoenix but plenty under 100K that many investors wont even look at. I tend to stay away from war zones but there are plenty of normal areas with solid homes. Thanks for the post

  34. Larissa Macatangay

    Wow this was a great debate and now I’ve got lots to think about. I have not bought my first investment property yet, but want to pull the trigger on one soon. I do have limited funds to start with, so I’m now wrestling with by a low income priced property or a bit more expensive one. I do want to hold onto something long term, but I don’t want to be limited to only one investment with my limited funds as well….hmmmm!

    • Lance Robinson

      Larissa – Just multiply your situation by 100.

      Say you had $30K to invest, let’s make it $3M.
      Would you rather own 1 120 unit apartment building
      or 100 $30K SFR’s?

      I think that will help you to answer the question of putting your money in 1 vs many investments. Just to specifically respond to that one big concern of yours.

  35. Nice post. Thanks for sharing the details of this deal.

    Do you see good tenants and low turn-over as more important in the sub-30k arena? If so, how to you price your rents and increases?

  36. dave laqua

    Absolutely great article…….we have 48 so far and climbing, many are manufactured homes on private lots…..I love them because its soooo easy to fix them, never an isssue with a cracked slab…..annual taxes around 240.00 a year , same rent as a small house- returns are insane…..many 50% plus!!! Lot/Home 5,000 cash, 4,000 refurb, rent 600.0/ month…..God Bless Texas!

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