5 Ways to Protect Yourself When Buying Cheap Real Estate

5 Ways to Protect Yourself When Buying Cheap Real Estate

2 min read
Sterling White

Sterling White is a multifamily investor, specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded, Sonder Investment Group, he owns just under 400 units.

Experience
Sterling is a seasoned real estate investor, philanthropist, speaker, host, mentor, and former world record attemptee, who was born and raised in Indianapolis. He is the author of the renowned book From Zero to 400 Units and the host of a phenomenal podcast, which hit the No. 1 spot on The Real Estate Experience Podcast‘s list of best shows in the investing category.

Living and breathing real estate since 2009, Sterling currently owns multiple businesses related to real estate, including Sterling White Enterprises, Sonder Investment Group, and other investment partnerships. Throughout the span of a decade, he has contributed to helping others become successful in the real estate industry. In addition, he has been directly involved with both buying and selling over 100 single family homes.

Sterling’s primary specialities include sales, marketing, crowdfunding, buy and hold investing, investment properties, and many more.

He was featured on the BiggerPockets Podcast episode #308 and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to mindset and scaling a business online. He has been featured on multiple other podcasts, too.

When he isn’t immersed in the real world, Sterling likes reading motivational books, including Maverick Mindset by Doug Hall, As a Man Thinketh by James Allen, and Sell or Be Sold by Grant Cardone.

As a thrill-seeker with an evident fear of heights, he somehow managed to jump off of a 65-foot cliff into deep water without flinching. (Okay, maybe a little bit…) Sterling is also an avid kale-eating traveller, but nothing is more important to him than family. His unusual habit is bird-watching, which he discovered he truly enjoyed during an Ornithology class from his college days.

Education
Sterling attended the University of Indianapolis.

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America still has a significant number of inexpensive properties available for investors. How do you stay safe when investing in them?

There can be great profits found in buying, remodeling, and flipping or renting out inexpensive properties. However, it is crucial to realize that a low price tag doesn’t always mean a cheap or valuable deal. In fact, you can lose money fast buying cheap real estate if you aren’t careful.

Here are some ways I’ve managed to minimize the downside risk and stay safe in the process of buying dozens of homes for less than $70K each.

5 Ways to Protect Yourself When Buying Cheap Real Estate

1. Choose the right location.

Lots of cheap real estate exists in the U.S. However, much of it may not be worth a lot. It may not be worth much for a couple hundred years, if ever. The key to success is buying in good locations that have demand and good fundamentals. We’ve all heard it over and over—location, location, location.

distressed property

Related: Investing in Cheap Real Estate: Is a $30,000 House Necessarily a “Pig”?

2. Buy title insurance.

Getting a buyer’s title insurance policy is important. This is especially true when buying cheap homes from auction or homes that are in distress. Often, agents and auctioneers try to wipe their hands of any liability, which is completely understandable. Still, these properties can have the most title issues. Get covered with insurance.

3. Make smart offers.

I’ve bought auction properties sight unseen, as well as out-of-area properties. I’ve stayed profitable by pricing my offers right. It doesn’t matter if you are bidding on a $2MM home in L.A. or a $30K home in Indianapolis. The key is buying undervalued property and locking in profit from the beginning. We’ve all heard it time and time again—you make your money when you buy.

4. Get good inspections.

Where many investors fail is buying “cheap” homes and then finding out they may have to put in several times the purchase price in renovations, repairs, or even tearing down parts of the property and rebuilding. Always get inspections done unless you’re very experienced with rehab numbers.

real estate, young, investor, millennials, generation

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

5. Make sure your property management is top-notch.

Many investors just aren’t cut out to effectively operate lower-end properties. They don’t understand the quirks, tenants, or the processes. Poor management can destroy even the best opportunities on A-class real estate. Great management can effectively turn a lemon property into lemonade.

Beware of trying to manage these cheap houses from afar. It can turn into another full-time job easily. 

Summary

There are attractive, low-priced properties to invest in today. Just make sure you know exactly what you are buying, price your offers right, have protections in place, and get great management. This will make all the difference between losing money and generating positive cash flow.

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Do you have any “cheap” real estate in your portfolio? Any tips you’d add to this list?

Be sure to leave your comments below!