Landlording & Rental Properties

5 Ways to Protect Yourself When Buying Cheap Real Estate

Expertise: Commercial Real Estate, Personal Finance, Real Estate Marketing, Business Management, Landlording & Rental Properties, Real Estate Investing Basics, Personal Development, Real Estate News & Commentary, Mortgages & Creative Financing
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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?

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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.

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.

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!

Sterling is an 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 w...
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    Jason Treadwell from Chicago, Illinois
    Replied over 3 years ago
    Great article! My first property fits the bill to a T, still profitable but many lessons learned to Sterling’s and Erik’s points.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Glad you found value in the content..Congrats on purchasing your first property!
    Nancy C. Professional from Jacksonville, Florida
    Replied over 3 years ago
    Hi Sterling, great article! If the property has a mobile home on it, how do you confirm who owns the land? I can confirm who owns the single wide trailer home through my local property appraiser’s office, but what if the land is owned by someone else who is renting the usage for a mobile home? Where do I check the “OR” “Plat” info and what should it say if the land comes with the house? Separately, my 2 cents for due diligence checks on ANY house you’re planning to invest in: 1.) clean title, property on record accurately, any tax, nuisance or other liens on house; 2.) area hazards affecting insurability (flooding, environmental/leaking tanks, former drug lab usage) 3.) other related crime factors, ie. registered offenders in immediate area; 4.) and finally, school zoning and school scores for the immediate area. Speaking as a Florida Licensed Home Inspector, it’s absolutely worth the money to get a top notch, thorough home inspection (takes ave of 3 hrs, 2,000 sq.ft.) and the report may be able to include an investor’s cost estimate on the various repairs needed. If your home inspector does not provide this perspective, try another company!! Ask for a sample report before signing up with a home inspection company. Or just call me 😉
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    I do not have experience dealing with mobiles homes..For that reason I am not the best person to answer your question. I would recommend posting the question in the forums for others to address. Hope that helps.
    Jimmy Lu
    Replied over 3 years ago
    This is definitely a great read! I’m in the process of purchasing a new home and this definitely shed some light for me, thank you!
    Steven Freed
    Replied over 3 years ago
    The resources you have will enough. California is a great source and it is pretty accurate. There are lots of way to investment in Real Estate!
    Michael Lee Investor from Coppell, TX
    Replied almost 3 years ago
    That was smart advice for beginners. Thanks!
    Don Taylor New to Real Estate from Raleigh, NC
    Replied 10 months ago
    Enjoyed the article