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\u2019t 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.<\/p>\n
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Try to Stay Local<\/h2>\n
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.<\/p>\n
Related:<\/strong> Why I Don\u2019t Buy Houses for $30,000 or Apartments in D-Class Areas<\/a><\/em><\/p>\n If you don\u2019t 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\u2019s easy to meet them because they are in the same city.<\/p>\n If you don\u2019t 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.<\/p>\n There are many cities out there that can offer properties under $30K, but whether they are worth the price or not\u00a0is\u00a0debatable. Some of them won\u2019t 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.<\/p>\n Property management is a day to day process. It\u2019s 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.<\/p>\n 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\u00a0may need to cut corners to stay profitable.<\/p>\n Also consider the leasing of the property. Typically, property managers charge one month\u2019s 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\u00a0$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\u2019s time, inevitably you are going to get less in return.<\/p>\n 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 \u201cturnkey,\u201d 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?<\/p>\n There is no room for profit. Heck, there\u2019s no room for a rehab budget. Too often, people buy \u201cfully\u201d rehabbed properties, where the seller came in and painted everything and called it \u201cfully rehabbed.\u201d The person\u00a0who\u00a0gets stuck with the \u201cfully\u201d rehabbed building is a newbie investor who\u00a0just bought a money pit.<\/p>\n I don\u2019t 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\u00a0because it doesn\u2019t 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\u2019s going to take a much bigger bite out your profits. Just because the price of the property is cheap doesn\u2019t mean the repairs are going to be any less than they normally would be.<\/p>\nEconomics of a Property<\/h2>\n
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