what is better? cheap small house or medium

Question

i am interested to invest in rental property.

Is this better to buy 2 very cheap  property in not so good area or just get one medium price in better neighborhood/?

Mike D'Arrigo · Answer

It really depends on what the "not so good area" is like. If there is a large disparity between the 2 areas, and the cheap area is a war zone or high crime area, I would opt for the better neighborhood. No matter how good the cash flow looks on those cheap houses, the numbers rarely pan out and you will often make more on 1 better property than 2 cheap ones. Vacancies and vandalism can really kill you.

Best of luck

Dave Savage · Answer

@Alex Gerasimov welcome to BP.

Everyone has their own personal risk/reward threshold, but if you are just starting out you might want to consider a property in a slightly better area to reduce your potential for tenant issues, and have an easier exit strategy of selling if you need to in the future.

Remember whatever you buy, keep a good slush fund in place so you can handle the unexpected repairs that will come up.

Steven Stokes · Answer

@Alex Gerasimov

In my opinion, it's basic economics, there are more people with $10k than $30k. One of the most successful Realtors in So. Cal only does cheap, single family starter homes. I asked him years ago why doesn't he go into the more expensive markets and what he told me was, "it's basics economics." So I'm passing along his advice to you.

I hope this made sense.

Good luck :)

Carrie Smukal · Answer

i would buy 2 cheaper properties. Most likely you will have more income even in depressed areas.  Most likely the property taxes will be cheaper also.

Brandon Turner · Answer

For me, it comes down to cash flow, combined with an ease of managing. Every area is different also, but if it's all the generally same - I'd choose the 2 cheaper houses. But there is a lot more headache, so as I progress, I'll probably move more toward the nicer stuff.

Dawn Anastasi · Answer

I could buy 2 properties for $10,000 each or buy one property for $25,000 in a better area and I would go for the more expensive property.

Alex Gerasimov · Answer

Thank you all so much. I think that i will just look for a good deal in better neighborhood.

Michele Fischer · Answer

Agree with many of the perspectives shared.  One aspect that hasn't been brought up is that two lower priced items will be harder and more expensive to get financed, if that matters.  It is better to have one higher priced property than two smaller ones for all bank related issues (financing, refinancing, leveraging cash, number of loans).  I learned that in hindsight.

David Krulac · Answer

@Alex Gerasimov

Your title said "small" houses.  There is a difference between small and cheap.  You can but a 500 sq ft house for $10,000 or a 1,500 sq ft house for $10,000.

Is the question small or cheap?

For the long haul I like houses bigger than 1,000 sq ft and usually bigger than 1,200 sq ft.  I've owned houses as small as 212 sq ft and 400 sq ft.  Most people don't like houses that small and the rental pool or buying pool is very thin.  Though otoh, the 400 sq ft house did have a tenant that stayed for 21 years and had four people in the family, but they were the exceptions.

Steven Stokes · Answer

I'm assuming all things being equal - not throwing your money into a pit. But it's better to spread your risk than consolidate your risk.

I understand what others are saying about buying in a nicer area but if you have your money in two investments and one fails you still have the other investment.

If you have all your money in one house and it fails, you've lost everything.

what is better? cheap small house or medium

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