cheap, high volume vs more expensive, low volume units

4 Replies

Hi everyone,

I am looking to start purchasing houses to rent in the near future and, currently, I am considering purchasing in Louisville, KY and wanted some feedback on the type of property to invest in.

I was wondering what people experiences have been with starting in real estate investing by purchasing cheaper older houses expecting a higher turnover rate vs. spending a bit more and trying to find longer term tenants .

I have thought of pros and cons of both but I am considering starting out with cheaper houses and eventually, after having several units, purchasing more expensive units to try to get more long term tenants.

cheaper houses higher volume  pros:

1) allow me to pay off the property sooner

2) allow me to purchase more units faster

3) Easier to afford if unit goes un-rented

cons

1) higher maintenance costs due to age of house

2) higher turnover rate for tenants due to proximity to college campus

3) depending on property manager, turnover rate could drive up the cost of management

more expensive, lower volume pros

1) lower maintenance costs

2) possibility of lower turnover if long term tenants are found

3) nicer houses allowing higher rent

cons

1) would take longer to save up to purchase

2) possibly more straining to pay mortgage if unit goes un-rented

3) possibly lower profit margin due to higher mortgage payment

I know there are many more pros and cons for both but those are the top 3 of each for me.

Again, I am leaning towards first investing in cheaper houses to be able to pay them off faster and purchase more units down the line. the goal is to own both types of properties eventually to diversify.

I just wanted to know everyone's experiences, ideas and maybe if you have had better profits with renting houses in volume  vs lower volume higher quality unit rentals.

Updated about 7 years ago

Sorry but I realized I posted this in the wrong section ( my first post and I messed it up) It has been reposted in the starting out section

Welcome to the forum @William Roberts  . I see your from Great Falls. I was actually born there, grew up in Anaconda. But I currently live in Oregon.

Just out of curiosity. Why are you considering investing so far away from Montana. From what I know about RE it is still pretty depressed there. Maybe it has turned around and I just don't know. Is there not a strong Rental Market?

If you plan on investing so far away, I would recommend you find a partner in the area. Someone who knows the local market and can point you in the right direction.

As far as what to do. Have you considered trying to buy low cost houses in high price areas. Rehabbing and renting them. It is my strategy & it works really well. You end up with forced equity, higher rents, low turnover & reduced maintenance since you did all that work upfront. The only problem with this system is it requires knowledge of the area.

If I had a choice of the two strategies above I would choose cheaper homes in good blue collar areas. 50/50 partnership with a local RE investor that will manage them for you and will have a vested interest in making sure the properties are kept up. 

Thanks!

 I am originally from Louisville KY and am in Great Falls for the Air Force. We actually bought a house in Great Falls and plan to rent it out soon so hopefully this will count for the property that has longer term tenants.

The reason I planned on buying there was so that when we go back to visit family or friends we would be able to check in on the houses in person.

Promotion
Turo
Turo car sharing
Start a small business on Turo
Join thousands of entrepreneurs who have started successful car sharing businesses on Turo.
Learn more

Hey @William Roberts - Louisville is a great area to invest in!  One thing you'll find here (as well as with most other cities) is that the lower income properties look more appealing on paper, but they cost a lot more to keep up than the stuff that is in good shape in nice areas.  You can definitely get more units for less money if you go that route, but if you're paying somebody to manage them for you, the higher rent could get eaten up very quickly.  

So it reads like you plan to buy these using conventional financing 80/20 with a 20 -30 yr amoritization. I do not agree with cheap = old and higher maintenance.

For instance, I buy homes in C class neighborhoods, fix, and rent them. I then sell them as turnkey to investors.  If you buy turnkey you can get a cash flowing property in good shape and a reasonable cash flow. if the capx is accounted for you are going to do well. 

I also buy newer construction in A or B class neighborhoods and flip or rent. There is nothing wrong with either business model.  I would imagine you would do well to buy cash flowing multi or less expensive SFRs in C class neighborhoods.  Buying cash flowing D class properties would add too much risk if you plan to outsource property management.