How Cheap Is Too Cheap?

Question

Hi Everyone,

I've read several comments lately where people express intense concern for properties listed for under $100,000. My question is, aren't there some markets out there (especially Midwest) where it's perfectly possible to find a suitable duplex for $60-100k? Is it always a red flag across the board when a duplex is listed for under $100k?

If anyone reading has had success building their portfolio with duplexes in this price range, I'd love to hear about it. I understand that properties in this price range that rent for around $600/side may attract lower quality tenants, but I am intrigued by the more affordable down payment and the fact that the cash flow makes it possible to recoup my initial investment in 3 years or less.

Jason Hirko · Answer

@Derek Luttrell Well for one, most expenses are a higher percentage of the rent. A roof costs $4,000 on a house bringing in $900 or $1,200. Also, you will be dealing with tenants that care less about security deposits or landlord referrals, so your turn costs will be higher. You will have more vacancy and more eviction expense, and more turnover. Most of the time, $100k houses are older, since you can't build for that, so you're going to have more differed maintenance and repairs than a newer, more expensive house.

Derek Luttrell · Answer

@Jason Hirko thanks for the response. What kind of expenses are these, really? Assuming the larger capex items like roof and furnace have been updated within the past few years, do these properties have small, annoying, recurring expenses that higher priced/more updated properties do not?

Jason Hirko · Answer

@Derek Luttrell Plenty of good places to buy under $100k. Just keep in mind, the lower the cost of the property, the higher the expenses tend to be, in my experience.