Is it possible to make money on $45,000 property?

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Is it possible to make money on $45,000 property?

Terrez Jarrett
Louisville, KY · Member since 2018 · 27 posts · 3 votes

hey BP members, I have a property that has a sale price of $45,000 and they are selling As Is. Am I correct in my assumption that I need to basically do thorough research on this home because there my be some issues undisclosed?

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Jim K.
Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
7y

@Terrez Jarrett

Here's a case study for you.

We bought an 2 bedroom/1 bath half-duplex SFR with central heating and air in November two years ago for $25,000 cash in the greater Pittsburgh market. The house is at the end of a dead-end street in a working-class, solid C neighborhood.

We cleaned it out, renovated it for $5400, had it inspected for a certificate of occupancy, and then had it occupied by Jan 1. New furnace, some A/C work, new washer, new dryer, new stove, new fridge, cracked main stack that we needed to replace a section of, one busted window to replace in the bathroom. 4 new blinds, 2 new ceiling fans, latch on the shed, some roof patching, new gate installed for the backyard, touch-up painting with colormatched paint throughout. Since then we've put an additional $200 into the property for a shower tower in the bathroom. At some point I'd like to do some repointing on the brick exterior. There's at least ten years left on the roof. The carpet will need to be replaced in 5 years. I'll actually just rip it out and refinish the oak floors underneath in semigloss poly when the time comes.

The property rents for $650/mo and NOI after all property taxes, insurance and all operating expenses last year was a little over $5100.

The furnace and stack issues sent the shady fools that inherited it and tried to operate it as a rental running to an agent in a panic. That's why they sold it to us as-is, with no mention of these problems.

The only thing I didn't handle personally was the furnace replacement. And because we saved as much money through DIYing as we did elsewhere (and this isn't our first pickled punk sideshow), we didn't skimp on the new furnace. There's a high-efficiency American Standard down in that basement now.

We plan on leaving our cash in the property for now. When the economy takes a downturn and Wall Street guys start jumping out of windows again, the equity in that place will be standing ready to be tapped.

All in all, that property's been a big win for us.

Yet I highly doubt that I am the kind of real estate investor that you want to be, Terrez. DIY landlording in C/D borderline properties isn't exactly an aspirational lifestyle for most people. When I signed up for it, I knew what it was like -- my grandparents did the same thing way back when. There ain't no facial hair. I spend way too much time in a respirator for that. The last time I wore a tie was to a funeral. My ride at the time I bought that property was a white-and-rust Honda Odyssey with 200,000 miles on it. I know this gig can scale to maybe 20 properties maximum before I have to significantly change my business model and go through the investment risks associated with that.

Is this what you really want? Because this is one of the very few ways to make low-cost properties work, as many others here have correctly pointed out.

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  • Kim Wendland
    Rental Property Investor · Pflugerville, TX · Member since 2017 · 37 posts · 20 votes
    7y

    Hi Terrez, yes...it's possible. You're right that due diligence is the key. I highly recommend the BiggerPockets tools. We use them to analyze opportunities all the time. The key success factors for what you've described seem to be 1) after repair value, 2) estimated repair costs, 3) your goal - flip, BRRRR or buy and hold. Good luck!

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    Houses that are priced like cars are going to have a lot of issues.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Russell Brazil:

    Houses that are priced like cars are going to have a lot of issues.

     and if not the house the area.. 

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  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    7y

    @Russell Brazil @Jay Hinrichs Not at all true. NE Ohio has plenty of modest, turnkey homes for $70-120k. These are B neighborhoods, and not slums by any means. Hence why we're plagued by out-of-state investors. It's not impossible find a house in a nice neighborhood with a low price because they're smaller, need some updates, etc., a little older than the average of the neighborhood, etc. Yes, there's going to be some kind of rehab costs involved, but you're not necessarily dealing with the Munsters' house. 

    5Reply
  • Ryan MurdockPro Member
    Rental Property Investor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Terrez Jarrett:

    hey BP members, I have a property that has a sale price of $45,000 and they are selling As Is. Am I correct in my assumption that I need to basically do thorough research on this home because there my be some issues undisclosed?

     Yes......but you should make that same assumption with any property at any price. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    @Nicole Heasley Beitenman  for sure I get that.. especially in some of the secondary or tertiary cities..   although when it comes to a major Metro MSA  the sub 50k can be a roll of the dice..  

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y
    Originally posted by @Jay Hinrichs:

    @Nicole Heasley Beitenman  for sure I get that.. especially in some of the secondary or tertiary cities..   although when it comes to a major Metro MSA  the sub 50k can be a roll of the dice..  

     Its not a roll of the dice. Its a losing bet.

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  • Ryan MurdockPro Member
    Rental Property Investor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Russell Brazil:
    Originally posted by @Jay Hinrichs:

    @Nicole Heasley Beitenman  for sure I get that.. especially in some of the secondary or tertiary cities..   although when it comes to a major Metro MSA  the sub 50k can be a roll of the dice..  

     Its not a roll of the dice. Its a losing bet.

    My last 3 flips were all purchased for under $45k. Two of them under $30k.  After renovation and sale I walked away with $30k+ profit on each. It's not for the faint of heart and there are more ways to lose money than there are to make money but it is definitely possible in the right market. 

    Where I see people get tripped up is thinking they simply can't go wrong at that price and/or severely underestimating what they'll need for rehab $$. You're not paying $45k and getting away with just new paint and carpets. Get ready to pony up another $45k to make it right. 

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  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    7y

    @Ryan Murdock Happens here, too. You can get houses for $5-10k in East Cleveland, but it's a war zone. You couldn't get me to take a house there for free.

    Talk to investors who have experience in your market or markets similar to yours. If you're talking to an investor whose used to working in ritzy areas, they might tell you to run from a great deal just because they're not used to seeing lower numbers. On the flip side, if you're dealing with a pricey market, dirt cheap might literally mean it's dirt. Like others have said, it's all a matter of doing due diligence and really, really, really, really, really knowing your market. 

    4Reply
  • Ray Johnson
    Irvine, CA · Member since 2016 · 545 posts · 614 votes
    7y

    @Terrez Jarrett When you say is it possible to make money, that will depend on what you consider making money, most people that deal in the $45,000 property markets are looking for monthly cashflow, the property is $45,000 for a reason and you need to understand what comes with owning properties in this category, this is considered specialized real estate due to the additional experience required to be successful investing in this market. What are you looking to do with this property, Flip it or Buy-and-Hold?

    Pro - You'll get some form of cash flow on this property for the short-term. Best case scenario is to flip it to an out-of-state investor who's willing to risk operating in this property class.

    Con - You'll have a hard time collecting on your projections for that cash flow over the long-term. You are one HVAC, or roof repair away from wiping out 3-5 years of cash flow. 

    2Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    7y

    I don't know what the typical prices are in your market, but regardless, you should definitely do thorough research to make sure there aren't undisclosed issues on anything you buy.

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  • James MasottiPro Member
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    7y

    I would agree with @Ryan Murdock. It's less about what you buy the house for and more about what it's worth in the end. In my investment market I'm also buying houses for 20-30k each but I'm going to be putting 30-40k into them and they'll be worth 100k or more when I'm done. My market also has those houses that sell for $20k turnkey too...and then those same houses are for sale a  year or two later or until they are in such bad shape they need to be condemned. This of course only adds to the blight and disrepute for those areas of the city. I don't invest in the houses in these later areas. 

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  • Jabari Long
    Real Estate Broker · Detroit, MI · Member since 2014 · 384 posts · 149 votes
    7y

    @Terrez Jarrett There should be no more scrutiny on this deal than any others.  The price should not dictate the level of due diligence.

    4Reply
  • Daren H.
    Real Estate Investor · Desoto, TX · Member since 2013 · 560 posts · 528 votes
    7y

    Price is only one factor in a deal, so yes it is possible to make money. It is also possible to lose money. Due your thorough due diligence the same no matter price. 

    People make money selling a dirty substance mixed with I don't know what, cooked by I don't know who, sold on a street corner illegally, and can get the person killed who is selling it and kill the person who uses it. And people make lots of money from it. Taught me you can make money on s**t that makes absolutely no sense whatsoever. 

    1Reply
  • James Galla
    Attorney · Akron, OH · Member since 2016 · 535 posts · 389 votes
    7y

    You can definitely make money on a property in that asset class. However, I suggest that you are local so you have a much better understanding of what neighborhood you are in. Some neighborhoods are impoverished with crime while others are just impoverished. Additionally, when buying low-income properties, my strategy is to minimize the size of the property. Definitely look for single-story homes with minimal square footage. This will minimize the chance that a single large expense will wipe out your entire earnings for the past 5 years. For instance, when I've looked for low-income properties, I've seen places that have not more than 10 feet of plumbing because the placement of the water fixtures were centralized relative to the water and sewer mains. Moreover, your repairs and capital expenditures will be minimized. From my experience, many of the low-income houses out there are two-story colonials from the 1900s. Again, the two-story problem means that if you have any electrical, plumbing, etc work, the difficulty will be greatly enhanced compared to a single-story home.

    Another problem you will see is that taxes will eat up a fair portion of your gross rent because you are generally not going to be pulling in much income from the lower-income neighborhoods. That doubles the importance of ensuring your capital expenditures and repairs are minimized.

    Smaller properties also minimize the risk of loss by inherently limiting the amount of use. Statistically, you are not going to get a massive family with 12 kids running around and spilling juice boxes on every square foot of your low-income property. Therefore, you don't have the load of 12 people wearing down on all the fixtures in the manner that they would wear and tear a regular two-story colonial. Don't get any ideas on discriminating from this paragraph - consult a fair housing attorney before you rent based on family composition.

    Also, consider a price increase. NE Ohio has many properties that are in better neighborhoods for not much higher than $40k. The cost of living here is fairly low.

    I hope that helps in your consideration. Make sure you do your due diligence, too, since it is an as-is deal.

    3Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    7y

    @Terrez Jarrett

    Here's a case study for you.

    We bought an 2 bedroom/1 bath half-duplex SFR with central heating and air in November two years ago for $25,000 cash in the greater Pittsburgh market. The house is at the end of a dead-end street in a working-class, solid C neighborhood.

    We cleaned it out, renovated it for $5400, had it inspected for a certificate of occupancy, and then had it occupied by Jan 1. New furnace, some A/C work, new washer, new dryer, new stove, new fridge, cracked main stack that we needed to replace a section of, one busted window to replace in the bathroom. 4 new blinds, 2 new ceiling fans, latch on the shed, some roof patching, new gate installed for the backyard, touch-up painting with colormatched paint throughout. Since then we've put an additional $200 into the property for a shower tower in the bathroom. At some point I'd like to do some repointing on the brick exterior. There's at least ten years left on the roof. The carpet will need to be replaced in 5 years. I'll actually just rip it out and refinish the oak floors underneath in semigloss poly when the time comes.

    The property rents for $650/mo and NOI after all property taxes, insurance and all operating expenses last year was a little over $5100.

    The furnace and stack issues sent the shady fools that inherited it and tried to operate it as a rental running to an agent in a panic. That's why they sold it to us as-is, with no mention of these problems.

    The only thing I didn't handle personally was the furnace replacement. And because we saved as much money through DIYing as we did elsewhere (and this isn't our first pickled punk sideshow), we didn't skimp on the new furnace. There's a high-efficiency American Standard down in that basement now.

    We plan on leaving our cash in the property for now. When the economy takes a downturn and Wall Street guys start jumping out of windows again, the equity in that place will be standing ready to be tapped.

    All in all, that property's been a big win for us.

    Yet I highly doubt that I am the kind of real estate investor that you want to be, Terrez. DIY landlording in C/D borderline properties isn't exactly an aspirational lifestyle for most people. When I signed up for it, I knew what it was like -- my grandparents did the same thing way back when. There ain't no facial hair. I spend way too much time in a respirator for that. The last time I wore a tie was to a funeral. My ride at the time I bought that property was a white-and-rust Honda Odyssey with 200,000 miles on it. I know this gig can scale to maybe 20 properties maximum before I have to significantly change my business model and go through the investment risks associated with that.

    Is this what you really want? Because this is one of the very few ways to make low-cost properties work, as many others here have correctly pointed out.

    13Reply
  • James MasottiPro Member
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    7y
    Originally posted by @Jim K.:

    @Terrez Jarrett

    Here's a case study for you.

    We bought an 2 bedroom/1 bath half-duplex SFR with central heating and air in November two years ago for $25,000 cash in the greater Pittsburgh market. The house is at the end of a dead-end street in a working-class, solid C neighborhood.

    We cleaned it out, renovated it for $5400, had it inspected for a certificate of occupancy, and then had it occupied by Jan 1. New furnace, some A/C work, new washer, new dryer, new stove, new fridge, cracked main stack that we needed to replace a section of, one busted window to replace in the bathroom. 4 new blinds, 2 new ceiling fans, latch on the shed, some roof patching, new gate installed for the backyard, touch-up painting with colormatched paint throughout. Since then we've put an additional $200 into the property for a shower tower in the bathroom. At some point I'd like to do some repointing on the brick exterior. There's at least ten years left on the roof. The carpet will need to be replaced in 5 years. I'll actually just rip it out and refinish the oak floors underneath in semigloss poly when the time comes.

    The property rents for $650/mo and NOI after all property taxes, insurance and all operating expenses last year was a little over $5100.

    The furnace and stack issues sent the shady fools that inherited it and tried to operate it as a rental running to an agent in a panic. That's why they sold it to us as-is, with no mention of these problems.

    The only thing I didn't handle personally was the furnace replacement. And because we saved as much money through DIYing as we did elsewhere (and this isn't our first pickled punk sideshow), we didn't skimp on the new furnace. There's a high-efficiency American Standard down in that basement now.

    We plan on leaving our cash in the property for now. When the economy takes a downturn and Wall Street guys start jumping out of windows again, the equity in that place will be standing ready to be tapped.

    All in all, that property's been a big win for us.

    Yet I highly doubt that I am the kind of real estate investor that you want to be, Terrez. DIY landlording in C/D borderline properties isn't exactly an aspirational lifestyle for most people. When I signed up for it, I knew what it was like -- my grandparents did the same thing way back when. There ain't no facial hair. I spend way too much time in a respirator for that. The last time I wore a tie was to a funeral. My ride at the time I bought that property was a white-and-rust Honda Odyssey with 200,000 miles on it. I know this gig can scale to maybe 20 properties maximum before I have to significantly change my business model and go through the investment risks associated with that.

    Is this what you really want? Because this is one of the very few ways to make low-cost properties work, as many others here have correctly pointed out.

     Great case study Jim!

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    0Reply
  • Rob Mcclellan
    Realtor · Rootstown, OH · Member since 2018 · 98 posts · 39 votes
    7y
    @Jim K. Great explanation!!
    0Reply
  • Jeff P.
    Livonia, MI · Member since 2017 · 40 posts · 9 votes
    7y
    @Jim K. Right there with you Jim. I do it, and it works. Not for everyone, but the pay isn’t bad if you’ve got the guts.
    3Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y
    Is it possible ? of coarse ,it’s entIrely possible . The caveat Is that whIle Its possible, It isn’t for everybody and you gotta know what your doing
    1Reply
  • Josh Belgard
    Rental Property Investor · Baton Rouge · Member since 2018 · 20 posts · 19 votes
    7y
    @Terrez Jarrett My last purchase was a 1/1 condo @ $38,870. “Sold” it 6 days later after investing $4.00 in a spray bottle of cleaner for the counters/floors for $79,900. Owner financed at 30 years for 9.9%. You can make cash/cash flow in the under $45,000 price range. Do your homework and be patient.
    2Reply
  • James Sudarsono
    Flipper/Rehabber · Los Angeles, CA · Member since 2018 · 5 posts · 4 votes
    7y
    @Terrez Jarrett Whether it’s $45,000 or $450,000, you ALWAYS want to do your due diligence on a property. In some markets $45,000 would make perfect sense, while in others, it’s a red flag. To keep things simple, I would boil any deal down to two factors: 1. What are other homes in the area selling/renting for? (And subsequently what will the subject property sell/rentfor) 2. What will it cost you to sell/rent the home for that determined value? * Purchase price * Repairs * Debt service (mortgage payments, hard money loan, etc) * Commission to list property on market OR property management fees * Closing costs (if you are selling) Add up all those costs, and as long as the difference between the two deals is positive, the deal makes sense. For our flips in California, I would be terrified to touch anything at $45,000, knowing that there would have to be something terribly wrong for it to be listed so far below market value. On the flip side - we just bought our last couple properties in Memphis for less than $45,000 each, put a few thousand into repairs and now with tenants in place, we have two more cash-flowing assets added to the portfolio. If the numbers are there, any deal can make sense! Hope this helps. Best of luck to you!
    2Reply
  • Matt M.
    Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    7y
    @Terrez Jarrett It all depends on the area and overall condition and market values in the area. I bought a property (got super lucky) in Jan 2016 for $23,100 (Bangor, Pa). Took me less than $14k (I am a contractor) to get it rent ready with some upgrades. I get $1200/month rent with the garage and I could list it at any time for around $105k. My first home in 2000 I paid $45k, did some updating, sold 2 years later $89k My clients buy lots of properties in the $30-50k range and so far none have turned out to be total bombs.
    1Reply
  • Terrez Jarrett
    OP
    Louisville, KY · Member since 2018 · 27 posts · 3 votes
    7y

    Thanks guys for all of your comments and advice! I appreciate it very much! So I visited the property I initially discussed with you guys......HORRIBLE! This will definitely be a total rehab (or at least in my opinion). Floors, walls, ceiling, appliances, etc. I'm glad I actually visited this one.

    0Reply
  • Terrez Jarrett
    OP
    Louisville, KY · Member since 2018 · 27 posts · 3 votes
    7y

    Alright guys, I´m in a bit of a dilemma with this property. I am looking for a private lender but I don´t know how to go about doing it and what the requirements are. I have already given my earnest money deposit (which is refundable). Now, I need a buyer. Any suggestions anyone?

    0Reply
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