The $30k rental club.......

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The $30k rental club.......

Account Closed
Las Vegas, NV · Member since 2018 · 100 posts · 140 votes

Im sure many of us have read all the warnings and reviews of buying low price properties, and the problems typically associated with them, but all that considered, it is what first attracts a lot of people , indeed this is the only path available to some, its a start, so lets explore whats real and possible.........

lets use Detroit, Cleveland, Michigan and Indianapolis as examples where possible ,and set a ceiling of $30k

Personally i dont see the return on higher priced properties attractive enough to invest $80 to $120k plus, and before anyone starts preaching about the pitfalls, ive done this before, over 30 properties over 20 years, just in another country, low cost houses in deprived areas, i know what can go wrong.

The first attraction here is the low cost, funding with personal loans and credit cards etc,  is possible, and with high returns , quickly repaid, whereas a large mortgage is on your credit file for years, and has to impact further borrowing, and cannot easily be cleared temporarily in the same way credit cards can, if your credit needs a boost !

How easy is it to get a portfolio of say 3 x $30k properties you own outright (wherever the funds came from !) and then refinance into one loan after 6 months or a year ?........and then repeat this process ?

This is more attainable for a lot of people surely ?

So, anyone with a similar train of thought ?, anyone already doing this ?, any input would help........

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Ashley Hamilton
Rental Property Investor · Detroit, MI · Member since 2015 · 82 posts · 548 votes
7y
Originally posted by @Account Closed:

Im sure many of us have read all the warnings and reviews of buying low price properties, and the problems typically associated with them, but all that considered, it is what first attracts a lot of people , indeed this is the only path available to some, its a start, so lets explore whats real and possible.........

lets use Detroit, Cleveland, Michigan and Indianapolis as examples where possible ,and set a ceiling of $30k

Personally i dont see the return on higher priced properties attractive enough to invest $80 to $120k plus, and before anyone starts preaching about the pitfalls, ive done this before, over 30 properties over 20 years, just in another country, low cost houses in deprived areas, i know what can go wrong.

The first attraction here is the low cost, funding with personal loans and credit cards etc,  is possible, and with high returns , quickly repaid, whereas a large mortgage is on your credit file for years, and has to impact further borrowing, and cannot easily be cleared temporarily in the same way credit cards can, if your credit needs a boost !

How easy is it to get a portfolio of say 3 x $30k properties you own outright (wherever the funds came from !) and then refinance into one loan after 6 months or a year ?........and then repeat this process ?

This is more attainable for a lot of people surely ?

So, anyone with a similar train of thought ?, anyone already doing this ?, any input would help........

Hello, yes I've done this in Detroit for 9 years now and some properties were purchased for $1000.  At this point I own 9 properties (10 door) free in clear in Detroit. All occupied, making around $7100 per month. I've already made my initial investment back on almost all the properties and am now seeking a blanket loan on my portfolio. My guess is the total value of the properties as a whole today are $469k. So at 32 years old I owe $469k worth of real estate. But the good news is if the market go up next month or next year I could be worth $600k, then next year maybe $1 million. And i'm confident that the market will go up because it's already hit rock bottom so there's nowhere to go but up from here. Also there's a lot of big investment going on in the city now. I am currently look to purchase a condo in Vegas as well and hopefully moving down there soon. Thanks for you post!!! We need more opened minded people on here that can appeal to the masses without a ton of money.

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  • Matthew DrouinPro Member
    Developer · Rochester, NY · Member since 2016 · 410 posts · 339 votes
    7y

    @Stuart Smith there are many people already doing this, especially in Rochester, NY. My friend @Martin Grizzanti started his investing career on this path. But he has come to realize that although this may be a good way to start out it’s not a way to scale into the massive wealth building effects of commercial and large Multifamily. In regard to mortgage companies, there are who lend on those. Just hard to find. Check out MB Financial. They have minimum origination fee of $1000 so it keeps loan officers interested in servicing that product on volume. Although I would probably work on acquiring a few and just doing a blanket with a predetermined carve out with the lender for selling properties individually so you don’t get caught with some complicated and expensive defeasance.

    Podcast Guest on Show The $150K “Stolen” Rental Property and How to Avoid a Real Estate Scam
    2Reply
  • Larry Turowski
    Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
    7y

    @Account Closed The problem with $30K properties is buying them for $30K.   I want to know I can sell anything I buy and not lose money.  I do own higher end properties, but one of my better low end ones I bought for $12K, put maybe $8K total into it, including labor.  It's actually a pretty nice house.  It rents for $975/mo and I could sell it for $35K or more. 

    1Reply
  • Martin Grizzanti
    Investor · Rochester, NY · Member since 2015 · 499 posts · 169 votes
    7y

    @Matthew Drouin @Stuart Smith   As always- Matt is spot on with this.  Although it got me in the door, it is not a strategy that can scale for business or health reasons( I want to pull out my hair at times) However; I would not tell someone not to do it.  I learned a lot about Real Estate and business in general.  And if that's a way to make the jump, and it won't kill you financially if you lost the 30k then jump in. 

    1Reply
  • Martin Grizzanti
    Investor · Rochester, NY · Member since 2015 · 499 posts · 169 votes
    7y

    @Larry Turowski excellent point sir!

    0Reply
  • Kristopher HanksPro Member
    Rental Property Investor · Davenport, FL · Member since 2016 · 593 posts · 382 votes
    7y

    @Martin Grizzanti

    I feel the same way and what you said is so true. I have pulled my hair out, but I have learned so much through experience. I can not put a price on that experience. 

    0Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    7y

    @Account Closed

    Oh, I feel for you, man.

    Best story I've got was the shooting that happened four blocks away from one of mine. Gas station/mini-mart, attendant is inside, hears shots, car crashes into curb outside. Attendant stays inside, hunched behind the counter. Driver of crashed car opens the door and stumbles in, covered in blood and screaming at the top of his lungs, "THEY SHOT MY BABY!!!"

    Girlfriend is in passenger's seat. Girlfriend is pregnant, shot in the abdomen. The news was unclear whether the guy's "my baby" was referring to his baby mama or her unborn child.

    The worst part is MY wife knows this story.

    0Reply
  • Quincy Lockett
    South Holland, IL · Member since 2017 · 376 posts · 432 votes
    7y

    @Account Closed I agree with you with most of your reply but you’re off with the Gary, Indiana comment. I work in Northwest Indiana and I personally know 3 investors that rehab and sale EXCLUSIVELY Gary homes and make great profits. They know specific areas that they can buy between 30 -50k, 20-30 on rehab and sell for up to $130k (the homes are appraising our). I’ve watched this with my own eyes (I couldn’t believe it myself at first). It’s Wrong to disparage a whole city based on your untested belief or theory. These guys may not be the only ones but they are slowly improving housing values and lifestyles for Gary residents. 

    4Reply
  • Account Closed
    Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Quincy Lockett:

    @Account Closed I agree with you with most of your reply but you’re off with the Gary, Indiana comment. I work in Northwest Indiana and I personally know 3 investors that rehab and sale EXCLUSIVELY Gary homes and make great profits. They know specific areas that they can buy between 30 -50k, 20-30 on rehab and sell for up to $130k (the homes are appraising our). I’ve watched this with my own eyes (I couldn’t believe it myself at first). It’s Wrong to disparage a whole city based on your untested belief or theory. These guys may not be the only ones but they are slowly improving housing values and lifestyles for Gary residents. 

    Your right, and I'm sorry it came off the way it did, but I sort of felt like I needed to paint it in broad strokes on this broad forum. I also could be a better writer.

    Bravo to the success of your friends. My cryptic/lecture/emotional post did not give kudos to all the good guys out there doing the right thing for the community, while making some ching-ching along the way. The investor community can absolutely be the Godsend for distressed communities, and is in plenty of cases. I suppose I just got worried of the opposite, which can also be true, and I see that all the time. I refer to those people as the Paint & Pay Me's. BP is over a million people!!!

    I'm rooting for you Gary! Don't let a punk like me get you down now!

    2Reply
  • Lee Bell
    Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes
    7y

    Gary has been a distressed city for many years. Good to hear they are looking up some.

    I left IL over 30 years ago, but grew up in the Dolton and Riverdale area and went to church in South Holland.

    0Reply
  • Kerry Noble JrPro Member
    Investor · Indianapolis, IN · Member since 2018 · 2k+ posts · 1k+ votes
    7y

    @Ashley Hamilton man thats dope!!!! motivation for me.....you blessed me with that post! thanks!

    0Reply
  • Derrick E.
    Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
    7y

    Thanks to @Jim K. for the tag.  I don't have time to read this entire thread right now but I definitely plan to do so in the next few days (time permitting.)

    Long story short, this is all I do. I buy cheap properties for cash, fix them up, and rent them out. You will find a strong rental market in these types of places, but it will be hard to sell the properties. As long as you are in it for the long haul then you will be good to go imo. 

    I'm in middle of a full rehab right now which is why I haven't been on here nearly as much lately. Do not worry about the cost of the property. Make sure it has good bones, and is in a decent area. If it's in a sketchy area then look for something beside a commercial lot/building and or on the corner as it makes it much easier imo. 

    Paint, flooring, light fixtures will change the entire look of a place. Tenants in that price range don't care about things being top of the line. New but cheap items will be all you need, and all you want (in case they get destroyed.) 

    I also recommend renting the property just a little below market rent when you are ready to rent it. This gives you a newly remodeled property below market rent. This will get you a TON of interest and gives you the opportunity to find better tenants. In this type of market do not rent to the first person who is willing to give you the money. You want a decent amount of applicants so you can choose the best one. 

    You can find good people in this type of market if you do it the right way. People are poor for multiple different reasons. I grew up extremely poor so maybe that's why I look at things different, I'm not sure.

    Best of luck and I hope I get time to read all of this over the next few days. Just have a lot of work going on right now. 

    3Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    The 30k rental owners have a special kind of stomach in this game.  They are a different breed.  The ones that make it, are a rich breed but you really have to have some thick skin.

    1Reply
  • Derrick E.
    Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
    7y
    Originally posted by @Ian Walsh:

    The 30k rental owners have a special kind of stomach in this game.  They are a different breed.  The ones that make it, are a rich breed but you really have to have some thick skin.

    Maybe it's because I don't invest in a major city but I truly haven't had many issues so far. Then again, I can get a pretty nice house for $30k in my area. My tenants pay me on time and I rarely have any issues with them. 

    3Reply
  • Tyrell Perry
    Rental Property Investor · Cleveland, OH · Member since 2016 · 69 posts · 108 votes
    7y

    A tad tardy to the party but I made it nonetheless. Definitely enjoyed browsing through the 12 pages of posts as there is a lot of value add from both sides of the aisle.

    @Account Closed I understand why you’re resistant to the negative energy as I too despise Negative Nates/Nancies. With that said, value can be found in the posters who oppose the sub-$30K properties. They are correct in that you should proceed with caution. 

    As an buy-and-hold investor with 30+ units in Cleveland and Canton, I can assure you that this segment can be challenging but definitely not impossible for the out-of-state or out-of-country investor. I’ve always been both during my 3-year tenure as a landlord. Besides time differences and travel time, the requisites for both labels can be identical.

    I’ve come to learn that every tenant and property comes with its unique set of benefits and nuances. There are tenants that always pay rent on time, never report a maintenance issue (that can be good and bad) and even alert you about ongoing developments in the neighborhood or at the adjacent properties. Then you’ll have tenants that always make complaints on why there rent is late yet they always have a repair to be made due to negligence. Likewise, some properties are needy and others are not. For the sub-$30K market, the duplex and triplex is the ideal target with the latter being the preferred option.

    While I wouldn’t trade away my experience, if I could do it all over again, I’d align with an investor that had significant holdings in my target market’s sub-$30K space prior to the first purchase and/or scaling. With everything in life, there is a learning curve and you’re going to expend resources learning the craft yourself or having someone assist you with the journey. Having someone who has been there and done that can help you make critical decisions that saves tens of thousands of dollars in the wallet and on the mind. This can come in the form of property selection, contractor selection, tenant selection, repair alternatives, property taxes, insurance, etc. 

    Also be wary of scaling too quickly. If major repairs on multiple properties come calling at the same time, it’s not a pretty sight financially or psychologically. Be nimble, adaptable and willing to identify positive/negative trends within your portfolio. Best of luck!

    1Reply
  • Account Closed
    Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    Depends on the area, taxes, and other things, but the midwest is great for those deals!

    A couple examples:

    1st deal (1 bath/3 BR bungalow) purchased cash for around $26K, rehabbed for $30K, appraised for $100K, and now rents for $1,025/mo. I used leverage to do a cash-out refi and pull out over 100% of my initial investment. PITI is only $540/mo.

    Another example, purchased a 1 bath/1BR ranch for $23,500, rehabbed for $8K, appraised for $35K, and now rents for $725/mo. I used leverage to do a cash-out refi and pull out over 80% of my initial investment. PITI is only $212/mo.

    I know others that have bought properties at auctions for $30K or less and the properties have long-term tenants they were able to keep.

    Obviously, like most things there are exceptions to the rule, but those are just some positive things I've seen...plus the peace of mind knowing I have passive income and don't owe the bank $100k+ on a loan!

    Best of luck!!

    1Reply
  • Clay Sellers
    Oceanside, CA · Member since 2016 · 46 posts · 21 votes
    7y
    Originally posted by @Mike D'Arrigo:

    Not only is @Jay Hinrichs ........ It's also a myth that these cheap properties cash flow better than better class assets. You may get lucky and get a higher CoC return but it's mathematically impossible to squeeze more cash flow out of $600 rent than $900. The higher the rent, the higher the cash flow. It's basic math.

    Not trying to be snarky but "The higher the rent, the higher the cash flow. It's basic math." isn't cash flow dependent on expenses? Now, it might be said, that lower class assets have more expenses in the long term. However, assuming you own the house free and clear like @ashley hamilton, you've done a fairly decent rehab, you manage them yourself or have a good property manager, thus keeping your expenses low over the next 5 years, do rent rates really matter? 

    Seams like expenses are the more important factor to look at.

    Of course, if you throw up the same scenario with a higher class property with a higher rent than, yes, the cash flow would be better. 

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    7y
    Originally posted by @Clay Sellers:
    Originally posted by @Mike D'Arrigo:

    Not only is @Jay Hinrichs ........ It's also a myth that these cheap properties cash flow better than better class assets. You may get lucky and get a higher CoC return but it's mathematically impossible to squeeze more cash flow out of $600 rent than $900. The higher the rent, the higher the cash flow. It's basic math.

    Not trying to be snarky but "The higher the rent, the higher the cash flow. It's basic math." isn't cash flow dependent on expenses? Now, it might be said, that lower class assets have more expenses in the long term. However, assuming you own the house free and clear like @ashley hamilton, you've done a fairly decent rehab, you manage them yourself or have a good property manager, thus keeping your expenses low over the next 5 years, do rent rates really matter? 

    Seams like expenses are the more important factor to look at.

    Of course, if you throw up the same scenario with a higher class property with a higher rent than, yes, the cash flow would be better. 

     Clay, rents matter a lot. just like in any business, profit (cash flow) is a factor of both income and expenses. The point that I was making is that properties with higher rents will have higher cash flow because you obviously have more income coming in but a lot of your expenses will not vary with rent. It costs as much to fix a stopped up drain or replace a furnace on a house renting for $700 as it does on one renting for $1000 just as it doesn't cost more to make a higher end property rent ready again at tenant turnover. In fact, it's just the opposite. Turn over costs are very high on low end asset classes  due to the types of tenants they attract. Insurance will vary with the value of the property but a big percent of insurance cost is for liability that is the same regardless of the value. Insurance isn't going to be 30% more just because your rent is 30% more. In fact, insurance can be higher on low end properties due to their age and type of construction. To your point about good property management, I have yet to find a property manager that can get good tenants to live in bad neighborhoods. In fact, most of the good PM's won't manage these types of properties. They spend 80% of their time on 20% of the portfolio which tells you something.

    1Reply
  • Shedrick Archangel
    Rental Property Investor · Dallas, TX · Member since 2018 · 64 posts · 12 votes
    7y

    When I was in the military, I purchase my first rental for $20k in 2000. That rental has been a great money maker with little problems because I conduct preventive maintenance on my properties. I am very proud of that little house.  Since then I have been purchasing rental properties from $30k to $60k.  Retired from the military and collect my cash flow from those properties.

    4Reply
  • Luther A.
    Member since 2019 · 38 posts · 4 votes
    7y

    @James Galla

    What is your ideal SFH deal look like? Purchase price, rehab costs, finance terms, rent, and cash flow?

    1Reply
  • James Galla
    Attorney · Akron, OH · Member since 2016 · 535 posts · 389 votes
    7y
    Originally posted by @Luther A.:

    @James Galla

    What is your ideal SFH deal look like? Purchase price, rehab costs, finance terms, rent, and cash flow?

    So, for something in the $30k club, I normally want a ranch-style home under 1200 sqft. Utilities should be centralized in the home. This means no random maze of pipes for utilities. Toilet should be close to the stack, etc. Neighborhood is critical and cash flow will be related to the neighborhood, but you can normally get gross rental of around $600+/month. I'm at a mix between cash/credit for the $30k club.

    I know some folks that buy the $500 properties, put in $10k for renovations and rent by the bedroom. That's not my style.

    1Reply
  • Luther A.
    Member since 2019 · 38 posts · 4 votes
    7y

    @James Galla

    Thanks for your response. I am curious what kind of properties you normally invest? I am assuming 30K club is probably not your thing.

    1Reply
  • James Galla
    Attorney · Akron, OH · Member since 2016 · 535 posts · 389 votes
    7y
    Originally posted by @Luther A.:

    @James Galla

    Thanks for your response. I am curious what kind of properties you normally invest? I am assuming 30K club is probably not your thing.

    I have experience in many price ranges. I don't hold anything against the $30k club. I actually enjoy that range as well (I enjoy working with and volunteering for lower income folks), especially for my area. The issue I frequently see in that range is folks from California, Colorado, and Washington coming into the idea that the $30k club is often viable. Then, when they jump in, the tenants and property management companies kill their margins. So, my skepticism online isn't really how I view it. I would just prefer that folks don't walk into a trap or get the wrong idea that low-income investing is easy or some magic ticket to wealth.

    1Reply
  • Joel Gierbolini
    Property Manager · Hallandale, FL · Member since 2018 · 53 posts · 11 votes
    7y

    Wow love the “30k rental club” my only question is what banks can someone recommend me that can lend on this type of properties? Thanks!

    2Reply
  • Willie Page
    Rental Property Investor · Racine, WI · Member since 2019 · 18 posts · 20 votes
    7y

    @Chris Heeren can you give me some pointers I have one single family 4 br 2 bath on a double lot that I’m in the process of fixing up and I want to purchase another so that I would start off with 2 properties I also have a duplex 2 br 1 bath on each floor that I can get mortage and insurance runs 450 a month on it. My question I wonder would I be bitting off more then a can chew my first time around.

    1Reply
  • Chris Heeren
    Investor · Janesville, WI · Member since 2013 · 180 posts · 155 votes
    7y

    @Willie Page

    I would imagine the only person that would be able to answer that question is you. How ambitious are you?

    2Reply
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