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........
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.
@Account Closed , did it escape your attention that I work here? This is my site. I'm here all the time. I have seen posts like yours many times. Frequently, the person who isn't listening, who is convinced that everyone who is giving him cautionary advice is just 'being negative' is back a few months after doing what they wanted, asking for advice for an investment gone wrong.
I'm done with this thread. You clearly are looking only for validation, and I can't give you that.
Good luck with your investments. I hope you succeed and prove us all wrong.
There are plenty of examples of how people have done ok from buying $30k and below properties, ok meaning they have rented them successfully,and the properties have increased in value
Some in the areas I listed originally, some in other cities .
Everyone has to start somewhere, and the most common new post is all about getting a foot on the ladder
$30k is affordable, and it’s this market that attracts allcomers, so it’s clear that good solid information on areas, good and bad, financial solutions both the obvious and the more creative are all helpful....if they apply tod this market, this situation
Anyone astute enough to want to get involved in the first place is going to chose a property that has potential to increase in value over one in the roughest part of town , that’s doesnt need explaining in reams and reams of type.....we are not 12 years old, we have a basic grasp of mathematics and a modicum of common sense !
It’s clear this is just a gentleman’s club.....who don’t like anyone undermining their superior knowledge and experience or going against THEIR grain
@Account Closed who say that you will get burned doing things this way are both absolutely rightandwrong. If you buy in a s***hole neighborhood or pocket area, you will make a ton of money and then give it all back (ask me how I know). What Jay and others miss is LOW-COST DOESN'T ALWAYS EQUAL GHETTO PROPERTIES.
That being said, pay very close attention to Jay when he says local knowledge is key. And that knowledge can come from trust worthy boots on the ground across the country. I'll add that you better have a ROCK SOLID PM.
Lastly I'll say that you all better stay away from the sub 30K market - so I can buy them competition free! ;)
@Account Closed , did it escape your attention that I work here? This is my site. I'm here all the time. I have seen posts like yours many times. Frequently, the person who isn't listening, who is convinced that everyone who is giving him cautionary advice is just 'being negative' is back a few months after doing what they wanted, asking for advice for an investment gone wrong.
I'm done with this thread. You clearly are looking only for validation, and I can't give you that.
Good luck with your investments. I hope you succeed and prove us all wrong.
$30k properties cost that much for a reason, and it doesn't seem like you're really looking for the $30k-that-needs-a-bit-of-work-to-fit-into-the-$100k-neighborhood homes.
Why wouldnt i ?, surely that would be a way better proposition
You seem to think that buying any home in Detroit, Cleveland, or Indy will yield massive cash in your pocket.
What have I written to lead you to claim that’s what I seem to think ?
The members who are saying don't do it are trying to help you out.
There are thousands of posts like yours, we know the risks ok....we know !!
“I refer the honorable lady to the answer I gave some moments ago.....”
“I won’t buy anything that won’t pay for itself in 2 years.....”
That’s the kind of guy I want to hear from, his experience......
Some of this is evidently lost in translation, but some of this is simply vapid.
You may be looking for a unicorn. For an all in 30k property to pay for itself in two years the rent would need to be $1350-1400 a month.
Mine do 3.5 years to 4.5. We’ll keep waiting to hear from the person you I envisioned this post for. Be sure to tag me when they come forward, I’d like pick their brain too.
@Account Closed We are birds of a feather. 5 properties for me last year all sub 20K grossing $3475 monthly. Long distance, managed by PM's, NOT in war zones and NOT in crime infested areas. I would like all 5 to be section 8 eventually. These types of properties are tough to find in places that aren't going to get you in trouble and that have good long term returns and my model is very specific.
This model is absolutely doable and there are plenty of people like minded. The people like @Jay Hinrichs who say that you will get burned doing things this way are both absolutely rightandwrong. If you buy in a s***hole neighborhood or pocket area, you will make a ton of money and then give it all back (ask me how I know). What Jay and others miss is LOW-COST DOESN'T ALWAYS EQUAL GHETTO PROPERTIES.
That being said, pay very close attention to Jay when he says local knowledge is key. And that knowledge can come from trust worthy boots on the ground across the country. I'll add that you better have a ROCK SOLID PM.
Lastly I'll say that you all better stay away from the sub 30K market - so I can buy them competition free! ;)
No way, you can’t possibly be that successful with such low stake money, it’s not allowed in here....
It’s just not right.....because the gods have said so !!!!!
@Account Closed We are birds of a feather. 5 properties for me last year all sub 20K grossing $3475 monthly. Long distance, managed by PM's, NOT in war zones and NOT in crime infested areas. I would like all 5 to be section 8 eventually. These types of properties are tough to find in places that aren't going to get you in trouble and that have good long term returns and my model is very specific.
This model is absolutely doable and there are plenty of people like minded. The people like @Jay Hinrichs who say that you will get burned doing things this way are both absolutely rightandwrong. If you buy in a s***hole neighborhood or pocket area, you will make a ton of money and then give it all back (ask me how I know). What Jay and others miss is LOW-COST DOESN'T ALWAYS EQUAL GHETTO PROPERTIES.
That being said, pay very close attention to Jay when he says local knowledge is key. And that knowledge can come from trust worthy boots on the ground across the country. I'll add that you better have a ROCK SOLID PM.
Lastly I'll say that you all better stay away from the sub 30K market - so I can buy them competition free! ;)
of course we should clarify this.. I agree not all sub 30k markets are war zones.. but folks generally end up In Major MSAs and in those areas they are the hood by definition of price .
I bought properties for example in Kokomo IN.. in this price range.. no war zone no thefts.. no appreciation.. cash flow OK the challenge in some of these little burgs like this is not a lot of income for the area.. so if you can get those to section 8 that's would be optimum.
there Is no absolute of course.. One just needs to hear it from all sides.. I think the issue comes from folks who just don't comprehend how things are done or how people live. it vastly different then there personal lifestyles or life experiences.
$30k properties cost that much for a reason, and it doesn't seem like you're really looking for the $30k-that-needs-a-bit-of-work-to-fit-into-the-$100k-neighborhood homes.
Why wouldnt i ?, surely that would be a way better proposition
You seem to think that buying any home in Detroit, Cleveland, or Indy will yield massive cash in your pocket.
What have I written to lead you to claim that’s what I seem to think ?
The members who are saying don't do it are trying to help you out.
There are thousands of posts like yours, we know the risks ok....we know !!
“I refer the honorable lady to the answer I gave some moments ago.....”
“I won’t buy anything that won’t pay for itself in 2 years.....”
That’s the kind of guy I want to hear from, his experience......
Some of this is evidently lost in translation, but some of this is simply vapid.
You may be looking for a unicorn. For an all in 30k property to pay for itself in two years the rent would need to be $1350-1400 a month.
Mine do 3.5 years to 4.5. We’ll keep waiting to hear from the person you I envisioned this post for. Be sure to tag me when they come forward, I’d like pick their brain too.
I will try to find it, but I’m pretty sure there are duplex that come close to that listed regularly
Very well said!!! Gosh I love reading this stuff because I feel like wow, you guys get it and really understand it! So much knowledge on BP!
Btw-- happy to know that I'm not the only person who literately walks around with a trash bag picking up trash! Sometimes I'll even mow the neighbors lawn for free, and when they offer to pay, I say to pay it forward instead!
@Account Closed LOL! Understand this Stuart, the principles of how to this I learned here on BP. My fellow BPers can come across as harsh, opinionated and rigid in their ways but don't dismiss the knowledge base here.
This is the current business model I'm using. I only purchase houses that are in the $30k range, typically looking for a 3BR/1BA unit. I have 9 units so far, with 6 of them being section 8, averaging about $800/mo in rent. There have been some unique issues to deal with, but for the most part nothing crazy and you can't beat the cash flow.
As far as financing, I recommend finding an aggressive lender. I just completed my refinancing on 3 separate mortgages for $22k, $27k, & $35k. Not only did they give me mortgages for these, they gave me a mortgage for the full amount eliminating the need to put 25% of my own money into the deals. For full disclosure, I do have a solid W2 job & a great credit history, but besides that I don't offer them anything special besides deals with great cash flow. I got into the business less than 2 years ago with no prior experience, so it can be done and with little of your own money used!
Steve I would be interested in learning more about the financing options you are using. Are you making cash purchases and refinancing or are you financing a standard mortgage without anything down? If you would be open to it could you PM me with the details of your lending institution as I am in the Pittsburgh area as well and I am looking to essentially do something very similar to what you are suggesting.
@Account Closed We are birds of a feather. 5 properties for me last year all sub 20K grossing $3475 monthly. Long distance, managed by PM's, NOT in war zones and NOT in crime infested areas. I would like all 5 to be section 8 eventually. These types of properties are tough to find in places that aren't going to get you in trouble and that have good long term returns and my model is very specific.
This model is absolutely doable and there are plenty of people like minded. The people like @Jay Hinrichs who say that you will get burned doing things this way are both absolutely rightandwrong. If you buy in a s***hole neighborhood or pocket area, you will make a ton of money and then give it all back (ask me how I know). What Jay and others miss is LOW-COST DOESN'T ALWAYS EQUAL GHETTO PROPERTIES.
That being said, pay very close attention to Jay when he says local knowledge is key. And that knowledge can come from trust worthy boots on the ground across the country. I'll add that you better have a ROCK SOLID PM.
Lastly I'll say that you all better stay away from the sub 30K market - so I can buy them competition free! ;)
No way, you can’t possibly be that successful with such low stake money, it’s not allowed in here....
It’s just not right.....because the gods have said so !!!!!
Stuart last comment.. you might want to start a post and ask if anyone has scaled and owned D class low C class for 10 years.. those are who U want to talk to.. I tried I made about a million dollars when sold.. but that was only 3k a house LOL and my attorney said Jay what are you doing we should be asking for a lot more than that.. I told her.. just remember the opening Scene of Thomas Crown affair ( the lastest one) when they are all sitting around the board room and Crown signs the deal the buyers light cigars.. then Crown Looks at them and says well guys you paid 10 million more than the best offer I had... I told my Attorney same thing.. these suckers are so much work there is no way this guy will handle that many homes from his office on the west coast.. And sure enough he lost it all I walked with 7 figures but I earned believe me.. I lost 7 figures on these in 08 to 2010 when my borrowers just handed in the keys LOL But go for it let us know how you do
@Account Closed I'm way into this club. Especially if you're purchasing at well below market, the property is near rent ready condition, and the neighborhood supplies plenty of tenant demand + low operating expenses and landlord friendly laws. As long as we're accurately estimating future cap ex expenses based on present condition and replacement cost of each component & the previous rules apply this works out.
Maybe all of the investors that tell us not to do it are trying to keep all of the best opportunities for themselves ;)
Here's a mind-blower: I just picked up a 3plex that was fully rehabbed but vacant, owned by an older gentleman who was simply done with the enterprising stage of his life and wanted to rest. Bought it for (far below market val) 25k. Rented it for gross 2100 in less than 30 days after purchase with 1k invested in misc. unit preparation. Taxes are 900$/yr... water bill is 35$ a month. Would love to see someone tell me not to buy that sucker again. If I could, I would liquidate my all of assets and purchase it 50 times over for gross rents of 105k/month LMAO.
There are good deals left everyone!
I would pass on having such a property as a buy n hold. Maybe I would flip it.
Why would I pass as a buy n hold? The $700/unit is significantly below my minimum rent threshold. A large cap ex item can consume too many months of the "cash flow". I do not know what you projected the cash flow at but each tenant of these smaller unit count units takes time. Three separate tenants at a rent of $700/unit, no thanks.
Today I have a fairly high cost maintenance/cap expense due to a water leak. The plumber has been at the unit 1.5 hours already and has not determined the source of the leak. At least one BR rug is ruined. A second BR rug is saturated and possibly ruined. Walls have been opened up that will need to be repaired. Granted this is not an every month event, but it does not have to be to be a significant impact on the cash flow.
I would not consider any small unit count property with $700/month per unit rent a good buy n hold RE.
I understand and respect your position, but the reason I think you think capex will eat up all the cashflow on a $700 a month property is because you don’t realize how cheap labor is in these areas. For the issue you mentioned, on the plumbing leak for example, that would be minimal for me. A case of beer, a pack of cigarettes, and maybe $150 to my contractor. He’ll replumb an entire house with pex for a couple hundred bucks. I had a break between the water meter and the house and had to excavate from the street all the way to the house (20 feet), have a new line run and a shut off valve installed-$1600 total. If something needs to be fixed, I can get someone over there for $20 because he’s working on my next project. If I didn’t have that, maybe $100, but it would have to be a pretty big issue. I can have sewer lines cleaned out for $125. Labor is cheap here. Like others have said, you do the work upfront, electrical, plumbing and hvac. I try to target around 30k after the rehab, 19k purchase with a 10k rehab, somewhere in there. I’ve done better, I’ve done a little worse. I am local. A no slumlord here. Everything is Section 8. We put in several nice features (lower mid grade durable materials) that look like what is going on on HGTV
I do believe locals can make these properties work for exactly the reasons you listed but it takes work and is not passive. Ashley Hamilton is succeeding in Detroit and likely doing better than she could at a W2 job and likely has more freedom.
You could certainly do the same thing in Kansas.
I was indicating the difficulty of succeeding in the $30k RE for the OOS investor that cannot do the items that you can do that can allow you to succeed. They typically need to use a PM, they typically cannot do any of the work themselves, they typically cannot hire someone for a case of beer. Their labor costs are not the same as the non-passive, local RE investor
I do believe local investors can succeed on these properties but they need to realize it requires effort, basically a job that often has a bit more freedom. Because of the effort involved, it does not scale easily but can provide the local investor the leaning opportunity and the opportunity to pivot to something that scales better. I hope you have a ton of success.
I think it unlikely the OOS investor can succeed on these RE. Elliott was from OOS (Sacramento). As an OOS investor, I would not have considered his purchase, without a value add, due to the low rent per unit as well as the historical non-existent appreciation; the ROI (in this case I include effort in the Investment) is not enough.
I question in any OOS investor buying these $30k RE has used this approach for 15 years? 10 years? I suspect 0 investors on BP at 15 years. Very few, maybe 0, at 10 years. There is a reason they have pivotted away from the $30k RE. Again, I am referring only to non-local investors in these properties.
Hi Dan,
Not to nitpick your thoughtful response, but little things stand out. Like: "but they need to realize it requires effort, basically a job that often has a bit more freedom. Because of the effort involved, it does not scale easily but can provide the local investor the leaning opportunity and the opportunity to pivot to something that scales better."
When I read that, I get the feeling you think all landlords in this segment are spending 20-30 hours a week managing their properties. Some of the responses from landlords experienced in this segment indicate that, but not all. For instance, if all my units are rented, I usually spend less than three hours total a month managing my properties. I spend a lot of time during the purchase/reno cycle because I'm very hand-on (managing, not working because I have no skills there ;) )
But post reno, besides placing tenants, it's an easy endeavor. Most of my tenants stay more than a year. In fact, none of my current tenants have been in place less than a year. I have a vacancy in a property I bought a while ago and haven't put the first tenant in yet, and I have another property that has an 18-month tenant that is leaving soon. I can go months without any service-related calls. I've had one clogged plumbing line in the last few years, one light fixture go bad in years ... I know there has to be something else, but i can't think of anything right now.
And I'm not the only one. This doesn't have to be the doom-and-gloom scenario and/or success-only-if-it-is-a grinding-job-of-an-investment like some people are making it out to be. There is a scenario where investors in this segment can be successful and not give their entire lives over to the management of the investments, just as with other segments of REI.
Does it take a certain education/knowledge/skillset? Certainly! But every worthwhile endeavor does.
If you have vast first-hand experience where you've attempted this and failed multiple times, please share. I agree that this segment is probably not for hand-off passive investing OOS investors. But not because it requires more work than other hands-on investing. Rather because it requires a specific type of knowledge and education. I would hate for anyone to be misled and think this is impossible ... just as I would hate for anyone to be misled and think any idiot can make money doing this.
Oh, and it can scale very well. The only thing keeping me from scaling faster is financing. If only I had a six-figure w2!!!! A guy in an investment group I'm in owns dozens of these types of properties, and he doesn't spend long hours every week managing his investments. He owns stores and other businesses and travels frequently -- he travels probably 4-6 months a year. That's not the picture of someone busting his arse managing impossibly difficult low-cost investment properties. He has a woman who works in a small office 2 days a week for about 3 hours each of those days -- otherwise, no one is regularly in that office. That's pretty doggone passive if you ask me. But, he has a wealth of knowledge of how to invest in this segment. That's how he succeeds. Not by working 30 hours a week on it, but by knowing how to succeed at it. Just like any other successful investor.
@Account Closed I'm way into this club. Especially if you're purchasing at well below market, the property is near rent ready condition, and the neighborhood supplies plenty of tenant demand + low operating expenses and landlord friendly laws. As long as we're accurately estimating future cap ex expenses based on present condition and replacement cost of each component & the previous rules apply this works out.
Maybe all of the investors that tell us not to do it are trying to keep all of the best opportunities for themselves ;)
Here's a mind-blower: I just picked up a 3plex that was fully rehabbed but vacant, owned by an older gentleman who was simply done with the enterprising stage of his life and wanted to rest. Bought it for (far below market val) 25k. Rented it for gross 2100 in less than 30 days after purchase with 1k invested in misc. unit preparation. Taxes are 900$/yr... water bill is 35$ a month. Would love to see someone tell me not to buy that sucker again. If I could, I would liquidate my all of assets and purchase it 50 times over for gross rents of 105k/month LMAO.
There are good deals left everyone!
I would pass on having such a property as a buy n hold. Maybe I would flip it.
Why would I pass as a buy n hold? The $700/unit is significantly below my minimum rent threshold. A large cap ex item can consume too many months of the "cash flow". I do not know what you projected the cash flow at but each tenant of these smaller unit count units takes time. Three separate tenants at a rent of $700/unit, no thanks.
Today I have a fairly high cost maintenance/cap expense due to a water leak. The plumber has been at the unit 1.5 hours already and has not determined the source of the leak. At least one BR rug is ruined. A second BR rug is saturated and possibly ruined. Walls have been opened up that will need to be repaired. Granted this is not an every month event, but it does not have to be to be a significant impact on the cash flow.
I would not consider any small unit count property with $700/month per unit rent a good buy n hold RE.
I understand and respect your position, but the reason I think you think capex will eat up all the cashflow on a $700 a month property is because you don’t realize how cheap labor is in these areas. For the issue you mentioned, on the plumbing leak for example, that would be minimal for me. A case of beer, a pack of cigarettes, and maybe $150 to my contractor. He’ll replumb an entire house with pex for a couple hundred bucks. I had a break between the water meter and the house and had to excavate from the street all the way to the house (20 feet), have a new line run and a shut off valve installed-$1600 total. If something needs to be fixed, I can get someone over there for $20 because he’s working on my next project. If I didn’t have that, maybe $100, but it would have to be a pretty big issue. I can have sewer lines cleaned out for $125. Labor is cheap here. Like others have said, you do the work upfront, electrical, plumbing and hvac. I try to target around 30k after the rehab, 19k purchase with a 10k rehab, somewhere in there. I’ve done better, I’ve done a little worse. I am local. A no slumlord here. Everything is Section 8. We put in several nice features (lower mid grade durable materials) that look like what is going on on HGTV
I do believe locals can make these properties work for exactly the reasons you listed but it takes work and is not passive. Ashley Hamilton is succeeding in Detroit and likely doing better than she could at a W2 job and likely has more freedom.
You could certainly do the same thing in Kansas.
I was indicating the difficulty of succeeding in the $30k RE for the OOS investor that cannot do the items that you can do that can allow you to succeed. They typically need to use a PM, they typically cannot do any of the work themselves, they typically cannot hire someone for a case of beer. Their labor costs are not the same as the non-passive, local RE investor
I do believe local investors can succeed on these properties but they need to realize it requires effort, basically a job that often has a bit more freedom. Because of the effort involved, it does not scale easily but can provide the local investor the leaning opportunity and the opportunity to pivot to something that scales better. I hope you have a ton of success.
I think it unlikely the OOS investor can succeed on these RE. Elliott was from OOS (Sacramento). As an OOS investor, I would not have considered his purchase, without a value add, due to the low rent per unit as well as the historical non-existent appreciation; the ROI (in this case I include effort in the Investment) is not enough.
I question in any OOS investor buying these $30k RE has used this approach for 15 years? 10 years? I suspect 0 investors on BP at 15 years. Very few, maybe 0, at 10 years. There is a reason they have pivotted away from the $30k RE. Again, I am referring only to non-local investors in these properties.
Hi Dan,
Not to nitpick your thoughtful response, but little things stand out. Like: "but they need to realize it requires effort, basically a job that often has a bit more freedom. Because of the effort involved, it does not scale easily but can provide the local investor the leaning opportunity and the opportunity to pivot to something that scales better."
When I read that, I get the feeling you think all landlords in this segment are spending 20-30 hours a week managing their properties. Some of the responses from landlords experienced in this segment indicate that, but not all. For instance, if all my units are rented, I usually spend less than three hours total a month managing my properties. Most of my tenants stay more than a year. In fact, none of my current tenants have been in place less than a year. I have a vacancy in a property I bought a while ago and haven't put the first tenant in yet, and I have another property that has an 18-month tenant that is leaving soon. I can go months without any service-related calls. I've had one clogged plumbing line in the last few years, one light fixture go bad in years ... I know there has to be something else, but i can't think of anything right now.
And I'm not the only one. This doesn't have to be the doom-and-gloom scenario and/or success-only-if-it-is-a grinding-job-of-an-investment like some people are making it out to be. There is a scenario where investors in this segment can be successful and not give their entire lives over to the management of the investments, just as with other segments of REI.
Does it take a certain education/knowledge/skillset? Certainly! But every worthwhile endeavor does.
If you have vast first-hand experience where you've attempted this and failed multiple times, please share. I agree that this segment is probably not for hand-off passive investing OOS investors. But not because it requires more work than other hands-on investing. Rather because it requires a specific type of knowledge and education. I would hate for anyone to be misled and think this is impossible ... just as I would hate for anyone to be misled and think any idiot can make money doing this.
Cheers and good fortune, my friend.
My opinion is, without an active role, the cap expense will eventually consume too much of the cash flow. How many years have you been investing in this category of RE? How many units? If it is 15 years or more with a fair number of units then great and I admit someone on this site has been able to succeed at least 15 years in the $30k RE which would surprise me. If it is 10 years or more then still very good as I suspect there to be very few OOS investors that have chosen to stay in the $30k RE for as long as 10 years.
Have you tried to calculate projected cap expenses by looking at expected lifespan and your projected cost in a non-active role? I expect the results will show that the 50% rule is way too optimistic on these properties. It will provide a best estimate at the expected long term cash flow and I expect it to reveal that the cash flow is minimal for non-active investors in the $30k RE.
@Ashley Hamilton congrats to your success!! Doesn't it feel great?
@Account Closed you are spot on in your analogy. If you are talking about mustang's, and people are coming on the the thread who have never had a Mustang or tried it, why are they commenting on this thread?? This is a niche subject.
I dont spend much time on these forums because when I started talking about this 6 years ago on here, I only heard negative. When I would ask the (obvious) question "Have you actually invested in these areas" I would get the "No, but..." -- how the heck are you adding anything important to this discussion if you have absolutely no experience in this area and a ton of stereotypes, privilege, and assumptions - what's your agenda? More on that later, because its not always a bad agenda, but we need to start with the fundamentals assumptions....
I pretty much stop trying to argue with people on here for the following reasons 1) if they think so negatively of this demographic and the "headaches" that go along with it - the tenants don't need landlords like that in their neighborhoods and I don't need to spend time convincing them 2) I don't need to try to learn or convince people who are diametrically opposed to how great this is. It's easier to follow where your tribe is than try to convince other people to your tribe. This niche is very foreign to the investors here for a multitude of reason - class, race, socio-economic familiarity, culturally, etc.
And I don't think they are necessarily wrong for that!! Some mistakes have been made in that demographic where - for that person - it WAS a bad mistake. Now, I help clients build these portfolios all over the united states successfully because i have EXPERIENCE in THIS NICHE- so, yes, you can mess up and will learn from trial and error if you don't know how to take those nuances into account (and these are investing nuances, as well as for this niche in what to expect and how to talk and work with people - you simply can not do it the same as you do other price points).
So, the people who actually have experience aren't wrong, and the people who think it cant work aren't wrong either (and I'm glad, right? Because these tenants deserve someone who comes at it with the energy for "of course this will work+," not the energy of "Well it's cheap! We will "make do" because this is what i can afford - it's a completely different energy and intent you're bringing, so why try to convince people with the latter to go into these neighborhoods - that's not what's needed). And anyways, you need a portfolio you are proud of - Not something you're ashamed to talk about around your dinner table. Everyone does better.
TL;DR - I have personally helped over 600 investors build their portfolios in the last 6 years all over country (although mostly people from NY, DC, VA, MD, TX, CA, and FL), and have inspired 1000s who are CONSISTENTLY posting in our mastermind group their progress, questions, and pictures. This place is not, and will never be, a place where they are going to cheerlead this. Look back at all the forum posts - its blatantly about 5 to 1 again - so, this isn't the place for this discussion- and THAT'S OKAY! That's okay, that's okay! It's not for them. Why try to convince someone with such hesitations about it? Everyone should build a portfolio they love (as I have, and my clients have), but if that's not for you - you don't need to focus on that then, right? But don't go in there because its cheap, because if you're uncomfortable, the tenants will pick up on it- and that doesn't end well. ever. Where as I would not bat an eye in that same neighborhood because I grew up (and out ) of the environment and its extremely familiar with me. What investors SHOULD say is that "Im not into this price range, but you should learn from people who are doing it successfully" and that level of thoughtfulness doesn't come through when I read these comments.
My opinion is, without an active role, the cap expense will eventually consume too much of the cash flow. How many years have you been investing in this category of RE? How many units? If it is 15 years or more with a fair number of units then great and I admit someone on this site has been able to succeed at least 15 years in the $30k RE which would surprise me. If it is 10 years or more then still very good as I suspect there to be very few OOS investors that have chosen to stay in the $30k RE for as long as 10 years.
Have you tried to calculate projected cap expenses by looking at expected lifespan and your projected cost in a non-active role? I expect the results will show that the 50% rule is way too optimistic on these properties. It will provide a best estimate at the expected long term cash flow and I expect it to reveal that the cash flow is minimal for non-active investors in the $30k RE.
Between managing family-owned properties and later my own, I've been landlording in this segment for over 25 years. The guy I mentioned is a second-generation landlord, has over 50 doors, and he's been doing it for over 35 years, and his father for probably 30 years before him.
The CapEx isn't that big of a deal. As at least one other response in this thread said, for a knowledgeable hands-on investor, it will not cost the same to hire workers as it may for you in SoCal. I've had guys replumb an entire house for $1000 labor, and that includes kitchen bath and exterior spigots. In SoCal, that's probably a $8K job I guess. I've had a roof installed for $1000 labor, some beer, and some fast food. That roof is then good for 20-25 years. No need to worry about it for the rest of my investment years.
I just had an entire house tiled, and the labor was basically a throw-in for the guy who was doing a lot of the other work for me. Not the best job in the world, but good enough for my purposes. It wasn't really free, but it was less than the $4-$9/sqft some floor contractors want to charge. And I got the tile on sale at Lowes for like $.50/sqft.
I had a guy for a while who would clean houses at turnover for $50 and it looked brand frickin' new -- he once had a job at an apartment complex doing just that, so he knew exactly what needed to be done, better than I knew. Now, none of this is the case for an OOS investor who is using a PM who likely is adding extra management fees on top of each repair because ... well because they can.
After years of doing this, I know which tenants to avoid and which to embrace. I know (generally) which houses to buy, which neighborhoods to avoid, which excuses (from tenants and contractors) to accept and which to reject. I know when a quote/promise/offer sounds too good to be true. I'm no magical genius. Every semi-successful investor in this segment can do these things. But it's not some easy common knowledge shared by every soul in the world.
@Jonathan R. 1350 a month is NOT a unicorn. My client Phillip and I was working with in NY (started 3 weeks ago) got this for a 50k duplex, and 1500 for a 50k - and found this in 1 week. It's fine, not that hard (but, experience helps with that, experience helping all sorts of people from all over goes into tha). But, it's like we are in different realms - when I work with people i have to purge them of the "these don't exist" and flush them out and start anew. They throw away a lot of that "standard advice" which really works for the top 20%, not the 80%. Will have the interview in about 6 weeks (we are finishing the closing process now, just got the inspection report).
My other client, Arthur, is finding those returns as well ($1300 rents for a 30k property) (He is also in NY). But before I work with anyone, i have a frank discussion on their comfort level in class navigation - and not everyone is built to do that well, - I am intentionally narrowing my focus to ensure success and that they have the right mindset.
My opinion is, without an active role, the cap expense will eventually consume too much of the cash flow. How many years have you been investing in this category of RE? How many units? If it is 15 years or more with a fair number of units then great and I admit someone on this site has been able to succeed at least 15 years in the $30k RE which would surprise me. If it is 10 years or more then still very good as I suspect there to be very few OOS investors that have chosen to stay in the $30k RE for as long as 10 years.
Have you tried to calculate projected cap expenses by looking at expected lifespan and your projected cost in a non-active role? I expect the results will show that the 50% rule is way too optimistic on these properties. It will provide a best estimate at the expected long term cash flow and I expect it to reveal that the cash flow is minimal for non-active investors in the $30k RE.
Between managing family-owned properties and later my own, I've been landlording in this segment for over 25 years. The guy I mentioned is a second-generation landlord, has over 50 doors, and he's been doing it for over 35 years, and his father for probably 30 years before him.
The CapEx isn't that big of a deal. As at least one other response in this thread said, for a knowledgeable hands-on investor, it will not cost the same to hire workers as it may for you in SoCal. I've had guys replumb an entire house for $1000 labor, and that includes kitchen bath and exterior spigots. In SoCal, that's probably a $8K job I guess. I've had a roof installed for $1000 labor, some beer, and some fast food. That roof is then good for 20-25 years. No need to worry about it for the rest of my investment years.
I just had an entire house tiled, and the labor was basically a throw-in for the guy who was doing a lot of the other work for me. Not the best job in the world, but good enough for my purposes. It wasn't really free, but it was less than the $4-$9/sqft some floor contractors want to charge. And I got the tile on sale at Lowes for like $.50/sqft.
I had a guy for a while who would clean houses at turnover for $50 and it looked brand frickin' new -- he once had a job at an apartment complex doing just that, so he knew exactly what needed to be done, better than I knew. Now, none of this is the case for an OOS investor who is using a PM who likely is adding extra management fees on top of each repair because ... well because they can.
After years of doing this, I know which tenants to avoid and which to embrace. I know (generally) which houses to buy, which neighborhoods to avoid, which excuses (from tenants and contractors) to accept and which to reject. I know when a quote/promise/offer sounds too good to be true. I'm no magical genius. Every semi-successful investor in this segment can do these things. But it's not some easy common knowledge shared by every soul in the world.
I have gotten mixed responses in your active level. In one post you indicate you take a passive role and in this post you indicate you are a “hands-on investor”. I continue to believe “Hands-on investors” can succeed in these markets for the reasons you listed.
Again, I am referring to OOS, passive investors and their maintenance/cap expense.
We sold a property a short while back on a lake in Alabama. It had a long-term tenant in it that had just vacated. It needed typical items necessary for a long term tenant turnover (paint, rugs, some weather rot, other minor repairs). The PM gave an estimate of $7k to $8k which is not unreasonable for a passive role but we had decided to sell. For that $7k to $8k we may have gotten $10k additional (probably less) for the RE but with risk and a short time off the market. We sold it without doing the work with the belief an active local investor hiring out the work could do it for ~$5k. A local investor doing the wok themselves could probably do it for less than $3k (painting is mostly labor, all needed items were handyman type items).
Our OOS experience is maintenance/cap expense is significantly higher for OOS, passive investors than it is for active RE owners.
I love that this thread has now gone well out of looky-look territory and into a useful deep dive. Sadly, I'm at my rehab for the day and posting off my phone. There's some stuff in here that I'd like to respond to later tonight when I'm behind a keyboard.
Special thanks to Randy and Dennis for coming on board here...we now have the makings of a very useful diacussion on how money is made in this segment. Wish I could rope Derrick E. into this one, but I'm sure he's way too busy running rings around all of us down in the Huntington, WV area.
I have gotten mixed responses in your active level. In one post you indicate you take a passive role and in this post you indicate you are a “hands-on investor”. I continue to believe “Hands-on investors” can succeed in these markets for the reasons you listed.
I am "hands-on". I don't use a PM.
However, managing my rentals myself doesn't mean I spend so many hours a week doing this that it is like an onerous "job", which is how you have tried to describe this scenario. Once my units are rented, I spend very little time managing them. There are very few unexpected repairs that pop up, because my properties are not time bombs.
Yet, during a rehab, being hands-on means being around the project and dealing with contractors. That does take time. But, I'm not a flipper, so it's not like I always have rehabs in progress. Most of the time, there is nothing for me to do when it comes to managing the properties except collect the rent.
Once again, though, Dan, I don't want to give the impression that I'm trying to convince you that this route is a good idea for you or any other specific investor. My sole goal is to dispel any inadvertent bad advice some people who don't have real first-hand experience in this segment are spreading. I try not to speak about how to run syndication deals because I know nothing about managing syndication arrangements, and I know my information would likely be wrong and look foolish. But people who have no real experience managing low-cost properties for working class tenants always seem to rush to warn investors away from the segment with unintentional halftruths and mistruths.
The reason an OOS investor (or any investor) has difficulty succeeding in this sector may be because they don't have the requisite experience. Not because it is an impossible venture. Please consider that possibility. Or the possibility that many PM companies and Turnkey operators may have their own best interests in mind ahead of any investors'
Ashley, Linda, Jim K, and others have chimed in here to give their experiences. There are others here on BP that have done it. These investors are smart at what they do, diligent, motivated, and honest. It's very unfair for anyone to try to erase the work they are doing by implying they have been lucky. The simple fact is they have been SMART. And others maybe aren't smart enough when it comes to this particular sector.
Stuart...almost by accident, you seem to have started a useful, substantial thread. I just wish you were a touch less confrontational about things you're actively asking to learn something about.
And your whole positivity all-the-time kick...it reminds me of propaganda shots of the Hitler Youth and the Soviet Union's Young Pioneers, all those teenagers in line with wide fixed smiles enthusiatically doing calisthenics in the broiling sun, not a hint of the death camps or the gulags about them as they focused on an ever-more-brilliant future to come, the Thousand Year Reich and the Worker's Paradise.
In this country, I have learned to deeply mistrust permanently positive people who melt into puddles and wail at the first sign of real hardship. Maybe it's just how I was brought up. Maybe it's not how you were, although the Brits I know are used to cloudy skies and expect the occasional bombs to fall out of them.
Originally posted by : @Lisa What investors SHOULD say is that "Im not into this price range, but you should learn from people who are doing it successfully" and that level of thoughtfulness doesn't come through when I read these comments.
I have gotten mixed responses in your active level. In one post you indicate you take a passive role and in this post you indicate you are a “hands-on investor”. I continue to believe “Hands-on investors” can succeed in these markets for the reasons you listed.
I am "hands-on". I don't use a PM.
However, managing my rentals myself doesn't mean I spend so many hours a week doing this that it is like an onerous "job", which is how you have tried to describe this scenario. Once my units are rented, I spend very little time managing them. There are very few unexpected repairs that pop up, because my properties are not time bombs.
Yet, during a rehab, being hands-on means being around the project and dealing with contractors. That does take time. But, I'm not a flipper, so it's not like I always have rehabs in progress. Most of the time, there is nothing for me to do when it comes to managing the properties except collect the rent.
Once again, though, Dan, I don't want to give the impression that I'm trying to convince you that this route is a good idea for you or any other specific investor. My sole goal is to dispel any inadvertent bad advice some people who don't have real first-hand experience in this segment are spreading. I try not to speak about how to run syndication deals because I know nothing about managing syndication arrangements, and I know my information would likely be wrong and look foolish. But people who have no real experience managing low-cost properties for working class tenants always seem to rush to warn investors away from the segment with unintentional halftruths and mistruths.
The reason an OOS investor (or any investor) has difficulty succeeding in this sector may be because they don't have the requisite experience. Not because it is an impossible venture. Please consider that possibility. Or the possibility that many PM companies and Turnkey operators may have their own best interests in mind ahead of any investors'
Ashley, Linda, Jim K, and others have chimed in here to give their experiences. There are others here on BP that have done it. These investors are smart at what they do, diligent, motivated, and honest. It's very unfair for anyone to try to erase the work they are doing by implying they have been lucky. The simple fact is they have been SMART. And others maybe aren't smart enough when it comes to this particular sector.
I understand what you are saying. I think that the RE is probably more active than you are treating it. We have rehabbed a lot of units acting like the prime. They each take significant time. Managing maintenance and repairs takes time. Book keeping takes time. I believe active investors can succeed with $30K RE.
I also have done the projected cap expense calculations for our units. We are small unit count RE so no discount of scale. I have done it for our past OOS units and our local units. I have done it when we were more active and being more passive. What it has shown me is that the 50% rule is optimistic in these lower rent units for a passive investor. This is not the case for the active investor who is managing rehabs themselves or, even more efficient in terms of cost, doing some of the work themselves.
I have yet to hear one OOS passive investor who has stayed in the $30K units for as long as 15 years. Again this is the passive, OOS investor, not the investors like you (or the ones you listed that I am aware of) that have a significant role in their RE.
We currently self manage 12 units and have 6 units with managers. My wife meets the criteria for RE professional which means she spends more than 750 documented hours. I also spend some time on RE related activities. That is the reality of our level of effort. I could reduce my hours but many of my hours I use as teaching for my son and his best friend. Also I enjoy many of the hours.
I really think we are of a similar mindset on this except for maybe the maintenance/cap expense cost to the passive investor. it is my view that it makes the $30K RE produce little cash flow (or worded differently the 50% rule is optimistic on these properties for these passive investors). Again this is not the case for the active investor.
