Real Estate Agent · Lancaster, PA · Member since 2018 · 63 posts · 59 votes
6y
Good Afternoon,
So there are a couple of things that go along with your question. So I'll talk about my experience. However, that is not the only outcome when it comes to low-cost buy-in properties. So it really depends on the area in which you are buying in. Will the tenants pay on time and take care of the home? If you say you can buy a property at 50k and rent it out to a tenant for 895 a month or higher is it worth it? Well on paper yes. Now we are also assuming tenant pays all utilities. So if that is the case on paper it is great. But how old is the home? Are there maintenance issues that will need to be addressed right away or a year or two down the road. I personally have found that if you buy a home that is older and a roof or heating system is required to be updated your cash flow disappears. Now if you do the work your self you could save money upfront but what's your time worth. So if you get the home in a place or buy the home in a place where there is minimal maintenance the home could cash flow well. I have over the last 2 years switched from buying this type of property to buying a value properties and in nicer newer neighborhoods. The reason I started to switch to this was for several reasons. 1. I like the appreciation. We are seeing a higher appreciation in higher-priced markets, which would make sense if on average you see a 2% appreciation in your market. The Higher the price the more appreciation. 2. tenants tend to pay on time, But this goes into screening your tenants and making sure you are picking qualified tenants. 3. Less maintenance on a home if it is a newer home. Now, this is all things that can be accounted for when you are researching your properties and to see if it's worth buying but this is why I tend to stay away from lower-priced markets. This is also a general statement and can vary market to market. For example, we have two cities 20 minutes apart. City 1 - for a 4/1 you could buy a home for 40k and rent it out for 795 a month. Taxes are 600 a year. Seems good, but City 2 - For a 4/1 100k rent it for 1200 a month. taxes 3500 a year. I own properties in both and my properties in City 2 outperform my properties in City 1 every year. Now with anything, there are variables. I hope this helps.
Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
6y
@Abhishek Pareek As long as you do a 3rd party inspection and really look at structural, safety and mechanical issues. You budget for major mechanicals based on how old the current are and you have a contractor bid any updates you want to make I don't see it as any more or less risky than more expensive properties. Does this answer your question?
Rental Property Investor · Clayton, NC · Member since 2019 · 7 posts · 2 votes
6y
@Abhishek Pareek As a new investor myself, I had decided to take lesser risk early on by not buying properties that cost that low. As we gained some experience with some minor rehabs, we now feel more confident to take on slightly bigger rehabs and slightly more risks. It depends on your prior experience and comfort level. There's more profits in cheaper properties, but you also have to do more work and be ready to deal with issues (both issues with the house and tenant issues). We are trying to find the right balance going forward. Hope that helps.
New to Real Estate · Member since 2020 · 52 posts · 7 votes
6y
@Vish Patel thanks for your suggestions..so I bought a property in burlington 120k..what I look is new roof/floor/hvac/water heater etc. so major appliances should be good..inspection makes it clear...so property is good...cash flow okayish..tenants have been in from a long time..thats all i look for now
Rental Property Investor · Clayton, NC · Member since 2019 · 7 posts · 2 votes
6y
@Abhishek Pareek Got it. Makes sense. I think as long as you get a good inspection and fix the major items, and you are also comfortable with the area and tenants, you should be good. It would just appreciate at a slower rate than higher priced properties in most situations. But again, if you are looking for more cashflow than appreciation, then it doesn't matter.
Real Estate Agent · San DIego · Member since 2019 · 177 posts · 185 votes
6y
Any properties that are still priced at 50K in 2020 are unlikely to appreciate in a significant way, unless the price point is due to extensive repairs. If it's in good, rentable shape, it's got to be in a terrible neighborhood or a depressed area with little or no job advancement opportunities. If the location was excellent, the purchase price for the property would reflect this. Low economic opportunity is the basic formula for low purchase price, high rental income properties. That's where the best cashflow is. You're buying in an area where people or Section 8 pays a basic formulaic price for rent, so the rents are high relative to the purchase price. People are just trying to get by. This is one reason why Section 8 can be great for this kind of investment. The inspections can actually work in your favor and the checks are stable.
Unfortunately, if you're investing out of state, you loose some of the ability to mitigate costs through applying your common sense or putting in sweat equity. Roofs and appliances will still cost the same in a cheap house vs. a better home.
@Vish Patel but am also looking for 50k properties which is in very good condition and tenants are in place. So any more risks you think i can face?
This is the situation I was outlining above. If it's in good condition, why not? Also, purchase price may be low enough that if it is in rougher condition you have more room in your budget to upgrade and raise rent even more. If it's performing as-is at 50k, what could 10-20k do? Purchase price being lower than normal for an area could also allow you to get a higher arv for less work. In OKC a 50k property is just below what's normal for a cash flowing property, so I see those properties as great targets to hopefully raise rent/value for less!