Start With Cheap Rentals or Buy Better Property With a Loan?
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Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
1yHey Steve—great question. You’ll probably get a lot of responses telling you to avoid cheap houses at all costs… but I think it’s a bit more nuanced than that.
When I started out, I actually planned to buy in Ann Arbor (I was living in the Detroit suburbs at the time). But once I ran the numbers, it just didn’t make sense for my goals—too expensive, too little cash flow. So I pivoted and started buying in Detroit proper instead.
My first couple deals were $45K homes in C/C+ areas (not D-class), fully rented and in decent shape. The cash flow was solid, but I realized quickly that to really move the needle, I needed to add value. So I started buying off-market fixers, doing cosmetic rehabs, and then refinancing. That’s when things really started to click.
Fast forward to today: I've got 12 doors, and I've pulled all of my capital out (and then some) through BRRRR. And here's the kicker—everything I own has appreciated 2.5x–3.5x since I bought.
So yes, I believe in buying the cheap houses. But you can’t do it blindly or without a strategy. Detroit is a special market right now—still affordable, and there’s real appreciation momentum happening. I wouldn’t try to run this same playbook in rural Alabama or a flat Midwest town. Detroit has its challenges, but if you learn the market and play it right, the rewards can be huge.
Last thought: if you’re just buying and hoping for appreciation in 6–12 months, you’re probably going to be disappointed—unless you’re adding value.
Happy to share more if helpful.
33 Replies
- 1yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
definitely not the first option. you don't get enough appreciation in 6-12 months to refinance... that will not happen. and those are very difficult properties to manage as you seem to know.
why do you then make such a huge jump in price? what about the middle?
- 1yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
it really depends. a lot of us don't invest primarily for appreciation, so it's hard to look at it only through that lens.
can you start with a house hack?
Quote from @Nicholas L.:
it really depends. a lot of us don't invest primarily for appreciation, so it's hard to look at it only through that lens.
can you start with a house hack?
What do u mean a house hack? And for what are you investing if not for appreciation since the cash flow is not more than the market that also gives you 10% annually on avarage
- Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes1y
50-100K and 400-500K are vastly different property types. In my area that is going from a F/D property to an A class. 400-500k often don't make sense mathematically. It will appreciate and you'll have strong tenants but none or negative cashflow. The middle ground is where most land. That can be in the 150-300K range. You'll want to start vetting properties, running numbers and networking to get a feel in the area. Understanding what kind of area will be important. The rougher the area the lower the appreciation, more repairs, higher vacancy while the upper end is the opposite. Being in the 150-300K range will be C-B area so you are in the middle.
Quote from @Caleb Brown:
50-100K and 400-500K are vastly different property types. In my area that is going from a F/D property to an A class. 400-500k often don't make sense mathematically. It will appreciate and you'll have strong tenants but none or negative cashflow. The middle ground is where most land. That can be in the 150-300K range. You'll want to start vetting properties, running numbers and networking to get a feel in the area. Understanding what kind of area will be important. The rougher the area the lower the appreciation, more repairs, higher vacancy while the upper end is the opposite. Being in the 150-300K range will be C-B area so you are in the middle.
Got it, would you have any recommendations in areas that range for this middle class price?
It seems like to least amount of risk for the most amount of appreciation and cash flow relative to the other options that are extreme in both ways
- Real Estate Agent · Memphis, TN · Member since 2019 · 365 posts · 264 votes1y
@Steve Bob you’re thinking about this the right way. I’d recommend leaning toward median-priced homes in markets like Memphis, Little Rock, OK, or TX—these areas typically fall in the $200K–$300K range and strike a solid balance between cash flow and long-term appreciation.
You’ll want to avoid the ultra-cheap stuff because it often means weaker neighborhoods, more maintenance issues, and higher resident turnover. That low entry point can be tempting, but it usually ends up costing more in the long run and creates a less passive experience. The middle ground is where you find the best mix of stability and upside.
- 1yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
Save and buy a better place. On paper many of the cheap homes look good, but you will have higher turn over, attract lower quality of tenant and have more repair costs. Buy something that is a good starter home in a good area. Talk to a real estate agent who works with investors. A $400K home is going to be harder to rent and cash flow.
- 1ySeth McGatheyBusiness MemberReal Estate Agent · Milwaukee WI · Member since 2024 · 321 posts · 255 votesAs others have stated, appreciation is not going to be worth it in 1 year. Average appreciation is 3% annually. So if you buy a $100,000 property outright, and get that $3000 appreciation. My guess is you are going to spend that in repairs or vacancy. Usually if you want to immediately turn around and get a new property within a year of a purchase, you need to put some money into fixing the place up/adding something to it. Usually adding an extra bedroom or unit. Thats the quickest way to get your money back out of it. But generally if you want to get the most bang for your buck, you want to use leverage. For example, if you buy a $100,000 house cash. Let’s say you can rent it out for $1000 a month. In 100 months you will have made your money back off rent plus gain any appreciation over that 8 years. If instead you put that same $100,000 down on a bigger property, at 20% down you could buy a $500,000 property. Likely you can get a decent 4 plex for that. Renting each one out for $1000. So now you are getting $4000 a month. Yea, you have to pay the mortgage and interest payments, but you are still transacting $4000 a month on a $100,000 investment instead of $1000 a month on a $100,000 investment. And if you want to leverage further, you could do what others mentioned, which is house hack. Where you buy that 4 plex and live in one unit. Now you can put as low as 3.5-5% down. So you can put just $25,000 down. And all of that to say you still get the appreciation, so you are appreciating $15,000 per year at 3% rather than that $3000 a year. You can see how much faster you are growing your money that way. Now take all those numbers with a grain of salt. You do have to factor in capex, insurance, closing costs, and all the other expenses. But the general idea is the same. The less you can get lenders to allow you to put down on the property, generally, the more profitable you can make the property long term. Usually the only reason people pay cash for a property outright is if they are looking for immediate cashflow rather than longterm profits.
Seth McGathey - Shorewest Realtor4.912 Reviews Got it so appreciation primarily comes from high value assets not from the smaller lower quality ones. you mentioned the 4 plex I think that requires a little more experience to find a good 4 plex for that price and make it profitable doesn't it? I'm a beginner and seeking for a quality sfh for 300k approx with solid appreciation potential and to the very least not negative cash flow in the NJ or PA area, anyone have any leads for such an environment?
- 1ySeth McGatheyBusiness MemberReal Estate Agent · Milwaukee WI · Member since 2024 · 321 posts · 255 votes
@Steve Bob if I were you my next step would be listen to the Bigger Pockets podcast for a few weeks. There is nothing wrong with being new and taking your time to make sure you know what you are getting into. Your questions lead me to believe you have the drive and intelligence to do this and just are lacking the knowledge. So first step is dig deep into the knowledge.
A single family is fine, but keep in mind you limit your cashflow capabilities. This being said as someone who's first property was a single family that has been very profitable for me. But I probably could have made way more if I had bought a multi family.
I can't speak to your market because I am in Milwaukee. But I suggest if you want to go local (which I think is a good idea) I recommend house hacking. If you are not going local, I suggest going somewhere cheaper like the Midwest.
Seth McGathey - Shorewest Realtor4.912 Reviews @Seth McGathey thanks I appreciated
will definitely check the podcast and it's the first time I hear about multi family cash flow benefits I gotta research more about it
- Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes1y
Invest in A or B locations, not D locations. Buying a house that is in a bad area for cash and thinking it will cash flow, because it looks good on a spreadsheet is the best way to go broke and hate real estate. Bad areas are tough to cash flow and provide very slow appreciation.
If you're buying a SF/duplex, I would highly consider only buying in your back yard and not purchasing out of state. If that doesn't work for your area, then look at different ways to invest, like investing in a syndication, buying a NNN lease property, note investing, hard money lending, etc.
Don't be in a rush to buy. It sounds like you've still got a lot to learn still, so be diligent and soak up the information.
- 1yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
Great question—both strategies can work, but they serve different goals. Buying cheaper, cash-flowing properties outright in rougher areas can help you scale faster using the BRRRR method, especially if you're comfortable with higher tenant and management risk. On the other hand, putting your cash into a stronger asset in a better neighborhood may offer more stable appreciation and fewer headaches, but it'll likely take longer to scale. If your goal is long-term wealth and portfolio growth, the BRRRR route can be more aggressive, but only if you're confident in managing the risks.
Good luck!
NETWORTH BUILDERS5236 Reviews - Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes1y
Hey Steve—great question. You’ll probably get a lot of responses telling you to avoid cheap houses at all costs… but I think it’s a bit more nuanced than that.
When I started out, I actually planned to buy in Ann Arbor (I was living in the Detroit suburbs at the time). But once I ran the numbers, it just didn’t make sense for my goals—too expensive, too little cash flow. So I pivoted and started buying in Detroit proper instead.
My first couple deals were $45K homes in C/C+ areas (not D-class), fully rented and in decent shape. The cash flow was solid, but I realized quickly that to really move the needle, I needed to add value. So I started buying off-market fixers, doing cosmetic rehabs, and then refinancing. That’s when things really started to click.
Fast forward to today: I've got 12 doors, and I've pulled all of my capital out (and then some) through BRRRR. And here's the kicker—everything I own has appreciated 2.5x–3.5x since I bought.
So yes, I believe in buying the cheap houses. But you can’t do it blindly or without a strategy. Detroit is a special market right now—still affordable, and there’s real appreciation momentum happening. I wouldn’t try to run this same playbook in rural Alabama or a flat Midwest town. Detroit has its challenges, but if you learn the market and play it right, the rewards can be huge.
Last thought: if you’re just buying and hoping for appreciation in 6–12 months, you’re probably going to be disappointed—unless you’re adding value.
Happy to share more if helpful.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes1y
Quote from @Travis Biziorek:
Hey Steve—great question. You’ll probably get a lot of responses telling you to avoid cheap houses at all costs… but I think it’s a bit more nuanced than that.
When I started out, I actually planned to buy in Ann Arbor (I was living in the Detroit suburbs at the time). But once I ran the numbers, it just didn’t make sense for my goals—too expensive, too little cash flow. So I pivoted and started buying in Detroit proper instead.
My first couple deals were $45K homes in C/C+ areas (not D-class), fully rented and in decent shape. The cash flow was solid, but I realized quickly that to really move the needle, I needed to add value. So I started buying off-market fixers, doing cosmetic rehabs, and then refinancing. That’s when things really started to click.
Fast forward to today: I've got 12 doors, and I've pulled all of my capital out (and then some) through BRRRR. And here's the kicker—everything I own has appreciated 2.5x–3.5x since I bought.
So yes, I believe in buying the cheap houses. But you can’t do it blindly or without a strategy. Detroit is a special market right now—still affordable, and there’s real appreciation momentum happening. I wouldn’t try to run this same playbook in rural Alabama or a flat Midwest town. Detroit has its challenges, but if you learn the market and play it right, the rewards can be huge.
Last thought: if you’re just buying and hoping for appreciation in 6–12 months, you’re probably going to be disappointed—unless you’re adding value.
Happy to share more if helpful.
Congratulations on your success; you were at the right place at the right time. And you did the right things, I am sure it was hard work. But now it's 2025, things are very different and you are giving a noobie the impression one can buy $45k homes and expect them to appreciate 2.5x-3.5x in a few years.
You have probably benefited from the unicorn years we have seen in 2022 and 2023 when real estate values went through the roof, but now we are back to reality. Prices are already very high after the exuberance, in fact on the very edge of affordability and home appreciation is back to historically more normal levels - at best!
Zillow's April forecast is predicting now home prices to fall 1.9% this year.
https://www.zillow.com/research/home-value-sales-forecast-33...To see homes values go 3X will probably take 30 years or so..
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes1y
Quote from @Marcus Auerbach:
Quote from @Travis Biziorek:
Hey Steve—great question. You’ll probably get a lot of responses telling you to avoid cheap houses at all costs… but I think it’s a bit more nuanced than that.
When I started out, I actually planned to buy in Ann Arbor (I was living in the Detroit suburbs at the time). But once I ran the numbers, it just didn’t make sense for my goals—too expensive, too little cash flow. So I pivoted and started buying in Detroit proper instead.
My first couple deals were $45K homes in C/C+ areas (not D-class), fully rented and in decent shape. The cash flow was solid, but I realized quickly that to really move the needle, I needed to add value. So I started buying off-market fixers, doing cosmetic rehabs, and then refinancing. That’s when things really started to click.
Fast forward to today: I've got 12 doors, and I've pulled all of my capital out (and then some) through BRRRR. And here's the kicker—everything I own has appreciated 2.5x–3.5x since I bought.
So yes, I believe in buying the cheap houses. But you can’t do it blindly or without a strategy. Detroit is a special market right now—still affordable, and there’s real appreciation momentum happening. I wouldn’t try to run this same playbook in rural Alabama or a flat Midwest town. Detroit has its challenges, but if you learn the market and play it right, the rewards can be huge.
Last thought: if you’re just buying and hoping for appreciation in 6–12 months, you’re probably going to be disappointed—unless you’re adding value.
Happy to share more if helpful.
Congratulations on your success; you were at the right place at the right time. And you did the right things, I am sure it was hard work. But now it's 2025, things are very different and you are giving a noobie the impression one can buy $45k homes and expect them to appreciate 2.5x-3.5x in a few years.
You have probably benefited from the unicorn years we have seen in 2022 and 2023 when real estate values went through the roof, but now we are back to reality. Prices are already very high after the exuberance, in fact on the very edge of affordability and home appreciation is back to historically more normal levels - at best!
Zillow's April forecast is predicting now home prices to fall 1.9% this year.
https://www.zillow.com/research/home-value-sales-forecast-33...To see homes values go 3X will probably take 30 years or so..
Thanks, Marcus. I wasn't giving any impressions of anything though. I simply stated what I've done and what my experience has been.
I am very vocal about prices in Detroit today. Obviously, if my $45k home have gone up 2-3x I'm not suggesting people buy $45k homes in Detroit today. There are very few left anyway and they aren't worth buying.
I also did not imply that homes will appreciate in Detroit 3x or more in the coming years. I do, however, firmly believe we'll see Detroit home prices double (at a minimum) in the next 5-7 years.
As I'm sure you know, real estate is local. Detroit is an extremely interesting market with a ton of momentum and a very low median home base (currently about $100,000). Thinking broad forecasts work as blanket statements is a great way to stay sidelined.As the saying goes, there's always a bull market somewhere.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes1y
Quote from @Travis Biziorek:
Quote from @Marcus Auerbach:
Quote from @Travis Biziorek:
Hey Steve—great question. You’ll probably get a lot of responses telling you to avoid cheap houses at all costs… but I think it’s a bit more nuanced than that.
When I started out, I actually planned to buy in Ann Arbor (I was living in the Detroit suburbs at the time). But once I ran the numbers, it just didn’t make sense for my goals—too expensive, too little cash flow. So I pivoted and started buying in Detroit proper instead.
My first couple deals were $45K homes in C/C+ areas (not D-class), fully rented and in decent shape. The cash flow was solid, but I realized quickly that to really move the needle, I needed to add value. So I started buying off-market fixers, doing cosmetic rehabs, and then refinancing. That’s when things really started to click.
Fast forward to today: I've got 12 doors, and I've pulled all of my capital out (and then some) through BRRRR. And here's the kicker—everything I own has appreciated 2.5x–3.5x since I bought.
So yes, I believe in buying the cheap houses. But you can’t do it blindly or without a strategy. Detroit is a special market right now—still affordable, and there’s real appreciation momentum happening. I wouldn’t try to run this same playbook in rural Alabama or a flat Midwest town. Detroit has its challenges, but if you learn the market and play it right, the rewards can be huge.
Last thought: if you’re just buying and hoping for appreciation in 6–12 months, you’re probably going to be disappointed—unless you’re adding value.
Happy to share more if helpful.
Congratulations on your success; you were at the right place at the right time. And you did the right things, I am sure it was hard work. But now it's 2025, things are very different and you are giving a noobie the impression one can buy $45k homes and expect them to appreciate 2.5x-3.5x in a few years.
You have probably benefited from the unicorn years we have seen in 2022 and 2023 when real estate values went through the roof, but now we are back to reality. Prices are already very high after the exuberance, in fact on the very edge of affordability and home appreciation is back to historically more normal levels - at best!
Zillow's April forecast is predicting now home prices to fall 1.9% this year.
https://www.zillow.com/research/home-value-sales-forecast-33...To see homes values go 3X will probably take 30 years or so..
Thanks, Marcus. I wasn't giving any impressions of anything though. I simply stated what I've done and what my experience has been.
I am very vocal about prices in Detroit today. Obviously, if my $45k home have gone up 2-3x I'm not suggesting people buy $45k homes in Detroit today. There are very few left anyway and they aren't worth buying.
I also did not imply that homes will appreciate in Detroit 3x or more in the coming years. I do, however, firmly believe we'll see Detroit home prices double (at a minimum) in the next 5-7 years.
As I'm sure you know, real estate is local. Detroit is an extremely interesting market with a ton of momentum and a very low median home base (currently about $100,000). Thinking broad forecasts work as blanket statements is a great way to stay sidelined.As the saying goes, there's always a bull market somewhere.
I know you didn't intend to, but noobies are calling me all the time with 2012 expectations - and it's 2025. You are probably right with Detroit prices doubling, the difference to the national average is just to large, prices have to trend towards equilibrium. Good luck!
Two things to think of here:
First leverage typically increases your total return. So if you have a 7.5% mortgage and makes 5% on rent and 3% on appreciation, buying cash would yield a 8% return on investing and buying with a mortgage will yield 10% (conservative estimates on both). Hopefully you are getting something closer to 6% on rent and 4% on appreciation so your return is 10% unleveraged and 20% leveraged.
The second issue is where can you get those kinds of returns. When I did my market research in Rochester, NY those returns are found in the C+ to B range of neighborhoods. The B+/A neighborhoods had closer to 4-5% on rent which meant negative cash flow and total reliance on appreciation for returns, while I understand I am not cut out for the lower end market. Affordable for renters and the average folk but still desirable. Part of making a good return is to keep tenants in place longer than average with modest yearly rent increases which keep them close to market rent.
Thanks for all your comments. It's interesting to see how everyone has their own experiences and builds perspective and believes accordingly but I'm sure you all succeeded in the way you recommended me to do.
so to buy cheaper requires more work (like adding value...) than just to buy and await the price hike, would anyone have suggestions for areas in NJ or PA for appreciation growth? And also is there a good book with simple English that explained real estate, how to value a house, neighbourhood and its pricing??
- Rental Property Investor · Medford, OR · Member since 2017 · 94 posts · 115 votes1y
If your goal is to scale, then I would take your cash and buy as many units as possible. If you want a 30-yr fixed loan, then buy a 4-plex. I would not tie up all your cash in a single family home in hopes of it appreciating in the next 6-9 months. It's very hard to predict what the single family market will do in the short terms. It's too risky, in my opinion.
@Christine Mulkins isn't 4-plex much more complicated? And it's harder to get a profitable deal than a SFH or maybe not I'm still a beginner teach us more about the 4-plex market and what locations are now available
- Financial Advisor · FL · Member since 2024 · 467 posts · 114 votes1y
Hey Steve,
Go with the better property using financing. It sets you up for stronger appreciation, better tenants, and easier scaling. Cheap rentals can work, but they come with more risk, hassle, and slower growth.
- 1yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
Depends on your goals and risk tolerance.
Key metrics for each Property Class:
Class A Properties:
Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years.
Tenant Default: 0-5% probability of eviction or early lease termination.
Section 8: Class A rents are too high and won’t be approved.
Vacancies: 5-10%, depending on market conditions.
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.Class B Properties:
Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions.
Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
Section 8: Class B rents are usually too high for the Section 8 program.Class C Properties:
Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
Tenant Default: 10-20% probability of eviction or early lease termination.
Section 8: Class C rents usually meet program requirements, proper screening still recommended.
Vacancies: 10-20%, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.
Class D Properties:
Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
Tenant Default: 20-30% probability of eviction or early lease termination.Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
Vacancies: 20%+, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.
Where did we get our FICO credit score information from?
Check out this chart:
FICO Score
Pct of Population
Default Probability
800 or more
13.00%
1.00%
750-799
27.00%
1.00%
700-749
18.00%
4.40%
650-699
15.00%
8.90%
600-649
12.00%
15.80%
550-599
8.00%
22.50%
500-549
5.00%
28.40%
Less than 499
2.00%
41.00%
Make sure you understand the Class of properties you are looking at and the corresponding results to expect.
Logical Property Management4.9465 Reviews I like the idea of buying a 4 plex or larger apartment buildings. Everything is under one roof to simplify maintenance, and if you need to raise the rent in a few years (say $100) that's an additional $400 in profit...That is a form of scaling that single family homes just can't compete with. If you buy a 5 unit or more then it's classified as commercial, which means the equity of the property is evaluated based on the income it produces, so by raising rents you automatically increase the value. In residential the value of the house is based on what the neighbor sold their house for last month.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes1y
Quote from @Steve Bob:
I am starting out in real estate, I’d like to hear which approach would be smarter:
- Use $50K–$100K in cash to fully buy lower-priced houses (likely in rougher neighborhoods but already rented out), then wait 6–12 months for some appreciation and refinance to pull cash out and buy another similar property?
OR - Use that same cash as a down payment toward a $400K–$500K house in a better neighborhood with better property quality from the start?
Which path would be better for long-term growth and scaling up a real estate portfolio?
I have started with just below median priced properties in 2009, that worked well, then tried cheaper, found out what that's like and ran as fast as I could. Ended up buying slightly above median price and more into the suburbs of Milwaukee.
Looking back I tell everyone to buy the best quality you can afford at the time. Experiences are hard to convert in words: you don't really understand what a Porsche feels like on a racetrack at the limits of traction until you have done it. And you don't really understand what managing rough tenants means until you have done it.
You can look up the median price for any city. The A and B segments are above median, the C and D segments are below median price.
Your question is an optimization problem, depending on your goals you'll find the sweet sport somewhere between C+ and B-.
- Use $50K–$100K in cash to fully buy lower-priced houses (likely in rougher neighborhoods but already rented out), then wait 6–12 months for some appreciation and refinance to pull cash out and buy another similar property?
- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes1y
Quote from @Steve Bob:
I am starting out in real estate, I’d like to hear which approach would be smarter:
- Use $50K–$100K in cash to fully buy lower-priced houses (likely in rougher neighborhoods but already rented out), then wait 6–12 months for some appreciation and refinance to pull cash out and buy another similar property?
OR - Use that same cash as a down payment toward a $400K–$500K house in a better neighborhood with better property quality from the start?
Which path would be better for long-term growth and scaling up a real estate portfolio?
Depends. That's how I started decades ago. Different times and lower prices. Now, you have higher prices, higher interest rates and more tenant protections. If you are in rough areas, you tend to have more damage and more evictions. It's just the nature of the beast.
It would be better to find the ugliest house in a good neighborhood rather than the most beautiful house in the crappiest neighborhood. Trust when I say, it's not worth the stress and headaches. - Use $50K–$100K in cash to fully buy lower-priced houses (likely in rougher neighborhoods but already rented out), then wait 6–12 months for some appreciation and refinance to pull cash out and buy another similar property?
- 1yShawn McenteerBusiness MemberRealtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
Hi @Steve Bob I am located in New Jersey. The issue I have with Biggerpockets is to often everyone jumps in offering a diagnoses without understanding enough about a situation. Then on top of it everyone jumps in to tell a story about how investing in their out of state rental market is amazing.
Simply put regardless of the market you live in House Hacking continues to be one of the smartest ways to invest safe and with minimal risk. Its rare you see house hackers numbers in any market preform lower than OOS rental. If you are in Brooklyn I would look at NY or NJ in close proximity to NYC, you live in one unit rent out the other reduce your monthly expenses. What's great about this is the lending options, $50k has potential to get you $1m home if leveraging the correct loan. Anything OOS will get you $200k property for $50k
Your original question should not be answered by anyone without knowing the market you want to invest in. Buying a property in a "rough" neighborhood" in NJ is not the same as buying one in another part of the country. NJ is a very established state maxed out, meaning many rough neighborhoods are not just going to turn over without major redeveloping.
Buying in more established neighborhoods tends to produce greater ROI becuase of the demand to get into these areas is high. My wife in and buy destressed properties in high demand areas and turn them into cash cow rentals via house hacking. We also leverage what I call LIFF (live in fix and flip) and purchase single family properties in these neighborhoods to live in and renovate.
House Hacking New Jersey563 Reviews - Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes1y
Great comments. I wouldn't go with the first option, pay cash for $50k to $100k property. Those cheaper "cash flow on paper" properties often turn out to be huge headaches (I've been through this as well as many California investors who bought cheap properties out of state, mostly in the Midwest and some in the South).
I like the ideas of househacking, maybe a 2 to 4 unit. If you're living in one unit, you can get an FHA loan for 3.5% down or 5 to 10% conventional. I don't know the Brooklyn market and how much multi-family units cost.
Given a choice between the two extremes, I'd buy a $400k to $500k property. Maybe you can find something in $250k to $300k range within a 2 hour drive?
I like the idea of NNN leases (tenant pays the property taxes, insurance and repairs on a commercial property) but this doesn't seem to be a usual first time investor move. I talked to a couple of people who do this (fast food restaurants, coffee shops, medical buildings) and it was a large amount of capital needed - pass for me.
Not a fan of syndications - talked to three of them. I don't know enough to vet who's a good/bad operator. I asked myself if I'd be ok with losing $100k if the syndication went downhill. I'd rather own my own property and have control over it.
- Specialist · NJ · Member since 2022 · 1k+ posts · 656 votes1y
If you have 100k, you really don't wanna go deeper than 40k - 50k on a project. If you buy at 400k with the downpayment, closing costs, carrying costs.....say goodbye to the 100k and then if you get stuck and have to reduce, your profit will shrink up quick.
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