buying houses $ 30,000 and below

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buying houses $ 30,000 and below

Romao May

Oak Lawn, IL · Member since 2015 · 2 posts · 0 votes

Question is does anyone know the criteria for buying homes of this price ? How would you get started .

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Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

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Originally posted by @Richard Dunlop:

Don't buy in the war zone.

Less than $30k doesn't mean an automatic war zone.

Having said that, one of the biggest problems with buying so low is it takes a long time to recover your cash...and you will be buying with cash, since it is almost impossible to get any type of mortgage funding for anything under $50k. So you think you're getting a great deal, but in fact if you spent $20k more it would be an even better one...that's if the deal warrants it.

Why? Let's say you bought a house that cost $30k (includes rehab) and is worth $60k, and your positive cash flow, buying with $30k in cash, is $500/month or $6k a year. You can get a refi loan from your lender up to 75% of the ARV. Unfortunately, that is only = to $45k. You will recover your cash 5 years later, if you have no problems during the next 5 years. That means for the next 5 years, you are BEHIND. The house you bought can have all the equity in the world (in this example 50% = $30k), but from a cash standpoint...and it's your cash that allows you to move beyond this property and into the next deal, your cash is being held prisoner in the house.

Alternative? Buy a house that cost you $50k, where the ARV is $72k, and 75% of that is $54k. You can refi out your $50k in cash you put in, and if this house cash flowed at $600/month before debt, it should be around $350/month ($4200/yr) with the refi payments.

On the surface it looks like you're $150/month behind...but you're actually ahead. Why? You have no cash left sin the deal anymore. That cash you used, is making its way to your next deal. This property is positive cash from the first day, unlike the other $30k property which is $24,000 behind the first year, $18,000 behind the 2nd year, and so on.

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Richard Dunlop
Investor · Detroit, MI · Member since 2014 · 755 posts · 462 votes
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Don't buy in the war zone.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
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Originally posted by @Richard Dunlop:

Don't buy in the war zone.
Less than $30k doesn't mean an automatic war zone.
Having said that, one of the biggest problems with buying so low is it takes a long time to recover your cash...and you will be buying with cash, since it is almost impossible to get any type of mortgage funding for anything under $50k. So you think you're getting a great deal, but in fact if you spent $20k more it would be an even better one...that's if the deal warrants it.
Why? Let's say you bought a house that cost $30k (includes rehab) and is worth $60k, and your positive cash flow, buying with $30k in cash, is $500/month or $6k a year. You can get a refi loan from your lender up to 75% of the ARV. Unfortunately, that is only = to $45k. You will recover your cash 5 years later, if you have no problems during the next 5 years. That means for the next 5 years, you are BEHIND. The house you bought can have all the equity in the world (in this example 50% = $30k), but from a cash standpoint...and it's your cash that allows you to move beyond this property and into the next deal, your cash is being held prisoner in the house.
Alternative? Buy a house that cost you $50k, where the ARV is $72k, and 75% of that is $54k. You can refi out your $50k in cash you put in, and if this house cash flowed at $600/month before debt, it should be around $350/month ($4200/yr) with the refi payments.
On the surface it looks like you're $150/month behind...but you're actually ahead. Why? You have no cash left sin the deal anymore. That cash you used, is making its way to your next deal. This property is positive cash from the first day, unlike the other $30k property which is $24,000 behind the first year, $18,000 behind the 2nd year, and so on.
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Richard Dunlop
Investor · Detroit, MI · Member since 2014 · 755 posts · 462 votes
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Originally posted by @Joe Villeneuve:
Originally posted by @Richard Dunlop:

Don't buy in the war zone.
Less than $30k doesn't mean an automatic war zone.
Joe I know that better than anybody, but that is the main criteria for buying under $30,000. I've No objection to your strategy. Metro Detroit is a good place to get 100% cash out and still cash flow.
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Account Closed
Investor · Baltimore, MD · Member since 2014 · 1k+ posts · 688 votes
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Step 1. Have cash Step 2. Know what you're doing
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Stephanie Garcia
Sacramento, CA · Member since 2014 · 73 posts · 16 votes
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How can you get a refinance loan if you paid for the house in cash? I was recently trying to refinance my rental property and it did not seem to be very helpful.
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Wilson Churchill
Madison Heights, MI · Member since 2014 · 471 posts · 132 votes
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You should be able to refinance and possibly take out more money than your investment, but my experience has been that the lenders require one year of seasoning. Not a big deal, really. If you refinance in less than a year, they may base the value on your purchase price.
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Alan Russell
Investor · New Bern, NC · Member since 2013 · 96 posts · 29 votes
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If you shop around you can probably find a smaller bank that will let you refi out at about 6 months if you are showing them how much work you did in the rehab
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Andrew SyriosPro Member
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Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
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Generally speaking, the criteria is not to buy in those areas. You need to really specialize in low end housing if you're going to make money in such areas.
Podcast Guest on Show #121
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Charles Worth
Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes
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@Jerry Padilla
can lend on those types of properties if you do buy it.
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Wilson Churchill
Madison Heights, MI · Member since 2014 · 471 posts · 132 votes
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Originally posted by @Charles Worth:

@Jerry Padilla
can lend on those types of properties if you do buy it.
Long-term financing?
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Charles Worth
Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes
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its Fannie and Freddie financing.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
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Originally posted by @Stephanie Garcia:

How can you get a refinance loan if you paid for the house in cash? I was recently trying to refinance my rental property and it did not seem to be very helpful.
Refinance doesn't just mean refi the loan. It could just mean refi the property...as in you have no debt so the entire loan amount comes to you in the form of cash...to use on your next property.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
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Shop around. I use two sources for the same property.
I use the 1st source to get my cash I put in back right away..to use on the next deal.
Ist Source: Actually this is a Loan of Credit
Seasoning Period    None
Fees upfront (actually buried in loan) $175
ARV 70%
Minimum amount of Loan $30k
Terms 3.925%; 15 yrs amort; balloon in 7 yrs
I use the 2nd source to payoff the 1st source and reduce my monthly payment (min $100/month reduction) from the 1st source
2nd Source: True Refinance Mortgage (can cash out)
Seasoning Period 6 months
Fees upfront (actually buried in loan)   $2800
ARV 75% ( I usually cash out)
Minimum amount of Loan   $50k
Terms 4.5%; 30 yrs amort & term
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Chris Erwin
Investor · Draper, UT · Member since 2015 · 193 posts · 48 votes
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Houses in these price ranges and like any price range need to have a good support system. We buy several houses in this price range, but we have a good support system in our property managers and contractors that rehab the properties. If you have a good support system, properties in the lower price range can be profitable for an investor. You do need to be cautious on the areas you are buying these lower price range properties.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
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Know your market. This is true of any level of investing, but this level has a much smaller room for error...of course you also have much less to lose.
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Shean Rhoden
Investor · Hackensack, NJ · Member since 2014 · 17 posts · 3 votes
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Check out AffordableREI on YouTube. There you'll get ideas, strategies and the pros and cons of purchasing real estate at this price point.
Good Luck!
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Ed L.
Residential Real Estate Agent · Hattiesburg, MS · Member since 2011 · 475 posts · 141 votes
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I'm a big fan of homes in this price range.
They typically are heavily discounted due to the need for major mechanical systems needing repaired or replacement.
The end result is a very small investment with homes that have new roofs, hvac systems, appliances, etc. I'd rather buy cheap and have reputable contractors put in new quality equipment than buy average properties that are functional but I have no idea the maintenance or service life left in these major systems.
Of course none of that matters if you are buying in war zones where decent renters are unobtainable. Buying cheap properties without knowing the area can be pretty risky.
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Mike Sedlacek
Portsmouth, VA · Member since 2015 · 330 posts · 191 votes
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I buy in this price range about 3 homes a year. Mostly I buy in the $200,000 range. What I do with these low price homes is a strategy in which I buy for cash and rehab no more than 20K on a 30k house in a neighborhood in which I can get up to $75K resale. However, I sell them Owner Finance with 20K down at 6% interest callable in 5 years amortized over 30 years. The sale price is usually around 60K to 68K at the most. I sell within one week of advertising. There are alot of people out there with down payment money but bad credit. So I advertise the house with signs on the property, Owner Financing bad credit ok. They sell, but they are in older neighborhoods with similar houses yet are in clean areas. Like you say, No War Zones. It works for me. I'm getting ready to move to Virginia Beach this summer. I've only done 2 houses this year and they are presently up for sale for all cash or bank financing. Anyways this is an idea for you. Thnaks.
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Charles Worth
Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes
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@Joe Villeneuve that is some great financing on the short-term loan esp if there are no pre-payment fees. I have been looking for a while and did not find terms nearly that good. Is the first person also doing the refi loan?
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Dawn AnastasiPro Member
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
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You can definitely refinance out on <$30k properties. For example I purchased a property for $24,900. I used peer-to-peer lending for $21,000 and I put $12,000 in rehab into the property. So I was all-in for approximately $37,000 including the loan. Then I went to a credit union and did a cash out refinance for $45,000. I got more out of the house than I put in. I used that cash to pay off the peer-to-peer loan and to buy another property.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@Mike Sedlacek
I find this a little hard to believe that you can get people to buy into 70k neighborhoods that have 20K in cash in their jeans... I would have to see the huds to believe that one LOL
I know many that have done it with 2 to 5k down but not 20k
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@Dawn Anastasi
that model works well for those that live there and work... be tough for out of state folks.. they would need to partner with a local in most instances to pull this off.
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Anna Buffkin
Investor · Pawleys Island, SC · Member since 2015 · 324 posts · 385 votes
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under $30k does not have to be a war zone especially in small towns. Also, you may find many condos/ townhouses under $30k.
As for financing, while conventional mortgages may not be an option, you don't have to do all cash. You can do home equity loans on existing property, home equity lines of credit (HELOC), personal line of credit, personal loan, 401k loan. Just think a little creatively.
I purchased an $18k 2/1 condo in an OK neighborhood. My husband lived 3 blocks from the condo before we got married and the area seems to be improving, so no war zone. I purchased it with a personal loan which takes like 15 minutes and one signature to get if you have good credit and a w-2 job.
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Romao May
OP
Oak Lawn, IL · Member since 2015 · 2 posts · 0 votes
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Thank You ,
I appreciate the reply but what I am looking for are the ABC of getting all of this Investing in Homes $30,000 started I have come across the Homes but what is the next step . How can i get inside the properties or get them Financed .
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Stephen Barton
Real Estate Consultant · Indianapolis, IN · Member since 2014 · 322 posts · 238 votes
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I would like to offer a strategy here. I am an investor but I also work as an agent here in Indianapolis IN. We have properties that sell for $21,000 and they rent for 750 a month! Yep! How do I know this? Because I sold my cash buyer the house, that's how. Basically, having my license has taught me a great deal about investing. I have a couple who goes around town buying about 1 rental each month. Their strategy is this:
If a property will pay for itself in gross rents over a 2 year time period in an area they are comfortable going in (one client is a smaller female) then they buy. Just like what @Joe Villeneuvesaid just because it is under a certain amount does not mean war zone @Romao May. You really need to know your area and you really need to know good rent rates. Basically, if my clients see a property that will pay for itself in two years (not counting expenses of any kind just gross rents) then they will buy if they like the area.
This is an interesting technique that I think works for them. I know it would not work for me because I cannot do my own work like the couple I am talking about do. They are very handy and are not physically disabled like me. It is all in what you feel comfortable with, and what you are experienced with. This sure beats the 50% rule @Brandon Turner! Ha! I bet Ben Leybovich would have some interesting opinions about this technique too.
Buying real estate is like buying clothes...Sometimes expensive, sometimes cheap. Some clothes you want to be seen in, and some clothes you would never tell anyone that you own. (Like a flannel shirt)Brandon Turner. Lol!
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