buying houses $ 30,000 and below

Buying & Selling Real Estate
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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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  • Leo B.
    Investor · Hercules, CA · Member since 2015 · 208 posts · 47 votes
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    Originally posted by @Dawn Anastasi:

    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.

     Hi Dawn-

    Do you know if the credit union you used will lend to out of state investors?

    -Leo

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  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
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    Originally posted by @Leo B.:
    Originally posted by @Dawn Anastasi:

    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.

     Hi Dawn-

    Do you know if the credit union you used will lend to out of state investors?

    -Leo

     I believe they lean more toward in state investors.

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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

    @Leo B.

    for my 6,000 post... I am happy to offer what I know about credit unions. they only loan to folks that live in their footprint.. and are members locally..

    So even though Dawn can pull this off out of state folks cannot... Its another example of the local folks talking about how great they do their deals and getting the out of state folks all charged up.. only to find out they are wasting there time..

    Most of these low value areas are ONLY appropriate to locals.. out of state folks take an inordinate risk on all fronts ..

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Leo B.

      Love your little town by the way...

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  • Leo B.
    Investor · Hercules, CA · Member since 2015 · 208 posts · 47 votes
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    @Jay Hinrichs

    @Dawn Anastasi

    I figured the credit unions would only lend to local investors which is the same in my area.  Wishful thinking I guess :)

    Jay: I've been following a number of your posts and it sounds like you have quite a bit of experience in many markets.  Thank you for providing your insight to the rest of the boards here.  It's very helpful.  Yes, I grew up in Hercules and it's a nice little suburb outside of SF that I love.  Not many deals here and lots of competition from local investors some of which are on the forums here.  How do you know Hercules?

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  • James Syed
    Real Estate Broker · Mount Olive, IL · Member since 2013 · 1k+ posts · 310 votes
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    Hi BP,

    I am real estate broker near St Louis, MO. I buy houses for $24,000 - $42,000. These homes rent from $550 - $750. In addition, I have to put about $20,000 in each home to make them look nice and attract decent tenants.

    The ARV is useaully between $55,000 - $90,000.

    I have not tried refinancing any of them, after Dawn's post. I am thinking about it. And yes, you can get financing from a portfolio lender for under 50K loans.

    Hope it helps.

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  • Leo B.
    Investor · Hercules, CA · Member since 2015 · 208 posts · 47 votes
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    @James Syed

    Hi James-

    Can you please PM me the portfolio lenders that do under 50K loans?  The portfolio lenders I've contacted require a minimum $50K loan amount.

    Thanks,

    -Leo

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
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    Originally posted by @Charles Worth:

    @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?

     No.  The 1st source is a small local bank with a number of branches.  The 2nd is a Broker.

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  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
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    Originally posted by @Stephen Barton:

    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!

    Stephen, you need to differentiate between buying a fixer and buying something that is rent ready. You absolutely can buy something in Indianapolis for $21,000 but it's going to need a significant amount of work. It's not just the acquisition cost that you need to look at but the all in cost. Having said that, if someone has the time and skills to do the work themselves like your buyers, then they can do quite well. Just keep in mind though that that $21,000 house isn't really a $21,000 house. It could very easily have an ARV of over $50,000 so you're really comparing apples to oranges.

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  • Stephen Barton
    Real Estate Consultant · Indianapolis, IN · Member since 2014 · 322 posts · 238 votes
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    I am simply giving a strategy that is comfortable for my clients. I am not saying I would ever dream of using a "formula" as unrealistic as the one I posted about. I am simply providing a technique which seems to work for an investor that I work with. Granted there are many factors to consider when buying a $21,000 and I am not disputing your point @Mike D'Arrigo. I really want a reader of my post to think of: what is your comfort zone, and what are you willing to live with. 

    In the neighborhoods I am talking about with the 21k rental, it is not a war zone, but you had better bolt down your Central Air unit outside or it might disappear. You also might consider asking for a background check and actually doing it! Duh! You need to make sure you have a lease that even an attorney would be scared of, or just something to protect you from the type of tenants that these type of properties will attract. I never said any strategy the investor/client that I work with is a good one, I simply want to say this is what works for them. This is their comfort zone. They like these types of rentals and they use this strategy, and honestly it must work for them because they are buying a property a month with both of them having full-time jobs that are unrelated to real estate.

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  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
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    @Stephen Barton I might not have been clear on what I was trying to say. A $21,000 price is not indicative of the type of neighborhood if the property needs a lot of work. That properties ARV could be double or triple that if it needs a significant amount of work. It's not necessarily $21,000 because of it's location. It's $21,000 because it's distressed so you can't compare a $21,000 property with a $50,000 ARV to a $21,000 supposedly rent ready property.

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  • Stephen Barton
    Real Estate Consultant · Indianapolis, IN · Member since 2014 · 322 posts · 238 votes
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    I completely agree. I come across $20,000 properties that could easily sell for $50,000 with a basic rehab. Thanks for understanding @Mike D'Arrigoyou know what I mean then. I feel like out of state investors need to be especially careful when investing in an area they are not familiar with. I hear of some terrible situations out there, and I feel bad for those who have trusted someone locally. Only to discover the values are not correct and then they find contractors who take advantage of them. It just burns me.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Leo B.

    born and raised in the Bay ARea.. sold RE there for almost 25 years plus I had a HML company in Oakland for many years.. so I have done a lot of business in all 9 bay area counties over the years.. I lived at Silverado in Napa prior to coming to Orygun

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  • Dennis Weber
    Real Estate Investor · Indianapolis, IN · Member since 2014 · 316 posts · 165 votes
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    Congratulations @Jay Hinrichs on your 6,000th post!  I've received so much useful info from you. A celebratory toast of Napa Valley wine to you, sir.  I remember going to Napa Valley in my younger days (but I don't remember leaving).

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  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
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    Originally posted by :

    I figured the credit unions would only lend to local investors which is the same in my area.  Wishful thinking I guess :)

     If you are partnered with someone local they may lend to you even if you are out of state.

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  • Alan Russell
    Investor · New Bern, NC · Member since 2013 · 96 posts · 29 votes
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    Originally posted by @Andrew Syrios:

    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. 

     That depends I think, I a lot of smaller towns 30K houses are relatively available and not in a bad area.  Mostly they are old and in bad need of update.  Problem is the updates make the cost exceed the market value of the home.  This may not be a huge issue if your doing buy and hold and there is a steady rental market in the area.

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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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    Originally posted by @Alan Russell:
    Originally posted by @Andrew Syrios:

    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. 

     That depends I think, I a lot of smaller towns 30K houses are relatively available and not in a bad area.  Mostly they are old and in bad need of update.  Problem is the updates make the cost exceed the market value of the home.  This may not be a huge issue if your doing buy and hold and there is a steady rental market in the area.

    That's a good point, small towns and a few other areas here and there are probably exceptions to that. But generally, under $30K means a bad area. But it's the bad area moreso than the price point that is to be avoided.

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  • Mel Petersen
    Reidsville, NC · Member since 2015 · 2 posts · 1 vote
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    I only purchase properties under 30k and it has worked out very well for me.  However, their are some rules for purchasing houses this low. 

    1. Only purchase houses this low in neighborhoods you are familiar with and feel comfortable going too.  You don't want to be in a bad area no matter how good the deal is.   Also, know vacancy rates in that area.

    2.  Only buy houses that are local, Detroit has lots in that price range but I'm not there so I stay away.

    3.  Have plenty of cash, (purchase price +  closing cost + insurance + repair ect ect ect)

    4.  Have a short list of possible tenants

    When purchasing houses at this level generally speaking the tenants are much more high maintenance.  Also, the repair costs and turnover can be high.  This being said last month I bought a house for 4k and have rented it for 400 per month.  Run the numbers on that!

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Dennis Weber

      you do see a lot of that on a hot summer day  and people start tasting at 11am and are toast by 2pm  LOL

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  • Deborah Townsend
    Investor · Sneads Ferry, NC · Member since 2015 · 38 posts · 9 votes
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    I read all of these post and now I have a question hopefully someone will answer. I am looking at three homes in the same area that are prefab( mobile home) on a permanent foundation in a park around a Marine Corps base. Most of the homes there can rent anywhere from 750 to 1100. a month. The three I'm looking at are going for 40 to 45,000. The tax record for them all are $78,000 to $112,000 this seemed like a win/win to me. I live in a buyers market, selling is hard because they come and go every three to four years. But they are building brand new homes all around that they are selling for 139,0000. Are this homes going to be worth my time and money?Any comment will helpful, Thanks for your time

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  • Deborah Townsend
    Investor · Sneads Ferry, NC · Member since 2015 · 38 posts · 9 votes
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    I read all of these post and now I have a question hopefully someone will answer. I am looking at three homes in the same area that are prefab( mobile home) on a permanent foundation in a park around a Marine Corps base. Most of the homes there can rent anywhere from 750 to 1100. a month. The three I'm looking at are going for 40 to 45,000. The tax record for them all are $78,000 to $112,000 this seemed like a win/win to me. I live in a buyers market, selling is hard because they come and go every three to four years. But they are building brand new homes all around that they are selling for 139,0000. Are this homes going to be worth my time and money?Any comment will helpful, Thanks for your time

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  • Deborah Townsend
    Investor · Sneads Ferry, NC · Member since 2015 · 38 posts · 9 votes
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    so sorry for some reason this posted twice/

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