Investing in cheap houses VS expensive ones

33 Replies

As I'm starting out im realizing all sub 60k houses are in bad neighborhoods where the crime stats are higher and/or significantly higher than usual. With that risk in mind, isn't it easier and safer to invest in 100k houses and up and secure higher rents? What's the point of having two cheap houses that bring in 1500 bucks in rent a month and double the work and trouble when you can buy one more expensive house and rent it for 1400 to stable tenants. Would like to hear from both sides. Also does anyone specialize in 200k and over houses, and how is that working out? Collecting $2000 in rent a month seems like an easier option. 

It depends on your comfort level. If you're not comfortable dealing with a house in a high-risk neighborhood then the lower price won't be worth it. Go for where you'll feel safe doing business.

The lessons I have learned over the years force me not to buy sub-90K property. It would be hard to get financing on those properties so you lose the power of leverage. I would buy two 100K properties instead of one 200K property as it gives me diversification. If there is one vacant house, the other property can still cover some or most of the expenses.
Again, these are my thoughts you should go with you comfort level and risk appetite.

I am a cheap house buyer

For example:

$10,000 house will rent for $400/month

$20,000 house rent for $450

$40,000 house rents for 600

$60,000 house rents for $700

$100,000 house rents for $850

Theoretically 10 $10K houses will bring in $4,000/month in rents. The same $100,000 spent on one house will bring in $850

Rent/Purchase percentage better with cheaper houses.

If someone trashes a cheap house, I clean up and move on

If someone trashes an expensive house I am sick

I am a cheap house buyer

Originally posted by @Arlan Potter :

I am a cheap house buyer

For example:

$10,000 house will rent for $400/month

$20,000 house rent for $450

$40,000 house rents for 600

$60,000 house rents for $700

$100,000 house rents for $850

Theoretically 10 $10K houses will bring in $4,000/month in rents. The same $100,000 spent on one house will bring in $850

Rent/Purchase percentage better with cheaper houses.

If someone trashes a cheap house, I clean up and move on

If someone trashes an expensive house I am sick

I am a cheap house buyer

 So have you encountered any problems with all your cheap houses being in bad neighborhoods? 

Originally posted by @Alpesh Parmar :

The lessons I have learned over the years force me not to buy sub-90K property. It would be hard to get financing on those properties so you lose the power of leverage. I would buy two 100K properties instead of one 200K property as it gives me diversification. If there is one vacant house, the other property can still cover some or most of the expenses.
Again, these are my thoughts you should go with you comfort level and risk appetite.

 So you're saying your sweet spot is 100k houses? 

Originally posted by @Alshan San :
Originally posted by @Alpesh Parmar:

The lessons I have learned over the years force me not to buy sub-90K property. It would be hard to get financing on those properties so you lose the power of leverage. I would buy two 100K properties instead of one 200K property as it gives me diversification. If there is one vacant house, the other property can still cover some or most of the expenses.
Again, these are my thoughts you should go with you comfort level and risk appetite.

 So you're saying your sweet spot is 100k houses? 

 I am just giving an idea. I would have done this when I was starting out if I knew @ it. I don't buy SFRs anymore.

I too buy cheap houses but I think there’s a middle ground. All my purchase have been from 35-80k, average purchase price is 60k. Average rent is 800. These are B and C areas for the respective cities. All single family.

Now the tenants usually have less then 700 credit. Typically 550-650. I have one C class area tenant that’s above 700. I’m fine with this as long as they’re no evictjons, last judgements etc. medical bills or stuff like that is fine. Old bankruptcy, also fine.

So far it’s been pretty good. I like the Lowe overhead I have with these types of properties. They’re smaller, and my mortgage payments are also small.

I plan to buy around 20 of these before I move onto either commercial or notes

If you're new and not local you're going to have a bad time the majority of the time..... This is even more so if it's just a few houses, you need many to spread the costs.


Cheap houses work and it's been proven, you just need to be the right fit. You have to be the type of person that will collect/evict as needed, you need to be the type that is either able to do work yourself for turnover or have a existing relationship with a crew, and you need to understand the culture of the neighborhood.

I don't have any of that, so I don't buy that type of assets... and from the sounds of it like you I rather a higher class asset with different tenants. I like the good schools and family that stays for years till the kids are done w/ school type rentals..

There are pros and cons in my opinion:

Pros of many cheaper house:

1. easier to buy

2. higher rent to price

Cons of many cheaper houses:

1. less reliable tenant (damaging houses/less reliable income stream). Also some damage may not be able to covered by security deposit. 

2. more roofs = more capital expenditure. replacing fixtures like roofs/windows etc. costs the same size house, regardless of price of the house

3. less able to utilize leverage

4. higher turn around with these tenants. if you are using a property manager, this also means more replacement fee for the tenants.

One other thing to note is if you can find a home that can be rented for $2000 a month for $200K, why would anyone want to rent that from you? with 20% down and 5% interest, your only looking at monthly mortgage about $1000 (and if someone can pay $2000 in rent a month, they can come up with $40K of down payment easily). so your target for tenant is very limited to someone who has good income, but going to stay in the area for only few years and move out.

In the end, it comes down to what level of risk are you willing to take? Btw, if you are looking to buy multiple cheap house, have you looked into multi family home? this ways, at least con #2 will be somewhat (not completely) out of the equation, and possibly even #3.

There is a saying: "There is no such thing as a bad property, just bad management." This is something to think about when buying in a "bad area." Just because the rent is cheaper does not mean the tenants are bad people or that they are more work than "good area" tenants. I have evicted tenants from both and I have excellent tenants in both. Higher rent doesn't necessarily mean better tenants and vice versa. YOU are responsible for your results. Own them both.

Originally posted by @Michinori Kaneko :

There are pros and cons in my opinion:

Pros of many cheaper house:

1. easier to buy

2. higher rent to price

Cons of many cheaper houses:

1. less reliable tenant (damaging houses/less reliable income stream). Also some damage may not be able to covered by security deposit. 

2. more roofs = more capital expenditure. replacing fixtures like roofs/windows etc. costs the same size house, regardless of price of the house

3. less able to utilize leverage

4. higher turn around with these tenants. if you are using a property manager, this also means more replacement fee for the tenants.

One other thing to note is if you can find a home that can be rented for $2000 a month for $200K, why would anyone want to rent that from you? with 20% down and 5% interest, your only looking at monthly mortgage about $1000 (and if someone can pay $2000 in rent a month, they can come up with $40K of down payment easily). so your target for tenant is very limited to someone who has good income, but going to stay in the area for only few years and move out.

In the end, it comes down to what level of risk are you willing to take? Btw, if you are looking to buy multiple cheap house, have you looked into multi family home? this ways, at least con #2 will be somewhat (not completely) out of the equation, and possibly even #3.

I know people that pay close to 1100 mo to rent 80-90k houses..... they could just get FHA loan and 3.5% down buy it and come out ahead, but they don't.

The average person across the country has literally nothing in savings... and if they do they for sure don't have an extra 40k to plunk down on a house.

Originally posted by @Alshan San :

As I'm starting out im realizing all sub 60k houses are in bad neighborhoods where the crime stats are higher and/or significantly higher than usual. With that risk in mind, isn't it easier and safer to invest in 100k houses and up and secure higher rents? What's the point of having two cheap houses that bring in 1500 bucks in rent a month and double the work and trouble when you can buy one more expensive house and rent it for 1400 to stable tenants. Would like to hear from both sides. Also does anyone specialize in 200k and over houses, and how is that working out? Collecting $2000 in rent a month seems like an easier option. 

 Different landlords/investors have different skill sets, reasons for investing, amounts of money to invest, and goals.  Those criteria and more will dictate what type of property best suits each investor's abilities and agenda.

If an investor finds himself very uncomfortable in lower-income neighborhoods, if the investor finds it difficult to effectively communicate with people who live in lower-income neighborhoods, and if the investor has very little experience being around people who come from lower-income neighborhoods, then it is probably not a good idea for that investor to invest in lower-income neighborhoods.  

Just because it is possible for some people to make money doing something does not mean it is viable for everyone else to make money doing that same thing. 

@Matt K. I'm new to real estate investing, so i could be wrong, but average person can't afford $2000 a month rent.  people who can pay $2000 rent are people who are making well over $100K a year.  It's easier for someone making $100K to save $40K than "average" people making $50K a year to save anything (cost of necessity is same for everyone).  Also, a home that costs $85K with 6.5% interest and 3.5% down would still be about $500+ per month on mortgage (depends on your credit score), and on top of that you'd have to pay insurance for having equity less than 20%.  Also note that most of homes that are that cheap are not newest homes, so they can require capital expenditures. considering all of that, cost of rent relative to purchase is not that different for those people. For someone with good credit score that can put 20% down, monthly mortgage would be less than $400 a month.  Credit score and insurance makes a big difference in cashflow.  Let me know if i'm not thinking about this correctly.

Originally posted by @Michinori Kaneko :

There are pros and cons in my opinion:

Pros of many cheaper house:

1. easier to buy

2. higher rent to price

Cons of many cheaper houses:

1. less reliable tenant (damaging houses/less reliable income stream). Also some damage may not be able to covered by security deposit. 

2. more roofs = more capital expenditure. replacing fixtures like roofs/windows etc. costs the same size house, regardless of price of the house

3. less able to utilize leverage

4. higher turn around with these tenants. if you are using a property manager, this also means more replacement fee for the tenants.

One other thing to note is if you can find a home that can be rented for $2000 a month for $200K, why would anyone want to rent that from you? with 20% down and 5% interest, your only looking at monthly mortgage about $1000 (and if someone can pay $2000 in rent a month, they can come up with $40K of down payment easily). so your target for tenant is very limited to someone who has good income, but going to stay in the area for only few years and move out.

In the end, it comes down to what level of risk are you willing to take? Btw, if you are looking to buy multiple cheap house, have you looked into multi family home? this ways, at least con #2 will be somewhat (not completely) out of the equation, and possibly even #3.

Yes I'm looking for mfh in Texas but having a tough time finding one

Originally posted by @Matt K. :

If you're new and not local you're going to have a bad time the majority of the time..... This is even more so if it's just a few houses, you need many to spread the costs.


Cheap houses work and it's been proven, you just need to be the right fit. You have to be the type of person that will collect/evict as needed, you need to be the type that is either able to do work yourself for turnover or have a existing relationship with a crew, and you need to understand the culture of the neighborhood.

I don't have any of that, so I don't buy that type of assets... and from the sounds of it like you I rather a higher class asset with different tenants. I like the good schools and family that stays for years till the kids are done w/ school type rentals..

 Exactly. What price point of homes do you invest in? 

Originally posted by @Caleb Heimsoth :

I too buy cheap houses but I think there’s a middle ground. All my purchase have been from 35-80k, average purchase price is 60k. Average rent is 800. These are B and C areas for the respective cities. All single family.

Now the tenants usually have less then 700 credit. Typically 550-650. I have one C class area tenant that’s above 700. I’m fine with this as long as they’re no evictjons, last judgements etc. medical bills or stuff like that is fine. Old bankruptcy, also fine.

So far it’s been pretty good. I like the Lowe overhead I have with these types of properties. They’re smaller, and my mortgage payments are also small.

I plan to buy around 20 of these before I move onto either commercial or notes

 How would one find out what letter grade a neighborhood is? I'm going off the reports on auction.com and just reading the crime stats and all cheaper houses are reporting very high crime for the neighborhood. 

@Alshan San which area in texas? I was first looking at Austin Texas, but realized the rent to price was way too low (or price to rent was too high).   If I remember correctly, areas around San Antonio had some nice price to rent ratio.

If you run a tight ship I think you can make it work as long as your local and hands on. Like some others have said you need to adjust your criteria for Tennant screening with these assets but once you understand what kind of credit profiles your generally dealing with you will learn what to look for. I have some C rentals and want to see a steady work history with no past evictions and no huge amounts of outstanding debt. @Matt K. how many investment properties do you own?
Originally posted by @Michinori Kaneko :

@Alshan San which area in texas? I was first looking at Austin Texas, but realized the rent to price was way too low (or price to rent was too high).   If I remember correctly, areas around San Antonio had some nice price to rent ratio.

 Dallas. 

Originally posted by @Matt P. :
If you run a tight ship I think you can make it work as long as your local and hands on. Like some others have said you need to adjust your criteria for Tennant screening with these assets but once you understand what kind of credit profiles your generally dealing with you will learn what to look for. I have some C rentals and want to see a steady work history with no past evictions and no huge amounts of outstanding debt. @Matt K. how many investment properties do you own?

 And are you physically going to each c rental and collecting rent every month and keeping tabs on your property yourself? 

Originally posted by @Michinori Kaneko :

@Matt K. I'm new to real estate investing, so i could be wrong, but average person can't afford $2000 a month rent.  people who can pay $2000 rent are people who are making well over $100K a year.  It's easier for someone making $100K to save $40K than "average" people making $50K a year to save anything (cost of necessity is same for everyone).  Also, a home that costs $85K with 6.5% interest and 3.5% down would still be about $500+ per month on mortgage (depends on your credit score), and on top of that you'd have to pay insurance for having equity less than 20%.  Also note that most of homes that are that cheap are not newest homes, so they can require capital expenditures. considering all of that, cost of rent relative to purchase is not that different for those people. For someone with good credit score that can put 20% down, monthly mortgage would be less than $400 a month.  Credit score and insurance makes a big difference in cashflow.  Let me know if i'm not thinking about this correctly.

How is cost of necessity the same for everyone?  Go compare cost of living in multiple areas and you'll see it's vastly different. For example KC is about 37% less expensive than Oakland CA. https://www.nerdwallet.com/cost-of-living-calculat...

On the cheap end, but let's make it easy this would probably rent for 800 if not 900. To move in rent would be what first, last, and 1.5 mo sec deposit or 3,150  (@900)

https://www.redfin.com/MO/Kansas-City/8135-Holmes-...

Figure 4 percent down and 2% for closing... you're probably moving into that thing for like 4-5k w/ your down payment. Your entire note going to be under 600 (597) w/ 5% interest which could be possible. Just one year of saving 300 extra would make up the outlay of that down payment for the most part... 2 years for sure.

This seems like an obvious choice, but plenty of people would pay more to rent than buy.  They'd probably also gripe about the extra money to move in even though longer term they'd make it back... they'd probably also borrow that money toss it on a credit card or something because it's unlikely they have that on top of their savings. Renting doesn't require cash reserves and its an easy choice.

Or go up to our 200k (actually over...)

https://www.zillow.com/homedetails/917-W-120th-Ter... rent move in (9,100)

or buy

https://www.redfin.com/MO/Kansas-City/12807-Saint-... probably close to 20k to move in

but you'd be under 2600 mo...