Good day BP. As many have said, it is AMAZING the amount of information on these forums. I am interested in fix and flips as well as rentals for long term cash flow. One of the things I see debated a lot on BP is the idea of the $50,000 house. You have the "Can't make money long term with $50K house" crowd, along with the "I make $5,000-$20,000 a month cash flow, on $50K houses" and everything in between. My question/thought is simple:
Isn't there a DISTINCT difference in the stigma of the $50,000 house depending on WHERE it is? Going back to the adage of LOCATION, LOCATION, LOCATION...
For example, I'm from MN... I could buy a $50,000 or less house in Minneapolis to rent and cash flow. If it is in Minneapolis, it will have a MUCH different set of variables than if it was, say in Springfield, MN. One is completely urban, while the other is rural/small town. I see the term "war zones" which I assume are places of high crime/safety concerns mentioned when talking of these houses. Maybe that would be the case in Minneapolis, but I can't imagine it being the case in Springfield... meaning an URBAN $50,000 house will have much different variables than a RURAL/SMALL TOWN $50,000 house.
Simply put, it sure seems to me the debate is often times the people debating against investing in such deals think of URBAN issues, while there are many folks having success in RURAL/SMALL TOWN. There are many having success in urban situations as well, I'm sure, as someone has to own these homes.
Final question... if looking at these bottom of the pole deals(I mean cheap in the marketplace, not bad deals)... to help new folks get into the game with little money, does it make sense to invest in RURAL bottom of the market homes vs. URBAN bottom of the market homes? Are the RURAL issues easier to manage? I understand you have less access to tenants as less people live there. Just a thought I keep coming back to when folks are debating this issue.
I equate the $50K house in real estate to a penny stock on the NASDAQ (stock market.) People play in both arenas, with lots of variables as you point out in your post. There are so many ways to make (and lose) money that it really comes down to simply your investment methodology (appreciation, value investing, cash flow, tax planning, etc.), your investment vehicle (REI, stocks, business ownership, etc.), and your ability to execute (can you follow your objective and succeed).
Location is important. So are 20 other factors and variables. As most would say... it all depends on your goal(s), investment methodology, and ability to execute. And, yes, same goes for people starting their own business...
If you got a 50k house in minneapolis there is no way itd pass city inspection. I don't think you can even find houses that cheap in N minne currently. I think in either rural or urban settings playing in the cheapest price bracket is going to have challenges
@Rich S. you know your town. I still have buddies in Louisville that are buying blue collar houses in Louisville for $70-80k. Every market is different and small towns are absolutely different from large metros. Minneapolis is trying to be an over regulated hell hole so who knows what'll happen here. They are even proposing rent control in some political circles on top of the $15 an hour minimum wage.
@Rich S. from what I've seen rural are so depressed in rural low end markets that there is not much upside in cash flow our appreciation. If you live in or near a small town you can verify.
I would look at your ROI and it works therel then it might be a good way to start you career.
Hello. This is one of the those questions that is so loaded it's almost difficult to provide a comprehensive response. There is a much higher likelihood of a 50K house being in a difficult area regardless of whether it is in the city or the rural surroundings. You need to account for that with higher vacancy rates, maintenance expenses, etc. As stated earlier, you can find decent houses in decent areas in Louisville at the 50K range. In larger cities, you can probably find them, however it's going to take work. You should focus on having at least 20 to 30% equity in the deal when you buy it so if it isn't for you, you can exit without too much pain. So, if you purchase a 50K house whose market value is 50K, and you want to exit, you are going to lose money due to maintenance, vacancy, fix-up, and finally, selling costs (which can be large). You don't want to be trapped. If you have an 80K house that you find for 50K, you can try being a landlord for a couple years, then if you don't like it, you can exit without losing your shirt and very possibly make some money. Now......how do you find an 80K house for 50K? That's a whole other topic that you can research on BP. Remember, you protect yourself if you buy right.
Excellent discussion topic. I like urban over rural. If you are going to buy in a "warzone," buy a corner lot. :) I know you may think that was a joke, but it wasn't. I bought in a C- to D area but bought on the fringe near a highway. It has been a cash cow. I bought it for so cheap I could fix major plumbing and put in new central heat and air so I won't have to worry about major issues for 15 years (hopefully). If you do decide to go urban, let me whisper in your ear about the leprechaun and where the pot of gold is- It's Section 8 housing. Government direct deposits, and for the most part, tenants who want to stay in the program so they don't trash your house. I don't think I'll ever sell, but when my grandchildren do, hopefully the big city investment has come full circle and they make out well.
Investors who say their way is the only way to make a profit are just describing their limitations, not yours.
There are golden nuggets of information in those posts on both sides of the argument and you just have to figure out your market opportunity and preference. I personally invest in properties with both high and low GRMs.
You can definitely make good cashflow with $50,000 houses in rural MN. I spend that on 2 bed houses. You lose out on some appreciation, but then I'm looking for long term hold and passing houses to my son so appreciation doesn't matter to me.
Try for houses built around 1950. Solid homes with a basement. Try to avoid early 1900's houses with crawl space.
@Dan Vleck ... do you have pretty straightforward numbers on these homes? Are you buy at $50,000, little to no rehab and renting for $600-$700 or is it all over the map? My biggest challenge seems to be finding deals that cash flow enough to justify the cash they tie up.
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