Run down Rentals vs More Kept.

[Bryce C.]

Im a newbie, so I need some pro advice. I have noticed some potential low cost rental properties in my area for purchase. They are a little run down, but they currently have tenants. There are also some higher priced properties that are a little better kept. Any one have any pros and cons for buying a little more run down property vs a more kept one? Goal is always cash flowing quickly! Thanks!

[John Walker]

@Bryce C. I think the answer is that it depends on what your business model looks like. If you are focused on cash flow then I would lean toward the lower cost that need some work. Just keep in mind that you will have a harder time selling them in the future. It's always good to think ahead and know the exit strategy. I have passed on some good cash flow but it was because the properties were in bad areas or really bad condition and therefore would make an exit strategy a lot more difficult. 

However, if you think you will hold on to it for 20+ years then it may not matter as much. Like I said, just depends on the model or plan. If you are trying to do both cash flow and appreciation then you may want to sell it in the next 5-10 years and realize your increase in value and this would be more difficult in a "run down" property and it may not appreciate as much anyway.

Another thing to keep in mind is that a more "run down" property will attract a less quality tenant which can create more stress and worry. Like I said though, if you solely thinking of cash flow and don't mind some issues if the money is good then do it. I know a local investor that only does very low income rentals and he has been successful doing it for 10-15 years so it can definitely be down.

Best Wishes and Good Luck on what you decide!