Anyone out there specializing in under 30k properties?
Buffalo, NY · Member since 2014 · 82 posts · 75 votes
Anyone out there specializing in under 30k properties?
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Real Estate Investor · Fort Wayne, IN · Member since 2013 · 168 posts · 78 votes
12yI buy houses in the $18,000-$23,000 range, typically put $3,000-$5,000 in them and then rent them for $650 a month. @Matt R. is right about the roof and furnace, they are profit delayers.
The key is to know the area or work with someone who does.
There is more to investing in any house than just working the numbers ahead of time to see if it will have positive cash flow and those are the factors that will kill you.
1. Contractors that you can trust, that do the job correctly and go above and beyond for you since you're not around.
2. A property manager who can rent the house to good people and make sure they are holding up their end of the contract.
People who buy expensive houses have the same issues, their tenants just drive nicer cars. It's all a process, just jump in and learn the lessons good and bad.
540 Replies
- Real Estate Investor · Arlington, VA · Member since 2012 · 302 posts · 277 votes12y
@Rob K Great post. I advocate buying in this price range, but I use a Leveraged Analysis Technique using crucial key metrics: 1) Crime Rates 2) Avg Rents 3) MLS Search Parameters.
Schools DO NOT enter the equation. For working class neighborhoods, public schools are just fine. They want to be CLOSE to a school, but aren't paying to send their kids for one. The analysis changes in this price range.
So yes, I advocate this strategy COMPLETELY, if the analysis is done in a leveraged way to know all key metrics before setting foot in the properties. And, its easy to do this leveraged analysis technique since so much is available on the internet.
I am actually going to write this step by step blueprint up. I would love to share it with this thread when I have it (later this evening). But 1) No war zones!! 2) Hire a GREAT property manager (if you want).
LUCKY FOR US, its not hard to avoid 1) and its not too hard to find a good PM for point 2)
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes12y
"In the future, I plan to buy more of those type houses. The cash flow is lower, but less drama."
AND There it is...........
( Rob. K )Spoken from a long time investor of low income properties. Nothing wrong with cheap properties. It's a great entry level for investors with little to no money to get started. You do have to work harder for that extra yield. In the down turns of 2009 you could find decent deals in A and B areas with depressed pricing. In many areas that is gone with the recovery and the cheaper properties are the C, D areas etc.
I rarely find long term investors that start out with such properties hold them in perpetuity. Most either break even, lose money, or if they make money want to sell off into a better asset with less headache down the road. I think it is awesome that many want to focus on this segment. I think owning these properties not being hands on and out of your state is a massive mistake.
Once people obtain a higher net worth they typically move away from risk and headache in exchange for less nominal returns. For example if you have 2 million and you want 9% a year pre-tax you can land great assets and outpace inflation. The better areas appreciate faster whereas the suspect areas might have greater cash flow but you also have more headache and less chance of the area transforming over time.
I like to keep my life stress free. Low income tenants come with a lot of stress even with great systems in place. They generally have lower education, multiple jobs to stay afloat, constant charity assistance, lives have constant twists and turns which is unstable as a long term tenant. Cash flow is perceived higher but greater eviction and turn frequency with higher re-rent tenant costs per time with increased damage to the units.
If you already have a bunch of money with not a lot of time it's not something worth pursuing that much. If you want to throw 10% of your money at it for high risk out of your total investments it can still make sense. You really need years of benchmarking with the sub 30k mark to get how they really perform over time. We have heard for years on BP how low price property buyers love it when they purchase but never hear from them again how it is going. That generally is not a good sign that things are awesome on the home front.
I hope everyone keeps posting about these amazing cheap properties you are buying. It's just not and never will be for me.
- Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes12y
Joel, I think most everyone buying 30kish homes would buy A properties if they could. I think every investor brings his/her own unique skill set to the table so results may vary. I am sure many have lost big on A properties as well. Some have lost even when it was next door and others have made great incomes from 10, 000 miles away.
I don't think how much you post on bp correlates to success. I for one have a seasonal small business. I will not be posting for six months starting in 30 days. I am taking the bp crash course. So I appreciate all feedback, ideas and saavy experienced advice.
Thanks,
Matt - Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes12y
"I don't think how much you post on BP correlates to success."
Matt can you expand on what you mean by this statement??
I do enjoy sharing knowledge on the forums and I learn a lot also. I do post a bunch on here but it is fun. I do this between helping clients and looking for investments for myself. Every one of the posts unless set not to is indexed in the search engines. So I get non- BP members contacting me by typing in a keyword search and BAM the BP post is position 1 or 2 on Google for first page.
I have made a ton of contacts with other investors and new clients with BP and I continue to make more on a daily basis. So I do not see posting on the forums as a waste of time. You get out of what you put into it like anything else in life.
It's quite possible by the end of this year that I will hit for the time I have been on BP 1,000,000 in business income generated from the site. So no I do not see it as not correlating to success. In fact this site is geared toward investors and specific niches and I have not found a site to match or come close. Now the number of posts can't be just non-valuable crap for posting sake. That is what the voting system is for to acknowledge quality posts.
- Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes12y
That's awesome Joel. I think bp is extremely valuable no doubt.
What I mean is not everyone who has RE success is posting on bp. In fact, I think most RE investors never heard of it. I could be wrong as this is anecdotal. It's helping me and you tremendously either way.
What is your niche?
Thanks again,
Matt
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes12y
Yes my specialty is helping clients with triple net investing and also larger apartment buildings.
My clients tend to be higher net worth and the purchase price is typically in the millions. They tend to want hands off investing. Larger apartment complexes give more yield and can be hands off if large enough with scale and infrastructure. Clients that do not even want that to look at that go triple net for total hands off.
People that have money or make a lot at their jobs do not have time to work for yield. They want more passive involvement. The REIT you get diversity but not the control which is why my clients buy directly versus giving someone money to invest and make the decisions for them on the outcome.
- Real Estate Investor · Arlington, VA · Member since 2012 · 302 posts · 277 votes12y
@Joel Owens I think you hit the nail on the head when you said no one holds this in perpetuity. That doesn't mean that this shouldn't be an avenue or vehicle, as you said, you start at where you can, and you work your way up to houses that are a surer bet for you.
I think what we have all said is valid, its just how, why, and how long you will implement this strategy. Personally, my 4.5 years is enough to let me know im on the right track. I've come up with my own analysis technique, which I call the Leveraged Analysis Technique (the name just fits with how I leverage resources) specifically for working class neighborhoods (WCNs). Its how I leverage internet resources that are NOW fully available and accurate, to do my property analysis.
Here's my method. I've been vlogging about it for some time, in detail with video demonstration. It includes crucial key metrics (Crime, Photos, Rents) but not schools -WCNs are a different play:
http://www.affordablerealestateinvestments.com/leveraged-analysis-technique/
So, I have had great success using this, and very minimal headaches, so because of that, I don't see myself moving too far away from lower priced houses, but if I do, its ONLY to minimize the amount of the renovation, not neighborhood and tenant related issues. Or, its just because I want a multi-family, but when you do this with knowledge, education, and do a good job at it (fix the property up nicely), that in itself limits the headaches you're going to encounter.
- 12yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Originally posted by @Rob K.:
Originally posted by @David Beard:
I haven't looked through all of this, but I'd be real interested to know who out there can actually speak from a position of considerable successful experience on this topic. In other words, who has met these criteria?:
- Owned these types of properties for 5+ years, at least at moderate scale (say at least 5+ of these houses).
- Netted 50%+ of the gross potential rent over this 5+ year period, after compensating yourself at least $20/hr for the time you've spent AND covering ALL maintenance that was incurred beyond your initial rehab (even if you capitalized it on your taxes)
- No regrets and has enjoyed managing these properties (or at least hasn't regularly wanted to bludgeon yourself)
Color me just a tad skeptical, it sounds GREAT on paper, but the long term reality? Does anyone on this thread meet the above criteria? And has anyone done this successfully over time, long distance using a property manager (can't even imagine)?
I'm positive that @Rob K. qualifies (though not sure about point #3??), but he is also a hands-on management pro and admits that property mgrs have been a bust when he's tried them. Anyone else?
Thanks for the kind words, David. I do meet points #1 & #2. As far as #3, I've never thought about bludgeoning myself, but I have on occassion wanted to show a tenant what elbows do to teeth.
I wouldn't say that I've "enjoyed" managing these properties, although I have a lifetime of funny stories that never cease to amaze those who aren't in this business. The most frustrating part is dealing with people who just don't get it.
I have found an area that I would consider to be a "B" neighborghood. Low crime and hardworking people. No abandoned houses or grafiti. Very little Section 8. The downside is that the schools are bad. Still, I've purchased three houses in that area in the last year. They all have three bedrooms and a basement. Two have central air and garages. Those two were purchased for $30K and $36K and are both rented for $955. The other one has no garage and was purchased a month ago for $31K. It is up for rent for $895. Still good numbers with few problems. These prices are slightly higher than the $30K that has been discussed.
I do have two houses on the same street that were purchased in 2009 for $5K each. Those are both two bedroom houses on crawl spaces. They are in a neighborhood I would describe as C-. High property crime, but low violent crime. Horrible schools. The majority of applicants get rejected. I carry a gun and don't like to go there at night. Those houses are both rented for $575 and $590 and are relatively low maintenance. One tenant is Section 8, lives like a pig, but doesn;t cause me any grief. The other tenant pays the rent, but always late with the water bill.
Most of my other houses are in B- and C+ type areas. I do have a house in an A neighborhood with good schools. I get great rent for it and the tenant never bothers me. In the future, I plan to buy more of those type houses. The cash flow is lower, but less drama.
I have one house that was purchased in 2010 for $8,600. All it needed was a roof and a paint job. The hardwood floors were beat up, but I left them as-is. The first people to look at it took it for $725. They are still there and the rent has paid back every dime I put into the house, plus all of the taxes, insurance, and repairs, plus an extra $7,300 in my pocket. The house is probably worth $30K, which would be all profit. The house is in a bad area and I don't like my tenants. They pay the rent, but they are very rude people. Fortunately, they only call if there's a real problem. If and when they move, I will probably sell the house. In the meantime, I will just collect money from it every month.
As far as property managers, I know two that work in the same class C area I have a lot of rentals in. Both have told me on seperate occassions that their average days on market is 60, which I believe. It's hard to find decent tenants in those areas. I wouldn't think about turning my houses over to them. I will sell them when values go a little higher.
To do it all over again, I would still buy the cheaper houses. It's an easy way to build wealth. If you can buy houses for $30K and make good returns without getting murdered or having your furnace stolen, I would go for it. Just stay out of war zones. It's not worth the risk.
Awesome post Rob,
Thanks for sharing. There are numerous B class areas in the $30,000 or slightly higher that come with less hassle and a better quality tenant compared to C class. If the owner of these properties has a finger on his pulse the investments can definitely work and be profitable.
I guess as one gets older maybe start stepping up to the more hands free stuff with B class and A class lollol
Thanks and have a great day.
- 12yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Originally posted by @Lisa Phillips:
@Rob K Great post. I advocate buying in this price range, but I use a Leveraged Analysis Technique using crucial key metrics: 1) Crime Rates 2) Avg Rents 3) MLS Search Parameters.
Schools DO NOT enter the equation. For working class neighborhoods, public schools are just fine. They want to be CLOSE to a school, but aren't paying to send their kids for one. The analysis changes in this price range.So yes, I advocate this strategy COMPLETELY, if the analysis is done in a leveraged way to know all key metrics before setting foot in the properties. And, its easy to do this leveraged analysis technique since so much is available on the internet.
I am actually going to write this step by step blueprint up. I would love to share it with this thread when I have it (later this evening). But 1) No war zones!! 2) Hire a GREAT property manager (if you want).
LUCKY FOR US, its not hard to avoid 1) and its not too hard to find a good PM for point 2)
Thanks for sharing Lisa.
Every market has it pockets of C class areas that are not too bad. I am fortunate that I have been working with individuals here in Kansas City that have over 20 years experience in working these areas and the properties. Our property manager has also been managing in the area for 9 years. There are certain parts of town of where even these experienced guys will not venture into haha
I believe that the number 1 key to being successful in C class property is the property management. The properties need be tenanted quickly once they become vacant and they PM needs to constantly be on top of the tenants regarding the rent. When a tenant calls in to say the rent is ready there must not be any hesitation and they need to collect right away.
Thanks.
- Buffalo, NY · Member since 2014 · 82 posts · 75 votes12y
Originally posted by @David Beard:
I haven't looked through all of this, but I'd be real interested to know who out there can actually speak from a position of considerable successful experience on this topic. In other words, who has met these criteria?:
- Owned these types of properties for 5+ years, at least at moderate scale (say at least 5+ of these houses).
- Netted 50%+ of the gross potential rent over this 5+ year period, after compensating yourself at least $20/hr for the time you've spent AND covering ALL maintenance that was incurred beyond your initial rehab (even if you capitalized it on your taxes)
- No regrets and has enjoyed managing these properties (or at least hasn't regularly wanted to bludgeon yourself)
Color me just a tad skeptical, it sounds GREAT on paper, but the long term reality? Does anyone on this thread meet the above criteria? And has anyone done this successfully over time, long distance using a property manager (can't even imagine)?
I'm positive that @Rob K. qualifies (though not sure about point #3??), but he is also a hands-on management pro and admits that property mgrs have been a bust when he's tried them. Anyone else?
I think @David Beard has an excellent point here. Let's listen up and hear who can give us the long term numbers. I'm not sure about his second point, but I agree that the numbers should come in at 50% of gross rent potential after factoring in all expenses and losses over a 5+ year period.
- Buffalo, NY · Member since 2014 · 82 posts · 75 votes12y
@Joel Owens who says:
"I like to keep my life stress free. Low income tenants come with a lot of stress even with great systems in place. They generally have lower education, multiple jobs to stay afloat, constant charity assistance, lives have constant twists and turns which is unstable as a long term tenant. Cash flow is perceived higher but greater eviction and turn frequency with higher re-rent tenant costs per time with increased damage to the units."
My question to experienced sub30k investors: is he right? Is there lost rent due to higher turnovers, damaged units, etc? Or is that just a myth? Or is it the result of lax management and tenant screening?
My novice opinion is that Joel's comments can be mediated with strict tenant screening and detailed, systematic management. I've run through this with my attorney recently. If a tenant is damaging the property or is not paying on time, I can evict and lose only one month rent plus damages plus vacancy time. My attorney charges $600 including all fees. The rent would be around $500-600. I'd keep the one month security deposit. Net loss one to two months rent.
I also believe that careful tenant screening will weed out 80+% of the bad apples right from the start. So I'm assuming that 80+% of the time I'm likely to get a solid tenant. If I need to evict, that $1000 loss is the cost of doing business and I've already factored that into my profit and loss projections. I'm ASSUMING from the start that I'll need to evict someone once every two years. But....I'll also very likely rebound and get a solid tenant with the next one. It's a numbers game people.
Think about it. You buy a duplex house for 30k. You CAREFULLY screen tenants. You now have an 80% chance of earning $250/month (net) off each tenant without much trouble. That's $500/month net. That's a very conservative number. Let's say that every once and a while you will lose $1000. Does that mean that you shouldn't be in a business that earns you $500net /month or $6000+ a year for life? That makes absolutely no sense.
Am I missing something here?
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes12y
"I'm ASSUMING from the start that I'll need to evict someone once every two years."
I think with low income tenants and stability issues actual data for many investors is that you will churn the unit over much more than once every 2 years.
Location is key. It doesn't matter how well you screen if the area is bad most quality tenants will not want to live there even if you make your place brand new.
Eviction in one month is if everything goes perfectly which it rarely does. Depending on local eviction courts and if pro-tenant or not and how backed up serving writs the local jurisdiction is you could be waiting a long time to get them out.
I will give you an example. Fulton county in Atlanta, GA. Whole process is supposed to take a month. Marshalls are so backed up with volume that in some months doing everything perfectly it will be 2 to 3 months before you can get them out. In theory everything sounds great but when you put a plan in motion things can often happen.
Douglas your plan sounds clean in theory but actual real world investing it does not go down that easy in a lot of situations.
- Real Estate Investor · Arlington, VA · Member since 2012 · 302 posts · 277 votes12y
@Douglas Brundin - you hit the nail on the head. Lax tenant screening is part of it, and regardless of any neighborhood, you can't diverge from that. AND, how well did you do your repairs upfront?
And long term is okay if you need it, but I paid off my first asset within 3 years, and this last one is projected to be paid off in 2 years (since 1 is paying for the other), and the last one 2 years after that (2 paying for the last). I don't know about long term, i know about paid off asset earning you 800/mo within 2 years :-) So Douglas, my experience coincides with your analysis.
And, what are you guys doing?! Why are you not having long lasting tenants? Why are they moving out so quickly?? Working class neighborhoods I grew up in, and I currently invest in, people stay FOREVER. Moving is expensive. My neighbors in these areas have lived in the same house for 15,20 plus years. I guess I may be talking about a different neighborhood than you guys...
- Buffalo, NY · Member since 2014 · 82 posts · 75 votes12y
I hear you. And caution is certainly warranted. I'm sure many hasty and unprepared landlords have crashed and burned.
I've been preparing to launch for the last two years. I've interviewed numerous landlords. The ones who seem to do well are careful managers and screen tenants well. The ones who struggle and seem to regret being landlords seem to struggle because they're tenants are out of control.
- Real Estate Investor · Arlington, VA · Member since 2012 · 302 posts · 277 votes12y
@Engelo Rumora - I use property managers heavily in this strategy. 1) Its affordable with the cash flow you earn and 2) They need to get on these tenant quickly if they miss payment. I have strict criteria for tenants, and I pass on applications if I need to. You pay now, or pay later.
And in general, its one more system so your real estate can function without you, which is the point, right?
- 12yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Originally posted by @Lisa Phillips:
@Engelo Rumora - I use property managers heavily in this strategy. 1) Its affordable with the cash flow you earn and 2) They need to get on these tenant quickly if they miss payment. I have strict criteria for tenants, and I pass on applications if I need to. You pay now, or pay later.
And in general, its one more system so your real estate can function without you, which is the point, right?
100% agreed :)
Thanks
- Real Estate Investor · Arlington, VA · Member since 2012 · 302 posts · 277 votes12y
@Douglas B. At the end of the day, you approved that applicant to live in your property. If you let a bad, non paying apple in, there are NUMEROUS ways to screen for that. When I have been strict, I have not had issues. When I have made allowances, I have suffered regrets. Each case points to me, not the neighborhood.
Good luck on your launch!
- Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes12y
I basically agree with everyone's points here. Let's agree that most experienced investors don't want the hassles associated with 30k types.
David's points are well taken and coming from years of being in the trenches.
Lisa's found a working model despite challenges.
Joel does triple nets, that is about as turnkey as one can get in any business.
Engelo has KC down.
So much REI success...I just need a little chunk to rub off from each and I got the complete package:)
- 12yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Originally posted by @Matt R.:
I basically agree with everyone's points here. Let's agree that most experienced investors don't want the hassles associated with 30k types.
David's points are well taken and coming from years of being in the trenches.
Lisa's found a working model despite challenges.
Joel does triple nets, that is about as turnkey as one can get in any business.
Engelo has KC down.
So much REI success...I just need a little chunk to rub off from each and I got the complete package:)
haha
Thanks @Matt R.
- 12ySharad M.Pro MemberCarlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
Originally posted by @David Beard:
I haven't looked through all of this, but I'd be real interested to know who out there can actually speak from a position of considerable successful experience on this topic. In other words, who has met these criteria?:
- Owned these types of properties for 5+ years, at least at moderate scale (say at least 5+ of these houses).
- Netted 50%+ of the gross potential rent over this 5+ year period, after compensating yourself at least $20/hr for the time you've spent AND covering ALL maintenance that was incurred beyond your initial rehab (even if you capitalized it on your taxes)
- No regrets and has enjoyed managing these properties (or at least hasn't regularly wanted to bludgeon yourself)
Color me just a tad skeptical, it sounds GREAT on paper, but the long term reality? Does anyone on this thread meet the above criteria? And has anyone done this successfully over time, long distance using a property manager (can't even imagine)?
I'm positive that @Rob K qualifies (though not sure about point #3??), but he is also a hands-on management pro and admits that property mgrs have been a bust when he's tried them. Anyone else?
This message is general and not addressed to anyone in particular :)
I think I am in a very similar situation as @Lisa Phillips I bought my investment investment property in Aug 2009. Listing price - $65,000. Purchase Price $22,500. Rehab - $10,00. All in cost = $32,500.
It's a 2 unit property and rents for $1,200 per month and tenants pay utilities.
I have completed my years, but this is my 5th year and I do this full-time now and I am very glad about the choices I made and if I had redo it all over again, the only thing I would have changed is I would have bought more.
I do not understand the 2nd point here. I am netting over 50%, but I do not calculate $20/hr for my time.
My only regret is not buying more of these. I don't manage these myself. I have two full-time staff who do the day to day stuff. One girl who does the management and one maintenance guy.
When I started investing, I was very clear to myself that I want to be a real estate investor only, NOT a property manager or a real estate agent.
I am so hands-off the management that I have some tenants that the girl who works for me has placed that I haven't even met them. I just know them what they look like from the copy of IDs I collect. Most of my tenants have no idea who their landlord is. If I ever met them, they would never be able to tell that I am their landlord.
Since I have hired someone to help me with management, I have travelled out of country for 3 trips of 5 weeks, 3 weeks and 3 weeks and things worked out.
I think I have built a very tight system that I am very proud of. I have a VA bookkeeper who updates and emails me QB reports weekly and I review my financials on a weekly basis.
One of the most important things is to screen the tenants. I own most of my properties free and clear so I have the luxury to sit through vacancy for couple of months if I don't find the tenant that I approve of.
Just to be clear, I am not purchasing these properties in war zones. When I first started out, I would go to these properties after dark myself to check on work, etc. and never really feared for my life.
Another thing I did when I started out was, I would call the local police department and ask to speak with the Sgt. and I would them this question:
"If it were your son or daughter buying this property, would you be OK with the area?" If they said yes, only then I would do rest of my due diligence.
I don't have any handyman skills. I don't do any of the work myself. I have accounting background and I strictly look at a house as an investment of my money and time.
The least expensive property I purchased was $10,000 through my own marketing and the most expensive rental I have is $200,000 condo that my wife and I lived in.
$10,000 house needed $10,000 repair, so my total all-in cost was $20,000 and rents for $825/month and tenant pays all utilities. $200,000 condo is a 1 bedroom, which rents for $1,600 per month and I have to pay HOA.
Regardless of the area that you invest in, I believe everyone wants a nice home for their family and if you can provide one for your tenants, they will appreciate it and would want to take care of the place.
Prices are going up in the area where I invest and now I have friends and family asking me to help them find investment properties, so it's not exactly the same market, but still a great market to invest in.
Good luck to everyone!
- 12ySharad M.Pro MemberCarlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
Originally posted by @Douglas B.:
@Joel Owens who says:
"I like to keep my life stress free. Low income tenants come with a lot of stress even with great systems in place. They generally have lower education, multiple jobs to stay afloat, constant charity assistance, lives have constant twists and turns which is unstable as a long term tenant. Cash flow is perceived higher but greater eviction and turn frequency with higher re-rent tenant costs per time with increased damage to the units."
My question to experienced sub30k investors: is he right? Is there lost rent due to higher turnovers, damaged units, etc? Or is that just a myth? Or is it the result of lax management and tenant screening?
My novice opinion is that Joel's comments can be mediated with strict tenant screening and detailed, systematic management. I've run through this with my attorney recently. If a tenant is damaging the property or is not paying on time, I can evict and lose only one month rent plus damages plus vacancy time. My attorney charges $600 including all fees. The rent would be around $500-600. I'd keep the one month security deposit. Net loss one to two months rent.
I also believe that careful tenant screening will weed out 80+% of the bad apples right from the start. So I'm assuming that 80+% of the time I'm likely to get a solid tenant. If I need to evict, that $1000 loss is the cost of doing business and I've already factored that into my profit and loss projections. I'm ASSUMING from the start that I'll need to evict someone once every two years. But....I'll also very likely rebound and get a solid tenant with the next one. It's a numbers game people.
Think about it. You buy a duplex house for 30k. You CAREFULLY screen tenants. You now have an 80% chance of earning $250/month (net) off each tenant without much trouble. That's $500/month net. That's a very conservative number. Let's say that every once and a while you will lose $1000. Does that mean that you shouldn't be in a business that earns you $500net /month or $6000+ a year for life? That makes absolutely no sense.
Am I missing something here?
My question to experienced sub30k investors: is he right? Is there lost rent due to higher turnovers, damaged units, etc? Or is that just a myth? Or is it the result of lax management and tenant screening?
My experience hasn't been what Joel is describing. My properties are more in $30-$40k price range all-in. Some more, some less, so to be fair to Joel, he might be talking about a completely different neighborhood from the one I invest in.
I haven't had high turnovers or damaged units. Once you accumulate a high number of units, you will always have some issues that you will deal with, but that's not because of the market I invest in, but more because of the volume.
I can not stress enough how important good management and tenant screening process is. For tenant screening, one of the very important things I do is:
I call the previous landlord listed on the application and ask the following question:
"Hi, my name is Sharad and I am with Max Properties. I had Joe apply for one of my rental units and he listed you as his supervisor. Can you please confirm that he works for you?"
If they say yes, they are automatically rejected.
It has worked very well for me.
I do the same thing when I call the employer and try to confirm their tenant history. If the employer confirms the tenant's rental history, the tenant is rejected.
- Real Estate Investor · Arlington, VA · Member since 2012 · 302 posts · 277 votes12y
@Sharad M. nice! I have had a few headaches, but most were related to dealing with city usually. If there was though, they all go back to me not being on my game as a landlord or as a rehabber. No headaches that were not self created, but then again, not just anyone gets in my property. @Sharad had it right, and this can be another subject: How well do you fix these units up? Do you cut corners because its not an A neighborhood, or do you bring your A game to the renovation. I have to believe that plays a large part of who you attract and how long you keep them.
Property Managers work in these neighborhoods, so they are very strict as well on tenant screening- they dont want to deal with the headache either (They dont get paid if they have to evict them later), so they treat the tenant screening process as if its their own home.
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