Anyone out there specializing in under 30k properties?
Buffalo, NY · Member since 2014 · 82 posts · 75 votes
I'm looking to form a networking group of people who specialize in under 30k properties for cash flow. I propose we share ideas to help each other maximize our success!
I 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.
Thank you @Aaron Yates for the encouraging words. I know that it is not lucrative for a Realtor to help me purchase an Under $30K property but I also know quite a few of you are doing it. I set my goal a two this year. Haven't found the first one but I have time and I'm working toward that goal every single day. I am learning, contacting people, setting things in place so when the deal comes I can act on it, so for now I am satisfied and with folks like you on this forum, I feel encouraged and far from ready to reconsider.
Thanks!
Thanks!
Pyrrha - What I did when I first started out was make all my offers directly with the listing agent. The listing agent took my offers seriously as they were getting both sides of the commission. I did this for my first few properties and it worked really well.
Everyone who is purchasing low priced properties starts somewhere small, so just keep trying.
Once you do first couple of deals, you will find a lot of agents who are interested in working with you, because they will see you get deals done.
Wow @Sharad M. !
That is awesome advice. I will apply it right away! I have been trying to develop a relationship with a Realtor who seems interested in helping me but there really is not much in it for him, so the motivation is not as great as the good intention.
Thank you!
@Pyrrha Rivers This is a good question and issue. I did not go Sharad's route because I thought the real estate agents where playing both sides and trying to raise the price. However, I did find a R.E. Agent in this price range by going with the local lister who had a 10k property. I did a vlog on it, going over what the attitudes were and how I got around them that has more detail:
http://www.affordablerealestateinvestments.com/0013-finding-a-real-estate-agent/ I also have this post on my biggerpockets vlog. This may help, but its something thats a bit intimidating, understanding their motivations and how to navigate them will help you to not be discouraged. I would say that Aaron's advice on not taking no for an answer has been the key for both of us. You realize that you just run into someone elses limitations, not your own, so you just go around that person.
@aaron yates - not a born diplomat, are you ;-)
@Pyrrha Rivers I've been looking in this market and things seem to go under contract within a couple of days in that price range. My experience has been that listing agents won't return calls or emails, I'm assuming because they're already sold or they have received so many offers that one more won't matter. I'm considering also picking up my license in GA so that I can submit offers directly to the listing agent without having to wait on a listing or buyers agent to return my call.
Let me know if I can be of assistance.
That's interesting, because I have had opposite experience. I made low offers and thoughts the listing agents were very receptive because of the double commission. The first property I purchase was listed for $65k and I purchased for about $22k.
I also have agents call me at times with pocket listings so that they get double commission. In fact, I am negotiating a deal right now for a duplex where the agent showed me the place before listing.
Part of the reason might have been because I was buying all cash at a time when prices were at all time low with little competition.
Things vary so much from one market to another, but this strategy worked really well in my market.
Thanks, Lisa. I have been an Affordablerei.com junkie have listened to all of your vlogs including the one about finding an investor friendly Realtor. I will stick to my guns but since I have not yet found that Under $30K Realtor I will try the approach Sharad suggests, since I have yet to find a Realtor with a $10K listing. Basically, I am willing to try different things because I am NOT going to desist. Between here and your site, I am pumped! :)
@Ursula B. , I see you and I are of the same mind. I haven't been at this very long but I'm experiencing some of the same as you describe and I do understand that if it takes the exact same effort, agents would be more inclined to go for the higher priced listings. WE'RE NOT GIVING UP! Just this morning I did a search for the requirements of earning a GA Real Estate Licence. It seems pretty straight forward. My hurdle will be taking the exam. I don't know if they will allow some type of official proctor to monitor me while I take it, However, I think that investing in that education is important. I have to find out if I can study online but I'm going for it.
So there are 3 steps to this thing:
·Take the 25-hour course
·Pass the $115 exam
·Pay the licensing fee of $170 and you are licensed for the first 4 years.
Let me know what you decide in terms of taking your course. We can become study buddies.
@Pyrrha Rivers Fortunately I've been licensed in NC for years and GA and NC have reciprocity rules. All I need is a license record from NC (got it last week), do the background check and pay the $170. I left NC in 2008 but thank goodness I have kept my license active.
Not sure how they would work out the course/exam for you. When do you return to the States?
@Ursula B. Good for you! You are light years ahead of me. but I'm still not giving up. :)
I am not certain if they would allow me to take the test using a proctor or something like that. If not, I will probably have to make a trip during the summer and take the test at that time. In any case, I need to get busy studying. I have to find they study materials and just do it. A study buddy would be nice, though. I may ask for one here once I find the study materials.
Let me know when you get your GA license. Maybe you can become my Under $30k Realtor and help me out. :)
@Sharad M. I am certainly going to try it. How did you purchase a $65K for $22K? There are so many great teachers here! Thanks!
@Aaron Yates thanks for the mention, you mention buying in Texas, I am trying to think where that is? Is that in southern Wyoming? hehe The property is located in Indiana, and it was really hard to bring myself to buy it. I had 3 separate folks tell me about the neighborhood, I had it inspected, watched a few videos of it, and look at it on Zillow and google earth. We will see how it turns out. I bought it through a management outfit, there contract is horrible, but will probably try it for a year. Has had same tenant who is very handy for at least 5 years. It makes the 2% rule. Wish me luck.
@Pyrrha Rivers - That was the first property I purchased and I wanted to be 200% sure that it wasn't a failure, so I made a ridiculously low offer to be sure that the house would cash flow even in the worst case scenario.
$22k was the accepted offer, I started even lower :-) I wasn't ashamed of my low offer, I just thought that it's my hard earned money and I have to make sure that it goes as far as possible.
@Sharad M. I asked not because there's anything shameful about your deal but because I think it was gutsy and genius that you were able to pull it off. I suspected you started lower than $22K but now my hat es really off to you when you say it was your first deal. I'm going to be watching you closely!
@Pyrrha Rivers - I didn't think that you were trying to say that I was shameless :)
I was going to be okay with a no, so it didn't hurt to make a really low offer. The worst case scenario was not getting that deal and the best case scenario was getting an awesome cash flowing deal.
I appreciate the kind words :)
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.
I have a 4300sqft single family rented for $3000+/mo and a nice 1600sqft rent for $1300. Neither have had a vacancy or an issue sice they were rented 2+ years ago. I went and personally walked through them for the time since they were vacant last month and they look just as good, maybe better. One tennent even planted more palm trees around the pool. Since then I partnerned with a friend and have been scooping up low end rentals. Sure the vacancies are higher, and I don't have any new landscaping in the low rent multi-families. Yup, we've had a few damaged units. Do I regret buying......Heck no. We have developed a true 30+% ROI and that's fully managed. Our exceptional property manager has kept vacancy below 10%. I do think diversity is important and we hope to eventually move to commercial residential, and maybe NNN commercial, but right now big cashflow is our goal so we are using the tool that fits our budget.
I have a 4300sqft single family rented for $3000+/mo and a nice 1600sqft rent for $1300. Neither have had a vacancy or an issue sice they were rented 2+ years ago. I went and personally walked through them for the time since they were vacant last month and they look just as good, maybe better. One tennent even planted more palm trees around the pool. Since then I partnerned with a friend and have been scooping up low end rentals. Sure the vacancies are higher, and I don't have any new landscaping in the low rent multi-families. Yup, we've had a few damaged units. Do I regret buying......Heck no. We have developed a true 30+% ROI and that's fully managed. Our exceptional property manager has kept vacancy below 10%. I do think diversity is important and we hope to eventually move to commercial residential, and maybe NNN commercial, but right now big cashflow is our goal so we are using the tool that fits our budget.
Levi, I think you make very good points. I am done a lot of deals in last 4.5 years since I started investing, but I still consider myself a new investors in terms of how long I have been investing.
I agree 100% with you that diversity is very important, and I am sure I will have different priorities as I grow older and my family needs change, but to me these low priced properties are a great way to get started in REI and start building wealth. I wouldn't change anything except buy more of these properties if I had a chance to go back.
When I invest, I try to get the best ROI and ROT (Return on Time) and these low priced properties have given me a good mix of both. I am diversified in other non-RE investments and always looking for other opportunities to get a better ROI and ROT.
Why are you looking at demographics primarily? Can you explain your reasoning?
@Engelo Rumora "When a tenant calls in to say the rent is ready there must not be any hesitation and they need to collect right away."
Are you saying that your PM's actually go to the rental to collect rent as a normal course of doing business monthly, or only if the tenant is late? If it is the former, then I'm curious in this Sub30K model if having to do this is the norm. I have always been of the mindset that it is the tenant's responsibility to get the rent to my PM, not vice versa, via mail, personal delivery, ACH, etc.
Great thread btw - @Aaron Yates I'd love to find some Texas areas this works in too :)
From that starting point, I might apply some very unconventional micro metrics. Things like what cig brand is leading seller at the local level, as in that specific store on that street. Or what products are on display at the end aisle caps in nearest supermarket. These stats can help confirm decisions or throw in red flags.
Every deal is circumstantial and exceptions are common.
Thanks,
Matt
@Matt R. I am in Greeley and two years ago you could buy a house for 30k. Although it would not be a house I would want as a rental. Now those houses are 70k+. Assuming same bad condition.
Everyone who is purchasing low priced properties starts somewhere small, so just keep trying.
Once you do first couple of deals, you will find a lot of agents who are interested in working with you, because they will see you get deals done."
@Sharad M. undefined
Nor sure how the quoting works, but in direct response to your advice, I contacted the listing agent of a property directly. She replied right away, we had a phone conversation where I explained my sub$30K strategy, she immediately sent me two possible candidates since the one I contacted her about is almost $40K. It looks almost rent ready in pictures so I'll have my daughter go see it. If it is rent ready, I think I'm going to go for it.
I will come back here with my thoughts after my daughter's report to ask for help with the offer.
I know I shouldn't allow emotion but..I'm so excited! :)
@Pyrrha Rivers That's exciting news. But please don't let your emotions make the decision, do the analysis for this property just like you would for any other one. Post pictures if you are able to.
I am glad the strategy of working directly with the listing agent is working for you so far :)
On a $30k house, getting $1,250 vs $2,500 in commission is a pretty significant difference for the agent.
Sharad and Pyrrha, excellent points about using the listing agent and the idea of RETURN ON TIME.
I used the listing agent, only once though. Now I only use them if I can't find another agent to fully represent me.
When I submitted my bid with this one, she called me back in 2 hours (since she represents the buyer and each individual investor), and said someone else had submitted a higher offer, do i want to resubmit and raise my price. I have no proof if this was true or not, but did not like the idea of her driving up the price undocumented before the bid was submitted. I couldn't prove anything, but realized that its in her best monetary interest to drive that up. If you don't hear about that tactic, you should be okay, but it really made me want to have some representation where there isn't such a conflict of interest. Just my 2 CENTS ;-)
Hopefully, that was just my one Baltimore listing agent experience, and isn't repeated anywhere else. When I do find an agent, I make the process as smooth as possible since commissions are so low: They are only there to open the doors, easy enough, I dont require much input from them.