Should I invest in older homes?

Question

Hello, I have been looking at duplexes Cincinnati and Columbus OH. I have discovered there are older homes, 80+ years old, really cheap. There are duplexes for $15,000 dollars. I am wondering, is it worth it to buy a older duplex and invest some money fixing it up? Or would it be better to buy a newer duplex for $100,000 that does not need any fix up? Is there a huge difference in the amount of money you can get for rent? Are these older, cheaper duplexes usually in bad neighborhoods? Are they easier to rent out, or harder?

Eddie Ziv · Answer

This seems to be an old thread but for those newbies who follow it I'd add to Mike's words that if you plan to do any long-distance landlording, consult with local  reputable property managers who can guide you through the areas that fit your budget and is decent enough to do business in, so you won't end up in a war zone.

N.A N.A · Answer

I suppose it depends on the area. I now live in Florida and won't touch a property built before 1975, and definitely not a house that's not block/brick.
          
          I don't think it would be an issue in Ohio.

Michael Rossi · Answer

Both Columbus and Cincy have war zone areas in which paying $15,000 for a property is paying $25,000 more than it's worth!!!  If you're planning on doing long-distance landlording in war zones, just send me a check for every dime you've got - it will save you a lot of time, money, and distress in the long run!!!

Mike

Ned Carey · Answer

As always Jon gave good advice. But I'll add that you need to know your market. Some of your questions like, knowing what you can get for rent, comes from knowing your market.

Knowing your market comes from going out and inspecting properties and talking to sellers, buyers, and landlords.

Good luck.

Steve Sparks · Answer

I have looked at that property you mentioned..war zone property..there are numerous deals here in cincy though..let me know if you want more info!

Matthew Coons · Answer

Thanks for the replies! I will be sure to get out and start looking at properties.

Jon Holdman · Answer

Don't know.  Could be any number of reasons why its so cheap.  Have you gone and had a look?  Or, at least driven by?  Real estate investing happens out in the field.  Go have a look.

This ones even http://www.realtor.com/realestateandhomes-detail/3934-North-Bend-Rd_Cheviot_OH_45211_1093744526

You can buy lots of houses in Detroit for $1000, but that doesn't make them a deal.

Jon Holdman · Answer

Ultimately, its a numbers game.  If you can buy an old duplex for $15K and put $25K into it, and get the same rent as the $100K duplex, there's no question.  Buy the old one.

Compare the total price - purchase plus rehab - to the rent.  The better that ratio, the better the deal.

You do have to consider demand.  If there is a lot of demand for nicer units and none for lower quality units, then you might want to go with the better ones.

And, you're right about the tenant base and the neighborhood.  You don't want to be in a war zone where you're only going to get bad tenants, and you property is going to be at risk.  On the other hand, you don't want to be in a swanky area of mostly home owners where prices and rents are badly out of whack.

A quick and dirty calculation is to assume the expenses will be 50% of the rents.  Whats left is your NOI.  Then figure your P&I payment assuming 100% financing at investor terms on the purchase price plus rehab expenses. Subtract that from the NOI to get cash flow.  Some landlords, especially in OH where there are limited growth prospects, want $100/unit in cash flow.  Read in the Rental Property Forum for some background on the "50% rule".

If you can post details of your prospective deals, we can give a better analysis.

I didn't look at a map, but I assume Sadieville is close enough to Cincinnati and Columbus to drive there.  You should go do some driving and get an idea of the areas you're considering.

Matthew Coons · Answer

Thank you for the reply. Here is an example of a Property in Cincinnati OH. 
            
            http://www.realtor.com/realestateandhomes-detail/3053-Bracken-Woods-Ln_Cincinnati_OH_45211_1107018392
            
            How can this property be so cheap, besides being in a bad neighborhood or needing a complete rehab?