Why are Cash flow investors buying so low?

Question

Every time I listen to or screen a cash flow niche investor I meet from a REIA, they generally speak of buying properties at tremendously cheap prices like 11,000, or 17,000 where the counties are closer to the downtown areas (typically the projects). To me, a higher quality tenant is going to benefit you more living in a neighborhood where the property values are higher. Is this because these are the only properties that these cash buyers can afford? Do people who wholesale to these cheap buyers make much of a profit for themselves?

Jack Bobeck · Answer

Curtis Daniels When you find out why people do and think what they do/say, please let me know, I want to be the first to know why they do crazy stuff. For me, buying is all about the exit strategy. Will I hold? For how long? Will I lease option or flip? Before you buy, to me, I think you need to know your exit strategy.

Patrick L. · Answer

Regarding the wholesaling aspect of your question....If it's a deal I'll buy it and if a wholesaler can bring me a legit deal then he can make some money off me.  The problem I have is most "wholesalers" around here just bring me MLS deals that I either passed on or made a lower offer than what they have it under contract for.  If you want to make money, bring me an off market property at a great price.  If it's on MLS I've already seen it.

Sean Kremer · Answer

Its been my experience that if you do get into negotiations with a "big dawg cash buyer," is that they don't expect to pay much more than 50 to 70 cents on the dollar. I believe the reason for this is because cash is king and they are capable of making your house disappear quickly and easily for you....for a reduction in price that is. In my experience, they don't buy "real estate," they buy "situations."

Sean

Kyle Weimer · Answer

Cash on cash return 3-5 years max on the lower end. No risk and the house is paid off. The higher rents in expensive neighborhoods don't justify the 10-20 year cash on cash.
At least not for me. Not buying the low end for appreciation necessarily.
Low risk cash cows baby!!!

Ben Skove · Answer

To pile on with everyone else, it's all about the return. I don't mind a little additional tenant hand-holding when I can recoup my investment in 2 or 3 years, like Nick. As a bonus, I'm hoping that being active in improving the neighborhood will allow for some modest appreciation as well.

I think, though, you need to know your target audience and give them what they want. Be forthright that you want to wholesale properties at a certain price range, then provide something that meets their numbers. Just keep networking!

Plus, though I may be frugal, I'm willing to pay a wholesaler what it's worth for a good deal. If you're creative I'm sure there's some profit to be had in lower-end cash flow properties.

Nick Miller · Answer

I like the low range low end because I can have 100% of my money back within 2 to 3 years.  Ive bought middle class houses before but they take 10 to 30 to pay for themselves.

Curtis Daniels · Answer

I dig your grind Patrick. I'm really trying to understand the psychology of investors. My main focus is to find the big dawg cash buyers primarily.

Patrick L. · Answer

I buy in that price range frequently and I also buy more expensive stuff.  Yes I can draw a better tenant with an expensive house but it's not going to give me the same return.  I can buy a house for $11-15k and rent it for $750/month or I can buy a house for $50k and rent it for $1,100/month.  If each house needs ~5k to rehab prior to move in then I can still buy 3 of the cheap houses for less than the $50k house.....so I'm pulling in double the gross rent.  I have about the same vacancy % on both types of houses, most of my tenants stay for years.  I still accumulate some of the more expensive ones because they'll be easy to sell to owner occupants down the road but for pure return why would you not want a cheap one?

Why are Cash flow investors buying so low?

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