Newbies Take Note: You STILL Shouldn’t Buy Houses for $30,000


I wrote an article about 9 months ago titled Newbies Take Note: Why You Shouldn’t Buy Houses for $30,000, in which I advised you NOT to buy cheap houses. The article set off a mini firestorm on the BiggerPockets Blog. But today, I want to give you a “case and point” and perhaps convince more of you.

I am remodeling an SFR.

Actually, remodeling is too loud of a word; updating is more like it – putting some lipstick on that pig, if you will. I’ve had this house for about six years, the last four of which I’ve had the same tenant, and now that she’s moved on, it’s time for a little paint, a little cleaning… a little “lipstick.” 🙂

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Creative Finance

I hardly can tell you anything new about creative finance. I am sure that you’ve read Brandon’s book and, as such, know it all. Nonetheless, perhaps you can allow me to underscore a few points that are pertinent to the present narrative.

Why We Buy Income-Producing Property

This is an easy one to talk about since there are only a few bullet-points that need to be mentioned. The reason we buy income-producing property is to:

  1. Protect Buying Power of Money
  2. Increase Buying Power of Money
  3. Create Wealth

Relative to protecting the buying power of money, what we are talking about is ensuring that our money buys the same amount of stuff tomorrow as it does today. While I have no intention of dragging you into an in-depth discussion of monetary and price inflation, I will acknowledge that it (the inflation) is a fact in a fractional reserve monetary system.

Related: 3 Fundamental Tips for Real Estate Investing Newbies

And what does inflation do?

Well, the increasing number of units of currency by definition suppresses the value of all currency in circulation, which translates into the reality that, as time goes on, it takes more units of currency to buy the same stuff. It is easy to see, therefore, that in order to afford to buy things in the future, we must position ourselves to increase the amount of currency we hold by an amount inversely proportional to inflation. Furthermore, if we can grow our number of dollars faster than the impact of inflation, then by definition, we can not only protect, but increase our buying power.

Needless to say, this process must be done through investment income.

Finally, the reality we don’t focus enough is that cash flow, while we can build up a significant enough amount to live on, fundamentally is there only to bridge ownership into equity — we buy stuff that we think will grow equity, either organically or through forced appreciation, faster than the marketplace. This is how we create wealth, and CF simply facilitates the holding period.

Real Estate is Great for All 3… or Is It?

Well, supposedly real estate accomplishes these stated objectives well, since as time goes on, we are able to increase rents, thus protecting the buying power of our currency. And over time, that house we’ve bought will be sold for much more than what we paid, and there you go – easy…

Before you run to buy a bunch of pigs — I mean cheap houses — let me tell you why I have a vacant house. You know why my tenant moved after 4 years? Because I was going to raise rent by $25 per month!!!

That’s right — the tenant moved over a seemingly insignificant amount of $25/month. This should make you think.

Related: Newbie Real Estate Investors: The Path to Success Starts HERE

What is apparent to me, and should be to you, is that to some people in this country, $25 is not insignificant at all. My house is a fine house. It is in a safe area, close to everything. But the nature of the beast is that the type of tenant who wants to live there considers $25 big deal. What is also apparent to me is that while Brandon and I are debonair about forcing appreciation through income, although this is not an issue for SFR but pertinent nonetheless, we have to pause for a second to realize that raising rent from $900 to $925 is a very different proposition from raising rent from $475 to $500.

Simply put, to people who can afford $475, 25 buck is a huge deal, while to those who can afford $900, an extra $25 is much less of an issue!


I told them I’d be raising rent $25 and they moved – bam! And to boot, the house in this location is still worth only what I paid for it and will likely never be worth substantively more. I bought a cheap house because in the beginning I thought that this was all I could afford!

I don’t buy pigs anymore – do you?

Agree? Disagree? Make your arguments below!

About Author

Ben Leybovich

Ben Leybovich has been investing in multifamily residential real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben is a licensed Realtor with YOCUM Realty in Lima, Ohio. He is also the author of Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.


  1. Ben,
    I learned the same lesson, a long time ago, precisely in Ohio (I used to live in Gahanna in the early 90’s) when I purchased a couple of properties in Columbus. Long story short, I broke even after a few years. Lots of wasted effort. Since then, I decided to only buy in A or A+ neighborhoods. It is all about location, location, location.

    Great post.

      • Barbara Long

        Hello. I understand. Back a couple years ago ppl couldn’t afford to rent but now they can again..I myself have to increase my rent and get moe cashflow to adjust high rise costs. I usually do that after a tenant leaves then adjust the rental income. I have a tenant that does not complain, rent ALWAY on time and tenant for4 years now. I so want to raise the rent and get what I should for the 3 BR apartment top floor that he is occupying, but I have not. His rent pays the mortgage not matter what so………….the other apartments units in my tri plex I raise the rent each time a new tenant comes in. I don’t think there is no right way and no wrong way here. If a property generates cash flow even if the property value doesn’t go up ..what does it matter….it’s still doing “it’s thing” for you , that you need at the time. Every situation is different. Real estate is a gamble!
        “Yu know when to hold them and you know when to fold them” sound familiar!

    • Is there anywhere in the country where people pay less than $500 a month for rent? I am closing on 30K house today which I expect to rent for about $800-850 a month. Doesn’t need much work. Even the carpet is still good. I know because I live in this neighborhood. I bought a slightly smaller house last year for 35K and it is rented HUD for $800. There was one 30K house I liked so much, I decided to move in! The houses which proved more problematic were the ones I purchased for 15K.
      It really depends on where you live, I live in Mississippi. And no, I wouldn’t buy a house in an A+ neighborhood. The houses there cost three times as much, are just as old and produce maybe 20-25% more in rent. I look for neighborhoods like my own. Predominantly working-class, most people own their own homes and nearly everyone keeps the grass cut.

      • I completely agree. I recently bought a condo for $13k, I just put about 10k into fixing it up and modernizing it. I plan to rent it out for $850-$900. There are a couple units in this building that are dated and currently being rented out for $800, and the tenants have been there for a long time. Similarly, I am closing on another condo which I’m buying for $25k, no repairs needed, move in condition, and all modern finishes, including all appliances. My buddy has a unit in that building which he has rented out to a tenant for $1,100, the tenant has been there for over 3 years now. The point I’m making is that I’ve come to learn that there is no blanket rule when it comes to real estate, it comes down to what ever works for you. These units were once upon a time sold for $100k+, I don’t know if the will ever get back there, but to be honest, I don’t care, my goal is to generate passive income.

        • David duCille

          I find that fact fascinating. I must admit, I strongly disagreed with your stance initially and I don’t think the article did a good enough job of laying the numbers out there. So yeah, I wouldn’t buy a 30k house, just to be able to rent it out for $500-$600 bucks. Essentially for me, the kind of rents that a 30k house can generate are much higher, albeit with other risks and concerns but these “pigs” are far more lucrative.

        • Ben Im up to 43 properties…I buy them cash…most of the time I get insider info…im a patrol cop in Texas….I know who lives out of state , who commits suicide, whos in jail, etc….80% of what I buy are Mobile homes on land- the average rent I get is 450-500….the average price I pay is 12-15000 dollars….the average cost to refurb is 3500.00, of course I do a lot myself and I get contractors to bid war for cash- I never ever buy a property I cant get a 20% return on and I have only spent 30k or more on 2 of my 43 properties. The taxes are insanely low….my favorite: I pay 112 dollars a year and the 2br generates 350 a month – bought it for 7200 dollars ( put 3k in for repairs) 7 years ago…..looking to move up to the next level and carry the notes on 20 or so letting the tenants buy the properties they have been living in…average tenancy now over 7 years. The only issue is the RMLO requirement- not sure if my series LLC has to meet that requirement. Tell all your readers Ill look at their under 30 k properties ……Cheers!

      • Patrick Huey

        In my local market (Rockford, IL), there are a few homes that rent around $450 to $500 a month, but most of them are in really bad neighborhoods, and that’s in a city which is far below the national average in home prices. As you can probably expect, my hometown also leads the state in unemployment and has a very high crime rate for its size. There are a lot of absentee owners who buy some of these homes really cheap (often for $5,000 to $20,000) and rent them out to Section 8 tenants but barely upkeep their properties.

        As a side note, the median rent for a two bedroom apartment in my hometown ranges from around $500 to $650 a month. We also have some mobile home parks in the area where you can get a newer decent mobile home for about $20,000 and an older unit from $5,000 to $10,000 cash.

  2. Jeremy Teske

    Hi Ben,

    I wanted wanted to comment, and this is ironically my first post on BP, so I’m pretty happy about that. For new investors, and yes I’m just getting started myself, am looking to go the cheap the way because of where I am financially and to Luis, I live in Columbus now. But your article isn’t exactly reading the way I think you want it to. Your tenant, who has been there 4 years, many not have seen the value of the property the way you see it. Your eyes are much more business driven then that of the tentant, respectively so. But how much work did you put into that property in 4 years? If I tried to sell you the same car year after year with more mileage each year….your willing to pay more each year. That doesn’t make sense. However, your “pig” (I smiled in that podcast) might get some lipstick, does it still have an edge to other houses in the area? Is the area declining? Was there ever a point where you 2 disagreed and cost her money and anguish. There are so many other factors can could have justified her leaving. Again, would you buy a car with more miles for more money then previously?

    I know this will seem harsh, but your post almost shows a bit of arrogance on your part, “the tenant moved over a seemingly insignificant amount of $25/month.” This goes to the fundamentals of value, and how you create it. You can buy a “pig” and dress it up in a tux and already it has social value. However, social value does not equate to monetary value. If the increase of $25/month is “insignificant”…. then why make it?!?! What value did you add to the property?

    All that said Ben, I would love to get in contact and pick your brain a bit with creative finance, as we aren’t that far away from one other.

  3. Jay Helms

    Seems like an angry post. You made a poor business decision and took it personally when they moved out. I believe a good investment is a good investment, regardless of the purchase price. Are you dealing with a different class, the higher the rent…some could argue that point (I don’t), but here’s where I have an issue with your analysis:

    @ $475/month rent, an increase of $25 is a 5.26% increase – not acceptable, I’d move too!
    @ $900/month rent, an increase of 5.26% is $47.34, not $25 – comparing apples & oranges here
    @ $900/month rent, an increase of $25 is only a 2.78% increase – more realistic

    If they’ve been a great or even good tenant for the past 4 years, a modest increase of 3% (or $14.25/month) should be acceptable when delivered properly (especially if they requested or are recipients of the upgrades you’re doing). If your property is cash flowing a desired amount and they’re good tenants, why the increase at all? Why rock the boat? If they were bad tenants and you just had to put up with them all these years, you did yourself a favor.

    Further info is missing to really see if your appreciation status quo comment holds any water. Quite simply you could have over paid for it in 2006 like most of us did. Give it time, I’m sure appreciation will come soon.

    • I agree with Jay. If the property is cash flowing, you might not need to raise rents at all. Especially if your debt service costs are fixed. Granted, I paid more than $30k for units that bring in $475/month, so perhaps I’m missing some big picture stuff!

      • Filipe matos

        Hi Skyler, not raise rents at all, as long your property cash flows $50 is ok for you but not for business people trying to grow their business.
        That is why some people are happy to have a static business and others not.

        Raising of the rent was taken emotionaly by the tenant, lots of them are expecting to stay in a place forever for the same rent, and once you make an increase , they get angry and move even if they move for a worse accomodation. That is why lot’s of landlords do not increase rents in 10 years straight.
        It’s a personal choice: static business but steady and safe income, or growing business with some risks attached.


    • Ben Leybovich

      Not angry, Jay – pragmatic. The house was rented for $560. $25 increase (the first one in 4 years) constitutes 4.5% – well within reason. I would have been better off to go up $5-10/year – lesson learned.

      Appreciation will never happen in any meaningful way…

      Thanks so much for commenting!

      • Whether it was reasonable or not depends a lot on the competition. Your rental does not exist in a vacuum. Apparently, your tenet thought they could get a better deal elsewhere, so they took it.

        • Ben Leybovich

          Jay – I was making a point with $475. $560, while still exhibiting same characteristics just didn’t sound as good. I’ve had this house rented for $650 and I’ve had this house rented for $560. The reason for $560 is because 4 years ago when this tenant came along, I had only 9 units in my portfolio, and for about 2 weeks 5 out of 9 were vacant, which was scary and I let this one go really cheap just not to have it be vacant.

          This is the wonderful thing about income property – we have a lot of leeway and a lot of ways to get ourselves out of a bind. But, it was time to rectify the situation. With as many units as I have, if I were $100 under market in everything, I’d never make any money. The cycle is good now – the rents are on the rise, even in Ohio. Now is the time to put away cash for when the cycle changes and we’ll all have to come down on our rents…

      • Jeff Rabinowitz

        Ben this is the first of your blogs I have read. I understand your points and agree with some. I don’t understand why you stated the rent was $475 in the article and now state that it is $560 in the comments. Why not just state the rent accurately to begin with? When I see inconsistencies like this I wonder what else in the article is accurate or if other aspects were massaged to make a point. Your lessons are less valuable if they are less believable.

        • Ben Leybovich

          Jeff – I’ve actually posted snapshots of my tax return before. I think you need to take everyone’s numbers with a grain of salt, but I don’t try to mislead intentionally.

          $30,000 stands not so much for a purchase price, but a segment of housing market, and an investor mentality. $475 rent make my point better than $560. I apologize if that’s confusing, but I encourage you to ponder the message that I deliver and not get discouraged by the details…

          Thanks indeed for reading and commenting!

        • Jeff Rabinowitz

          I am neither confused nor discouraged, simply skeptical. You wrote the article. Of course, your choice of figures to include was intentional. When I see inconsistencies like this on a pro forma I either walk away (most frequent) or assume the rest of the figures have also been distorted and my calculations of actual yield include a generous “fudge” factor to compensate.

  4. Chris K.

    It sounds like the issue here was your decision to increase the rent and their reaction to it. I don’t see how the price of the house has any relevance to this situation. You could be renting out a million dollar house and if you decide to increase the rent to an amount that the renters don’t like there is a risk that they would move out too. My little $30k pigs are doing me well so far.

      • Ben, I have many 30-60K properties in many different states, all have great ROI’s. Most have a return of my investment in 2-3 years, I use many different exit strategies and I like this part of the market. It has been very profitable for me.

        I have been buying properties for over 30 years. I live in California and have properties here with much less ROI’s and much more capital invested. I think it is a great part of a portfolio.

        Carry the paper and I might just take your pig and add it to my herd of pigs.

  5. I have a hard time believing they leaved because of 25$ increase, might have been the last straw but not the sole reason. During my renting times, I moved out once seemingly because of 25$ increase. I rented an apartment for 750$ and after the increase of 25$ I moved into 900$ house. I just hated my neighbors upstairs that loved to vacuum at 4am every night. I have complained to the management company and nothing was done, so when I got the increase, I’ve realized that soon the rent would be comparable to renting a house (with no neighbors upstairs), so I moved out.

    Still didn’t get the connection of the story to 30k properties and your title, you said it’s in a safe neighborhood , close to everything, sounds pretty good to me for a 30K house.

    Might be a good time for a list to the tenant: how would you rate living on the premises, what could’ve been improved, would you recommend the premises to you friends, why/why not. Might learn a few valuable things.

    • Ben Leybovich

      She left for $25. House was in good order. I am a very responsive landlord. I got a text with essentially an apology – $25 was why they left. I wish they’d talked to me first, and I think in hindsight they wish they did as well.

      I would live in the house myself. It wouldn’t be my choice, obviously. but, it’s solid, functional, convenient, good transitional area – very safe. It is Lima proper, and location is Solid B for Lima. Most people who leave lima for one of the outlying areas is because they prefer the schools. Regardless, this particular location is solid for Lima, which 40,000 people call home. Lima rents go from $375 to $700. I have some of the $700 units, and this house is definitely above the average.

      But, my argument still remains!

      Thanks for reading, Galya!

  6. christine kankowski

    I see your point, however, i disagree in a few areas. First: The cash flow on a home bought for 30K and getting $575 rent is quite good. On those types of homes, you don’t get tenants with excellent credit and corporate jobs, Everyone should know this going in. In kokomo, indiana, where I am currently investing and selling to investors, the cash flow is great, and the rents are steady. We do not raise the rates, unless a tenant moves out. We are happy to keep good, paying tenants in there a very long while without raising. Here is my reason: Each time a tenant moves out, there will be paint, cleaning, yardwork, etc. that falls under normal wear and tear, as well a down time to get a new quality tenant. I would rather have them in there a few extra years, without the increase.
    Overall, i do prefer the homes in the 70-100K range, where you get a good balance of great cash flow and a more quality tenant that is a little more stable. On these, you can actually get a loan, so the outlay of cash is the same as the 30K home with a more stable cash flow.. Hope that makes sense.

    • Ben Leybovich

      The cash flow, annualized for CapEx and adjusted for inflation over a decade is nothing. Knowing this requires being around for a while and developing an underwriting model which transcends Pro Forma.

      I bought a few of these before I knew anything. Now, if it were possible to rent them for $800-$900, then we could talk… Such as it is, they are pigs and I wouldn’t suggest you buy these. I am not loosing money on this one, but I might as well…

      Thanks a lot for reading and commenting!

  7. ryan Mullin

    Raising rent on a good paying tenant is like giving a pay decrease to your most valuable employee. From a tenants perspective that is a slap in the face. My wife and I will actually lower the rent after a tenant pays a years lease on time every month. Or, make an improvement to the property that the tenants appreciate. I totally get what you are saying about inflation but in general I disagree with this post. I mean think about it… a 30k house.. rented at 500.. It takes what 5 years to get your entire investment back? If you would have left the rental rate alone maybe the tenant stays for 5 plus years… Thats an investors dream. You can call them pigs if you want but that sounds more like a piggy bank to me.

    • Ryan, I agree with most of what you say, other than I never found the need to lower the rent. You read articles that say every year you can increase the rent. What this doesn’t take into account is: (i) your current tenant; (ii) their payment history; (iii) comparable market rents; and the one that no one ever thinks of (iv) if they move out over a small increase, and are otherwise a great tenant not causing problems and always paying on time, how many months do you have to sit with the property vacant where even if you get the rent increase from the next tenant, you are either break-even or at a loss if you had just let the old tenant remain with no increase.

      To me that was always the decision. If the property sat vacant for a couple of months, and of course I would have to freshen it up before renting it again, the money I wouldn’t collect and the money I didn’t have to spend, was always more than what I wouldn’t get if I didn’t raise the rent.

      After a couple of years, tenants understand that cost are going up, and I never had a problem getting a reasonable increase every other year from the same tenant.

      Too bad your tenant didn’t talk to you Ben and perhaps you could have settled half way. In my experience, the tenant was looking for a good reason to leave, and notwithstanding that moving is a hassle, the proposed rent increase was just the reason they needed to be pushed out the door.

  8. I bought a couple houses for under $30k at the bottom in California. I only wish I could have found more. These both rent for over $650/month and because the rent is below average, they have been rented since I purchased them in 2010. Today I could sell either for double what I paid (including the fix up I did to get them rented). One of these houses I bought for $25,500…it sold for 4x that in the past. These were timing plays and I plan on keeping them as rentals until my indicators tell me its time to sell. I keep looking for the next killer deal (I would love to find another house under 30k in my area) but that golden opportunity seems to have passed.

  9. Bob E.

    I have one sub 30k house rented for $775, as second one we are moving the former owner out and will rent for $850, and a third one where we are, again, moving the former owner out and the local PM tells me rents are at $700. Overall I think these will do fine for me. I don’t plan on a lot of appreciation but I do expect enough free cash flow to be able to buy another house every year or two.

    I don’t get the obsession with appreciation, if one person has a house where the rents double in 10 years and the house doubles in value that is, financially speaking, the same as reinvesting rental cash-flow for 10 years and having twice the number number of houses with twice the rent and no appreciation. In effect growing one $50 bill into a $100 bill vs Growing 5 $10 bills int 10 $10 bills. I know you have a little more work with the higher numbers but it also allows you to sell part of your portfolio if you need cash and you don’t have to sell to get the full benefit, it gets deposited every month.

  10. I kind of agree with this post. Here is my reasoning:

    1. There are lot of good paying tenants out there. If you are afraid of working little extra to get them, then you shouldn’t be a landlord.
    2. A tenant moving out bec of an extra $25 rent raise, I am totally OK with it. It is a free country. If you don’t like the rent, weather, neighbor or even your child’s new friends, move out. A landlord should always expect it and prepare for it and execute on it.
    3. If a landlord is not raising rents on good tenants, he is loosing money in the long run. For example, let’s say the current rent is $100 higher. The every year the landlord is loosing $1200. In 3 years he lost almost $3600. If it is a good tenant and he moves out, due to rent increase, chances are the “wear and tear” will not be that much. So, fixing it will be a much less costly than not raising the rent.

    I have raised rents $100 or more on good paying tenants and most of them still stayed. The ones left, I found probably better tenants by doing lot of screening and maybe loosing half of a month’s rent. But I have set the base higher which to build on future rent increases (3% of $900 vs. 3% of $800)….

  11. Frankie Woods

    Ben, the breakdown you provided was excellent as always. I think some of the responders have somewhat missed your overall point. Yes, you can get “lucky” and still see appreciation if you buy these types of properties right (e.g., it was hard to go wrong in California during the crash). But, normally, which is quite apparent here in St. Louis, these homes don’t appreciate nor do they have any real increase in rents. In fact, homes here are still selling at about what they were 15 years ago, and rents have been stagnant as well. There is no real way to “force appreciation” on these types of properties. In the end, I bought anyways because the cash flow was so great, but, like you, I may end up regretting this decision. Buying pigs is not necessarily a bad strategy, but I think what you’re trying to say is that there are much better/safer ways to build/protect wealth. Great stuff!

      • Michael Olson

        Ben, you’re very condescending and your article is complaining about sprucing the place up and making even higher rent by getting someone else in there and warning people not to buy “pigs”. Even if your argument is fair – the way you wrote out your argument sucks. You may be a real estate professional – but that does not make you a great “teacher” as you say you are.
        In your article/comments you also indicated that you’re a responsive landlord – which I believe based on how often you respond to your comments. However being responsive and being a jerk like you have been to many of your comments does not mean that tenants and readers are satisfied with the product you offer.
        I hope you prosper- but as a blog on how to do these things you should have more empathy and be an actual TEACHER and quit being a jerk.

  12. Drew Sygit

    The article and all the comments should provide a great learning experience for investors, which is the whole point of the site:)

    That being said, here’s our thoughts:

    1) A landlord should ALWAYS look to raise rents when the market allows it, only holding back when it would cause too frequent tenant turnovers that would negatively effect the bottom line. Factor in vacancy time & cost to refresh the property as others have pointed out, but don’t forget to also factor in property tax & insurance increases you have to cover.

    2) There’s an old sales saying, “You sell price when you have nothing else to sell”. Landlords that make it a practice (not the exception) to drop their rents to keep tenants should ponder this in depth.

    3) Risk & Reward are usually tied together. The lower demographic properties you pursue the higher the risk & reward. An investor should know this going in! There are a lot of investors that focus on “low-income housing” markets …and profit. Google that term in quotes and learn from them if that’s what you choose to buy.

    Thanks for a great thought-provoking post Ben!

    • Ben Leybovich

      Exactly – thank you, Drew!

      I am glad whenever my articles receive a thumbs up for their worth as a learning tool. This is why we are here. This is also why Josh pays me the big bucks, and why Brandon admits that I am the 2nd smartest guy he knows, behind only my partner Brian Burke. That last one, personally I think it’s kind of a toss-up 🙂

    • Chris Clothier

      Awesome comments Drew. I especially loved your second point about selling price. This holds true for EVERY sales business no matter the widget. I say it a little differently – “You sell price when you have no value.” I mentor a lot of entrepreneurs and this is something I pound into their lessons over and over. Create real value for your buyer (or tenant) and you never have to worry about price.

  13. Jerry W.

    Hey Ben just curious, if the house is such a bad deal why haven’t you sold it? Better to take the loss now than bleed for the next 20 years. I did experiment on an $18K house that rents for $525 a month. Since my house cost half of what yours did and rent is higher is it also a pig? If so is it because it is low cost or because it doesn’t go up in value. I do not see value going up a lot but I think I bought about $5K below market or more. If I bought a $75K house that made $100 a month in cash flow but might get appreciation would it no longer be a pig? Thanks for the article bud.

    • Ben Leybovich

      I will sell sooner rather than later, Jerry. The reason I say a pig, is because my hand are tide. Any money I put into the house, I will not see a return on in terms of increased rent or valuation. At the same time, my CapEx and maintenance costs are going up as the house gets older. My hands are tied, and I will need to exit eventually at a loss. This is a lesson I’ve learned, which is why I don’t buy any more of these class of asset…

      Thanks so much, Jerry!

      • Filipe matos

        That is exactly what should be the main point of this post.
        I feel it’s a waste of time and money to spend 40K on a house that will require many years of rental income to pay that investment back, the time the renos can take for returns of just 10K in terms of increased value….
        Those houses will barely increase in value. Instead, The more expensive markets keep going up and up….
        If you cannot afford anything else , then go for it because of the great cash flow, but to use it as a strategy even if you have lot’s of money…. I am not sure…

      • Chris Clothier

        In my opinion, you nailed the BIGGEST point that many posters are missing about these properties. When you pay $30,000 for a property in 2014 that is 40 years old, research the history of that property. It sold for the same price 40 years ago and again in the 80’s and again in the 90’s and again in the 2000’s. Every time there is a dip in housing, a dip in employment a rise in economic suffering, these houses in these neighborhoods sink back down. It is never going to appreciate and as it ages, the cost of maintaining it only go up….great post Ben!

        • Ben Leybovich

          And the reason the work was never done, Chris, is of course because the economic value has not been there to substantiate doing it – either in terms of rent or valuation. At a certain point, throwing good money after bad is very painful. You know this, and I know this. But, it is difficult for a lot of newbies to conceptualize…

  14. Chris Clothier

    Ben –

    I will go back and read your previous article as well, but I will comment quickly on this one and the comments. I think you are spot on with the lower price houses. There are some investors who make it work, but 10 years of experience in a market that has an abundance of lower price houses and providing management has taught me a few lessons.
    – Lower price homes attract lower rents. A rent of $600 a month means a renter is more than likely earning between $22,000 and $30,000 which means they are probably food, energy, medicine and housing insecure. IF they are paying rent without housing subsidies, the likelihood of them being transient are high.
    – because of this, these properties tend to go vacant or have higher late/no payment percentages than other rental price points.
    – because of more frequent vacancies, the cost of turnover and upkeep is higher.
    – most of the properties at the lower price points have a tremendous amount of age on them. There are very, very few in my area that have fewer than 40 years on them already and the cost alone of remediating issues and bringing up to current code is often higher than the actual price of the home….which, means the needed work is NEVER DONE!

    To copy Drew’s points on this, all of these factors raise the risk on these properties. With higher risk comes higher reward…..BUT we are quick to forget the higher risk! Investors often justify this with a loss aversion attitude. They justify it by saying I am risking less money so I will feel “less badly” (i know that is not proper english!) if I lose money on it.

    Lastly, I know local investors who have no problem investing in these properties and they take those risks and reap whatever rewards come with it. They are hardcore landlords and they fully understand that in some circles they are considered slum lords. I can’t do it, but hold nothing against them for running their business the way they run it. I also know management companies who specialize in these areas and they specialize in gov. subsidized housing. So be it. They are local and they have cut their teeth on it for years. IF you are in an area of the country with a strong federal housing program that holds landlords and tenants accountable, then you may have a chance of success.

    Ben, I appreciate your story and think you are spot on for new investors. The low cost $30,000 is a shiny objective calling their name like the siren to the rocks and many, many more crash than actually navigate their way to success at these price points. After having done this for a long, long time and had countless number of conversations with new investors struggling under the weight of low-price houses, I could not agree with you any more than I do.

    • Ben Leybovich

      Thanks so much, Chris! I appresicate your point of view knowing it comes out of generations of knoweledge. This article, and this entire conversation, is about perspective. We can either learn perspective the hard way, or the easy way – I am only trying to facilitate the easy way 🙂

      Thanks indeed!

    • Ben Leybovich

      Andrew – I work with Section 8. In fact, they love me because my units are nice. I do not slum, and I do not expect a section 8 tenant to be happy with a unit that is anything less than any other tenant. That said, the house was actually rented for $560, and once my handyman is done with it, I will more than likely re-rent it for $625 – Section 8 or not.

      Thanks so much for reading!

  15. I haven’t read all the comments. But, as a newbie- wanted to chime in. I only have 3 (closing today on the 4th) deals, so “everything with a grain of salt” from me…

    I think its VERY dangerous to generalize with investing. A $30k house in this market- is not necessarily the same deal in a different market…

    This is basically my starting point— I may move up to more expensive/less high maintenance properties in the future…

    -yes, its “lower tier”— but if the numbers work(and you have an exit strategy)— a good deal is a good deal.
    -raise rents/lower rents—- if its a good deal/with optimal “plan b wiggle room”. Its a good deal…

    one size doesn’t fit all- and your mileage may vary—which is my point 🙂

    happy dealing!

    • Ben Leybovich

      Jimmy – I totally disagree – we must generalize. What we do in RE is build models. We have models for acquisition, management, financing, ad dispostion. Models, by their very nature, have to be generalizations of the marketplace and execution. We can not underwrite the process of REI without models, and we need to do so in order to scale and mechanise.

      Having said this, I do make a lot of “blanket statements” when I write. These blanket statements are tid-bits of models that I’ve built for myself through trial and error. I offer the benefit of my perspective for your consideration – hopefully it helps. But, in doing so I expose myself to critisism, which I am OK with since I am convicend in my models.

      Thanks so much for reading and commenting!

  16. Investing in properties can be looked at in many different ways and depending on your strategy, a 30k house might be just perfect. I like to think of it like most investments. The higher the risk, the greater return. The 30k house is probably a high risk home: questionable neighborhood and unknown repairs. The rent on these homes tend to have a much higher cash flow than the 200k homes.

    Now, if you are in this to buy and sell. I say stay away from the 30k homes. If you are looking for cash flow, buy the 30k homes all day long.

    • Ben Leybovich

      Hey, Colin – thanks, and several people have commented relative to formatting. This blog re-design just launched and I’m sure there are some glitches that still need worked out.

      Sorry for the trouble and thanks so much for reading and commenting!

  17. Michele Moreno

    The key word here is “newbie” — all of you have way more RE experience than I. I would be tempted to lasso a pig, and then when it squeals and bucks, I’d be at a total loss like a (insert animal metaphor here). Thank you Ben for guiding me to where there is more room for error. I went to a Rich Dad seminar that said the most entrance and exit strategies (and deals) are found in middle income areas — and more specifically in the middle of that income bracket. The middle of the middle. Is that true? what websites provide income, job growth stats etc for analyzing markets that could point me to those markets? I want my first investment property to have the most room for making mistakes as possible. So I’m thinking duplex or triplex to mitigate vacancy.

    I’m good at analyzing renters needs and offering little extras for value added (e.g. my AirBnB room rental here in Venice comes with beach bikes, boogie boards). So I may want to someday serve a Niche like students. I live in LA (Venice) so I may have to buy out of state. But we’re thinking of moving one day to Seattle or Portland, so I’d also love to buy in those areas.

    Advice would be greatly appreciated! Michele aka “Birdie”

    • Ben Leybovich

      Michelle – the general philosophy is to buy in the top range of the lower third, or the bottom range of the mid-third. So, if the rents range between $375 and $1,200, I want to own $600 – $750. If majority of the houses retail for $70,000 – $300,000, I want to retail at $90,000 – $130,000. Makes sense?

  18. Edward Briley

    The problem is Slum Lords, straight out. Maybe you should have titled the article, “Slum Lords, put Lipstick on that Pig and make a fortune”. This kind of investor hurts everyone, you are not investors, you are “Slum Lords”. Now I buy properties for less than $30,000 put in another $30,000 in them and flip them. I clear around $20 to $30 within 6 months time. The bottom line is if you just want to buy cheap, rent out Slum Properties, you will end up losing. I have a property at present that is on the market for $89,900 that I purchased for $22,900. Yes I have invested $55,000 but were else could you get that kind of return? I would be able to rent this 3BR/1bath brick home for well over a thousand a month. Go on keep preaching what you don’t know. Keep spewing the “Slum Lord” propaganda and you will do nothing more than keep the price of Real Estate Low!!! You are not helping an Investor here, you are hurting the entire real estate market.

  19. The cap rate on the very low value homes in sketchy neighborhoods is substantially higher than the cap rate in middling neighborhoods which is substantially higher than the cap rate on the higher end neighborhoods. Even after accounting for higher maintenance, delinquency, and vacancy expense. Of course, there are no $30K houses where I am. My California Math:

    $100,000 house rented for $750 per month with 40% expense ratio: GRM = 11.1 ** Cap Rate = 5.6%
    $200,000 house rented for $1200 per month with 35% expense ratio GRM – 13.9 ** Cap rate = 4.68%
    $300,000 house rented for $1700 per month with 33% expense ratio GRM= 14.7 ** Cap Rate = 4.56%
    $400,000 house rented for $2200 per month with 32% expense ratio GRM = 18.2 ** Cap rate = 3.74%
    $800,000 house rented for $3900 per month with 30% expense ratio GRM = 20.5 ** Cap rate = 3.41%

    So the arguments in favor of the pigs are:
    1. Low acquisition cost per unit.
    2. Higher cash on cash return for an unfinanced buyer.
    3. Portfolio diversity. i.e, Investor looking to invest $400,000 cash can have all eggs in one basket, or 4 different baskets. Which can be sold at separate times, won’t all be vacant (or worse delinquent) at the same time.
    4. Theoretically, the cap rate on the pig exceeds the apr on the cost of borrowing so a few basis points can be picked up with leverage. However see argument #99 against pigs.

    Arguments against the pigs: Many have been mentioned. In addition:
    #99. Finance. Borrowing costs carry higher apr on smaller investment property loans, even if available. Or loans may not be available due to condition at acquisition or loan size.

    Regarding formatting: Don’t use quotation marks. Bigger pockets blogging software reformats those quote marks into odd looking characters.

  20. Ben, I could not read your article because the characters (letters) thru out the article that left me confused as to what your points were. No one mentioned this problem, so I have to assume it is my email server.

    This is a copy of a paragraph of your article “Actually, remodeling is too loud of a word; updating is more like it – putting some lipstick on that pig, if you will. I’ve had this house for about six years, the last four of which I’ve had the same tenant, and now that she’s moved on, it’s time for a little paint, a little cleaning… a little “lipstick.” :)”

    I have no comment as to the points you were attempting to make.

  21. I am based within the Chicago land area and there are pockets of this area where I purchase a couple of SFH for $25k to $30k and raking in close to $1100 a month in rent. 80% of rent portion are direct deposited through subsidy. This area is not the “ghetto” and is a solid blue collar area.Now there is relative appreciation, however the point is that I rather have my money sit out there than the bank account. My expenses are general between 200-300 and that includes my maintenance reserve. I make it an effort to ensure that we those houses were in great shape prior to renting them out. Overall I am hitting a 20%-25% return. I wish I had more capital I would have bought the city. The reality these properties vary per area. In addition, even with the rent subsidy we are renting them below market value rent. I do understand the author point and comes down to investor preference.

    • Filipe matos

      Well done.
      I think law should be set like in Portugal, rents have not increased for 30 years as long the tenant stayed, so nowadays renters pay 25 euros per month when the house is worth hundreds of thousands of euros. No value was added in 30 years. Some landlords stopped affording the repairs with 25 euros a month, but the government set a law that forces the owner to repair or lose the house.
      Some prefer to lose the house and 300 year old houses are crumbling and some renters died inside the crumbling buildings

      You do not add value, you do not increase rent.
      I support this law.

    • Darin Anderson

      Come on Tim, you are a CPA. Where in the world did you get the idea that you need to add value to raise price.

      Bought any gas lately? Paying a lot more than 10 years ago? Getting more value from that gallon of gas than you used to?

      Bought any beef lately? Paying a lot more than 5 years ago? Getting more value from that beef than you used to?

      When supply demand dynamics shift, prices change.
      When inflation exists, prices increase across the entire market without any change in supply demand.

      You as a consumer can certainly choose not to pay the increase but the market is the market. If the market has changed the price, you won’t get the price you want anywhere else without taking a step down in quality. Prices go up for products with no change in value all the time. It’s called inflation. Housing and rent are no different in this respect.

    • Ben Leybovich

      Yes, Matt. I do not enjoy the CapEx any more than anyone. Besides, I am a sucker. 12 months ago I got a call from a good tenant who was having trouble – I came off my rent $100 and I kept it there for 9 months. She has been back to scheduled rent for 4 months now.

      Unlike the opinion that many seem to have, I give a lot of leeway to good tenants 🙂

  22. Matt R.

    Ben, in some ways this article could be titled “why you never buy in declining markets” You lost a good longterm tenant not due to a rent increase but rather due to a declining market. The rent increase rejection is the symptom and the declining market is the cause. In LA, you can increase rents 3% and no one ever moves out. The 30k house part is a non sequitur. I can appreciate you sharing this as I know this is probably a rarity in your portfolio. Thanks

    • Ben Leybovich

      Haha – touche. I commented in one of the threads about a month ago that in LA, SF, Hawaii a few other areas in takes about as much talent to invest in RE as it does to fall out of a tree. Folks didn’t like that, but you prove my point. It’s enough to buy a shack, and hold onto it for a few years, and the market in some of these places with create your returns – not you, the market will…

      Warren Beffertt says diversification is protection against ignorance. In RE, appreciation is protection against ignorance – appreciation in a land-locked high growth area will bail you out of trouble, both in terms of rents and values. In other markets, however, we have to identify our buy creiteria much more carefully, Matt.

      But, I agree with your premise 🙂

      • Matt R.

        Not so sure you need less talent in LA. The competition is fierce. It is not like you can drive a few blocks and get cash flow. I would argue you need way more talent and resources to compete and only the top guys in Lima would have a chance. The skill level and sophistication here is top of the pyramid. I would agree in the 70s 80s it was circumstancial but not anymore. Believe me I wish it was like what you are characterizing.

  23. Matt stated the seemingly obvious: you never buy in declining markets,

    A corollary to that concept would be: always buy in advancing markets.

    But aren’t there always an exceptions?

    The cap rate in the rising market could be very low, perhaps below inflation rate, making the purchase almost a pure speculation for future appreciation. De-emphasizing current income in the pursuit of future appreciation that is justified by a recent history of steady price appreciation has another name; The bigger fool theory.

    Not that there is anything wrong with that.

    What if the cap rate for the declining market were awesome?

    Real world example: Mobile home parks and mobile homes. The parks themselves appreciate real slow, the trailers actually depreciate. Result: Park cap rates 10 to 20%. Trailer Cap rates; 15 to 30%. – or more.

    I have one client who buys used trailers, set them up in his park, for about $9,000. Rents it out for $500 a month. Subtract 25% for expenses. (no insurance, minimal property tax, cheap to maintain)
    Cap rate is 50%. He pretty much does not care that the trailer is going to decline in value over the next ten years.

    So. Axioms such as never buy in declining areas. always buy middle of the middle, when followed by enough adherents create market anomalies such as cap rates for middle of the middle properties being worse than cap rates for better properties as well as worse ones. – Another investor shibboleth is that run down properties in desirable middle areas can be bought at a huge discount. Enough people believe that fixers, short sales and foreclosures are always such bargains, they create so much demand for the fixers that the average discount for distressed properties in desirable areas is approximately equal to the cost of a permitted renovation done by professionals.

    • Ben Leybovich

      I am in the South West of the country as I write this, staying with a fiend whom I will not name right now since most of you likely know him – perhaps in the future. But, the reason I am here is because we are looking at apartments to syndicate together. A 10-plex or a 20-unit in Lima, OH is fine and dandy. But, I am not burning with desire to own 200 units in most markets in the Mid-West; there are a couple, but they are the exception that proves the rule…

      Thanks indeed, Jim!

  24. I buy a few houses every year in the price range of $20,000 – $30000. I update them so now I have approximately $40,000 in each house. Cash purchases. I rent these homes for $1200 a month or more and tenants pay all utilities. Taxes and insurance are $250 per month max, so I pocket around $11,000 per year – any expenses (few because I just rehabbed). So if 4 years it is paid off and my entire investment is covered. I really don’t care if the investment is worth $40,000 or $0 in 20 years because it is all about cash flow.

    • Ben Leybovich


      What you say makes sense, for you. I underwrite investments in terms of COC and IRR – both require leverage. Therefore, it is of utmost importance to me to see to it that I can achieve appreciation of equity as much as possible, so that I can bridge it.

      Different styles of investing. I would never argue that CF is what it’s all about. However, I want more than that, if I can get it. Pigs won’t get me there…

      Thanks so much for commenting!

  25. Matt R.

    I agree with what you say Jim. There is always exceptions. For historical accuracy sake, Lima generally speaking might not make it up very high on that exception list. Now when Ben picks up 10 units for 16k, it becomes an exceptional exception:) There will be two or more sides to the story of declining values. I am sure Ben has more like that he can share.

  26. Buying $30k houses is not a bad idea if you have done your due diligence in your investing market and found that the market rents are such that you can command greater cash flow from these properties due to tenant/occupants that are financially sound and would rent in the area where you are purchasing the $30k properties. I live in a neighborhood (middle class, single family, ranch style brick homes mostly built in the 70’s) where investors are purchasing foreclosed and reo homes for $20k, $30k and up, rehabbing them and renting them for $900+ per month and they are finding tenants. There are a lot of military families figured in to the equation as they transition to and from the military base that is near here but still the investors are finding tenants. There is also a few new industrial parks about five minutes away so that also helps. Schools are 10 minutes away in rush hour traffic, interstate hwys within 5 minutes, shopping amenities all within 5 to 15 minutes in rush hour traffic so these investors understand there market. Just do your homework in your market before you buy.

  27. Anna Shaver

    One of the points I think Ben is also trying to convey might be that the overall long term costs for this type of property need to be factored in to determine if it is such a good investment. Depending on the market and situation this can vary. A few things to take into consideration might be the impact of the following type of repairs (obviously the costs vary in different markets):

    If your property has $200 a month of cash flow, if you need to replace the roof and it cost $10K, you just lost 50 months of your cf. Carpet 800sq ft@ $1.75 sq ft, $1400, 7 months of cash flow. inside paint $1000, 5 month cf, HVAC $5k, 24 months cf gone poof.

    When renting your property because of turn over and if you use property management and they charge 1 months rent to rent it out, more cf gone. Just don’t forget to account for these costs if you are holding long term. They will happen and can be on multiple properties at the same time. I just saw a post recently where they had plumbing problem eat 24 months of cf.

    Just keep an eye on your expenses because they do effect your bottom line.

  28. David duCille

    thoroughly DISAGREE with this article. Just bought a house for 25k that was completely unliveable. House next door sold for $26k and was liveable but had plenty of it’s own problems. I spent 35k doing a full renovation. This house is in THE WORST neighborhood in Tampa. (Sulphur Springs, in case anyone reading is from Tampa) The house is 4bd, 2ba 1320 sq ft. I put on a new roof, new AC system, 2 brand new bathrooms, brand new kitchen with REAL wood cabinets, granite, and stainless appliances (yes, I did all of that in the ghetto) All told, I’m invested 60k. I rent it for 1100/mo and section 8 is paying $865 of that. if I had held out longer for a person with a 4bed section 8 voucher, I could have gotten closer to $1300 but I couldn’t risk having it vacant any longer (had some minor vandalism issues)

    so in the end, for only 60k I essentially have a brand new house that will be good to go with very little maintenance for the next 15-20 years. The cost of the house has nothing to do with the investment in my opinon. If it don’t make dollars, it don’t make sense! i have another rental in a good neighborhood that we paid 92,500 for and bought with a mortgage (20% down) so we are out of pocket 25k after downpayment, closing costs and minor renovations. it cash flows $700 a month which is great but dealing with banks to get mortgages isn’t always easy and I’m not quite at the point yet to pull off some of the creative finance deals that other experienced investors are doing.

    know your numbers, and if it works, it works. And never lose sight that this is still a job. in those bad neighborhoods there may be more “work” involved but the cash flow can be so much greater

    • Chris Clothier

      David – I wish you all the luck in the world with your investments. I went down this exact road you describe and tried to bring up a whole neighborhood. I renovated 14 houses in one small area and went top notch like you describe. It may work out for you, it may not. Forecasting out that you will be “good to go with very little maintenance for the next 15-20 years.” based on the work you put into it is pure fantasy though. IF you truly did this in the worst neighborhood of Tampa like you describe then I truly hope you do not deal with the frustration that we dealt with in keeping your properties occupied and free of vandalism. We dumped our project in less than 2 years and took the loss. You have to have the community itself buy in to and support your project.

      • David duCille

        Section 8 is a the game changer in these scenarios. it’s pretty much insurance of getting the rent paid. There can be challenges though, even people on section 8 don’t want to be in the worst neighborhoods. Luckily, the bad neighborhoods of Tampa aren’t as bad as some places. They are still very centrally located and not very far at all from good neighborhoods. I am smart enough not to try to change an entire neighborhood by myself but investing in anything is always about Risk Reward. There is certainly more risk in these bad neighborhoods but the reward is that I recoup my initial investment in less than 5 years. Thats an awfully good reward.

  29. Hey Ben,

    Did you ever think that you may have just had a tenant who wanted to leave anyway. I mean they stayed in your $30,000 property for 4 years in which you collected a gross rent from them of $22,800. I don’t know where your from but in my part of town thats called a very good deal. I have been in this business for 25 years and I have seen it all but your advice on not buying rentals in the $30,000 range doesnt make any senseat all and is unsubstantiated.


  30. Anna Shaver made a good point. I think investors should calculate a opening maintenance reserve at acquisition and assign a monthly value to reserve as well. ( if you don’t want to put actual cash aside in reserve, the least you can do is be sure that you have visa, MasterCard, discover, Amex credit lines to cover budgeted and unbudgeted repairs.

    I just got back from showing a $200,000 Fixer in a middle middle neighborhood. Exact same house after makeover is listed for $298,500 next door. ~ 1400 Sq feet. Assuming that flip next door goes for close to list, that leaves over $90,000 in gross margin. My buyer wants to renovate, then flip, even though I discount my listing fee to him, the buyers agents, escrow companies and taxman all have to be paid at the second coe as well. So lets budget $18,000 for selling expense after flip. Now we have $72K of margin. Subject needs everything, interior walls moved, extensive dry rot outside, freshen the landscape and new fences, new roof as well as lots of replacing of rafter tails, fascia. Some work under the house Total remodel, including moving pipes and electrical for new HVAC, plumbing, two bathrooms, the laundry room, Total new kitchen, New windows, New front door, New Patio Slider, Removal of acoustic popcorn ceiling, All new lighting and fixtures, re-texture, all ceilings, walls, floors, paint, carpet, exterior paint, landscaping, Much must be done with county building permit or they catch you and fine you quadruple the building permit fee.
    So top to bottom, It will be a new house. So this is Sacramento California we are talking about, You can pick up day workers for $12 to $20 per hour. But if you want a reliable employee you can count on for showing up everyday and having a variety of rehab skills and some of their own tools, I’d start at $25 an hour and go up. Multiple offers are expected. It will surely go for over the $200K list. With a $72K margin at list price. Do you think I should advise my client to overbid? Or will his cost of reconstruction and 5 to 6 month carrying expense keep him out of the competition? The house is ~1400 square feet, 3/2. Needs a total makeover.
    At breakeven thats $50 per square feet.
    Oh, as we were leaving on a soggy Wednesday afternoon 3 more individual buyers showed up to look at the place, and wait for their agents.

  31. Scott Trench

    Ben – What an article! I saw some other people mention a thought I had. I read this thinking that perhaps your tenant was already thinking about moving, and the rent increase was just that little extra bit that was just enough to send him over the edge. It might not necessarily have been the rent hike on its own.

    Either way, it’s been an awesome discussion – thanks for your article!

    • Ben Leybovich

      Scott – by the time I’d been in this business for 3 years, I had already pulled cocaine out of the sewer lines in a rental in a transitional area. By then, I thought I knew all there was to know. Then, after a couple of years, I learned a little more. After 10 years in the business, I know lots of shit, but I have ever more respect for the beast and the fact that I don’t know what I don’t know. The reason Josh pays me the big bucks is not because I am controversial – it’s because the things I say are collateralized by real bruises, and because I am willing to stick my neck out to share truths that a lot of people don’t particularly want to hear 🙂

      Thank you indeed for reading and commenting. I like your stuff as well – reminds me of mine. Keep up the good work. You are great for BP!

  32. Karen M.

    This is a very interesting conversation and very thought-provoking. I am not yet a real estate investor (and, may skip real estate altogether to continue working with stocks and stock options.)

    Ben, can you give us an example of your favored type of investment and the returns? Are you changing over to be more in favor of capital appreciation and rent increases?

    I listen to a lot of Dave Ramsey, and he says to renters, “rent goes up every year”. (A benefit of home ownership is to get away from those rent increases.) I can see the appeal of purchasing investments with quality to appreciate and cash flow.

    Where are you focusing now, outside of Lima? And — so many beginners are looking to the inexpensive properties because they are cheaper to get started with. Would you advise that a newbie seek out the most attractive market instead? I’m curious how your thinking has evolved.

    When I buy stocks I look for the very best companies with great growth potential and at a good price. I am looking mostly for appreciation, and I also invest for some income. It’s always a bit of a mix. Of course I can invest in stocks in my pajamas from home with very low transaction costs and low cost of entry. I do wonder and ponder how real estate compares to stock investing in the higher end properties.

    • Ben Leybovich


      My favorite investment is one that allows me to force appreciation, which in the income-producing space is a function of folks being able to afford rent-increases. I do not focus on equity, since I know that if I’ve bought the right kind of building the wealth (equity) is a foregone conclusion.

      Your comment, though to the point, misses the point. It’s not about capital appreciation, but it is about capital appreciation. All of this is a throw-back to the conversation around desirability 🙂

      Thanks a lot for reading!

  33. Ray Morris Jr.

    I invest in low income SFRs in Jacksonville, Florida. I love pigs. I can rehab houses cash for under 30k that will rent for $600 to $800 per month. I actually try to rent my units below market to help redevelop the community. I actually don’t care about increasing rents as long as the cashflow is there.

  34. Mehran K.

    Big Ben! You’re forgetting the fact that you’re investment in this $30k property has led you to write this article and feed off of the fiery discussion you’ve ensued! There’s got to be value in that 🙂

    Joking aside, there’s so many great points to ponder by reading your article and the comments as well.

    I completely get how I’m protecting the buying power of money with my investments in terms of inflation, just not sure how I’m single handedly “increasing it”. By “increasing” do you mean just accumulating more of it from what I originally had? Just wondering.

    I can’t honestly say that creating “wealth” is one of the main reasons why I myself invest in income-producing property. It can happen (and it would be NICE!) but it’s not a marker that I’m using to judge my prosperity in life. I’m not looking to have a big balance sheet with lots of commas, I’m looking to increase my passive (though I find it’s not as passive as I thought) income stream to a level that can give me the freedom I want. I buy residential properties (1-4 unit) in the $25k-$100k range right now, as you know, and I feel like they’re helping me reach my goals!

    I am pretty confident that not all $30k houses are created equal also! In one market, a $30k house could be a decent SFH in a blue collar neighborhood. And in a different market, it could mean a crack house in the center of a war-zone. Price alone can’t determine all the things you’re outlining as wrong with an investment, right?

    • Ben Leybovich

      Mehran – baby!

      Not all pigs are created equal – some are better padded than others. However, most markets out there resemble mine, not yours, and this article is very valid for those. Do not buy a pig cause it looks like $200 on paper – you will lose. $500 – perhaps.

      Now – I do have some, but why do people feel like making the same mistakes I made? Be smarter – I am here to show you how 🙂

      Finally, increasing buying power requires, by definition, creation of wealth. Since admittedly you are not concerned about wealth creation, you are by default not increasing buying power. This is a huge mistake, Mehran. You are young, so you can’t see it. The danger here is that by the time you finally do see it, it’ll be too late. As you know, buying investment property is easy – buying the right kind of property is the trick, and part of what defines “right” is precisely that which is of no concern to you, as you say 🙂

      I’ve always said you have a lot of potential, Mehran. Focus on this article, or you’ll miss the boat…

      Good Luck, and thanks indeed for reading!

      • Mehran K.

        Hey now, I didn’t say wealth creation was of NO concern to me, just not the main purpose of my investing. I know what you’re getting at and I do plan on eventually switching up my acquisition criteria in the future, probably after my cash flow goals are met. Without a full time job, I would love to have the free time to be able to acquire a small apartment building and force some appreciation too. I can pick some better neighborhoods with less (but still positive) cash flow that would actually appreciate over the years.

        Even now I’m working on a 4 duplex package where the properties are in the $50-$65k range each. Not quite an apartment building yet, but I’m changing it up a bit. Hopefully it pans out well and I can make a post about it. I’ll link you 🙂

        • Ben Leybovich

          Hah – what I am saying to you (between the lines) is that you’ll never reach your CF goals if you keep buying pigs – trust me. And by the time you figure it out, it will be too late…

          You don’t want CF, Mehran – you want stable CF, which is a function of many things that you’re not paying attention to.

  35. Mike Davey

    I knew a pig farmer (no this isn’t a bar joke 🙂 who recently passed away, true story. He was a multi millionaire from raising pigs. One pig is messy and probably not worth a lot but if you have many of them you’ve got something big!

    I see Ben’s point and they are valid, although I think I have to disagree to a degree. Here’s the way I look at it. I recently drove thru an old part of town I lived in 40 years ago as a kid. We were renters back then. That house we lived in …a pig…has always been a rental, it probably doesn’t appreciate much and the rents are probably still low but what I see is renters have been injecting monthly income into the owners pockets for a half a century..not too bad

    I think you see your situation with this rental as mostly bad and are not looking at the good, some people on this site will probably never make the leap to buy even one investment property and you have several/many. I know there are issues and it’s a pain in the a** sometimes but you are lucky.

    • Ben Leybovich

      Mike – thank you for your comment!

      I am indeed lucky. I am pursuing a refinance as we speak, and once that goes through I will have no balloons left and everything I own will be fully amortized. Every year, I add at least $25,000 to my net worth just for making the minimum payments. My CF has allowed me not to work for the past 4 years, and future acquisitions are intended to enable my wife not to work. While we are not rich, per se, we’ve reversed the time paradigm whereby every month goes by makes us financially stronger, and the process is automated. I won’t stop here, but I’ve laid a strong foundation underneath our financial lives – it is a nice place to be indeed.

      The concepts I write about are some of the finer distinctions that have become illuminated to me along the way. A lot of folks choose to argue the point, and it’s their prerogative. However, the points I make are valid. If all these newbies do is buy 2 peaces of income-producing real estate, they’d be wise to follow my advice…

      But, I do see your point, and I thank you for your input!

  36. I love the pig reference. If you have money to spend on a rental property, think vacation rental. We are looking at buying one in Tennessee where we can rent it out for income. But, we have a property management company take care of everything and we have a place to go when ever!!!!

    • Ben Leybovich


      A couple of other items need to be added to your list:

      1. Property management company will likely allow your building to become run-down
      2. Property management company is likely to steel from you
      3. You will be nickle and dimed on expenses, from repairs to management costs
      4. You’ll be too far to know, and your response time will be too slow to make a difference
      5. You will likely loose money every year

      And the list goes on and on. This is perhaps an even worse idea than buying a pig…watch your step!

    • Brandon Stevens

      Yikes, I being a seasoned investory own a couple vacations rentals and even when everything hits perfect you are lucky to make anything, my only hope is they appriciate enough to payoff one day. They surely are not a CF investment and I would not recommend them as a first investment.

  37. I’ve been investing in properties, by far mostly in buy n hold, for the past 25 years and its been my experience that residents do not like surprises. Especially when it comes to rental increases! So when they move in they are told upfront about increases they may expect on a yearly basis, as well as the general % size of the increase, which will be reasonable. This takes some of the sting out of the additional cost and they don’t take it personally when they receive the notice.

    • Ben Leybovich

      Hi, Eva –

      I agree, which is why my leases specify that I, at my discretion, may increase rent at the time of renewal. I also specify that I will not increase any more than $25/month, which, considering I don’t hold any rentals lower than $550, is a reasonable percentage. When people pay on time and take care of the property, I may choose not to do annual increases, and herein lies my fault – I trained these tenants not to expect an increase, and they were shocked to see one coming. I will be playing it differently going forward…

      Thanks indeed for your comment!

      • Brandon Stevens

        My leases in that price range typically specify a $25 increase every other year. It’s in bold in the lease and the tenants are reminded of it one year out and 6 months out either by letter or in person. I find this keeps them from being “suprised” they are able to plan for it or they give notice to leave. Either way I’m not waiting 10 dyas into the month wondering about rent only to find out they have left and now I’m without income for 6-8 weeks.

        It’s never a fun subject, but I also have a short letter which identifies factors to show I’m not raising the prices for my benefit (Inflation, property taxes, insurance hikes, maint costs,etc..) 99% of the time they understand, they understand if they were a homeowner these factors would go up as well, they mostly appriciate me explaining to them why, such is life. Fingers crossed I’ve had people in properties for 10 years with bi-annual increases that havnt left or complained. Not to me anyways 😉

  38. Darren Young


    143 comments in one week! Brilliant!

    I’m an “accidental” newbie investor with two rentals trying to get started “intentionally” in the Olympia area. It’s amazing how many people have posted very critical comments. It’s not like you’re a newbie investor without a successful track-record… Obviously everyone’s situation will be different based on their experience and area.

    Thanks for instigating. It’s good to see multiple points of view!

  39. Dan Shaker

    it’s really better to invest on something that has value than to buy a below the line product or house and then lose the money. Yes, it is cheaper than the others but in my opinion it gets more expensive in the long run. The repair it’s going to cost you as an investor sometimes is even greater than the price of the property itself. Newbies are really risk takers their passion is too high and their willingness to buy just about anything is very prominent because they sometimes don’t have any idea of the market. Piece of advice for them, know the market first as well as the business so that once you’re there you will never get lost and lose everything you have worked so hard for.

  40. Here’s why to buy cheap house ……Find a livable cheap house for say $20K… Purchase and resell holding the mortgage for $40K….Sell for $1000 down or so holding the balance @ 10% for 10 years the ROI is unbelievable…You can also sell these notes

    • Brandon Stevens

      In my opinion this is the best way to manage these houses Bill. Find livable, find the people that can’t get a loan and may be a good tenant. Uneducated would appear to be the best word but that doesn’t sound too nice.

      Put a little into it, MAKE A PLAN, MAKE A PLAN, MAKE A PLAN! Make an exit strategy.

      Whatever it may be, 3 years with $100/month of your rent going towards the down payment, 1 year where half goes to it then “sell the home at a good price which reflects what you have in it plus a little over market value for the risk you are taking to them”. Find the appropriat interest rate to reflect your risk and you expected return, the whala! You now just carry the note and you are now responsible for the leaky toilet nor the maint that is the downside of may of these properties.

      RE has many strategies for success with every type of property, It’s important not to forget them.

  41. Mark Ferguson

    Wow, I read through almost all of the comments. Here is my main take away.

    Ben you state your case is the rule and the 25 people who commented with 30k properties and great cash flow are the exception. Most of these 25 people have multiple properties, some with 40+.

    Why does your one property prove the rule and these hundreds of other properties are the exception?

    • Ben Leybovich

      Mark, because in those markets where these folks are, a $30,000 house rents for $900 – $1,200/month. That’s not the rule for vast majority in the US. If one can attain spreads of $600, then equity appreciation can be set aside, I suppose. But, this is not the case in most of US…

      My market is much more representative of what most folks reading this will have to deal with – the rule 🙂

      Thanks indeed for your comment!

      • Mark Ferguson

        That’s what real estate investing is about isn’t it? Finding those markets and niches that make a lot of money? In your market the $30,000 house doesn’t work well for you, but in other markets they are money makers. I checked out the Lima economic data and it did not look so hot.
        The median income is only about half the US average for a family.

        My point is that an entire strategy for all newbies should not be based on your one experience in a somewhat depressed economic environment.

        • Ben Leybovich

          Mark – that’s exactly what I’m doing with syndication. Success here is a function of property management, and I can not afford good management someplace far with a few stray units. However, 150 units buys systems that I can rely on, and therefore I can look anywhere…

          Just came back from looking at some units. Nothing yet, but in good time…:)

  42. Ben Leybovich

    Hey, Guys:

    Just a little update. The house that’s at the center of this article just re-rented. It was vacant for 3 weeks, with me not having access to it until the 6th of the month. The houses re-rented for $660/month, but the turnover cost me about $1,200.

    Thus, the previous tenant, who was paying $560, decided to move out at the prospect of $25 increase. The new tenant, and therefore, the market seems to valuate this property at $660/month. I was prepared to continue to remain under market at $585, since the cost of turnover was looming. But, hopefully this proves that my proposed increase of $25/month was very much reasonable.

    This particular SFR was never in the red, but not by very much. An additional $100/month should make this house a more reasonable proposition as a CF play, but not at all desirable or feasible in the long term…


  43. Bob E.

    Ben, Why not sell it with owner financing, you could sell it:

    For 40k 9.9% 84 Pmts of $661.98
    for 40k 9.9% 120 pmts $526.39
    for 40k 7.5% 84 pmts $613.53
    for 40k 7.5% 120 pmts $474.81

    Once sold you are no longer burdened by Taxes, Tenants, Toilets, Termites etc.

  44. Marjorie D.

    My first post. At first I thought the $30K house was just a “metaphor” for cheap houses. I had no idea that you could literally buy a house at that price. I live in the Northeast where you’re lucky to get a dump (excuse me, an outdated fixer upper) in a lower-income neighborhood for $300K. Yes, that’s an extra zero. You can probably rent it out for about $700 per bedroom (ie. a 2BR for $1400-$1500, a 3BR for $2100-$2400) depending on the area and the demand. If I could buy a house for $30K, I’d be laughing all the way to the bank.. and I could own 42 properties too. But at $300K+ rehab costs to make the place livable… no matter how I crunch the numbers, I can’t make it work financially. I’m lucky to break even, most of the time my numbers end up in the red. Am I missing something?

    • Jim P.


      No offense to Ben (and I presume this post was designed to “stir up debate” rather than informational purposes- It has done that well…)
      – This post is FULL of illogical generalizations (I stopped reading this thread- but lost count how many times I read something like “the exception that proves the rule”… The amount of “exceptions” I read about proves that there are no dependable concrete rules that fit every situation. “$30K house ALWAYS equals BAD”, is not a logical rule to invest by. For the most part- real state is local market dependent, and your mileage may vary…
      For example— For $30k could buy you an broken down outhouse in L.A. It could also buy you a gold inlayed palace in Detroit. Your returns in either example are different, among many, many other factors…
      – its dangerous to paint with broad ONLY black OR white strokes…
      SO… don’t automatically invest in $30k houses— also don’t automatically shun $30k house deals… Do your homework (including future projections, neighborhood, local economy, tenant quality, etc… etc… etc…). As much as possible- Invest by the hard numbers, not by general “rules of thumb”…

      • Marjorie D.


        Thanks for the reply – as I mentioned, 30K houses in the Northeast don’t exist, except maybe way out in the boonies hours away from civilization but who would want to invest in such a place? The ratio of rent vs what you paid for the property is unfortunately not proportional… so if you’re buying a house or duplex for 30K and renting it out for $700 for instance, you’re getting a bigger bang for your buck. A $300K house isn’t going to rent for $7000/mo even though it’s costing you 10 times more, hence the challenge of making the numbers work in your favor.

    • David duCille

      born and raised in Brockton, Ma so I know what you mean. Also spent 11 years in NYC and now have been in Tampa, FL for the past year. one of the reasons I’m here is because you CAN buy houses for that cheap and rent them for good money. But I challenge you to really run your numbers well because you can buy things for 300k and make them work. The cost of money is so cheap now. I know back in my hometown, that 300k isn’t going to be a single family unit, it’s going to be a triplex. If i put 20% down on that (60k) and spend 40k renovating the units I’m all in for $100k of my own money but each of those units will easily rent for $1000 each and my PITI is going to be around $2000 so I’m cash flowing $1000/month. 12k yr divided by 100k upfront investment gets me 12% ROI.

      The devil is in the details, finding deals where the numbers make the most sense. if you are in NYC then you just might be paying 300k for a single family house but I know for a fact that it would also rent for well over 2k as well so I think the numbers still can work. The problem with those areas is that you need more money to get started then you do in places like tampa florida.

  45. Ben Stout

    You will notice that most people here defending the lower-cost purchases are investors that make money through *buying low and sniffing out profit potential.* Most people advocating higher priced properties are *salesmen*. Know why? Commission.

    Maybe they won’t DIRECTLY admit it in open forum, or maybe they don’t even realize it, but the high-cost/appreciation/low-maintenance tenant game plan is already hard-wired in their brains. If I were an agent, I’d do the same thing. I wouldn’t want to help newbies run all over the city for a lousy 3% commission on a $15k beater they don’t know how to rehab. Most wanna-be investors don’t understand ROI and don’t understand the fundamentals of cash-flow/investing.

    How many times have you been asked for advice that people didn’t follow? How many times have people taken your good advice and then said it sucked because they didn’t apply it correctly and/or are inherently lazy? It’s much easier to get a positive response from your average Joe when you push a premium product. Most people CAN’T make a sub $30k home work. I can. Many of us here can. It’s not recommended for the average investor–so give them the sales pitch, tell them to buy a premium product and not settle for second best. Sell them on the turnkey mark-up, make your huge commission, and then tell them how astute they are and how swell they’re doing compared to a .5% CD with Ally financial.

    I’m off to buy some more pigs. Until next time…

  46. Bob E.

    We just got an REO in the midwest fro 12.5k, I walked it Wednesday with out PM and it looks like rehab is about 3-5k. Rents are 900-1000 month. It might need a new roof in a few years but I think I can cover that with the rent.

    Oh, my PM is also a a Realtor and says if we want to sell sale price is 55-60k. Not bad for a 12.5k house in the ghetto.

    Price is what you pay, Value is what you get.

  47. Ken A.

    Never buy a rental unless you can expect appreciation.
    Unless can own the house free and clear (paid cash) in 3 to 4 years (after ALL expenses – super cheap). And still would only buy if undervalued also.

  48. Ken A.

    Everyone will be shocked at the much higher prices by 2022-2024. Gains will be higher in the better areas. What can actually drag the “gains” are the stagnant areas that will never go up. Don’t invest there. The Biggest points for MUCH higher prices (since 2012) are

    1. Too much demand chasing too little “retail” ready supply (Hello Economics 101). 2. Interest rates around 4%. Are you kidding me – Have you looked at the last 50-60 years-that is way too low and makes it much more affordable. 3. GREED – This will push Better Real Estate much higher – IT NEVER FAILS. There is way way way too much CASH on the sidelines – THEY ALWAYS chase higher yields.

    I don’t know what #3 above will exactly look like. It could be Crazy Investor Loans – giving loans on investment Real Estate packaged by Wall Street (think about the Stupid Loans they gave to Home Owners – So why not Stupid Loans to Investors eventually – just a thought.

    Watch how the FED always mentions Housing Prices, etc. The Gov’t will probably want to find a way to get banks, etc. to make loans. The Government actually LOVES INFLATION. Don’t be fooled. They (gov’t) can then pay off their debt with cheaper money.

    I’ll be selling pretty much everything in 2022-2024 as GREED BUBBLE inflates.

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