We’ve Done the Math: You Can’t Make Money on $30,000 Houses. Here’s Why…



There’s an old Russian saying that goes something like this:

When two men argue, one is necessarily a fool, and the other is an ass!

The moral: While the fool argues about things he does not know nor understand, the ass knows full well that he is right, but still argues with the fool.

Now, those of you who know me well are well-aware that I am never the fool. Indeed, I know lots of stuff — that’s the good news. The bad news, if you choose to look at it this way, is represented with the following syllogism:

Major Premise: When two men argue, one is always a fool, while the other is an ass.

Minor Premise: Ben Leybovich knows lots of stuff, but always argues; therefore…

Conclusion: Ben Leybovich must be an ass!

To this I say, what the hell… somebody’s got to do it. I might as well take the bullet. Basically, as I see it, so long as I teach you something, I figure I have the green light to be an ass all day long (and twice on Tuesdays, when my articles come out)!

Well, that was my intro, y’all. Thoughts? I’m pretty pleased with myself, actually. And what’s been said thus far is nothing in comparison to what’s coming…

Extended Intro

Last week a good friend of mine, Serge S., called me. I don’t mean to say that this in and of itself is anything special, cause Serge and I talk three times most days. Twice per day Serge calls to tell me to quit being a judgmental ass, and one time per day he calls to tell me that I am right and to ask for my opinion. Haha!

So help me God if I am lying, y’all…

The following is a transcript of conversation #3 from about a week ago:

Serge: You keep telling them to quit buying $30,000 pigs, and you get a lot of support in the comments section from people that have been around for a while, but the newbies keep arguing. Why don’t you just write an article and show them the accrual of CapEx, and how they will spend all of the cash flow that they think they have…

Me: Dude – they already think I’m an ass. I know I am right. You know I am right. Who cares what they think – like I got time. If they want to buy pigs, let ‘em buy pigs. It’s called school of hard knocks…

Serge: Dude – I’ll create the spreadsheet so you don’t have to. All you need to do is just write an article around it. People should know the reality of these numbers!

Me: Fine, but we’ll get 200 comments on this one. You better help with the responses…

Serge: OK – I will.

And so, ladies and gents – put aside your feelings and intuition. In this article, Serge and I will show you the numbers behind the statement of truth: Don’t buy $30,000 pigs in Ohio (or anywhere) – You’ll lose money! This is unbiased truth that your turnkey provider will not tell you.

There Are Two Ways to Look at Numbers

One way is something we refer to as pro forma. This is akin to a snapshot in time, whereby you put the numbers on the page and assume that these will be the numbers going forward, and nothing will ever change.

The other way of analyzing property is to understand that just because something looks today the way that it does, doesn’t mean that tomorrow it will look the same. There are many items we can discuss under this heading; however, the one that Serge and I want to focus on today is CapEx – capital expenditures which pay for replacement of aging components of the physical property.

About Depreciation

You’ve heard the word depreciation tossed around a lot, I am sure. The context in which it is used most often is as it relates to paper write-offs against income from income property; depreciation is thought of as a tax break the IRS gives us.

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

Important to realize is that the reason the IRS gives us this shelter is because they, unlike many investors, understand that property actually does get older and depreciates, which means that over time we, as owners, have to step up and upgrade items which have depreciated beyond useful life.

The presumption the IRS makes, which is logical and reasonable, though missed by most investors, is that property owners are setting money aside to be deployed in the future to cover the items on CapEx list. For this reason and to encourage us to be responsible owners, the IRS allows us to depreciate and save on taxes today (and hopefully save that friggin’ money!).

Yes indeed, stuff really does get older and needs replaced. And eventually, the shell of the structure itself is so old and with so many functional deficiencies relative to modern consumer’s expectations (functional obsolescence) that it becomes painful to put money into components because having spent sufficient money to bring the thing up to par, your investment of capital is greater than the market valuation of the house — financial obsolescence!

This constitutes the end of the road for a property, and this defines a PIG! Why else do you think the marketplace has decided that a house is only worth $30,000…? C’mon — it’s a 1,100 sq. ft. 3/1 SFR, which at today’s prices carries replacement value of at least $110,000, and yet the marketplace has decided it’s only worth $30,000 — good luck with that math!

“That doesn’t matter…”

This is what you say. It doesn’t matter because you are buying for (these are the buzzwords) cash flow, and at such a low basis, you’ll just make money hand over fist every month…

Well, let’s look at that:

Depreciating Items and Annual Accrual

The following is a chart Serge put together and I added to:


As you can see, in the first column we list the depreciating items; I am sure we missed a bunch, but this is a good start.

In column 2, we indicate the number of years in the useful life of an item. This comes from our personal experience of owning lots of units for a decade. HUD and IRS have their charts, but in looking at those, it becomes clear that their numbers are just stabs in the dark. We feel that our numbers are much more “true” to what happens in reality.

Important to note as well is that these useful life numbers will vary a bit with location and climate. For instance, in CA or parts of AZ, an asphalt roof may need replaced every 10 years because of the extreme heat, while in the Midwest, the same roof might last 23 years. The same is true of the HVAC. However, property taxes and insurance costs in AZ are a fraction of what they are in OH, so things even out over the course hold.

In column 3 we show the yearly accrual for each line item — and at the bottom cumulatively. This is the amount you have to set aside in anticipation of having to replace each at the end of useful life.

And in the last column, we show the monthly breakdown.

This initial table presumes SFR, and it presumes a B Class asset, which attracts B Class tenants. Let’s not beat around the bush — life of equipment is shortened the harder it is used, and C, and especially D Class tenants, will likely be taking less care than B and A Class. In another chart we make adjustments to reflect this.

Additionally, in apartment setting everything can be either less or more expensive, and we make those adjustments as well below. More on that in a bit…

And finally, this table presumes you start out with brand new equipment, and accrual of replacement costs is based on a full lifespan of this equipment. This is important to note, as it really does not matter if you’re doing a “tenant proof” remodel. Obviously, if appliances can be expected to last 8 years and you’re starting off with a 5 year-old appliance package, then you would need to accrue replacement reserves at a much higher rate so that you’re ready to deploy in 3 years, and this can really add up quickly. Furthermore, if you are inheriting 20-year-old appliances, then it’s likely wise to have the full replacement cost on hand from day one!

This logic applies to all of the items on the list.

As you can see, the reasonable expectation of replacement costs seems to be about $257/door per month in a B Class Single Family. This means that if you are going to be a reasonable owner, you would need to set aside this amount of money every month so that you are prepared for the eventuality of replacing items as needed. And while this dollar amount can be argued all day, most reasonable, experienced SFR operators will concede that the number will be most certainly be over $200 a month.

Keep in mind that this is not your maintenance and repair budget; this is CapEx, and is (or should be) a totally separate line item in your underwriting of expenses.

What Does This Mean?

Well, let’s just create a pro forma for a typical older house in a so-so market in Ohio; a place like my hometown of Lima, or Toledo, or Dayton, or Cleveland, or Cincinnati, or Columbus, or any place. Let’s presume an all cash purchase, and let’s just say that you are local and are going to self-manage.

  • Cost: $30,000
  • Rent: $700/month
  • Taxes/Insurance: $200/month
  • Vacancy: 10% ($70)
  • Maintenance: 10% ($70)

With just those costs, presuming a cash purchase and no management expense, pro forma indicates cash flow of $360/month, or $4,320/annum. This, on an annualized basis, looks pretty good at 14.4% CCR.

Now let’s subtract the CapEx replacement costs:

  • Cost: $30,000
  • Rent: $700/month
  • Taxes/Insurance: $200/month
  • Vacancy: 10% ($70)
  • Maintenance: 10% ($70)
  • CapEx Replacement: $257

What you are left with is $103/month of CF, which on an annualized basis constitutes a 4.12% CCR against the purchase of $30,000. Not so good!

But we are not done, because if you are not local, your pro forma looks like this:

  • Cost: $30,000
  • Rent: $700/month
  • Taxes/Insurance: $200/month
  • Vacancy: 10% ($70)
  • Maintenance: 10% ($70)
  • CapEx Replacement: $257
  • Management: 10% ($70)

And now your real CF after you set money for replacements is a whopping $33/month – 1.3% CCR.

And this is presuming you are starting off with brand spanking new equipment and can benefit from full life to accrue replacement cost. You know this isn’t realistic. Why? Because it costs more to replace all of this equipment upfront than what you paid for the house!

You’ve bought a pig that’s going to bleed you to death. If you are at least local and can do the work yourself, then what you’ve bought is a job, but there is a reasonable chance that you can build some CF. If you are from CA and you are buying turnkey, meaning that you can’t do the work at cost and you have to pay for management, even presuming B Class tenant base, you cannot make money at $700/month rents – period.  It’s just math, y’all.

One final point on this: We are not even including the cost of the initial rehab, the cost of the retail rehab when you’re ready to sell, the legal costs of the inevitable evictions, and the consistent turnover. Neither are we including lease-up pay to your property manager, which they most certainly will charge you. It’s normal practice. I tell you, it’s the pits — the management fee of 10% never costs 10%; at least 12%, guys. I know, I’ve seen the numbers. 🙂

C Class

Now, what you need to realize is that there are no miracles in this business. In Ohio, a $30,000 SFR is by definition at best a C Class. The market says so; otherwise, you’d be paying $70,000. And with this being the case, you can expect to have to turn it more often, to have turns cost more, and to have to replace equipment sooner than the above table indicates!

That being said, the table below adjusts CapEx up by 15% for C Class and 25% for D Class. You do that cash flow math:


What About Apartments?

Apartments can offer some efficiencies with a shared roof, fewer windows, smaller square footage and convenient management. But there is also higher turnover. Apartments that command average rents of under $500 combined with C class tenants will have a very low likelihood of cash flow. This is irrelevant of the purchase price. Most of these buildings Serge and I would not take for free because they are nothing but liabilities in the long run.

Underwriting to IRR

Internal Rate of Return is a metric which tracks the flow of capital, both in and out, and times it to adjust the resulting ROI with regard to opportunity cost and time.  I have no intention of being specific about it here; I’ve written about this elsewhere. But I do want to point out that in order to underwrite to IRR, it is necessary to predict all of those movements of capital, beginning to exit. The distribution of cash at the time of disposition is 80% of what drives the IRR. The other 20% is CapEx.

Segue: Whenever you are seeing an investment proposal which represents your projected ROI in terms of Cash on Cash (CCR) only and makes no representations of IRR, one or more of the following is necessarily true about the company/person floating the investment opportunity:

  1. They are not sophisticated enough to underwrite to IRR. They live and die by CCR, in which case it’s only a matter of time before they die and take you with them.
  2. They target investors who are not sophisticated enough to expect underwriting to IRR. Are you one of those?
  3. They have not projected all of the cash flows and have not underwritten the exit – plain stupid. They truly believe and sell you on messaging that exit doesn’t matter because you are buying for cash flow — which, having read thus far, you now know is a fart in the wind, cause if you hold too long, CapEx will kill you!
  4. They know the IRR will tank because the exit looks too muddy, but they float the investment to you anyway.

Let’s assume that #4 is never true. But this leaves us with the other 3 options on the list, none of which are good… just sayin’. Are you in one of these investments?

Related: Why I Don’t Buy Houses for $30,000 or Apartments in D-Class Areas

When you buy a pig, something is true. If you bother to look, you’ll find out that this house was valued $30,000 twenty years ago; it was also valued $30,000 ten years ago; it’s valued $30,000 today; and you’ll be lucky to sell it for that much when you’re ready. We know; Serge and I bought some pigs before we realized what the game is all about!

What this means is that you are not getting any help relative to realized equity when you sell, which tanks your IRR and necessitates incredibly strong, stable, and growing every year cash flow. Unfortunately for you, CapEx won’t let that happen…

Congrats – you’ve bought a pig!


Do not buy $30,000 pigs in Ohio or any other place unless you are local, will manage them yourself, and are looking for a hell of a job! Due to nothing more that this CapEx number, it takes a minimum of $1,000/month rent to even begin to think about cash flowing SFRs, and you ain’t getting that for $30,000…

Serge and Ben are done now. Feel free to argue – we’re used to being asses…

It’s your turn to weigh in: Do you agree? Disagree? Have numbers that prove otherwise?

Let’s have a spirited debate in the comments section 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. Brad Boone

    Sometimes you have to get lucky….ahh the Irish,,,, bought a 4 unit from a bank for 28,500 4% down 4% interest put about 6k into repairs and now rents total over 1600 per month… I know Ben don’t be to hard on me 🙂

  2. Scott Trench

    Ben, I have to tell you that this was one of the best articles I’ve read in a long time. Your math, argument, and numbers are all flawless in my eyes.

    I guess I just don’t understand why you couldn’t have started this article at the “There are two ways to look at the Numbers” subheading. I think you could have had a way more powerful message without us having to slog through the whole ass and fool thing!

    • Ben Leybovich

      Wilson – CapEx seems high, but it’s not high. The numbers vary by location and climate, but in general they are what they are. And Ohio is a very highly taxes State. I own pigs myself, cause at one time I was stupid, and these are the taxes and Ins. I pay… Actually, I pay less insurance but thats only because I own a decent portfolio and averages help me.

      • Wilson Churchill

        If those are the actual numbers for your area, then I can’t argue them. I purchase properties for 20k, and the capital items are much less. Also, I specifically select homes with lower taxes.

        Furnace: 1000
        Water Heater 500 ish
        Plumbing: varies, but should be able to plum a small 2 bed for under 1000
        Paint: cost of the actual paint plus paying someone to spray it (or do it myself in a few hours) sub 1000
        Cabinets: in-stock from HD or Lowes, pay someone to attach them to the wall and install the counter 2000?
        Flooring: same as listed
        Roof: 2000 to 3000

        Taxes 600 – 800
        Insurance: varies, depending on whether lender requires replacement cost

        • Ben Leybovich

          Wilson – I have no idea how you get your numbers so cheap. Let’s talk about the roof:

          A typical 1,500 sq.ft. house with a simple gable roof and 6/12 pitch will have at least 20 square on it. At $100/square + for materials (and I may be short on that) you are paying $2,000 just for the materials.

          Now – I don’t know if you get up on the roof and install those yourself, but I pay people.

          Same goes for the rest of the items on the list. This is just my experiences…


        • Wilson Churchill

          For 1500 ft^2, sure. I should have mentioned that most of the houses I buy are around 700. My largest (the one I currently live in) is 900. For 10 – 30k, most of the houses are 2bed, 1bath 600 to 800 square feet.

          Rents are 650 to 800

        • Ben Leybovich

          Wilson – an 700 sq.ft. house is still going to have 11 square on it, which means the materials will run $1,100+. You’re not getting that put on by a reputable contractor for $2,000. Especially if you’re replacing sheeting, and especially if you’re replacing spouting…

        • Water heater $500????? Please tell me where! I just did one in a Class C neighborhood in Fresno, CA. My first bid was $1,975.00. I was very happy with the $1,200 I ended up paying. So I walk into The Home Depot and the cheapest water heater I see is $750.00. ACTUAL NUMBERS folks, real world!

  3. Levi Pollard

    You are absolutely right. Once a house gets old enough there is little you can do to it to raise its value. If the shell was built in the 1800’s does it really matter if the windows are new and its freshly painted? No not unless there is a severe housing shortage. I should know. We came from ND where the oil has made the PIGs worth $100k not $30K. The only time you can profit is when there are only 10 houses on the market at a time and if someone wants a roof they need your house.
    Our first deal we bought a 1894 built house for $78k we renovated it ourselves with help from a few contractors at times. Replaced all of the CapEx problems mentioned and sold it 2 years later for $60k return after everything was said and done.
    LUCK that is all it was.
    Sold ASAP

    • Roy N.


      In general you are correct.

      However, there are ways to breath life back into older buildings and bring them in-line with modern energy efficiency and healthy living environment conventions. The key is, you need to find the right old building (not all are good candidates) and then obtain the carcass cheep enough that, following a full-gut rehab, you have a property which will provide the return you require.

      We are always looking at older building stock (multis) for candidates. Out of every 100 properties we encounter, less than 8 are suitable candidates (location, structure, etc) and, if we are lucky, one of these can be had at the right price to permit the needed work to be carried out.

  4. Matt R.

    Great take Ben! However you got that roof stuff for Cali completely backwards. Mediterranean climates are much easy homes on all fronts. Roofs can easily last 30 years out here and tile roofs which are popular last hundreds of years. Maybe adjust that for accuracy purposes. Thanks!

    • Ben Leybovich

      Matt – serge is telling me that he’s replaced 8 year old roofs in AZ because the heat makes the glue curl under the shingles and 1 rain will cause havoc… I defer to Serge on that, and I,m not talking about clay roofs here 🙂

      In Mid-West, however, a good 30-year rated dimensional shingle will last 23 – 25 years, while a 3-tab won’t last past 15.

      Thanks for reading, Matt!

        • serge s.

          Matt – 100 + degrees for 150 days will absolutely destroy HVAC and shingle roofs. They dry out and get brittle then when it rains heavily they will be prone to leaks. Clay is better and I don’t mind polyurethane flat roofs as they can be sorted over every 5 years. The numbers can be adjusted for location. Anyone that says you can get a real HVAC system for $1k – pls show me that product. I’m not talking about window units as those won’t work in most parts of the US that require consistent heat or cooling.

        • Matt R.

          I can’t sub reply Serge but I am with ya. I imagine Palm Springs fairs better roof wise but I am curious for our high and low CA deserts. I guess I can look up the number of 100+ days and use your AZ experience for the benchmark. Also, curious for Vegas.

      • Dawn Anastasi

        A 3-tab roof lasts about 18-25 years whereas an architectural shingle will last 20-30 years. The midwest winters can be harsh but it’s important to invest in the ice and water shield under the shingles.

        A water heater can last 12-13 years, and a good furnace around 18-25 years. People have to maintain items properly for them to last. I bought a property with a furnace made in the 1960s and it was a dinosaur, but it was still cranking away. I replaced that with a nice new one for $1500 that’s high-efficiency. Many houses I have do not have AC, so that’s one less cost to worry about.

        • Ben Leybovich

          Dawn – I have a 1960es furnace that works just fine, and I am going to let it do its’ thing just for the hell of it. At the same time, I’ve replaced an 8 year old furnace… Smae goes for water heaters..

          But let’s say you are right. Put that spreadsheet together and change the numbers as you wish. I am certain you will not get down under $200/month accrual very far. It’s all semantics, Dawn, past a certain point – don’t you agree?

        • Dawn Anastasi

          I put together my spreadsheet and got to $169.02/month. I put $5,500 for a roof assuming you’re going with ice and water shield and architectural shingles. I also eliminated appliances as the tenant supplies them in my rentals.

          I also eliminated the high carpet expense as I’m moving toward ceramic tile, hardwood flooring, and/or vinyl plank. A little more expensive, but more durable in the long run.

          Also a kitchen for $4,500??? If you are assuming top of the line cabinets and granite counter tops maybe, but not for a rental. That I would put at $2,000.

          HVAC at $3,500. A furnace is $1,500 installed and a central air $2,000 installed. It could be cheaper based on who you find to do the installs. For windows, $5,000 is too high. I had all the windows in my own home replaced for about $3,000 and those were the higher-end argon filled triple pane vinyl windows. I’ll use the $3,000 number even though in rentals I only go with double pane.

          Anyway, if there was a way to post my spreadsheet I certainly would.

        • Ben Leybovich

          Dawn – a $700/month rental cannot support your $170/month accrual any more than my $257. You know this. A $1,000 can support both, which was the statement I made in the article and several people made in the comments.

          So – if your pig generates $1,000, then even though there may not be appreciation on the back end, chances are you will be OK in terms of CF. At $700/month, or less, you will loose on both ends over a period of time.

          When we say “pig” and $30,000 – we mean the type of house, not that everything that you buy for $30,000 every place in America will necessarily loose money. Makes sense?

          I’ll put it this way – if I could be all in $30,000 – $40,000 and generate $1,000+ with B class tenants in Ohio, I’d be all over it…

        • Jerome Kaidor

          At my old house, I had a 1959 furnace that was still going strong. I had the power company come out and inspect it. Their inspector said it was fine, and not to mess with it. He said the old ones last forever, but not the newer ones. To be fair, it was a very mild weather area ( SF Peninsula ).

        • Mark Ferguson

          I think Dawn’s numbers are much more inline as well. My costs are much less on my $100,000 rentals that are 2,000 square feet than what you show Ben. I think if your HVAC and plumbing is only lasting 20 years something is very wrong with the installer.

  5. Daniel Mohnkern

    What makes someone an ass is not that they disagree with another person. It is because of the condescending and arrogant way one speaks to another person. If we would communicate with everyone else with respect regardless of whether they are right or wrong in our eyes, there would never be an instance where someone would be able to justify calling someone else an ass.

    Nice job on the math. I appreciate that part of the article. I learned how better to analyse a property because you obviously know what you’re doing and are willing to share your logic. Thank you for that.

    As far as the whole “ass” thing? Thank you for that too. I learned how not to speak to others if I want to be regarded as someone respectable.

  6. You never disappoint me Ben. Loved it but in review I’d say open with the saying and close with the proof.
    No problem for the accomplished player that you are. You worked it hard and regained position in plenty of time to not only show that you really do know a lot but also prove your real desire.
    I actually really did like the article. I like my pig so well that I had to rename the damned thing and call it home until such a time as I might convince yet another that it isn’t really a pig, IT’S a handyman house in a great neighborhood. It was a rental but you for sure are right those little wear items really get tested out if you don’t own them.

  7. Mike McKinzie

    You took a lot more words to say what I have always said, “a hot water heater costs the same whether I am getting $500 or $5,000 a month for rent, but the effect on cash flow is vastly different.” Your CapEx expense turns the 50% guideline on its ear because CapEx is a fixed dollar amount, not a percentage. If we just round it off to $250 a month, it is difficult to make money on anything that rents for less than $1,000 a month. I own some $795-$895 rentals that prove that over and over and over again. Great article!

    • serge s.

      Mike – your point is right on! Ben had write about it in so many ways but the feedback was always that somehow people were able to still squeeze out cash flow from this asset class. The approach here was to show mathematically that the odds are against you. The problem is that it is difficult to quantify in the short run and as such there is a real allure to start here. The hope is to share real numbers over a long term hold period so the newer investor can have a glimpse of reality.

    • Matt R.

      That is such a good point Mike. Some of these rules I think need more rulings from guys like you. Perhaps you can coin the 1000 dollar a month rule as Mikes rule. So we can have an authority and source to refer to and making it a bonafide tested rule with an actual author.

      • Mike McKinzie

        I should probably make a graph that clearly shows that as the rent goes up, the percentage of expenses goes down. Previously, I have shown, using over 1,000,000 rentals, that the 50% guideline is accurate. BUT, all that means is that about half are OVER 50% and half are UNDER 50%. So what makes the difference? I could wrote a book.

    • Ben Leybovich

      Mike – that’s exactly the point. I’d venture to say that $1,200/month and up in an SFR setting is worth owning relative to CF. Incidentally, when you buy SFR that can attract tenants at $1,200/month, not only are the CapEx expenses lower, but so are the turns and maintenance. And, you are much more likely to get appreciation in this class to boot, so the IRR is healthier all the way around. It’s the Lebovich – read between the lines kinda thing…

      And even though we get some help in apartments, I don’t think that anything much under $575 rents has any chance of cash flowing either, to which I alluded in the article…

      Thanks indeed, Mike!

      • serge s.

        Take a hard look at what the hedge funds baught during their binge. Here is Wall Street money deploying huge capital. They did not buy $30k homes nor were they very active in Ohio. Everyone was quick to say how they overpaid on 1% homes yet they baught newer quality in population growth states w average rents at $1200. I would take a 1% $1200 gross rental all day over a 2% or 3% pig all day. Why? Because this is exactly where the 2% rule fails. I’ve owned many of these type of homes over the years and can tell the returns do not compare.

        • Ben Leybovich

          Serge – you would take that because you underwrite to IRR in real terms – period! If I knew back then what I know now, I wouldn’t have bought half the stuff I bought early on…

  8. cliff mccue

    If this article’s sole intention was to turn newbies away from cheap properties, then disregard this comment.

    From a very high level, like Mike Mckenzie said above, a hot water heater costs the same regardless of the rent price. I completely agree. As Wilson pointed out, all of your numbers are fabricated. They aren’t even close to the real cost of things. Your example home was a 1100 sqft 3/1. Where in the world would the plumbing be 6k? 2500 for paint on an 1100 sqft house??? Where do I sign up? I’ll come paint for you. I’m not going to go through everything, but you being an experienced investor should know that all those numbers are beyond high and if those are your actual numbers you should look for another contractor.

    • Ben Leybovich

      These numbers are based on our experience with 100+ units over a decade, Cliff. Dawn (look above) did her own numbers and came out with $150/month per door accrual, which cannot be supported over the long term by $700 rent or less…

      As to contractor cost – I hand my guys the keys. I’m busy. I have a family and other interests. I am involved in the community. I am not going to nickle and dime guys on every job. I hand them the keys, as we’ve been together for 8 years, and I know shit will get done as it should b y licensed reputable, bonded people. Do I pay more than I could – perhaps. Good people need to be paid well, and my time is worth more. I saw the inside of a unit yesterday for the first time in 6 months – that’s the kind of REI I like 🙂

    • You are so right, these numbers are so made up its ridiculous. $70 a month in maintenance? More like $200-$400 for the ENTIRE year. Vacancy rate of 10%? The earliest my tenants move out is in 2.5 years (and that’s early, I actually have some 6 year tenants to date and going strong) $700 in rent? In OH, not in other cities which can easily be $900+ a month. This is based on so much conjecture and not actual experience in these houses or neighborhoods…It’s like me trying to tell everyone the Ben Carson didnt separate the siamese twins right…when I have never done surgery in my life. Let Ben convince everyone that this he’s right…and leave the rest to us. I’m okay with that. Im just glad our message is spreading so fast that Ben has to write 2 articles to date on BiggerPockets railing against the Sub30k Investor community.

      • I have 25 rentals and at the end of October, I have spent $32,000 on repairs this year. And this includes no roofs, no HVAC systems, nothing more expensive than a water heater. On my cheapest rental, I got an email that the garage door needs some new springs and hinges, $325.00, yesterday. I would be dancing on the ceiling if I could average $200-$400 a year on repairs.

  9. Charles Williams

    Great article Ben. Which I’m I the fool or the ass?? I have bought 2 houses. They are across the street from each other. One I paid 33K for the other 30K. I rehabbed the 33K to 60K pretty much replaced everything but the roof. I rehabbed the 30K to 75K and replaced everything. I get $1025/mo for the 33K and $1055 for the 30K. They are in my hometown and I manage myself. Climate hear in SE Virginia is pretty mild most of the year. I have them both leveraged at about 60%. ARV’s are 100K. Are these good buy and holds or do I need to get out soon?

  10. Although they do support your argument, I’m not sure I agree with your CapEx numbers.

    Where we’re from 30-year shingles will last for 30 years, unless there’s a hail or wind storm which brings on an insurance claim. Copper plumbing has a 20 year lifespan? Who in the heck is replumbing their house every 20 years? Ahhh… no. HVAC 10 year lifespan? If you think so I’d hire a different HVAC repairman. They’re selling you a new furnace instead of doing a repair. Call it an upsell. Breakers have a 10 year lifespan? Who changes out their breakers every 10 years? The kicker… foundation and framing – 30 year lifespan. Ok, really. Who builds a new foundation and reframes their house after 30 years? We just bought a house that was built in 1952. 63 years later and the foundation looks just fine – the thought of replacing it never crossed my mind. And the studs, well they are still pretty darn studly.

    Oh, and by the way… the house we just bought we paid 33K for it. It sold a handful of years back for 84K. Although it’s going to be a rental property, some how I believe we’re gonna make some money on that little guy : )

    • Julia Rowling

      Thanks, Jerry, for pointing out the inflated costs, life-span estimates and even the items themselves that are included in this analysis. I suppose that if you have to entirely re-build your rental house from the foundation up every 20-30 years, you really would have to be setting aside well over $200/month for this. But I would expect better cost management – through wise investments in quality materials and contractors – to lower this cost considerably.

      The bottom line of the argument here is obviously that anything that rents for less than $1000/mo, regardless of purchase price, cannot cash flow in the long term. That sounds like an interesting topic for a healthy forum debate to me…

  11. Rusty Scott

    Pretty interesting write-up and I agree with MOST of what you have here, but there are some things I find off.

    Particularly items like plumbing and structure. I’m not aware of anyone that re-plumbs their home every twenty years. Copper will last for 50+ years. Structure? I live in a home that is almost 90 years old…and hasn’t needed any of the structural work you mentioned ever from what I can tell (still all the original plaster). I have rentals that are similar.

    I don’t spend $200/yr on landscaping on any of my rentals. Also, your lifespans on HVAC/Appliances/Water Heaters are very much on the conservative side. Not saying they won’t go bad in those time frames, but I’ve rarely needed to do full replacements of those systems anywhere near those age ranges. Repairs yes, particularly HVAC, but I would almost double the lifespan on average in my experiences. I have HVAC systems that are 30 years old still running strong, with a maybe a $200-300 repair every 4/5 years. I’ve also got appliances, such as ranges and fridges that are well over 20 years old…and when they go out a call to the local used appliance guy has them replaced…a total package is half the price you are replacing every 8 years.

    Some good info though for people to be aware of. These are real and significant expenses in this biz!

    And I don’t buy $30k pigs either! Unless they are rehabs that are turned into $90k “B” grade or above!

    • serge s.

      Hey Rusty – adjust the numbers as you see fit but don’t miss the point. I could counter that in my location the numbers are in fact very conservative and light in some areas. We have hot summers and very hard water and as such roofs and plumbing simply do not last as long as in your area. To think that a C class tenant will maintain appliances over a 20 year period or an HVAC will last 30 years is simply playing the wrong side of probabilities. It may happen on one home but I guarantee it will not happen on 10. You can adjust your numbers down by almost half and you will see that the return is still not as advertised.

  12. Stephen S.

    Ben; of course you are right. And I want to reinforce your view:

    Please! Everyone: Do not buy any house which is $30,000. or less. It will be the worse thing ever – please do not do it.


  13. Jerry W.

    Hey Ben, no offense but I may be the ass not you. I started doing rentals in the little town I am in at least 20 years ago. After buying out several partners, and buying a few on my own I have about 14 houses and maybe 23 units in town. The highest priced rent I get is $800 and that loses about $140 per month, maybe more because it is the nicest rental house I have and it is next to mine and I am willing to pay to choose my neighbors. I will have negative cash flow for 5 years then will refinance it to where I about break even if if you only consider taxes, insurance and one months vacancy a year.
    The rents run from $375 per month for a tiny apartment, to about $650 per month. Do I make money because they are local or am I really losing money? I barely break even but am using a 15 year amortization, so am probably getting about $3K a month in principal paydown. I am trying an experiment on investing in the midwest. One house was bought for about $13K, one for $18K and one we bought for $42K and put about $18K into, I suspect it is worth about $85K or more now. We will see how they turn out in the future. The rent from the midwest houses are $550, $550, and $900 per month. Thanks for taking the time to post this. I am trying in my mind to hear you say in a strong russian accent y’all.

  14. Chuck Blair

    Good article Ben. I will need to re-read a couple times to get it all in my head. I do have a question. I bought one of these pigs for 18K. I put 10K into it. I rented it for 650 per month for 5 years minus a couple months between renters. Subtract out interest charges, a few expenses for repair and the 39K of rent over 5 years becomes 30K which pretty much puts me at break even point after 5 years. Then I sold it for 85K. So here is my question…should I return the money or wrap it up in my spreadsheet and hide it under my mattress? Just kidding, enjoyed the article.

    • serge s.

      Lets not mix a strategy of long term rental income with a capital appreciation play. Now I love to combine both by doing long term 1-2 year flips and those are typically my most profitable investments. I have no issue buying a $20k or $30k home if you know your resale has good profit. In that case it makes absolutely no difference what your purchase price is. All the power to you, you may have found a great niche. The argument in this post is that the $30k SFR asset class is generally an unprofitable space primarily due to unaccounted capex and tenant class. In a flip neither of these are relevant.

      • Chuck Blair

        I agree with you and Ben totally. That was only one house that worked like that for me. The G’ma died and the only heir g’son was strapped for cash so I got the house half price. I had no way of knowing that 5 years after I bought it, everyone and their brother would decide they just had to live in that neighborhood. To prove Ben’s point on averages, a couple pigs bought at the same time took away all of the profit from this house and I was back where I started. If you are truly honest with yourself and look at the numbers honestly, the 30K pigs don’t work. No more of them for me. I don’t mind working hard to make a few bucks, but busting my behind to break even really bites. This is one guy that won’t buy anymore of these.

        • Ben Leybovich

          Yep – it’s all about the averages over a prolonged period of time, Chuck. But, as you said, we have to be honest with ourselves, and we have to track numbers properly in the first place…

  15. So what are you suggesting Ben? Buy higher priced rental homes? In our area the property taxes start to climb substantially and kill off any additional would-be cashflow. And because of the areas that those properties are in it makes it hard to win property assessment appeals to get the property taxes reduced. So in some sense it’s not a question of an investors willingness to move towards higher quality assets, it’s just that there’s additional risk for minimal to no additional gain.

    Suppose you owned 100 30K homes with 15 year loans. You kept the homes in good condition over the years, hired good property management, and were break-even on cashflow. In 15 years the homes showed no appreciation and were all still worth 30K each. You sold them all for $3,000,000. Doesn’t that’s seems to be a substantial amount of “Can’t make” money?

    • Ben Leybovich

      There are 3 value centers in rental property, Jerry:

      a. Cash Flow
      b. Tax savings
      c. Appreciation

      If there is no cash flow, and no appreciation, then the only benefit is depreciation. I am not sure that that’s sexy enough to interest me. Additionally, this presumes breaking even on CF. How about if you have to feed that portfolio?

      • I would say if you need to feed the portfolio you’re doing something wrong and should seek out someone who’s doing it successfully/profitably. Ours is the opposite – it lays golden eggs which feed us. No complaints here.

      • And I think you forgot a few key value centers:
        A. Cashflow
        B. Tax benefits
        C. Appreciation
        D. Equity build-up/principal paydown (My $3,000,000 example – no small thing)
        C. Equity capture (buying right)

  16. Kyle Hipp

    If one can buy a house for $30,000 and turn it into a $60,000+ house making an equity gain where it can really be sold for that amount, that is different than what you are talking about. You are talking about properties that will be worth $30,000 max regardless of condition going forward. These are the folks going for a pure cashflow play. If I am understanding that correctly, I agree 100%. It might make a decent job but that is definitely a job not investing. Great analysis as always, ass, I mean Ben. Don’t worry I see being an ass as a compliment. I might have some underlying issues with that thought process….

  17. Sharon Tzib

    Wow, a blog by Ben helping the SFR crowd – now I can truly say I’ve seen it all! LOL

    Of course everyone is gonna concentrate on the capex numbers. Hopefully, they pay attention to the bigger message.

    Stellar post, Ben, especially the IRR reminder, which I would venture to say most SFR investors don’t pay attention to – I know I didn’t until reading BP. Take care.

    • serge s.

      You are correct Sharon. The capex numbers are adjusted for each asset and tenant class as well as location. Its pointless to argue whether you can source a water heater for $400 or $600. We also did not include some costs including eviction, turn, etc. So in reality the cost savings on some capex items will be offset by other costs that should be included.

      The IRR calculation is probably the most important. This is what investors miss in their proverbial search for “2%” properties. If your investment has no appreciation and will need a significant remodel BOTH at purchase and at sale, I can pretty much guarantee you that rental income will not be enough to drive your holding period return. The real calculation factors all these costs in and compares returns over the entire hold period. If done this way, the 1% quality property often outperforms the 2% property significantly. This is why investing is so hard. There are many ways to look at a property and many ways to convince yourself its worthy. Talk to to investors that have been in business for over 5 years and there is usually very little debate. You simply cannot see these things over a one year hold or one tenant cycle.

      • Isaac Essex

        Dont know if I can agree with that (investors over 5 years part). it was the investor with 72 SFR’s that helped me find the 30k house! Seems like there are plenty of investors out there with many many years of experience which still lack basic knowledge of Anticipated vacancy & maintenance -( another example the old retiring investor that im buying a duplex from who says im trying to trick him with numbers, and low numbers at that according to this blog). I honestly feel like I know a hell of allot more then many of them simply from what Ive learned from you guys over the last 8 or 9 months……Just saying experience doesnt add knowledge from what I see.
        According to this blog, which makes the cap ex subject ANNOYINGLY OBVIOUS and simple, im still making mistakes and need to stop using percentages!
        But I feel better the mistakes are getting smaller.
        I will call this blog Real Estate college course 102.

        I will have to say thanks Ben, Serge, this probably will of saved me from a future bad deal.

    • Ben Leybovich

      You got it, Sharon. IRR is key, because it’s not a number – it is the numerical equivalent of a narrative. You are right, most investors don’t use it…

      I sat down at a restaurant with a local turn-key guy. Really nice guy, but we sat down and he says to me – now what’s that IRR thing of yours you keep talking about..?

      It’s not my thing, dude – it’s the way to underwrite net present value of future cash flows…

      Blank stare…now that’s just scary, Sharon.

  18. Mike McKinzie

    I think some clarification is in order here. When Ben talks about a $30,000 house, he is NOT talking about those of you who are able to pick up a distressed property for cheap, fix it up, and now you have a $75,000-$100,000 property. What Ben is talking about are those letters we all get, you know, the one from “Red Herring Turnkey Properties, Ltd.” that advertise a real cute 3/1, 1,100 square foot property, already rented for $695 a month, fully rehabbed and ready to cash flow like crazy! You could buy it, put another $30,000 into it, and it is still worth $30,000. That is the kind of house Ben is talking about. if you were to check the history of that property, you would see that Red Herring purchased it for $10,000, put $10,000 into it and now want to make a $10,000 profit by selling it to you. Checking further back, you see it sold for $29,000 in 1993 and for $30,000 in 1981. The comps all come in at $25,000-$35,000 within a mile of the house. YOU CANNOT MAKE MONEY ON THIS HOUSE! You would make more money, and less headache, buying a $30,000, 10 year T-Bill.
    I also see people picking apart Ben’s spread sheet. What something cost, how long is lasts, etc. We all have anecdotal evidence that is contrary to what Ben posted, but look at the law of averages. I just replaced an HVAC unit in a Memphis home that was built in 1998. It cost me $1,650 (I am getting $895 rent), so there goes two months rent! Two years ago, I had to replaced an entire kitchen, it cost me $12,000.00. But the rent is $2,600 a month and that type of renter wants granite and stainless steel. Plus, the kitchen that was there was built in 1958, so the cost per year is fairly low. Three years ago, I had to replace two roofs, where I had two SFR on one lot. The two roofs cost me $25,000.00. They were just asphalt shingles. Yes, I could have used rolled asphalt and only paid $10,000 for the two, but you don’t do that to a $500,000 house.
    Let me give one more example, just from last year. The house is in the Central Valley of California. I bought it for $40,000 and it rents for $795.00 (the reason I bought it is that market value is $90,000), But forgetting market value, two months after I bought it, the tenant moved out. So I thought, what the heck, let’s really fix it up so that I won’t have to fix it again very soon. So far, I am at about $6,500.00 in repairs and not done yet. I calculate that it will cost me 10 months of rent to make the house the way I want it. Now obviously, I have made equity and that is the saving grace here. BUT, let’s say that it was in a market where all the comps were $40,000. Turkey Turnkey sold it to me for top dollar, $40,000 and it rents for $795.00. There is no way I would ever make any money on that turkey.
    To reiterate, Ben is NOT talking about buying distressed properties, he is talking about “Showroom and ready to go” $30,000 rentals from a Turnkey Dealer. If the turnkey dealer could sell it for $75,000 to $100,000, you KNOW they would and not let you do it.
    I would love to hear a counter argument from anyone who has bought a $30,000 TURNKEY property and are making a good profit on it.
    Ben and Serge, great article!

    • Mike McKinzie

      I make 6% all day long buying retail in a solid rental market. Some may think that is peanuts but I am happy with it. Why? because my chance of appreciation is 80-90%. For example, I paid $120,000 3 years ago in Phoenix for a house that rented for $1,100 a month. This month, it is worth $175,000. Starting to consider redeploying said capital when rent reaches 0.5% of value. There are certain markets where paying retail works, but I would guess that most markets, you are correct. It is much better if you can find deals that are about 70-80% of retail, but you have to work for it.

  19. David Tomich

    Great article Ben! I think your points are valid, although I’d enjoy finding a reason to argue so we can apply your first premise.

    Clearly your article is addressing 30K houses that won’t be worth more than 30K after getting a new roof, plumbing, paint, etc (or maybe worth only marginally more). I think you made that clear, and your conclusions are spot on. It’s likely you’re saving a lot of newbies from learning this lesson the hard way and that’s admirable. We buy 30K houses, but they are worth ~60K after a ~15K remodel and rent for more like 800-900.

    The key is knowing the difference between a 30K pig and a 30K diamond in the rough.

  20. John Matthews

    So many comments…gosh it took so much scrolling for me to get in line to start arguing with you, Ben!

    Anyway, really what you’re saying is, the issue with people using the 50% rule, is that capex (and maintenance) aren’t linear relationships to the rent, they’re almost fixed (of rather functions of things other than rent). It’d be interesting to dive deeper into how and what they’re closely related to. Off the top of my head, they’re both functions of sq ft, location and property class and NOT functions of rent directly, though I’m sure there are more that I’m missing. Either way, it’s definitely a good argument.

    The one issue though is you’re looking at this only from a buy and hold perspective. Short term (flipping or land contracts, for example), the argument doesn’t apply, and assuming you could find a market where you could actually flip $30k houses, you could indeed still make money.


    Completely agree with David tomich’s comment as well – .

  21. Tyler Flagg

    Thanks for taking the time to explain this Ben. I’ve probably read two dozen real estate books over the last year, and this is the first time that I’ve ever heard CapEx explained to this extent. I’m definitely going to rethink the way that I put money aside for future repairs.

  22. Seth Greiner

    I absolutely love how you laid out the numbers like this. Funny thing is I just bought a property at the exact scenario you wrote, with new systems, at $34k and it rents for $700. Bad thing is I know these numbers and realize what they mean but I am banking on a couple good years of cash flow and then off loading it (appraises for $55k). So, my question is: from your analysis it appears the only way to make money in real estate -long term is by purchasing properties that will rent for at least $900 per unit or more? In this case most apartments, at least where I live, would not qualify for this. It seems like only high class single families and apartment buildings in CA and DC would ever make any money, but since the purchase price is so much higher and squeezes down the IRRR, how is one ever supposed to make money?

    • Ben Leybovich

      Seth – CapEx costs in apartments are dramatically lower because of efficiency. For instance:

      – 1 roof
      – by far fewer windows
      – by far fewer plumbing
      – less square footage, which means less flooring/paint
      – fewer fixtures/unit

      And the list goes on and on. In general, I’d say at $625+ you can make money in apartments. I stay away from $500/rentals…

      • Seth Greiner

        Thanks for the response. I would be interested in seeing your break down for Capex for apartments by unit. Do the numbers say that the higher vacancy, turnover, CAM expenses, and higher purchase price result in a higher IRR?

        • Seth Greiner

          That was my (cough, cough) suggestion for the next article from you! 🙂 I will try posting a similar question on the forums as I do not have any property managers of that size asset in my sphere. Thanks for the great article -if only the answers didn’t lead to a 1000 more questions!

  23. David duCille

    I have argued against you on your previous posts. I’m doing quite well with one of my “pigs” but I maintained all along that it’s partly due to my market where rents are much higher than yours and insurance and taxes much lower. I do appreciate this article becauseyour previous ones were essentially “don’t do it cuz I said so” vs putt I,g tangible data out there. This is well thought out and much more of what people need to see.

  24. Jeff Kehl

    Overall, I get your message and agree with it. I much prefer more expensive houses in good neighborhoods so it doesn’t hurt so much when I have to spend $4k for a new HVAC system.

    But I don’t think it’s a valid generalization that you should never buy a $30k house. I, like some of the other posters, have been lucky enough to buy some of these $30k houses over the past few years that are now worth $60-75k which is a pretty good irr.

    I think your spreadsheet shows why buying a $30k house in a great location with an improving economy and job growth is a good idea. If there is a strong demand for housing and you can buy $43.5k of stuff for $30k why wouldn’t you? In my area that same package of stuff will cost you $120k new.

    Maybe you can’t make money on $30k houses in Ohio but it works just fine in Georgia.

    • Ben Leybovich

      Jeff – you bought a $60,000 for $30,000. That’s not a $30,000. The houses I am talking about are the once that the market will never allow to go up…

      In your case, even if NPV of your cash flows is not much, the capital gains at the end will drive your IRR. Very different case all together…

  25. Mark F.

    Ben, you make a very compelling case here. You pretty much put to paper (or pixels) what I had been thinking for a while, but had never bothered to sit down and analyse. Would a good solution be to just seller finance the $30,000 houses to a retail buyer? That way, you still get the cash flow and you eliminate future CapEx headaches.

  26. Devin Woods


    I really like your points on the classes of tenants that you will get with these types of properties, and how these types of tenants are going to increase your expenses. Assigning a 15-25% factor may even be generous. I see these types of deals frequently, and it is tough to not jump on them. But if you truly analyze the actual data, not pro forma, then this should force you to not invest, if you have strict ROI guidelines.

    Well done.

  27. Mike McKinzie

    This is where the 50% rule falls into the black hole. Sure, we can analyze millions of properties and see that the 50% rule works out very well, but the truth of the matter is that NO EXPENSE, except management, is figured on the rent. I even have one manager who charges a flat fee per month for Pm. Therefore, forget ALL percentages and use actual dollar amounts for expenses, both Operating and Capital Expenditures. I challenge anyone to bring a SFR to the table that has a total expense, per month, under $500.00. If you are self managing, self repairing, doing it all, remember, YOU HAVE TO PAY YOURSELF! Besides, at that point, it is NOT an investment, it is a JOB! I own 25 doors in six states and nine different market areas. I have high PT and low PT, high Ins and low Ins, PM fees that range from 6-10%. My areas are as diverse as Pagosa Springs, CO to Fort Woth, TX and Memhis, TN to Los Angeles, CA. And all of my expenses, CapEx, Operating, Vacancy, etc,,,, comes to about $500 a month per door. This is NOT an easy game we are in, millions FAIL at it every year. THAT is the reason many of us are able to pick up distressed properties, FAILED investors. Ben and Serge are trying to help you become one of the rare successful investors. For every one of you who say you have succeeded with $30,000 houses, thousands of would-be investors have FAILED with them. Ask any Legitimite Turnkey Operator and they will tell that they are more successful in the $80,000-$100,000 range than they ever were in the $25,000-$50,000 range. And it all comes down to two words, FIXED EXPENSES. Ask yourself, “If my fixed expense is $500 a month, do I want to collect $695 or $995? There is a previous blog, very recent, that asks, “Are you comfortable with what you own?” At $695 a month, you are one disaster away from being just another “failed investor!”

  28. Jeff VanBelle

    Great article. I own a few of these and always wondered why when a major cap-ex came along.

    So moral of the article is “if it can’t rent for 1000 plus then flip it or forget it” This seems to be a new criteria to use.

    • Ben Leybovich

      Chi – your’s is a very good question, indeed! I talked in both Podcast 14 and 61 about something I call “Desirability” as the driver of all ROI in real estate. Desirability causes SFRs to appreciate in cost, and desirability causes rentals to appreciate in rental income. People must want what you have in order for that curve to bend in the right direction.

      What makes a PIG a pig is precisely the notion that the marketplace has for any number of reasons decided that the asset is lacking in desirability. The problem with PIGs, therefore, is that for the same reason they don’t appreciate in retail valuation, they also don’t appreciate in rental amounts over time. In fact, just keeping up with current rents increases the very CapEx costs I talk about in the article. Pigs are traps…

      Makes sense?

  29. rodney day

    Great artical laughing at work about the whole thing. I’m in detroit and I was about to make a move on purchasing a few broke down shacks for pennys on the dime. And rehabbing them and doing a section 8 program I think in the short term money will be made but long term when the property is vacant there is a strong possibility I will be lucky if I have a house left. Or having the possibility to evict someone who just decides to squat. Think I will relate this to monopoloy and keep my money on the red properties on the board.

  30. Alvin Ikeda

    Good article Ben & Serge. I usually don’t comment on forums, but I noticed that some of the replies are picking apart numbers, overlooking article emphasis, and taking text out of content. Yes, we will not agree on everything – but based on my own experiences, what Ben is emphasizing is generally true. Please keep in mind that every area/demographics/micro community will be different and offer unique advantages and disadvantages. Expenses and costs will also differ based on area, knowledge, involvement, and business relationships. Overall most people, especially newbies, will not think of or consider any reserves or capex when calculating return on rental investment.

    As an out of state investor, I own several apartment buildings, duplexes, triplexes, and a handful of single family homes in 5 different states. I do my own rehabs to keep costs at a minimum. And yes, I do own $30k SFRs – 2 of them.

    Living in a very remote state of Hawaii, many friends and colleagues asked about purchasing these cash flow properties from real estate investment tours and other companies promising heavy cash returns. The returns, CCR, being stated seems almost too good to be true. Cash flow is heavily emphasized but what they don’t mention is unforeseen long term such as reserves or capex. I have recommended to numerous friends in staying away from buying these pigs.

    This could work if you are able to manage and repair on your own. I do my own rehabs not only to keep costs down, but I enjoy doing that type of work. Point I’m emphasizing is that if you don’t enjoy managing and repairing your properties, it will become more of a headache than what it’s worth.

  31. K. Mitchell

    Would be interested to hear how you think inflation (which I presume will increase), timing (as very few investors really hold properties until they die), and time value of money for repair costs (which will presumably outpace inflation) factors into it–if at all. If you are trying to beat the odds, would/could any of these factors skew the results so that the owner may actually be in a winning position?

    For example, if one were to buy a property like this and they spend the money up front to get it in rent-ready condition (i.e., paying for repairs in today’s dollars) and then hold it for say a 10 year period (selling it for more than they paid for it in 10 years, just due to inflation), would it change your conclusion?

    I guess what I am really asking is whether you handicap the estimated capex amount for these or other factors?

    • Ben Leybovich

      Nice, K Mitchel – with your comment we’ve graduated from 1st year college to sophomore year 🙂

      If I understand correctly, what you are asking is whether the internal rate of return is based on discounted cash flows to NPV or not – is that what you’re asking?

      The answer to that is – it should be, if you want a truly honest representation of the ROI. This gets into some pretty sophisticated modeling. I’ve considered writing a follow-up, but haven’t decided yet whether I should. But, to answer your question – the pigs really look dirty if you look at them honestly by discounting future cash flows to net present value 🙂

  32. Susan Maneck

    Okay, I’ve been buying mostly 30K piggies.

    So here is my typical break down:

    Cost 30K
    Rent $850
    Taxes and Insurance: $1800 per year
    Vacancy: $85
    Maintenance: $85
    Capex: $200

    Now if I understand how the math is done that leaves me with return of $330 a month. Granted I hadn’t made adjustments for the quality of tenants, because so far the tenants I have take care of my property. The only exception is a house I bought for 15K in another neighborhood. Live and learn. I manage my own properties because most of the ones I own are in the same neighborhood where I live.

    • Ben Leybovich

      Hah – I guess there are a few bleeding noses right about now 🙂

      Thanks, Michael! And thank you for your service, as I see on your profile…Marine?! I’ve known a few, and they all call it as they see it…


  33. Tim Davids

    My ex-landlord disagrees with you Ben.

    He went 17 years and only spent about $2000 total cap ex on my place. Everything was used when I moved in too.

    Also, yourlN assumes all new everything each time something goes out. ‘Round here many landlords buy used appliances and clearance fixtures etc to get those pigs to cash flow
    Ike crazy 🙂

    Liked your article, don’t agree but you get people thinking which is half the battle.

    • Mike McKinzie

      There is a way to make money on $30,000.00 rentals. The term is “Slum Lord.” First, you have to do all the work yourself, so you are not an investor, you are a business owner. Next, you need to “carry” when collecting rent and making repairs. Next, you need to visit every Goodwill, Salvation Army, Habitat for Humanity within 50 miles to find cheap replacement appliances, plumbing, heating, electrical and other property supplies. Next, duct tape and bailing wire and WD40 are your closest friends. Your rentals don’t have carpet or tile, they have painted concrete floors. For roofing, you take toilet paper, put Elmers Glue and used playground sand on it to make tiles. Your yard is pure gravel, no plants or grass. Etc……… OK, those last couple of items were for humor, but I think folks get the point. Yes, a special kind of landlord can make money on $30,000 rentals but the fact is, a very high percentage of folks entering Real Estate FAIL with $30,000 houses.

      • Pe Will

        COL, LMFAO! : D

        Man I wish I saw this article before I bought my 2 pigs recently in Kzoo Michigan area and worse there not even rehabbed but in need of all the TLC of an old abandoned home, one I bought from bank for 8,600 and the other for 7,900 so yeah you know these are s***holes and as soon as the name change recorded I see the Zestimate get cut in half from 80k to 40k and the other 60k to 30k and I am far away in a different state talk about the dangers of COUCH Real Estate investor ouch!

        So I am going to do my best to put a dress and lipstick on a pig and make good,
        so any other ideas or thoughts on know what?

  34. Tim Davids

    Just realized I looked at two homes a few days ago. Asking prices 15k and 14,500. I believe I could get them at 13k each. About 2k work to do on each. They would rent at $550,

    If I times by 2 they would equal 30k homes renting at $1100.

    Should I go for it?

  35. Kirk Olson

    Wow, this article opened my eyes to the big mistakes I was going to make in the future, and the three I’ve already made. Time to go back to the drawing board with a little more knowledge and find a better plan.

  36. Mark Forest

    Where I buy $30k can get a decent 3 bed house. Your repair/replacement costs are far higher than I pay. Just as one should look for a good deal on a house you should look for better prices. I had A new roof installed once for $3K. As for windows and cabinets we shop at Habitat of Humanity stores and get things for pennies on the dollar. It is good stuff too. I got a new Anderson insulated window for $75, and just had to make the opening a tad larger to accommodate it. We know of a plumbing store in Detroit that has good discounts on hot water heaters. I could go on and on. Any appliances we buy are used. I agree with Dawn Anastasi above. If you look for deals you can find them.

  37. ihe o.

    I have been doing this for 18 months and wouldn’t claim to understand the totality of the article well enough.

    The maximum I have paid for a property is $30k and my rents range from $950 – $1150. We have no interest payments and manage our own properties, we do not anticipate any capital appreciation although we believe the one we paid $30k for is worth about $40k now. For the rest we presume price stagnation.

    Although one would expect variation in our individual experience it would seem that following the basis set out by the authors that I can add $250 – $450 a month to the cash flow projected in the article of $103 which puts me on an annualised rate of between 14 and 22%.

    Now I stand to be corrected on the above but surely it follows in any event that a blanket statement about $30k houses cannot be made without considering the amount of rental income it generates, especially one that lays claim to mathematical verifiability.

    Neither do we agree with the proposition that you have to be a slumlord in this price bracket. We don’t need to carry because we thoroughly vet our tenants before renting to them . We have replaced 2 refrigerators and a water heater so far and have bought brand new each time. Generally our tenants get a better quality of house and landlord than they have been previously accustomed to and they have started sending their friends to ask if we have anything else to rent.

  38. Larry Weingarten

    Hello: I know better than to argue with Ben, so I’ll simply share a bit of info. Water heaters have been brought up as an appliance that will fail in roughly eight years, but it doesn’t have to be the case. Tanks have in them a “sacrificial anode rod” that slowly corrodes away to prevent tank rusting. If you unscrew the anode every few years and replace it, you can get upwards of fifty years from a tank. Anodes keep much of the world’s infrastructure from rusting away, including tanks; they just need to be checked and replaced periodically.

    Yours, Larry

    • Ben Leybovich

      Larry – your comment peaked my interest, so I asked my plumber/HVAC guy. He told me that because a lot of the hoses they service are on well water, they cut those anode rodes out quite often, and apparently don’t observe much prolonged life of the unit. Interesting – I’ll have to research more…

      Thanks, Larry!

      • Larry Weingarten

        Hi Ben: Your plumber might be trying to get rid of a problem like odor, but removing the anode can only shorten water heater life as well as void the warranty. There is a site called water heater rescue, (which I have no financial interest in) that will give you good info on how to deal with all things domestic hot water, from making heaters last to troubleshooting. It’s THE place to research hot water.

        Yours, Larry

  39. Jesse Barron

    There are probably hundreds of Baltimore City property owners who would laugh at this.

    Here is a deal done many times each day in Baltimore City:

    Buy something for $15-30k. Put $15-20k into it. Enroll it in Section 8. Rent it for $1,200+.

    I’ve done it 23 times myself and am still holding. Both I and my accountant strongly disagree with your post.

    My best property looks like the scenario above, except it’s renting for $1,700/mo.

  40. Bo Joule

    I understand the point of the article but as with everything in real estate I think it also comes down to location. If I can buy a 100 year old 3 bedroom near a downtown for $30k and rent it for $900 or I can buy a 30 year old 3 bedroom slightly farther out for $100k and rent it for max $1200 it seems like the “pig” is a way better investment. Going further the next option may be a new $300k house in a suburb that may only rent for $1600 since it’s a much less demanded type of rental. Same capex accruals but higher PT, Ins, etc on the more expensive properties.

    From a renters standpoint the value of a house is more utilitarian and you have to consider that rent doesn’t increase proportionately with property price, sqft, etc.

    I think what you’re trying to argue night be better stated as a type of “minimal rent needed to sustain avg capex” or something. This could then be balanced by a GRM or rent to purchase price (1% or whatever) to find the sweet spot for a given market.

    I know this is a clunky representative scenario but would appreciate your comments.

  41. Ken A.

    Hi you are making some really General ASSumptions (pun intended) about the Real Estate market.
    I have been buying $30K houses in Central Florida hand over fist (not sure where that expression came from), and am laughing all the way to the bank (not sure where that expression came from).
    When the GREEDY Wall Street players find a way to GIVE LOANS to Landlords of Single Family houses in a big way (they always do, the GREED is starting right now as you look at Multi-Family cap rates much lower), there will be another BUBBLE.
    My guess is topping around 2022-2024 and I will sell everything.
    History ALWAYS REPEATS ITSELF or at least rhymes).

    • Mike McKinzie on

      Ken, you don’t say what the rent is, how much equity you are buying or what your short term and long term goals are. I bought five $40.000 houses last year in California and am not making any money on them in the $695 to $795 rent range. I bought them because each of them had $50,000 of equity already built in. But equity doesn’t buy baby a new pair of shoes, cash flow does. And with 20% down, my return on investment is pretty good! Now if I could get $1,000-$1,200 a month rent, my cash flow would rock! The bottom line of
      Bens article is that CapEx will chew up $600-$800 a month rent within some time frame. If it is an equity play, then the IRR comes in and money can be made.

      • Ken A.

        You are not valuing equity/appreciation correctly. You can turn into cash with refinancing.
        These properties are going up and CapEx can be done with refinancing, etc.
        We have to assume there is decent appreciation. If not, it’s tougher.
        If you got $50k of equity in each of them go and refinance, and keep buying dude, trust me, they are going up and you will be very well off.
        Here’s a couple of things (think longer term all you ADD/ADHD people):
        1. Rents are going UP. At least over a 5-10 year periods.
        2. Mortgage will be paying down principle at some point. Very long term thinkers
        3. Can expense everything on taxes.
        4. YOU ARE THE BOSS, APPLESAUCE! – Priceless
        5. I think you all will be SHOCKED at how high some houses will go till 2022-2024.

        Nothing is as easy as the “Gurus” will tell you. Make some mistakes and find your Niche.

        • Mike mckinzie on

          Thank you for your comment Ken. After being in the business 36 years, I sm always learning something new. But evaluating equity is not new to me. Why do you think I got the houses for $40K? Deferred Maintenance. They should top $100K next year after much needed repairs. Then it us refinance, 1031, or other equity deployment.

  42. Ken A.

    Right. You can repair now very nice and “tenants” might destroy some, or do Slight-Semi-Rehab and do minimal.
    I prefer later, and do “Rent to Own” option, as is, and they get their own loan if they buy. Less calls for repairs, etc.
    I have been doing it for 16 years. Rents $700 ($25-30K houses) – $800+ for $35K+ houses.
    Really need to buy in solid, somewhat appreciating locations and be careful.
    I prefer to use the language of “Deferred Rehab”….HaHa.
    Again we all gotta find our niche…
    Take care.

  43. Bao Nguyen

    I think the title of this article shouldn’t be “You can’t make money on $30k houses…”, but rather “You can’t make money on properties that rents for under $1k/month”.

    If you can buy a 3/1 SFH “pig” in a B neighborhood with an ARV of $100k and could rent for $1200/mo, for $25k, go for it!

  44. Natasha M.

    Holy Mack! I’m TOTALLY NEW…. Yesterday I just posted an article asking opinions on a 14 x 70 2 bed/1 bath Fleetwood 1994 manufactured home in a Mobile Park. FSBO is asking 10k. It’s walking distance to several casinos & huge mall. I just want to make sure I got your article and everyone’s posts correct. If I purchase this with my hard earned cash , spend about 5k for paint & flooring, rent this out to a “D” tenant, even if I get $1,100 rent I’d have to pay the Mobile park $602, vacancy $110, maint. $110, pm $110, that’s already $932/mo. since I’m NEW I have no clue how to analyze capital expenditures & I don’t know how much insurance is yet but there’s more! Since I only own the home & not the land there isn’t even a chance of appreciation. So this is considered a black hole. But, how could I even wholesale it?


    It is diffucult to argue with your math. So I won’t. I will say however, that I have made a practice of buying “dogs” as we used to call them for many, many years. I suspect that what you are calling pigs are actually the same creature. I never went the SFR route, (except for trailer houses), always 4-plex’s or above, and I have always enjoyed a postitve cash flow.

    $7,000 to $30,000 was my meat and potatos for over 15 years and I got fatter every one of those years. Maybe I’m just getting old, but it’s hard to convince someone that something can’t be done when he’s done it.

    • Ben Leybovich

      Well, Jay – 4-plex is a bit of a different creature in some ways. There are a lot of efficiency relative to SFR, and multiple revenue streams helps drive the IRR to an extent. Your comment makes sense, though I shy away from pigs in that space as well 🙂

      To boot, if you define a pig as something you can buy for $30,000 because that’s what the market says it’s worth, then what is a pig in SFR space is not a pig in multi space. I’ve bought and continue to buy 1970es-1980es units in B Locations that attract B Class tenants for $35,000 – $40,000/door, and while the price point is similar to an SFR pig, the bones of structure and desirability factor are not at all the same…

      Thanks for your comment!

  46. Bret Lorenson

    I would agree with the concepts in this article. I look at it this way….CapEx, Repair, and turnover expenses are fixed costs that do not change no matter what the amount of rental income is. The roof costs to the same to replace whether you bring in $500/mo or $1500 per month in rental income. Replacing a furnace unexpectedly is much easier to stomach when you have $1500 coming in each month as opposed to the $500 rental where it could take you 6 months or more to recoup your repair/replacement expense. So in lower rental markets, or areas where rents are lower, these expenses will be a much larger % of your monthly rental income than in higher priced rental homes.

  47. Brandon Schlichter

    I disagree.

    I’m in one of those $30,000 Ohio areas and I don’t see costs anywhere close to you what you’re quoting. Yes, I agree that capex can really bite landlords severely when they don’t save for them, however I’d also venture to say that most landlords aren’t spending close to what you quoted. I know I certainly am not.

    I’d venture to say that on most of your quoted prices, here locally (central Ohio) the prices are around half. On roofs, we’re replacing ALL ours with engineered steel which has a phenomenal lifespan when maintained. Our average replacement cost with 50 year warranty is $3,650 per roof. Additionally HVAC costs are much lower (I know I’m an outlier, but our replacement with 96.6% furnaces + mid range AC units is under $2k).

    Also who the heck puts copper plumbing in a rental? I know I certainly don’t. We can get in and out with pex for under $1k on any property we’ve bought. Your copper quote is 6 times higher. Additionally I’m curious what you’re budgeting for on your foundations/structure, I haven’t run into too many properties ever with severe foundation/framing issues. Sure, drywall needs replaced often and I’d even put it up there with painting, but it’s not $10k every 30 years. Most of the properties I’m buying are 100 years old and haven’t seen maintenance in 20-30 years and the drywall work is never close to being $10k.

    • Mike McKinzie

      I don’t understand these prices people on this thread are quoting!! Just yesterday, I replaced a water heater in one of my houses and it cost me $2,500.00. It did require replacing the subfloor, about a 4 x 8 area. Just the parts from Home Depot were almost $1,300.00, the WH being $700 of that. California requires a new stand, earthquake straps, catch pan and much more. By this time last year, I had about $2,000 in repairs on all 25 of my rentals and so far this year, it just topped $12,000.00. 2015 seems to be the year for major Cap Ex for me, HVAC, WH, drywall replacement, and it is costing every bit as much as the author quotes. There may be a few investors who can get jobs done for less than the author quotes, AND you are the ones responding to this thread, but most investors DO pay the amount the author quotes, or more!

  48. Okay, so I have some of what you call pigs. Generally, I pay cash in the $2,600 (under three thousand) to $9k (nine thousand) range. Yes, I buy dirt cheap. I fix them up. I think so far I’ve attracted D, C and the occasional B tenants. In my area, median prices in-city are around $80k, and after initial rehab mine usually come to around $45-50k. Thing is, I don’t have the income to get those nice properties. Banks won’t give me a loan because I’ve never made $50k/yr (and I have property-related expenses that hurt my debt/income). Saving $100k for a nicer place could take me 15-20 years… and with inflation, it could take me 40+ years to catch up. What am I supposed to do? Should I just give up and shoot myself because I’ve made too many mistakes and my financial life (don’t even start on my “love life”) is unsalvageable? Is there any way to fix this and finally make it to independent wealth?

  49. matthew moreau

    Well written article & very interesting topic. I see 1 problem though, if your budgeting to replace everything with CapEx then you don’t need a 10% maintenance budget as well. 5% would be more realistic.

    I must say this article is bittersweet. Sweet in the sense that it’s a good realization to see TRUE COSTS broken down in such detail. It’s bitter in the sense that it makes hard to cash flow anything. I don’t know what market you are located in but Tampa is red hot. You can barely touch anything in a B class neighborhood for less than 100K & you can just forget an A class.

    Please provide an example on how any deal would work when factoring in PITI, Cap EX, 10% Vacancy, 10% Property Management , 5%-10% maintenance? What condition of home? At what price?

  50. Kyle Penland

    I really enjoyed your article…I’ll stay the fool on this one though…When you purchase properties in this category you don’t put all new on…I never have, and never will. Roof leaks, I patch it…Leaks in a lot of places, then patch a lot of places…I don’t ever put a new roof on an entire house…Its not cheap and no good in ripping off shingles that have years left on them. 2 of my properties have HVAC units, rest are window units and small baseboard heaters. I don’t replace windows, only glass. I bought a whole kitchen’s worth of cabinets, countertops, for 960.00. Water heater, maybe 400 bucks, appliances, I just put all in kitchen (stove, and fridge) for 300.00…Landscaping…At a 30k price point, really? No one in this price point cares about flowers…The price points you have put above are for homes in your price range not mine. Maybe I should come flip homes in your area using my suppliers…I’d make money hand over fist!

  51. Troy Young

    This article makes too many assumptions. I mainly invest in $30k and under properties. I bought one a year and a half ago, put $0 into fixing it up, had a positive cashflow the entire time and just sold it for a $16k gain. Another I bought for about $8k put a couple grand into it over 5 years. during that time the tenant paid for the house, all my expenses with it and a few thousand extra. I sold it the day the tenant moved out for $25k. So far it’s worked out great dozens of other times also. It won’t work for every house, in every market, for every person but it can work for many people, in many markets.

  52. mike waller

    As a newbie this article was great. Can’t say I understand everything just yet, but caught the main thread as far as renting. My question is this: does this apply to flipping a house as well? To avoid at all costs the pigs of $30,000?

    Thanks for the article,

  53. We purchased our first investment this year. Of course, I thought the 30k 2/2 condo I bought for all cash was going to be easy! With a projected rent of $700/month it would cash flow at $300/ month. Boy was I wrong however it has been a great learning experience and at least we pulled the trigger on our first property. Moving forward it will be single family homes with a minimum $1000 rent rate. This article was very enlightening and timed perfect with our current situation. Thanks Ben!

  54. J.R. King

    Those same $30000 houses you described rent for 8-900 in good areas of Detroit and $1000 just outside of Detroit. A lot of the $30000 are on the high end price wise for those markets so they require a lot less work than most houses do when you think of Detroit. So while buying $30000 houses might not work for you in Ohio, I have to disagree with your broad statement of not buying them anywhere.

    • J.R. King

      As an example, I just bought a 3 bedroom with partially finished basement, full bath below grade, walk in closet, 3 year old water heater, 5 year old furnace, and 5 year old roof in a good area of Detroit for $24,000 cash. The only thing I had to do to it was put in $1500 to upgrade the electrical to bring it to code. It rents for $900 a month. And this isn’t the only one I have like this in the area and surrounding areas outside of Detroit.

  55. Ron Thomas

    I love posts like this! Why? Because they keep more investors from flooding my primary market by using blanket statements wrongfully claiming exact outcomes for investments with near infinite variables.

    I bought a duplex 5 years ago for 20k and its been the best investment I’ve made to date. I’ve spent a total of about 15k in improvements and CapX since I’ve owned it, and I keep it nice because I have zero desire to be a slum lord. Its grosses $1350/month in rents, and my most recent tenant prepaid a year! Its currently worth about 70k.

    I bought my personal residence for 35k, and Ive put 30-40k into it since Ive owned it. Its currently worth about 120k and would get rents of about $1300/month if I rented it. I don’t want to rent it though, I like living there for now, its a nice place!

    4 years ago I bought a flip a mile from my house for 50k cash, the guy I bought it from paid 6k initially and did extensive repairs. My cap ex on this property has been near zero because it was remodeled the day before I bought it… I think I did some drywall work once and fixed a gutter. It rents for 1050/month and I’m still on my first tenant. About 6 months after I bought it, the bank appraised it at 70k and I pulled every dollar of my initial cash back out, leaving an asset I have no actual money in anymore cash flowing $3-400/month.

    I have several others with similar numbers, and the only time I have vacancies is when I am testing the market with aggressive rents to see what I can get. I often surprise myself by getting more for rent then I think the market will support.

    Heres the thing, buying a house for 30k can be dangerous. The low price attracts investors, but buyer beware! Educate yourself, act with nuance, and invest with a scalpel, not a fire hose! You can make a lot of money with houses at almost any price point. Hell, you can make a lot of money off of almost any product or service at any price point if you operate with knowledge and skill.

    So Ben Leybovich, I understand the need for a provocative title. You want people to read your post and comment. But honestly, you’re a smart guy, there is no way you really believe people ‘CAN’T’ make money on $30,000 houses. Such rigid advice serves the social media guru far better than the property investor.

    In fact, I will bet you $30,000 that I can make money on a $30,000 house….and in the process prove this entire post wrong! Lets make a thing of it on here, I’ll post real, verifiable numbers from a house I have that I paid 30k or less for and if I am accurate, truthful and profitable then you will pay me $30,000. If not, then I’ll pay you $30,000. What do you say?

  56. John Pierce

    You made a rational argument and supported it well, but I see a few small problems with your argument.

    1. Your premise that $30K houses don’t rent out for $1000 per month isn’t necessarily true. I have several houses that say otherwise.

    2. By selectively purchasing homes that are simple, you can reduce your exposure to maintenance expenses like you have outlined.
    -Simple rooflines without penetrations have longer lives than your average roof and lower reroofing costs (no additions, chimneys, dormers)
    -single story homes are simpler than multistory homes
    -1 bathroom homes will have less projected plumbing expenses than 2 bath homes (second floor bathrooms have significantly higher long term maintenance costs than first floor bathrooms)
    -no jacuzzi bathtubs, casement windows, ceiling fans and other extras
    -no additions (poorly built additions = problems)
    -hardwood floors and tile last longer than carpet and linoleum (hardwoods can be cheaply refinished)
    -walk away from homes that are hiding moisture/structural issues on the exterior of home with vinyl/aluminum siding.

    3. Having a reliable source of cheap, knowledgeable labor and/or the ability to self-perform maintenance tasks can dramatically lower the costs outlined above (though it is important to factor in the value of your own labor as a cost for comparison purposes).

    4. Selectively screening tenants (and experience) can help you beat the average with vacancies and tenant-neglect.

    5. Homes should never be purchased based on speculation, but I disagree with your argument that a $30,000 house will always be worth $30,000. Several of my $30,000 investments have appreciated dramatically.

    I would agree with that newbies and investors that aren’t going to actively participate in the maintenance and management of their rentals should generally keep away from the <$75000 housing market and absolutely avoid <$30,000 houses .

  57. I have bought some houses under 30K. But they needed work and I brought the condition of the utilities, windows, roofing up to standard right from the start.

    Honestly, they are okay investments, but definitely not for out of state buyers. They are great investments if you get a long term stable tenant. For example, I bought one PIG for 15K. The tenant has been there for 7 years and I get a section 8 payment of over $1000. The neighborhood isn’t great, but no worse than when I started.

    One PIG didn’t go as well. It was rented and profitable for 5 years. Then the neighborhood went down and it was vandalized and tough to rent. But that’s my worst story.

    Certain areas, including some aging cities in Ohio, are depopulating and have lots of cheap houses. I might argue that there is no long term appreciation, but only decline for these houses. I am in Chicago.

  58. Orlando Paz

    As a broke newbie I see properties that are $30k and under, as an opportunity to jump into the game. The only other option to getting started on my own, would be investing in mobile homes. I can see how the CapEx figures play a role in the expenses associated with owning rental property, however these figures are not exclusive to properties that fall below a certain market price. My only two concerns with such properties would focus more on location, and extent of repairs needed. As an added bonus, I don’t have to rely on a conventional mortgage, or hard money lender. These types of properties could easily be financed through personal lines of credit. Once they get rehabbed, the cash flow could potentially be worth the effort. In a matter of 4 or five years, the property is paid off. Dawn Anastasi has had success in this area of investing. I would also be interested in hearing from Lisa Phillips. Her style of investing also focuses on properties that are under $30k.

    • Hi Orlando, I just saw this post. I posted a few comments pointing out thevery arrogant assertions, roved wrong by very experienced an dsuccessful inestors…That shoud be enough to show you the contrast, because they dont have anything to prove (they’re making money, why fight too hard?). …I dont want to convince all of BP to start looking at these properties…the prices will start going up if that happens. Make your own judgements, and understand, you should only get advice in this market if you’re interested by those who actively invest in it, and have been successful in this market. Asking someone who only does A and B neighborhoods how to work a C or D class neighborhood is asking for trouble.

  59. Mark Spidell

    Well done article Ben!

    There is always something to learn from the market. If the value of the house has not changed in the past 30 years, the market may be saying:

    1. This is not a good neighborhood.
    2. The house is too small (or some other issue) for modern taste. A rental is the highest and best use.
    3. The economy and population in the area is stagnant or declining. (Ohio)
    4. Within a 15 minute drive, you can purchase a fairly new house for a price that matches the incomes for that area.
    5. The neighborhood is mostly rentals and the value of rentals is driven by income.

    Could things change:

    1. Improved public transit makes the neighborhood more appealing and accessible (see Denver)
    2. The typical end user changes from lower income or seniors to young professionals that value an older neighborhood’s walk ability.
    3. The economy drastically changes. (see downtown Vegas)
    4. Enough properties (both rentals and owner occupants) in the neighborhood turnover that the entire culture changes.
    5. The neighborhood slow turns from primarily rental to primarily owner occupant. Might even see some additions to remedy the size problem.

    These are difficult items to forecast, but a $30,000 house could become something different if there are positive things happening in the community. Sadly it just has not happened much in Ohio.

    With any investment, if the yield is high and there is plenty of supply you are taking on risk. If you are bullish on a urban Renaissance in the city, then your story might have a happy ending.

  60. Anthony Dooley

    I’ve seen this same article several times. I guess recycling is cost effective just to get comments. I buy $30k houses for cash and your assumptions are about half right. Appliances, hot water heaters, head, etc last much longer. Over a 20 year period, if everything on your list was replaced once, you estimate $43,000. The rent brought in $168,000 if you never raise the rent. Sounds like a good trade.

  61. Brendan Novisky

    I know this is an older post and first of all thank you for breaking this down. It is difficult to refute the point you are making. I am looking for my first deal and am still somewhat on the fence between SFH and small multiplexes (2-4 units) so I can learn as I go before looking to larger apartments.

    Anyways, when I extend this logic to the 2-4 unit buildings, the point seems to remain the same, that you cannot feasibly cash flow with less than about $1000 in rent per unit since the majority of the capital expenditures are not shared and thus reduced. Is this in your experience true or is there something that I am missing that alters the equation for the small multifamily units?

  62. Final word on this post that just came to my attention yesterday: Right now there is a Sub30k Investor forum where every single day people are posting on their Sub40k properties, rents, cash flows, and offering advice and support to the specific challenges for this niche. Its all about problem solving, solutions, and taking action. Its not about fear, and what you can’t do. Its about what IS possible, and people who are willing to come together to make it happen for our own life and wealth. Here, all you seem to get is a nice does of classism, and people who have not been able to make this work advising everyone against it. Unfortunate, because when I started going into this sector, I couldn’t find the support here because of these pervasive entrenched thoughts.The conversations there are so much more solution oriented and helpful in regards to this market, its night and day as far as resources to help you make this investing strategy really work for you.

  63. stephen n.

    Your numbers are off. First of all, I don’t know any experienced investor that would pay $30k for a “pig” that only rents for $700. I wouldn’t pay more than $20k. Secondly, your cap ex numbers are way off. no experienced landlord would ever put carpet in a “pig”. if flooring is installed it would be tile which lasts much longer than 6 years. Also, most of my “pigs” dont have HVAC systems. tenants provide their own window units. Also, appliances are not provided in most of my houses. $5000 for a roof? you are getting ripped off.

    another flaw is you have to assume the cap ex number is a real number. it’s not. some of the items on your list will never be done on a $20k house. I will sell a house before i ever spend $10,000 re framing it.

    yet another flaw in your thought process is not taking into account the very real possibility that many of these “pigs” can be lease purchased to tenant buyers who are willing to take on the responsibility of maintaining the ongoing maintenance of the property. that does nothing but increase your ROI.

    I have a much simpler thought process for determining whether you should buy a “pig” or not. take the annual gross rents and multiply by 60% if you are going to self manage. then divide that number by 25%. if the cost of purchase plus any initial rehab cost to get it “rent ready” exceeds that number then it is a pass.

    the bottom line is this, buying “pigs” can be extremely profitable if purchased for the right price. overpaying for a “pig” is no less profitable then over paying for any other investment property.

    • While there are a few markets in the US where $30,000 pigs WILL WORK, the investor MUST be knowledgeable about how to manage them. Stephen N., obviously you are one of those who knows HOW to do it correctly and successfully. But for every investor who is successful with the pigs, I can show you a thousand who FAILED at it. Yes, you can paint the concrete floors, use hot mopped rolled roofing, supply no HVAC, etc…. but in the markets where I invest, any tenant paying more than $500 a month DEMANDS Central A/C and my competitors will supply it, so I must also. They also demand carpeting. As the opening line states in this article, when two men argue, one is a fool and one is an ass. Every one who has argued with Ben, well…….. As for me, my first investment was a $30,000 pig and I made it work. But I did not like being a property owner in that niche of the market place. Others might love it, and more success to them. But make NO MISTAKE, $30,000 pigs are very different than a $100,000 house that rents for $1,500 a month and appreciates 5-10% a year, on average.

      • stephen n.

        >>But make NO MISTAKE, $30,000 pigs are very different than a $100,000 house >>that rents for $1,500 a month and appreciates 5-10% a year, on average.

        5%-10% is pretty unrealistic. the norm is closer to 3%-4%. But let’s take 5%. if you have $100,000 cash and invest in a single family home that rents for $1,500 you will have the following after 10 years:

        Appreciation: $63,000
        Gross Cash flow: $180,000

        If i take the same $100,000 and buy 5 properties for $20,000 that each rent for $700/mo here is what i will have after 10 years:

        Appreciation: $0
        Gross Cash Flow: $420,000

        Obviously i will have more vacancies and more cap ex expenditures, but i will also have alot more money coming in to make up for those things.

        Also, i can take my extra cash flow each year and reinvest it it more properties much easier than you can which would juice my returns even more.

        some people like buying pretty houses. that’s fine. I buy pretty houses too. But i do it with a ton of leverage. thats the only way it makes financial sense.

        when it comes to high cash on cash returns there is nothing that can beat buying cheap “pigs”. You just have to know what price to pay for them.

        • Mike McKinzie

          Stephen, I complimented you, so there is no need to defend! First off, I do not personally know of any market where you can buy for $20,000 and rent it for $700 a month. I am sure they exist, but not in California! Next, I do not know of any market where a tenant pays $700 and doesn’t demand Central AC, Heat And Carpeting. And finally, everyone I know who is worth over $100,000,000 in Real Estate did not get there on ‘$30,000 pigs.’ Yes, there can be success with $30,000 pigs! But the real wealth in Real Estate comes from appreciation, not cash flow. I paid $130,000 for a house, with $30,000 down and sold it 24 months later for $200,000. Not too bad of a return. So again, Stephen, CONGRATULATIONS, you are making the ‘pigs ‘ market work for you. I just don’t think it is the best road for every investor!

Leave A Reply

Pair a profile with your post!

Create a Free Account


Log In Here