America still has a significant number of inexpensive properties available for investors. How do you stay safe when investing in them?
There can be great profits to be found in buying, remodeling, and flipping or renting out inexpensive properties. However, it is crucial to realize that a low price tag doesn’t always mean a cheap or valuable deal. In fact, you can lose money fast buying cheap real estate if you aren’t careful. Here are some ways I’ve managed to minimize the downside risk and stay safe in the process of buying dozens of homes for less than $70k each.
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5 Ways to Protect Yourself When Buying Cheap Real Estate
1. Choose the right location.
There is lots of cheap real estate in America. However, much of it may not be worth a lot. It may not be worth much for a couple hundred years, if ever. The key to success is buying in good locations that have demand and good fundamentals. We’ve all heard it over and over—location, location, location.
2. Buy title insurance.
Getting a buyer’s title insurance policy is important. This is especially true when buying cheap homes from auction or homes that are in distress. Often, agents and auctioneers try to wipe their hands of any liability, which is completely understandable. Still, these properties can have the most title issues. Get covered with insurance.
3. Make smart offers.
I’ve bought auction properties sight unseen and out-of-area properties. I’ve stayed profitable by pricing my offers right. It doesn’t matter if you are bidding on a $2M home in L.A., or a $30k home in Indianapolis. The key is buying undervalued property and locking in profit from the beginning. We’ve all heard it time and time again—you make your money when you buy.
4. Get good inspections.
Where many investors fail is buying “cheap” homes and then finding out they may have to put in several times the purchase price in renovations, repairs, or even tearing down the parts of the property and rebuilding. Always get inspections done unless you’re very experienced with rehab numbers.
5. Make sure your property management is top-notch.
Many investors just aren’t cut out to effectively operate lower-end properties. They don’t understand the quirks, tenants, or the processes. Poor management can destroy even the best opportunities on A-class real estate. Great management can effectively turn a lemon property into lemonade. Beware of trying to manage these cheap houses from afar. It can turn into another full-time job easily.
There are attractive, low-priced properties to invest in today. Just make sure you know exactly what you are buying, price your offers right, have protections in place, and get great management. This will make all the difference between losing money and positive cash flow.
[Editor’s Note: We are republishing this article to help out our newer readers.]
Do you have any “cheap” real estate in your portfolio? Any tips you’d add to this list?
Be sure to leave your comments below!