Investors, It’s Time to Take Another Look at $30,000 Properties

by | BiggerPockets.com

The popular belief is that you cannot make money on $30,000 properties, but I need you to completely throw that perception out the window and listen to me very clearly. Guys, I’ve been doing this for the last five years. I have been investing in $20,000 and $30,000 houses, I’ve done over 500 deals, and I’ve worked with hundreds of investors who are all doing well in these particular areas. No, we’re not talking about war zones, we’re not talking about the ghetto, we’re not talking C and D-class properties. We’re talking about solid B-class investment properties. The markets are not sexy, and they’re not flashy. They are blue-collar, working class areas. There is a level of demand there, you have infrastructure like hospitals and big employers, there is stuff happening in the area, good school districts. We’re all making money all day every day.

Unfortunately, there is a perception that any $20,000 or $30,000 house has to be a dilapidated property, a meth lab, or a vacant lot someone is trying to use to scam you. Look, that is true in some cases, but in other instances, like where I am investing, that is not accurate.

B-Class, Blue-Collar Areas

I live in the exact same areas that I invest in and that I sell in. So it’s good enough for me and my family, and it’s good enough for the people that I employ, so they are not war zones. Again, we are talking about B-class areas and blue-collar, working class people in these homes.

A few key pockets that you can research would be in Ohio, but I’m a little bit biased because I’m based here. Number two is Indiana, number three is Michigan, number four is Missouri, and number five is Kansas. The Midwest in general is where you can find $20,000 and $30,000 houses that you can put some work into and get a good return on investment or sell for a profit.

Related: Why I’d STRONGLY Discourage Newbies From Buying D-Class Investment Properties

Let me give you an example of what you can do in these particular areas. The first thing you need to do is find the right people. So be sure to spend enough time on the people that you are looking at working with over the stats and demographics of a particular area or over how cheaply you can buy a particular property. Don’t settle until you find the right people. Second, pick a particular area and make sure you zone in on a particular zip code or a few. Educate yourself on the numbers in those areas, what distressed properties are selling for, what renovated comps are selling for, and who’s who in that area, from top real estate agents to rehabbers. You really have to master this particular area. You need to know the ins and outs of what is going on, who’s buying what, and who’s doing what. Then you will also understand what the properties are selling for both renovated and distressed.

Consistency in Sales Price

A really good indicator of a B-class area is consistency in the sales price of a renovated product. Let me give you an example. In some of the pockets here in Toledo, we can buy properties for $10,000, $20,000, or $30,000 depending on the condition, fix them up, and sell them from $60,000 to $70,000. When you see consistency in that after-rehab sale price within a region, you can tell that there are sales happening in the area and that people are investing either to buy and hold or to buy and live in. So that should indicate a decent type of area or B-class area in my opinion.

With all of that being said, when you’re investing in $20,000 or $30,000 properties, you have a few options. I think there are two strategies. First, you can buy, fix, and hold because it’s such a low investment amount and the cap rate is so high—and since you’re investing a low amount of money, the risk is worth the reward. Second, you can buy, fix, and sell. You can sell it to an investor because the numbers make sense for an investor to want to buy and hold, or you can sell to an owner-occupant. Yes, there are owner-occupants living in $20,000 or $30,000 houses. Now, of course, you are buying it for $20,000 or $30,000, and you’re selling it for a little bit more that that. So you will make money. There is no doubt about it. I’ve done it every single day for the last five years, and I’m doing it to this day.

Related: How to Evaluate A-Class, B-Class, and C-Class Properties

Would You Invest in These Areas?

I’m sure there are going to be a lot of you folks who will comment below saying I’m absolutely nuts. Whatever. Then there are going to be folks in the Midwest who are doing it successfully just like I am. So let’s get a little bit of a discussion going in the comments below. All of you on the West and East coasts, please expand your horizon and open up your mind. Look into the Midwest. There is a lot of great opportunity here, and there are a lot of $20,000 or $30,000 properties you can negotiate for. You buy, fix and flip or fix and hold. Investors are happy to own in these areas because of the cash flow. Homeowners live in these areas because of the infrastructure that supports the demand. People want to live there.

Look, that’s it. You can make money on $20,000 or $30,000 houses.  

What are your thoughts?

Comment below!

About Author

Engelo Rumora

Engelo Rumora “The Real Estate Dingo” is a successful property investor, motivational speaker and serial entrepreneur that quit school at the age of 14 and played professional soccer at 18. He is also a soon to be published author along with becoming a TV personality in his very own real estate house flipping show. To find out more go to engelorumora.com . Engelo Rumora has been involved in over 400 real estate deals and founded five businesses in Ohio. The most successful is Ohio Cashflow, a company that specializes in providing turnkey properties in several Ohio markets. The newest venture is List’n Sell Realty, a real estate brokerage based in Toledo, Ohio and soon to be known as the #1 discount broker in the country.

93 Comments

  1. Nancy Roth

    @ENGELO RUMORA, thanks for posting this thoughtful article, but for me there is a piece missing in regard to your claim that you can buy properties for $30K or less, fix them up, and sell for them for as little as $60K and still make a profit. I don’t see how that is possible. Or maybe I misunderstand. How much profit can you make in that kind of deal?

    Maybe the piece you didn’t include is that you are looking for properties in exceptionally good condition–in need of cleanup and paint only–whereas the properties I see in the 0-$30K range in working-class areas in eastern states need things like rewiring, new roofs, new kitchens and baths, new plumbing, etc. A lot of time they are simply not up to modern code, and it’s not cheap to get them there. Those fix-up costs would not be contained within a $30K “gap” between acquisition and resale prices.

    Maybe you have exceptionally cheap labor and materials cost? Or your lending source is charging next to nothing in points and interest?

    I have less problem believing these properties might work fine as rentals if you keep rehab costs down and you can rent quickly for very good rents. Would you mind providing more details on what rents you get in relation to the costs of acquisition and repair?

    Nancy E. Roth
    Washington, DC

    • Engelo Rumora

      Thanks Nancy,

      If you’re interested, I would suggest you start networking and exploring opportunities in the Midwest.

      The properties are bought and rehabbed with cash thus no loans are needed.

      Labor costs are low as living expenses aren’t high so plumbers don’t charge $100 per hour.

      Rehab standards aren’r granite counter tops and “golden” toilet seats because the market demographic doesn’t require that standard.

      I’ve been a kid in a candy store here for 5+ years now as not many are willing to look outside of their bubble.

      Good for everyone buying in the Midwest 🙂

      Much success

    • Corey Adams

      I live in Missouri and you can buy a house in the 20’s put 5 to 10 thousand into it and sell it for 50 to 60 thousand. For example, the first house I ever purchased when I was 23 I was all in for 27k and comps are showing a resale value of 45k. Not amazing but not bad for my first deal, and the cash flow has been fantastic. My parents have been renting out these 30k homes for over 15 years and it’s done really we’ll for them.

  2. Melvin Plummer on

    Engelo,
    Fortunebuilders.com agrees with you. Some homeowners in Toledo Ohio were happy to see their property values increase by 33% in the last year. By simply typing in a property address, city and state, rentometer.com will tell you approximately how much rent you should receive for your property. So it appears that the numbers work and you may be onto something very profitable at least in the near-term.
    Continued success!

    • Engelo Rumora

      Thanks Melvin,

      We have been chipping away at the same model for many years now.

      It’s just “another day” in the office.

      Cashflow is what matters most to our investors.

      Any appreciation is just a bonus

      Much success

  3. Barry H.

    ENGELO – Well written article and it is always tough to provide every detail in a 5 min discussion. Having grown up in the Midwest, then migrated West post-college, I drank the sand state filtered Kool Aid and it took me 12 years in RE investing to get my head turned back to my roots. I cannot disagree with anything you presented except to say the investment into a support network is time consuming and potentially costly.

    I would classify the properties you speak of as Class C (not B), but all the other numbers are in line. As an absentee investor, however, seeking, finding and maintaining a good network took me over a year and my NET NET return (incl travel costs) has been about 2%. I do expect that to ratchet up quickly in years 2-Eternity and I don’t intend to abandon my investment strategy.

    The other option (also viable) is to ride the sand dunes of those sand states (AZ CA, NV FL and now add OR & WA). Buy low, cashflow, sell high. That can be more profitable, but make sure you have an ample supply of blood pressure pills.

  4. Harry Hertz

    Engelo,

    Excellent article, I think your market of buying properties for 30k and below works if you want to buy and hold.
    If you want to buy properties at 30k and sell at 70k,after rehab and closing costs how much money are you really walking out with.
    Best regards.

    • Engelo Rumora

      Thanks Harry,

      You make money when you can and not when you sell.

      I don’t remember the last property we sold through the MLS or an agent.

      Most of our investors are cash buyers waiting to pounce on any new deal that we present them with.

      The margins are great and we maximize them to the fullest while still leaving investors with a great product/cashflow

      Thanks again

    • Engelo Rumora

      Thanks Shawn,

      Those are great numbers

      We have deals like that falling of trees in the Midwest.

      Just looking to buy a B- class 9 unit in an up and coming area.

      Purchase price is $80,000 and needs around $20,000 in work

      Gross rent will be around $50,000 and with a 60% expense ratio leaving $20,000 in net cashflow

      Not bad for a total of $120,000 invested lol

      Plus the value will probably be double when we are done

      Keep up the good work

  5. Rob Cook

    Engelo, you are absolutely nuts…and you talk funny 😉 lol. But that is not the point! lol. I agree with everything you stated. I am in a “similar type” marketplace (thin on people here in Wyoming in comparison to Toledo, but otherwise demographically similar to yours). I can find more deals in a week than I can digest in a year or two! With rentals, I work in the lower price categories (Like $500 incldg all utilities), the bare bottom in many cases, and it is not always enjoyable. But my sweet spot is in the $650 rent range, where the working class folks thrive and can afford. The “class” of tenants is not comparable overall, in the extremes of that narrow range, so it is almost unbelievably sensitive. Above $800 here, with the tenant paying all utilities, we hardly ever have any tenant related problems. Only 2 of my 40 or so units in this region are above $900+utilities, and all but 7 are below $700. Investors need to understand the relationships between rents/prices for any given area, as well as price and rent/condition. Lower end rentals, which I would consider most of mine, have a lot less picky or demanding tenants. There is a huge difference between having rental properties that are slumlord situations (I never will deal in this arena), and having safe, clean, functional if not pretty/fancy/updated properties (the space in which I operate). AND the point is, properties which are not shiny and new and perfect, can be obtained and renovated for a huge discount, which I find is approximately half the cost of a new property of similar size and rent-producing capability. THAT is where the opportunity you and I are exploiting, derives from. We can find deals which permit good numbers because we are not paying up for the shiny, upper-end owner-occupant attracting deals. And finally, everyone should bear in mind that returns should be expressed in percentages, to allow for comparing alternative investments. Not simply a finite $dollar amount you desire to make on any given deal. While a net profit of $10K does not seem like a lot on a little $30K/$60K Fx and Flip like you are doing, it does probably represent a 20% net Return. And as you say and are doing, how many of those can you take! LOTS! Good article Engelo, though I did miss your video option this time! What up!

    • Mike McKinzie

      Rob, we need to be careful and NOT always look at percentage. If I invest one penny and get back two, that is 100% return, BUT, it is still only a penny. We also need to look at the time factor. As investors/risk takers, if we accept less than $100 a hour, we are selling ourselves short. Something else to consider, in my experience, the lower the rent, the more damage a tenant does to the property. If a turnover is going to cost me $10,000, I would rather have it on a house that rents for $1,500 a month vs a house that rents for $500 a month. And yet that price for a turnover is a lot MORE likely on the $500 a month house.

      • Rob Cook

        Mike, I agree completely. The point is, all of this is an individual situation, and each individual’s own value and the opportunity cost of their time, and their own risk tolerance, and their own druthers and personal assets and edge play into the analysis. My reference to % was just to remind that a relatively easy $10K return on a low-end flip, may be hugely attractive compared to a $10K return on a $400K flip. AND, depending on all the particulars, that $10K may represent $500 an hour for the investor’s involvement. And no doubt, the lower the rent range the more problems and costs, everything else being equal. Which it seldom is (equal). Although we can employ “cookie-cutter” systems and processes, probably like Engelo is doing, every deal is nevertheless unique in and of itself. And that is what makes it difficult to ever make any sweeping, generally applicable statements like I did above, and you correctly called me out on. To a person earning $28 an hour at their day job, being able to safely realize a side gig type investment generated pay rate of $50 an hour, all costs and risks accounted for, may be just the ticket to their future financial freedom and happiness. I netted over $500 an hour before taxes, for >2000 hours a year in my construction company, CookBros.org even after I retired! But now, I happily work on my own rentals, with my own hands almost every day, at a realistic net pay rate of about $100 an hour, all told. That makes me happy, despite it being 20% of what I used to earn. All things are relative and individual in this respect. Thanks for your comment and enhancement of my too-broad statement! 😉 Isn’t this a great thing we all do and Bigger Pockets makes accessible to all.

      • Rob Cook

        Ah, good deal on the video Engelo! Need my weekly fix from you;) Have not forgotten about the email. I am still formulating my plan and niche ideas for the online coaching biz. And yes, exactly my point, 200 deals at $10K each is a good year! Thanks, Bro.

  6. Great Article Engelo,
    I’ve invested about 45 minutes east of you for the last 10 years. Currently have 16 paid for single family homes and have flipped about 10. Another important point is that investors should never, ever finance an investment property. But lets not let the cat out of the bag!!

    Thanks

    • Rob Cook

      @PHIL,

      “Another important point is that investors should never, ever finance an investment property.”

      Do you mean, “partner type” investors or we, buyers of properties for investments? Yes, the cat is out of the bag!

    • Corey Adams

      You could finance those 16 properties and have down payments for another 50 properties. Even with the mortgages I guarantee you’d be cash flowing better then you are right now and be paying down the mortgages on an additional 50 units. Leverage is amazing, do your research and you’ll see for yourself. Best of luck.

      • Anthony Gallo

        Both schools of thought are good cash or financing. But numbers NEVER lie if you leverage money you greatly reduce your exposure and risk and you will make a lot more money in the short term as well as the long term. It is a simple mathematical fact that can easily be proven. I do see the merit for people of wealth to buy cash but for the other 99% of us financing is the best method to accrue the most wealth the quickest and leave the largest legacy for generations to come. I would love for someone to give me an example and try to prove me wrong on this. If I am wrong I will be the first person to offer to buy you dinner the next time you are in my area. 🙂

        • Hi Trevor, live on less than you make and it will accumulate quicker than you think. Have a goal of saving for that first house. Once you have a paid for house, the whole business plan begins to snowball. If I wanted, I could purchase another house in 2 months time just from the cash flow of mine. I started by buying my first house for 10k, put 3k into it and rented it for $600. Small money but look at that rate of return (minus taxes, insurance and repairs). That’s my cheapest one. Have a good screening process and surround yourself with a good team.

  7. Mike McKinzie

    Engelo, you have become very successful with your Business Model and have earned my respect. But as we all know, there are “different strokes for different folks.” You have a very hands on, get dirty and make some money approach. As for me, I own 25 properties (21 are free and clear) in 7 different states and have only been inside of 3 of them and drove by 2 others. The rest I have never even set foot in the city where they are. While you invest as a “JOB”, I invest like I do in the Stock Market. I don’t have to visit Disneyland, an Apple factory or an Exxon refinery to buy stock in them. And yet I have made good profit from all of them. After being involved in over 5,000 sales transactions as a Broker, Agent and/or Seller/Buyer, I am a little tired of it. I could disappear, completely off the grid, for a year, come back, and nothing would have changed. BUT, I did start like you, buying a $30,000 house, in San Bernardino, CA and selling it a year later for $50,000 (in 1978). YES, you can make money on $30,000 houses, BUT, you have to work, and WORK HARD, to do it. As a “buy and hold” investor, it is NOT about what you pay for it, it is all about how much RENT you get for it. If one $30,000 house rents for $250 a month and another one rents for $995 a month, there is a huge difference. I have a prime example this year. I put a new roof on two different houses this year, IN THE SAME CITY. One rents for $750 a month and the other rents for $1,100 a month. Both roofs cost $6,000.00. The Cap Ex expense is the same dollar amount, but affects the return GREATLY, due to the rent being paid. (I paid $55,000 – $60,000 for each of them). I have paid too much for a house, and yet came out ahead in the long run. But as you stated, RESEARCH is extremely vital to succeed in the $30,000 market!

      • Engelo Rumora

        Brandon,

        It takes many years to design such a system.

        Stay active for as long as you can to build up as much cash as possible

        Then buy and hold

        Nothing is completely passive unless you invest in bonds lol

        The call on a collapsed roof usually always get’s to the owner

        Thanks

    • Engelo Rumora

      Thanks for your comment Mike,

      Nothing comes without hard work and sacrifice.

      Most folks that I have come across over the years are all talk.

      On the other hand, I like to “walk the walk” and that has enabled me to be a true “Johnny Walker Blue”

      The “finesse” part of my investing career (Like you are doing now) will come at a later part of my investment cycle.

      I am still working the number every day in the trenches with my team (We are on track do flip over 200 properties this year)

      I also unofficially retired last year at the “ripe” age of 29.

      Anything worth doing is never going to be easy

      Folks need to realize that any kind of investing takes hard work

      Thanks again and much success

      ps. Two ice cubes please 🙂

  8. Isaac A.

    I am ready to buy 30K or less properties in Michigan.. Looking into opportunities in Detroit. It looks like the Detroit neighborhoods has great deals. I need some advice/recommendations o areas in Michigan/Detroit to buy properties in – for buy & hold?

  9. Michael Williams

    I left Memphis about 5 years ago to move to Atlanta were i got into real estate. I knew that I could get homes for $10,000 – $20,000 in my home town but the fix up cost would take the all in cost to $50,000 and the retail in those areas would not exceed $48,000. As Nancy Roth asked “How are you making money off of retail sales. I understand that you can get $600 -$700 per month rent if you hold, but how are you profiting on the retail end. Because like she said these houses would need new wiring, plumbing, and in most cases adding another bath to make it attractive to an end buyer. Tell me the secret and I can go home and buy them and sell them retail or get my son to start.

    • Brandon Walker

      Hi Michael – appreciate the inside tip on Memphis. I recently considered a couple of singles and duplexes there (only because the prices were so low) but I have no idea which neighborhoods are war zones and which are promising. My plan was to purchase a few properties around $30k but they needed about $20k each for repairs. At $50k all in for each property, CF seemed decent with rent around $700 each but I feel I’d lose out on the back end with turnover and repairs if I picked the wrong location. If you’re interested in revisiting the Memphis idea, let’s talk. I’m in Nashville. 810-516-9642.

      • Michael Williams

        Hi Brandon I moved away from Memphis about 5 years ago but I just found out that I will be back there for about 4 months. I know that about 2 years ago there was a lot of activity in the Union & Mclaen area close to downtown. I will be back there by April the 7th. I will be on recon for the idea spots for 1 entire month to get back acclimated with the city. I know a lot has changed so I want to be up on everything. I have you number I will phone you this week if you like so we can talk if you like.

    • Engelo Rumora

      Hi Michael,

      You don’t have to sell retail and don’t list on the MLS through an agent.

      Sell turnkey with a tenant in place.

      Most times it will be a cash buyer

      That is just one way.

      You make money when you “buy” so make sure to buy very cheap.

      The rest looks after itself

      Much success

  10. Dillon Hall

    West Coast investors make an incorrect assumption: If a home can be bought for $20-30k, it’s in a D-Class neighborhood. You dispelled this fallacy.
    In the hot West Coast markets, the buy & hold investor simply can’t find a deal that makes sense right now. It would be wise of him to expand his criteria to cash flowing rental markets like the midwest.

  11. Bill Leonard

    Engelo, you are right on point. We and a few other associates follow a similar model with a twist. I am based in Silicon Valley and my partner is based in IL. All of our investments are out-of-state. We acquire low rehab properties under $40K in something other than war zones anywhere in the U.S. and get a tenant-buyer in the property for 6 to 12 months. We will then owner finance to a solid tenant-buyer at the end of the term. The tenant-buyer’s down payment is the rent already paid through the term + their security deposit. We are now the bank, not the landlord with the headaches that come with it. We get mailbox money. There is more detail, but that is for a later discussion. The tenant-buyer owns what is often their first property (and one they may not even qualify for at the bank because he/she is 1099, self-employed, etc) and often gets the benefits of a lower monthly payment even at our higher interest vs rent before any of the short term and long term tax benefits. A win all around.

  12. Ben Travis

    Thanks for the article. I’m new and simply have a goal of completing one successful flip to get me going as I’ve been networking. I have capital to work with but not tons, this gives me another potential avenue to consider. Much appreciated!

  13. Edesha B.

    Thank you so much for this post, it is very helpful and encouraging. I’m a newbie with flipping homes and looking in Cincinnati, OH area. I have experience with investing, currently holding 3 properties (rented out) and building great equity. However, I’ve never done flips. I would love to be able to invest in properties in B neighborhoods. I have good capital but unfortunately, I’m in California! I’m trying to build my network on the ground, specifically finding contractors to conduct the renovations… someone who can do predictable pricing (maybe price per sq foot) when it’s cosmetic, and also good property managers (if I hold to rent). I don’t know if I’m looking in the wrong places to find partners/contractors, but any guidance/leads would be much appreciated! Thank you in advance for the information.

  14. david grant

    I must say I totally agree with this article, this is amazing and accurate. I’m an out of state investor, that purchases in Ohio myself. I have a few properties that cash flow really well and are in B class neighborhoods. My properties are a little cheaper if I were to be honest, here’s why. I buy the abandoned houses on the block, then rehab them and rent. haven’t done a flip yet. You get them for cheaper if abandoned. Plan on purchasing a small house for myself to store my work equipment and get out of renting hotels when I fly down to rehab them. Great state, slower pace. Thanks again,new investor…….

  15. brian ploszay

    I am experienced with this product. During the downturn, I bought plenty of these types of houses and kept most of them. To make them work, I am local, I am experienced and I am somewhat hands on.

    My market is the Chicago area. Most of the under 30K properties have dried up that are worth buying. The remaining are mostly inferior structures, very low income areas or need a gut rehab. Once you sink 35K more into the property, it is no longer a 30K property.

    For you out of state buyers, good advice might be to stay away from this type of product. I’d especially avoid small midwestern rust-belt towns that are losing population. One last thing, I distrust most ‘turn-key’ providers, as I see them selling out of state investors inferior investments. The author of this article is a turn-key provider. I have met him, but I am not saying anything negative about his him. He is a prolific promoter in this industry and shows up to conferences, he’s a speaker and he writes.

    • Engelo Rumora

      Thanks for your comment Brian,

      My apologies but I don’t recall us meeting

      For those that know me well can vouch that I don’t sell from stage, through my writing or even in person.

      “People buy people” and if someone likes me, they will reach out and want to work with me.

      Overall I agree with your comment

      99% percent of turnkey providers are scammers.

      It’s also a very tough gig trying to successfully invest out of state. Not impossible but very tough

      Investors should spend as much time as possible building relationships with key people on the ground

      Only start once they feel like they have found the right team

      Thanks and stay prolific 🙂

  16. You just shot the $$$$PRICES$$$$ in my market through the ROOF!!!! thanks and LOT!
    I HAD a great thing going here. I wondered why prices jumped in the last few mos.

    • Engelo Rumora

      lol

      I wouldn’t be worried as unfortunately 99% of folks don’t take action

      I moved to Toledo from Australia just to follow my real estate dream

      It still feels like I’m the only one here lol

      Most folks are too comfortable living in a bubble of a “higher end” market and not willing to do the work

      I did it and unofficially retired last year 🙂

      Keep the dream alive

  17. I live in Toledo and I am about to sell my investment property that I bought in 2015 and have rented since then. I belive I can make money on it and it was a 30,000 house.

  18. Jeff Johnson on

    I’m a real estate agent in Southwest Michigan and I enjoyed your “close to home” article. I find I t’s somewhat difficult to find $20k and $30k properties that don’t need anything less than $25k in repairs, in decent neighborhoods, that someone would want to live long-term in. So the returns on flips in that price range aren’t great, but for under $60k rentals, the numbers are fantastic! I’m always on the lookout for homes that have been rehabbed in the $40k-$60k price range for my investor clients.

  19. Michael Williams

    Hi Brandon I moved away from Memphis about 5 years ago but I just found out that I will be back there for about 4 months. I know that about 2 years ago there was a lot of activity in the Union & Mclaen area close to downtown. I will be back there by April the 7th. I will be on recon for the idea spots for 1 entire month to get back acclimated with the city. I know a lot has changed so I want to be up on everything. I have you number I will phone you this week if you like so we can talk if you like.

  20. John S Lewis

    Engelo – have you ever done seller financing on these homes? And then sell the note? It seems that although they are low priced deals, and they are all cash, you must run out of money at some point? Can’t do BRRR and then get a cash out refi on a $50K ARV. Are you linked in with a ton of private investors?

  21. Hector vazquez

    Engelo,

    Thank you for posting this post, I personally focus on these properties I have been doing it for the last year. I’m up to 11 units. I generally only by on seller financing given that my student loan situation does not allow me to get financing anywhere else. Also most banks are not allow loans for these type of homes unless you’re flipping. I am in the Indianapolis area, and this has been a very profitable experience for me. Although it took me a few months at the beginning to get the hang of it, I have been cash flow positive with great numbers for the past 6 months. I must say that is not for the faint of heart, but it is very doable if you are very disciplined with your tenant screening and management. I believe that 95% of the 30 to 40 K homes success depends on the tenant management. Given that you have to be extra careful who you let in to these homes. It also avoids the big 5K turnovers when you have a crappy tenant. I also understand of the Midwest is a positive area for these type of homes, given the low crime rate in the Midwest. (Absent Chicago and a couple other cities). Our Indianapolis
    ‘Ghettos” are not the same as Miami, Houston, Philly, and other big cities which in my opinion helps a lot.

    Although these homes get a bad rep, it is very profitable if you work on it. If you’re a passive landlord in my opinion it will be difficult to use this as a strategy. Also I don’t believe property management companies to a good job in being aggressive enough with these types of properties. I do have good contractors also to help (given that many contractors believe that we shouldn’t be spending so much money and fixing these houses when something goes wrong) so you do need to have a lot of patience because you will be dealing with very different characters from tenants and contractors (but I guess is the case with all types of rentals).

    Although ultimately my goal is to transition into higher level assets, I just got into the game last year, and I’m 36 and this will be my retirement so I have a lot of time. Not to mention that if you make these homes profitable in my opinion you can make any other homes profitable. I do appreciate the posts and the article, as it is very informative and truthful!

    I will say one last item, I know some are very skeptical that this is profitable but please know that this strategy is a nich. Thus, you must go into it knowing that you’re not doing it for appreciation (absent force appreciation), but for cash flow. That being said there are some areas you can play for appreciation if you have inside information regarding the next up-and-coming neighborhoods.

    Thank you for the article again. I apologize for any typos as I’m dictating this message.

    Thank you,

    Hector

  22. Brett G.

    Great article! And the $25k homes appear to be MUCH nicer in Toledo than the $25k homes I see in other places.

    My question is: Why are tenants paying $700-$800 or so per month to rent something they can buy for $200-$300 per month?

  23. chris leber

    I am a firm believer in buying cheap houses and renovating them. I live in a town of 6500 residents in Iowa. I purchased 2 properties in 2 years. I bought the first one for $25000 and the 2nd for $32000. I then put about $25000 into both with a total rehab including bath and kitchen. Did all the work I could do to save money. Currently I have a mortgage for these two houses at $80,000 and have appraisals of $85-90,000 for the two houses which I rent for $1725 a month and total expenses of just at $1000 a month. These houses cash flow and I have good tenants. The key is finding cheap houses in a good neighborhood and not being afraid of the work and time involved in remodeling them. Networking is also important, if you have a friend/relative that has a skill you can’t or don’t want to do, hire them to do. You will be much happier in the long run and save time.

  24. Thomas Miller

    Good points! and great discussion! My fix and flip targets have been the sub $30000 homes in good blue collar areas. Most of them have needed a major repair, roof or plumbing issues or both. But I have seen really nice profit margins here in western Ohio.

  25. Warren Perry

    Hello Engelo,

    I just read this article on investing in $30,000 properties and learned a few things about “sub-class” real estate. I found it very interesting! I’ve been investing in Detroit and Flint, Michigan “War Zones” . $1,000 to $5,000 houses for quick flip. It’s not enough return for time invested.

    After reading this article I’m ready to drive the two hours to Toledo and relocate!
    What neighborhoods should I start looking in?

    Thanks for your help and consideration,
    ~Warren

  26. Jairus King

    I really appreciate this article! Like any strategy I think it really comes down to WHAT ARE YOU TRYING TO DO??? This is something that I had to ponder a few times. For example I keep seeing the BRRR strategy and how you likely need a great deal of homes in order to generate some serious money. However in my case I purchased a 30K home, rent it for 850.00. It’s worth 70K now and I owe 16K left on the loan… Once I pay that off I HAVE LEVERAGE…. THE 850.00 is mine straight cash forever!! If I ever need to pull money from the property I can. Although Im not amassing a multitude of properties now I will need far less properties to meet my “freedom” goal if I struggle for a little while and repeat this effort.

  27. Scott Schultz

    I think what some dont understand about these properties is we purchase them for $20-30K do a $10K rehab and can get a valuation of $60-80K so really they are not $30k houses, they are $60-80K homes in distress we can buy at a good discount. and force equity. I have 21 of them with purchase prices as low as $6,000 but I have to dig to get deals like that, they are not every day on the MLS, its unconventional, and you must be able to move quickly, like in a coupe hours with cash to get deals like that done. good article

    • Rob Cook

      Scott, I think you summed it up and framed it perfectly. Semantics aside, it is all about finding and buying undervalued properties, as always in any and all REI. Everything else is just deal specific details or literally, hand-wringing noise. I have literally bought many of these type properties at $30K acquisition cost, put $10K to $40K into them, rented them for $1200 a month section 8, and one I had the same and only tenant for over 6 years, never a day’s vacancy, no turnover cost, almost no maintenance, collected over $84K in rent, and sold it in minutes, settled in 2 days, for $325K. Yeah, those are not typos. Here is the simplified accounting picture of it.

      A True Example of one of my $30K deals

      $1,200 s-8 rent per month
      72 months rented
      $86,400 gross rent collected

      $30,000 Purchase price
      $15,000 Fixup costs
      $45,000 Total fixed up cost

      $325,000 Actual Sales price – closed in 2 days after vacancy – NO cleanup at all
      $280,000 Net equity gain realized

      $366,400 Total cash benefit of owning for 6 years – Gross rent plus Equity gained

      Not bad for a $45K investment, huh?

      Not the typical result, but one of MANY of mine in this price range.

  28. Stephen Slawinski

    1) I am new to investing so take my words with a grain of salt 2) I have not read all the comments so someone may have addressed this but I would add that one should consider the job infrastructure in these communities. I look for something that has multiple blue collar industries/jobs within a reasonable distance of the community. If you were to look for a community that had one major source of income (ex: a big car factory), then that community runs the risk of failing in an economic downturn.

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