REAL ESTATE 101 | Should You Buy Cheap Rental Properties!?

REAL ESTATE 101 | Should You Buy Cheap Rental Properties!?
Buying Real Estate

Hey guys thanks for stopping by the channel. Have you thought about diving into real estate and buying a cheap $20K home to get started. STOP, watch this video before investing!

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The cheap properties I’m referring too are the ones in D neighborhoods that are cheap because of location.
Depending on what market your in these could still be 75K dollar houses or in other markets they are 5000 dollar houses.
But they are cheap because of location, D neighborhood ridden with crime, drugs, and all sorts of headaches.

1. location, location, location.
You can improve the physical property all you want but unless there are hundred of other investors buying in the same neighborhood there is nothing you alone can do to improve the area.
It is extremely risk to be an early investor into a D neighborhood because you don’t know if and when a market might turn around. You can make an educated guess and try to start buying before anyone else however it carries a lot of risk.
Its better to buy in the path of progress where investor money is already flowing, sure you may buy a property at 100K instead of 75K but each year that property is going up in value 10% because it is a transitioning neighborhood.
D class areas tend to show very little appreciation and what little there is it doesn’t matter because the house value is only 10K anyway. So 1% appreciation on 10K is 100 dollar. Where as if you just got a 5% down loan and bought a 100K home in a market that appreciated 3-4% a year you would be almost doubling your investment each year with appreciation.

2. Hidden issues/Corners cut
Due to the fact that the ARV of most D class neighborhood properties are so low, that means you can not afford to put too much money into them otherwise you will lose money. In our previous example with a 10K house and 50K reno that is 60K invested but a ARV of 50K…you lost money.
Therefore investors are forced to cut corners they can only spend 20K in order to make money on the deal and therefore they hire the cheapest labor, unlicensed plumbers and electricians.
They don’t permit anything because they cant afford to pay what it costs to hire licensed contractors.

3. Low grade product = low grade tenant
Since the arv of these properties are so low you will always have a relatively crapping asset, in a crappy area…the only tenants that will want to live there are people that have no other options.
This is usually due to bad credit, unstable income or super low income, past evictions and a myriad of other reasons.
And so when qualifying tenants to live in these types of assets you might as well throw credit score out the window because they don’t have one and you’ll have to accept low income etc.
These tenants tend to not take care of the property as well, unstable income means more evictions, more vacancy and tenant turnover etc.
Tons of headaches and that crazy cash flow starts to dry up real quick when you realize vacancy is 15% not 5%, evictions are not free, unit turns are expensive especially when tenants destroy your units.

4. More difficult to finance
Many banks will not loan less than 50K and so if they require a 75 ltv then the lowest purchase price would have to be 66K.
Therefore if you want to finance a 20K property you might have to look at hard money or private money options but that will still be difficult as well and come with lots of fees in proportion to the property price.
Also banks don’t just lend money on any property that appraises…Many banks will not lend in “warzone” areas otherwise known as D neighborhoods and you might need to look into government loan programs for these area.

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āŽI am not a CPA, attorney, insurance, or financial adviser and the information in these videos shall not be construed as tax, legal, insurance, construction, engineering, health and safety, electrical or financial advice. IF stocks or companies are mentioned, Reece MAY have an ownership interest in them — DO NOT make buying or selling decisions based on Reece’s videos. If you need ANY professional advice, please contact a qualified CPA, attorney, insurance agent, contractor/electrician/engineer/etc. financial advisor or the appropriate professional for the subject you would like help with. Linked items may create a financial benefit for Reece Iovine. Any use of other media is by fair-use only. This is not an advertisement of property for sale and any mention of properties listed or sale or otherwise shall not be construed as anything other than an opinion for entertainment purposes only.


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