I know that this is going to be a very touchy subject for a lot of investors out there who have, unfortunately, lost a lot of money to shady turnkey operators. But I also know it will be considered sage advice by investors like myself who have made a ton of money in this specific asset class.
I truly believe you should only invest in properties that are $50,000 or less. Here’s why.
No, it’s not the war zone and it’s not the ghetto—like a lot of you probably think.
I’m sure that a lot of Midwest folks can vouch for me. I used to get laughed out of every room when I set up shop here in Toledo, Ohio. Now, it looks like investors are coming to Toledo because there aren’t any deals on the East Coast and West Coast anymore.
That’s a separate topic, but I do think there are many reasons why you should focus on properties under $50,000. I’m just going to focus on two today. I’ll keep it very simple, short, sharp, and sweet.
Reasons to Invest in Real Estate that Costs $50K or Less
1. Less Risk
The first reason is this: the less money that you invest, the less you are risking. Something that I tell everyone that reaches out to me and says, “Where should I flip? What should I buy? How much should I spend?” I always tell them to spend the least amount of money possible.
Why? Because the likelihood of you losing money on your first couple deals is pretty high.
I didn’t make any money on my first five deals. I only started making money later. I call it my Harvard degree, on which I’ve earned from making real estate mistakes. But I’ve learned from them, and of course, I’ve gotten better.
So find yourself a market, find yourself a lower socioeconomic area, find a property that you can negotiate well, and buy something cheap that just needs a cosmetic rehab. Do your best to sell it for a profit, and if you don’t, do not get down on yourself.
Stick with it! I’m sure over time you will start doing well.
So again, the less money that you invest, the less you are risking. Of course, do your due diligence, become a market expert, and network with as many people as possible in that particular area.
And don’t invest until you really have the right infrastructure set up from a team standpoint. You have to have boots on the ground and people who will have your best interest at heart.
Related: Cheap Properties with High Returns or Nice Properties with Low Returns?
2. No Competition
The second reason is there is such a large stigma surrounding these properties, there is absolutely no competition. In 2012, I moved to the U.S., and I’ve been here in Ohio since 2013. I’ve literally felt like a kid in a candy store for six years—there’s no competition.
I buy what I want, when I want, and I pay whatever I want for it, because nobody is buying here. Markets like Toledo, Dayton, Cincinnati, Indianapolis, Ft. Wayne, Detroit, Lansing, and even Kansas City are similar. Some of them have more of a ring about them though. There’s more hype and buzz around cities like Kansas City, Cincinnati, Cleveland, and Detroit now. But there are a lot of other tertiary markets like Toledo and Ft. Wayne that are smaller.
You would be surprised at some of the stuff we have here, and you would also be surprised at the types of assets that you can buy for $20,000 to $50,000. I guarantee you these are B-class assets.
I live in these areas. There are blue collar, working-class people in these areas, as well as white collar, working-class people in these areas. Prices are affordable and they do well in their jobs. They pay rent, buy homes, there’s no riffraff on the streets, no boarded up homes, no vacant homes—or very few—you can’t even spot them.
Guys, there is a huge stigma surrounding these homes for no reason. All of the guys on the East Coast and West Coast, buy yourself a ticket on Frontier or Spirit and get your butt here. Check it out for yourself!
Trust me, you will be very surprised by what kind of asset and the area you can buy in for $50,000 or less. I’m sure a lot of Midwest folks are going to leave comments saying the same thing.
Conclusion
So that’s it. To summarize, the two key reasons why you should invest in $50,000 properties or less is because the less money you invest, the less risk you’re taking on. The second thing is there is a lot of unnecessary stigma surrounding properties at this price, but there is absolutely no competition.
Where are you investing? How much are the properties you’re buying? Is it working out for you?
Comment below.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
