Today’s REI Classroom Lesson
In the classroom today, Joe Lieber discusses the needs and benefits of investing in cheap houses.
REI Classroom Summary
The cheaper the house, the more repairs and maintenance it might need. In addition, find out about Joe Lieber’s experience with tenants from cheap investment properties.
Listen to this REI Classroom Lesson
Real Estate Investing Classroom Show Transcripts:
Mike: Welcome back to the FlipNerd.com. REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business of the next level. And now let’s meet today’s expert host.
Joe: Hi, I’m Joe Lieber. I’m from Cleveland, Ohio. And I am your host for the REI Classroom. Today we’re going to be talking about investing in cheap houses.
Mike: This REI Classroom real estate lesson is sponsored by acebusinessfunding.com.
Joe: Okay. Hi, everybody. Joe Lieber here and today I want to talk to you about investing in cheap houses. You know, contrary to what people think it’s awesome. It is the best. There’s high returns, awesome profits, and it’s not crazy like people tend to think it is. Take from me, I know. I own 165 single family homes here on the west side of Cleveland, and I am your expert.
So let’s go through it a little bit and let’s talk about why are cheap houses so attractive? And why people naysay? So here we go. So the first thing about cheap houses that I want to say is there are a little bit more management intense. Sure. It’s not a complete, lay down where I want to place this tenant and everything is hunky dory. I might get a 30% ROI. They’re a little management intensive not because the tenant necessarily but maybe because their age or condition.
So here in Cleveland, Ohio our houses are typically 1925 to 1950 built houses and things go wrong. It’s like having a 15 year old car. Something is going to go wrong no matter how nice you make it, something might go wrong. Which is okay but you might have a little bit more service calls and maintenance issues, things of that nature. With that being said though there’s ways to that we’re going to talk about to help increase your NOI by deferring some of those maintenance costs to the tent to help make these cheap houses just awesome.
So people also ask me. They say, “Joe, in these cheap houses the quality of tenants just got to be terrible.” Wrong. Completely wrong. You know, there’s a lot of these little pockets that are around these ethnic neighborhoods. These immigrants that come here and they’ve been here for years and years and generations and generations. And they want their families around them. And they typically will stay in these neighborhoods for a long periods of time. So that’s the truth. The myth and the truth are two totally different things and the truth is these are not bad neighborhoods. They can be very awesome. Somebody’s got to live there and [inaudible 00:02:48] mean they are terrible people.
So one of the other thing I want to talk about is the level of cheap houses. Here in Cleveland, I’m going to break it out in three levels for you. There’s the free house to 15,000. When I say free, yes, you can get a house for free. You actually can do that here. And that’s a level of property. So a free house up to 15,000 in purchase price is what we’ll call a level one property. There’s level two property, a 15 to $25,000 purchase price. And then there is the level that I tend to invest most of my money in. That average purchase price is 25 to $35,000.
So let’s just take a minute and talk about each one of those levels. So the 0 to $15,000 house. What kind of person is going to be in there? What kind of rent is it going to pull? Obviously there’s going to be more turnover. People are more transient in that price point obviously. But you can still pull pretty good money. Let’s say 500 bucks a month in rent for a house that you’re into for $10,000. Now you’re going to think, “It’s a bunch of headaches.” Yeah, it probably is but if you collect eight payments a year off that property, that’s a pretty good investment right. It’s more than you’re going to get on having $10,000 at your local bank. So I don’t think it’s that bad. I own a lot of these houses. I might own 10 or 15 that I purchased at that price point at some point that I still do own. And there are great performers. A little more management intense, of course.
Then there’s the 15 to $25,000 price point. I invested in this a lot from between 2009 and 2012. The market was just crumbled here in Cleveland and I was buying a lot of my houses at that price point. I still own a lot of them today, probably own 50 or 60 houses like that and I’ve done very well that. The issue that I have mostly in that price point of property is the capital repairs and maintenance. There’s always a roof that needs to be replaced. There’s always wiring that needs to be done. And it’s a little bit more frustrating because I hate to go back in and put into a $5,000 roof onto a house that I paid 15 grand for. But it is a cash flow asset. I can pull 700 bucks a month in renting this property and it works. It just works.
And then here’s another focus on lately over the last few years. I’m right in that 25 to $35,000 price point. I’m getting 800 bucks a month in rent on these properties. Everything is rent to own, which we’re going to discuss later on in another segment. And it works. It’s a three-one typically, the property 1925 built Colonial. No brainer. So invest in cheap houses. It can be awesome and extremely lucrative. We’ll catch you on the next show.
Mike: Acebusinessfunding.com can help you get access to up to $150,000 in revolving credit lines to fund your business with rates as low as 0% for the first 12 to 18 months. Use the funds for startup costs, marketing, inventory, heck, you can even use it to buy houses and pay for rehabs or almost anything else that your business needs. If they can’t get you funding, you don’t pay a dime. Get funds for your business today at acebusinessfunding.com.
Please note the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions as real estate investing can be risky.
Are you a member yet of FlipNerd.com, the hottest real estate investing social community online? If not, you can join for free in less than 30 seconds. And get access to hundreds of off-market deals, vendors in your market to help you in your business. And you can start networking with thousands of other investors just like you. Get your free account now at FlipNerd.com.
Please check out the FlipNerd family of real estate investing shows where we host four great ongoing shows at FlipNerd.com/shows. Or simply search for FlipNerd in the iTunes store.