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 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

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.

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Joe Lieber
Joe Lieber is the Broker/President of Real Estate Quest. Joe began investing in real estate in 1998. Since that time, he has bought and sold more than 700 houses. Over the years Joe has been involved in many aspects of real estate from the brokerage side, to management, rehabs, landlording, wholesaling, and multi-family. In 2004, with the help of his wife and family, Joe opened Real Estate Quest, a full service brokerage that specializes in investment properties. He currently owns over 150 units mostly on the Westside of Cleveland. Currently Joe is working with national and international buyers on income producing passive cash flow investments.