Is it possible to make money on $45,000 property?

[Terrez Jarrett]

hey BP members, I have a property that has a sale price of $45,000 and they are selling As Is. Am I correct in my assumption that I need to basically do thorough research on this home because there my be some issues undisclosed?

[Jim K.]

@Terrez Jarrett

Here's a case study for you.

We bought an 2 bedroom/1 bath half-duplex SFR with central heating and air in November two years ago for $25,000 cash in the greater Pittsburgh market. The house is at the end of a dead-end street in a working-class, solid C neighborhood.

We cleaned it out, renovated it for $5400, had it inspected for a certificate of occupancy, and then had it occupied by Jan 1. New furnace, some A/C work, new washer, new dryer, new stove, new fridge, cracked main stack that we needed to replace a section of, one busted window to replace in the bathroom. 4 new blinds, 2 new ceiling fans, latch on the shed, some roof patching, new gate installed for the backyard, touch-up painting with colormatched paint throughout. Since then we've put an additional $200 into the property for a shower tower in the bathroom. At some point I'd like to do some repointing on the brick exterior. There's at least ten years left on the roof. The carpet will need to be replaced in 5 years. I'll actually just rip it out and refinish the oak floors underneath in semigloss poly when the time comes.

The property rents for $650/mo and NOI after all property taxes, insurance and all operating expenses last year was a little over $5100.

The furnace and stack issues sent the shady fools that inherited it and tried to operate it as a rental running to an agent in a panic. That's why they sold it to us as-is, with no mention of these problems.

The only thing I didn't handle personally was the furnace replacement. And because we saved as much money through DIYing as we did elsewhere (and this isn't our first pickled punk sideshow), we didn't skimp on the new furnace. There's a high-efficiency American Standard down in that basement now.

We plan on leaving our cash in the property for now. When the economy takes a downturn and Wall Street guys start jumping out of windows again, the equity in that place will be standing ready to be tapped.

All in all, that property's been a big win for us.

Yet I highly doubt that I am the kind of real estate investor that you want to be, Terrez. DIY landlording in C/D borderline properties isn't exactly an aspirational lifestyle for most people. When I signed up for it, I knew what it was like -- my grandparents did the same thing way back when. There ain't no facial hair. I spend way too much time in a respirator for that. The last time I wore a tie was to a funeral. My ride at the time I bought that property was a white-and-rust Honda Odyssey with 200,000 miles on it. I know this gig can scale to maybe 20 properties maximum before I have to significantly change my business model and go through the investment risks associated with that.

Is this what you really want? Because this is one of the very few ways to make low-cost properties work, as many others here have correctly pointed out.