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Updated over 5 years ago on . Most recent reply
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Don't Buy $30,000 pigs in Ohio (or Mid-West)
It's not talking this time, though, if you've been paying attention, you know that I've been preaching this message for years... Here's an email from this morning names and locations edited out):
Hey Ben - Really enjoyed your article on why not to buy 30k houses. I'm a real estate investor in (xyz MSA); I also own xyz Property Management - we manage about 240 units (mostly scattered-site) exclusively in this area. I wish all of our clients had read your article! They are losing money hand over fist in these Class D neighborhoods.
Anyway, if you're ever near to xyz MSA I'd be happy to grab coffee and talk shop sometime.
You should know that the subject MSA he practices in is the only one in Ohio whereby fundamentals are truly good, both relative to income and demographics, and even there $30k houses fundamentally do not work...
I've written a number of articles on the subject for the BP Blog - feel free to look them up.
Most Popular Reply
Some people call them dogs (aren't dogs man's best friend?), but I prefer Alligators, which I learn from Careleton Sheets (no flames please) because they can eat you alive.
When I started, I had more time than money, and these C/D properties were money makers, albeit more from a PM view. Since I was PM, I was making money hand over fist. Tenants were high maintenance and often late, and turnover was high. Some caused problems, and sometimes you need to call the sheriff. But at the end of the day, these properties made money because I stayed on top of it.
I've since pulled back on these (still have one 4-plex and 2 duplexes left I'm trying to exchange out) and "graduated" to SFR which I'm finding to be lower turnover, higher quality, thinner margin, but requires very little PM. This shift in strategy helps me scale up units faster without having to scale up PM capabilities.
In summary, if you have the time to be hands on, risky properties can make a lot of money if you put in the time. One common thread across the best investments I've made is that the stocks, homes, fill-in-the-blank investments that have done the best for me were the ones that nobody wanted to buy. Bank stocks I bought in 2008 are up 10x after 5-6 years. Homes are worth 1.5-2x what I paid, and I collected rent/dividends in the interim. This formula of buying what's out of fashion coupled with fundamental analysis and finally taking a leap of faith is what I follow.