The $30,000 Nightmare

[Justin Lemaster]

I work with a lot of out of state investors purchasing property in the Columbus, OH area. Many investors that I talk to have the notion they can purchase a 30-40k homes in a rougher area; put a little money in it and rent it out assuming they've made a great deal. As a property manager I wanted to share a few points that make deals such as these, less lucrative than initially thought. (Sorry to burst your bubble)

1.) Initial start up costs- a 30k property is generally going to need a large sum of money up front to make the home market ready (turn key). The areas that offer these properties have been neglected by previous owners, tenants etc. Simple things such as not changing a furnace filter regularly can ultimately cost the new owner $1,000's in replacement parts. From what I have seen, kitchen and bathrooms need updated, new flooring, painting, windows, roofs, etc. This will quickly turn your 30k investment into something much, much more. One should consider value after all the repairs have been completed.

2.) Rental turn over- Generally the 30k rental property is going to carry a much, much higher turn over rate. I've seen residents turning over in less than 120 days. Causing the owner to put forth more money to fix what has already been damaged, re-paint, clean a unit they just turned a short time ago. Even with a strict set of rental requirements, the area the property is located will not draw in the type of client you will ultimately desire. Again, costing you money.

3.) The blame game - Once your stress levels have reached a boiling point with questions such as 'why is my property always vacant?' Or, 'Why am I not receiving a dispersement check again this month?' You begin to push blame to your property manager, the tenant etc. Of course, this creates many problems especially if your an out of state owner. 

I feel it is very important to really take into consideration the area, and potential rental clientele your target properties will likely take on. Bumping your price even a marginal amount can relocate your prospects and give you more confidence in your investment with quality residents and a property that likely needs less maintenance/turn over, over time. At the end of the day if the margins work for you, the sale price shouldn't matter, especially if it will put you in a more desirable area.