Are rental properties under 60k worth buying?

Question

I’ll have between 50-60k to purchase a rental property at the end of the year. I’ll be paying in cash most likely because I want the cashflow.

My major concerns are that while some of the properties I see advertised for this price seem nice, Im worried that they are hiding major repair costs or tenancy vacancies... or anything else for that matter.

Is it realistic to expect to be able to purchase move in/rental ready homes that can be filled with tenants, for less than 60k?

Ali Boone · Answer

The question isn't so much can you do it, but do you want to do it? You're basically asking if you can get a cash-flowing turnkey property for $50-60k. Back in 2011-2012, you absolutely could-- good properties, decent areas, high cash flow. Now, I'd run from any turnkey in that price range. You're going to inherently end up with a lot more risks- tenant quality, condition of the property, quality of the neighborhood, etc. You can find them, but do you want all the added risk and work that will come wiht it?

You said "for the cash flow"... yes, the cash flow is higher if you pay cash, but that doesn't mean the returns are higher. They are much higher if you leverage. And with $60k, you could buy two nice quality turnkeys for $100k (give or take). Less risk (the bank holds most of the risk), greater financial gain from two properties rather than one, higher returns on your cash, and one property can balance out the other during vacancy times, etc.

Caleb Heimsoth · Answer

@Nathan Asher Robson anything is a deal at the right price. If you pay 60k for a property that rents for 600 and is worth 60k, that’s not a good deal.

If you pay 60k for a property that rents for 1000 and is worth 100k, that’s a great deal.  Price is just one factor in real estate.

I have bought turnkey properties and I think you can do better on your own personally.  The best thing about turnkey for me, was it got me started.  That was about it.

My last deal was 38k, worth 55k as it sits.  That’s a good deal.  You won’t find that with a turnkey property.

James Wise · Answer

Don't know why the idea of turnkey has a negative connotation. Look, a house is a house. A rental house requires work to get it prepped and ready to rent.

You've got a crowd of folks who want to find undervalued and distressed real estate. Once found they fix it up & rent it out. Doing this successfully makes their most money but it's the most work and comes with the most risk.

Sooooooo

You've got another crowd who wants to buy a property where someone else did all the above dirty work and took on the above risk. You as the buyer are of course paying a premium for this just as you're paying a premium to get a steak cooked for you at a 5 star restaurant. Some folks (usually newbies) can't wrap their heads around why it makes sense that it'd cost more to buy a product where someone else took on the risk and did the dirty work. These are the folks who talk negatively. They also happen to be the folks who've never really done many of the stuff in the 1st paragraph on their own and don't understand how difficult it really is.

Dennis M. · Answer

If you can’t find a cash flowing property in the Midwest for 60k your doing something wrong( if your in a hot market I understand) . Look I could buy triplex and fourplex apartment buildings all day with that much money and be bringing in 1500-2000 in rents too . In fact In my market I wouldn’t even think to pay 60k for a single family because I feel that would be too much money on purchase price for a measly 15-20% return . I want more than 7 or 800 in rent on a 60k investment . I just bought a house for 10k on June 5th and after a rehab ( 1800$) it’s got a tenant lined up ready to go at 620$ a month next week

Ronald Starusnak · Answer

@Nathan Asher Robson brrrr.. I only buy properties under 60k lol. Put 10% down, remodel the thing and cash out and re roll your money. I buy something for 40k, put $20k in, new value is $100k, we get 75% ltv on the refi, puts $75k in our pocket. After closing costs and loan fees you're making a good profit and you have the rental plus all of your money back.

Phillip Vera · Answer

@Nathan Asher Robson what area are you purchasing in?  I believe a lot of this depends on where you are buying.  In my area, you can certainly get a class C turnkey for $60k.  Also, there's a difference in rent ready and turnkey.  If you're looking at all new major cap ex items and systems, it's possible, but that would be one heck of a deal.  All good points from the other members that there's a higher risk, but we've found success in properties in this range.

CJ M. · Answer

@Nathan Asher Robson

Of course it can be done, but largely depends on different factors like your area, finding a motivated seller, etc. Have you considered financing? For example, you could purchase 2 properties at $80k (w/20% down), and you'd probably only be $40K out of pocket after closing costs. Then you'd still have a chunk of cash in the bank im case sh** happens.

Stone Jin · Answer

I think you will need to look at your model.  I personally think you would be more successful using leverage at 25% to buy 2 properties at 100K each that will rent for 1200-1300 then you would buying an all cash purchase that rents for $700.   Once you figure in insurance/taxes/management/cap ex, there is not a lot left over on the $700, maybe $200-$300, but with the leverage you may get $500-$700 for the same 60K spent.

Just remember paper returns are not real returns.  Tenants that can only afford $700 vs $1300 are going to turn over more often and do more damage more often.

Kevin Sobilo · Answer

@Nathan Asher Robson, your answer greatly depends on your market.

In my market I can get an average C class 2 family home in that price range and maybe rent for $600-700 per unit ($1200-1400) total per month.

Cashflow is great, but 1 or 2 rental units is feast or famine. Everything is going great or poorly. Nothing in between. So, I personally would not recommend 1 or 2 C class units as a portfolio.

Also, if you want to have a small number of units, you may want to buy more expensive properties even if the cashflow is only the same. Using leverage makes you less of a target for litigation because there isn't a lot of equity in the property.

Also, if you spend more, there is greater depreciation to write off your taxes each year. So, even if the cashflow comes out the same on a more expensive property with a loan, you may end up with more in your pocket each year. Remember, it isn't what you make, its what you KEEP!

Patrick Menefee · Answer

@Nathan Asher Robson as others have said, cash doesn’t mean good cash flow. As a real life comparison in my market...you could pay $50-60k cash for a property to make $700 a month tops. On the other hand, I’m currently buying a 4plex for just under $60k after repairs and it will rent ~$2500 a month. One nets maybe $100 cash flow if you’re lucky, the other nets about $550. Leverage is your friend, if you aren’t stupid about it

Are rental properties under 60k worth buying?

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