These homes for $15-$25K that I keep reading about... are they going to see any appreciation?

[Chris G.]

I keep reading about these homes that you can pick up for $15-$30K and that you can rent for around $600/month.
I'm wondering if they will ever see any appreciation, or at the very least hold value.

Are these homes just pure cash flow plays where you put in X amount of dollars and get a near ad infinitum cash flow from rental, but you wont really ever get your initial capital back out?

OR will they at least hold their value and be SELLABLE at the original purchase price (the currently heavily devalued pricing) in ~5-10 years?

These sound really good opportunities to buy and hold for the long, long, long term. Why not build a portfolio of 30-40 of these houses spread amongst a few different cities and live off the returns ad infinitum?

We are at or near the bottom of the market, these houses aren't going to devaule much more, and even if they do -- the rental income will remain. So buying now has a pretty good chance of hedging your bets to always put you on the positive side of the equation.

[Ryan Webber]

My market (Amarillo, Texas) and my own portfolio is filled with 15-25K houses that rent for $400-800 per month. They always need varying amounts of work, but my maximum exposure on 95% of my rentals is a monthly GRM of 50 (50 X monthly rent equals my total exposure).

They are all lower end (its hard to find a $20K house in an upper end area in any market), but only one of them is what I would consider a war zone. That one cost me $2,000 and no fix up to get $225 a month out of it.

Chris' insight is indicative of what I've seen in these areas in my market. During the run up, they appreciated even more so than many nicer areas of my market, but they have taken bigger hits with the slow down.

Steve referenced maintenance being similarly priced as upper end houses, but that is not the case in my experience. You don't have to make these houses as nice to rent them, and in a market with these types of houses the standard of living is lower so rehab costs are much lower too.

The ROI on these lower end properties is significantly higher than upper end or even middle class properties. BUT there is absolutely a higher management requirement. At this point for me, it doesn't really matter because I have a property manager take care of mine. If you are going to be doing your own management long term then this is definitely an issue to consider.

Understand, though, that I've had headache tenants who bounced a check and moved out in the middle of the night after letting their dogs piss on the carpet for a year in $250,000 houses just like I have in $10,000 houses. The only difference is that its a whole lot cheaper and easier to get the $10,000 house ready to rent again.