Low price homes are easier for new flippers to buy, true or false?

Question

Doesn't it make much more sense, for new investors to start with a low price home, verses high price ones, considering their lack of money in the beginning? I live in South Florida, in a modest city, whose home prices are $125,000 to $200,000. Many of the homes here are in the foreclosure stages, or they have become bank-owned. It's harder to qualify for a mortgage with these prices. On the other hand, Ocala, Florida home prices start as low as $50,000, for a decent 3 bedroom, 2 bath house. I happen to like Ocala, and have thought of living there. I could almost buy a house in Ocala CASH, instead of worrying about getting a mortgage. I would appreciate any and all comments, positive or negative.

David Midgett · Answer

Joe-

We flip lots of houses in Ocala, and I can promise you $50k here is either A) a mobile home B) a house in need of a great deal of rehab work or C) an older home in a less-than-desirable neighborhood.

We bought a foreclosure today for $45k that needs a $20k remodel to be able to flip for $85k.  Its a 3/2, but it is next to a double track rail line, surrounded by low-rent quad units.... and lets just say you wouldn't go to bed without double checking all the locks.

But what exactly are YOU looking to do?  Do you want the $50k house as an owner-occupant looking for long term price appreciation? Are you a buy and hold investor looking for long term cash flow? Are you a flipper?  Your strategy really determines how you should allocate your cash.

But most new investors don't approach investing with the idea of tying up all their cash in a single deal.

With $50k, you could come to Ocala and buy a portfolio of several nice, clean already rehabbed houses, using very conservative leverage, and generate a really nice passive income.

In my experience, $50k in Ocala for an all cash deal sounds like it may be too good to be true, especially for a new investor.

David Midgett · Answer

@Daria B..

Why the opposition to well & septic?

Tenants prefer them (no deposits), and most of the small water and sewer utilities around here try to make the landlord responsible for the bill if the tenant skips town... yet they won't give you notices when the tenant gets behind.

The obvious downside is it is one more system that can malfunction and result in repair bills. But they are pretty easy to inspect on the front side to determine useful life.

But if you are looking for affordable rentals outside of HOA areas AND outside rough neighborhoods, then well/septic may be your lesser of evils. Inside city limits will avoid septic tanks and HOAs... but at our discussed price points won't be in very nice area.

Kind of like the mechanic who says "Good, Fast and Cheap...pick any two".

One thought that might work for you... around Silver Springs the local government has a program to convert over 800 homes from well/septic to water/sewer, to protect the spring-head from groundwater and runoff pollution.

Maybe look for houses within that map that are on well and septic, then apply to have it converted at no cost to you...

David

Jeremy Gonzales · Answer

I feel like it's a double edge sword. I think new investors are better off investing in properties with higher ARV. There is a bigger spread and that can make the mistakes made more forgivng. On the other hand it's a bigger project for a newbie to manage themselves . I would say partner with someone with experience on a property with a higher ARV and do most of the work with the mentor helping you out as needed.

Leland Barrow · Answer

I think that in any business you start small and scale. There are many examples of great ideas that failed to be executed because they scaled wrong...ie Webvan. If you wnat to open a restaurant then a good idea may be to start with a food truck for proof of concept. Proof of concept is not just proof in the market place but instead and most importantly proof to yourself. Starting off investing in homes that are 150k+ requires more of everything as they get more expensive. There is a price that everyone has to pay for experience and knowledge. It is better paying that price at lower investment levels where you can tolerate failures. Buy a cheap house in a war zone and use it as a means to educate yourself. Buy cheap houses in general and learn how to pinch pennies and master a budget. If you can be successful multiple times at 50k, then you can be successful at 150k, then 500k, and the a million.

Leave that strategy to the hedge funds and investment firms to go big and then later realize that they don't know what they are doing.

Daria B. · Answer

I was more interested in the area rather than trying to get something for the discussed price points in this thread. I don't believe anything can be bought for 50K that would be in a good neighborhood or a good property. While others may tread down that path I don't. I look for (crime is everywhere but I try to look for where it's less on the grid) areas that are classified as A (pristine properties, perhaps gated community) or B (business professionals and families looking for top rated schools, perhaps safer to walk at night, and that is all relative but still....) perhaps C (student areas) and I know these classifications are defined differently by everyone. Someone's C as they described was an F to me after I looked at the area.

The well/septic aversion is because it's one more system(s) to take care of and I have no experience in it. I'm investing over an hour away and as it is I would have to rely on someone to take care of it. Also, tenants from what I hear of the owner experience leaves me to doubt it will not be taken care of (septic) when they eliminate things that should not be. Others feel comfortable with it and that's find but at this time I don't want to add something to my list that I have to be concerned about at some point. I know an investor that spent 3k on replacing hers.

My price point has not been determined yet for this area since I don't know what rent to price ratios exist. I can say max $130 but will that garner the rent in a rentable area to cover expenses including note. I've been searching and looking at home  prices in addition to overlaying the rents I see from realtor.com. The agent I am working with said that the SW/SE area as a start based on some of what was discussed would be a good place to start.

Thanks for the information. I'll call Silver Springs to find out about this program and expand my search.

-Daria

Mary K. · Answer

I agree with David.  I live in Ocala. A good friend manages about 50 rental homes in the Marion Oaks area mostly.  He and I don't know anywhere you can buy a home for $50K that you wouldn't put a ton of $ into and/or not want to live without a shotgun by your door.  Would love to know if someone else hears otherwise.

Daria B. · Answer

David,

This is an old post and likely your statement isn't reflective of today. But, I've started looking in Ocala and am working with a realtor in that area whose from that area.

I found out there are a lot of well/septic areas, something that I am not akin to and really don't want to get in to for investing.

I'm looking for rentals as suggested in the SW/SE areas. My criteria is simple in that I don't look for any property that has a HOA and in neighbors that unlike what you mentioned in your original post, I'd be able to go to in the daylight, twilight, or night time without any issue.

I've driven around a little but not much. This weekend was for naught as the agent was not able to meet with me to look at a couple of places we've been discussing. A couple of them wouldn't have worked as they are well/septic systems.

Any advise as an investor where I might also look, maybe help narrow down my search scope.

Thanks

Jonathan C. · Answer

I live in the Washington, DC area.  I did my first flip in a county with median price point around $450K.  It was obvious as I was doing that one that it would have taken way too long to build up to full time investor volume staying in a high price point area.

After that I switched to county with median price point $130k.  Took a good couple months of driving around to understand the area and start to get a feel for it, but it was switching to this county that allowed me to eventually go full time a couple of years later.  Never would have happened if stayed in high price point area.

I'd suggest finding low median price point counties near you and focusing there.

Travis Hamilton · Answer

The competition, at least around here, for houses that you can get into for under $100K is pretty fierce.   Either there a bunch of people that like breaking even/losing money when flipping houses or I'm WAY too conservative.  Or maybe a little bit of both.....

Account Closed · Answer

I buy and flip cheap houses under 60k in San Antonio and have done quite well with it. Austin must be rough for a newbie?

Low price homes are easier for new flippers to buy, true or false?

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