Buying a home for 40k or less where would you buy!!!??

Rehabbing & House Flipping
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Buying a home for 40k or less where would you buy!!!??

Rito Altamirano
North Las Vegas, NV · Member since 2015 · 77 posts · 27 votes

as title says!! If you were on the market to buy a home for 40k or less where would you buy and why!?

1. Where would you buy for buy and hold? 

2.where would you buy for rehab and flip. 

Reason i ask is i just watched a episode of the podcast videos and a guy i believe in wisconsin is purchasing 25k 30k 40k on multi family some with long term tenants in place etc. 

I have a couple thousand now but hopefully within the next 6 months ill be at my goal of 30k im looking to either buy a nice multifamily rental or cheap single home flip but not here in las vegas multi is around 100k duplex up to 350k for fourplex , i would love to partner those funds into a flip as well! 

So anyways if you were to try to fund a purchase for rental or flip with 30 to 40k where would you do it???

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Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
9y

Anywhere as long as you like the neighborhood @Rito Altamirano

One way to look at an invenstment property is the replacement value: how much would it cost to rebuild it, if it would burn to the ground. If homes in a particular neighborhood are selling substancially below replacement value, you have to ask why is this happening? Why is someone selling his home for less than it would cost to build it and even include the lot for that price? It's a strong indicator of a fundamental economic problem: home values are so low - based on the neighborhood and NOT on the structure built on the land - that people are not willing to pay for the structure based on where it is. Essentially the seller is saying: my street is so bad, I will sell you the house for a fraction of the cost it would take to build it, maybe for less than the lumber, shingles and windows would cost. Essentially they are saying I am willing to pay you to take the property from me, because I just don't want to live here anymore. It's so bad. Who would seriousley consider this a good investment?

The second issue is renovation cost (capex). The test is: would the property value improve by at least the cost of a full top to bottom rehab when it becomes necessary. In other words, would it be worth to fix it or do you just rent it until it's done and then burn it? This ties back to the replacement value - if the market does not pay replacement value plus land value for a home then most likly you cannot afford to put a new roof, windows, kitchen and bathroom in the property without loosing money.

The question is not how much do you spend on a home. Because hopefully you can buy it below fair market value. The question is would the location of the home support the cost of the sticks and stones it is made from. If it does and you pay 40k for it you have found a really good deal and sometimes you get one of these.

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  • Scott Schultz
    Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
    9y

    I have purchased houses as cheap as $6,000 you cant judge by price alone, i have seen plenty of $100K junk, and $40K nice properties. you have to look at every property individually and understand what you are looking at. 

    1Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    9y

    Anywhere as long as you like the neighborhood @Rito Altamirano

    One way to look at an invenstment property is the replacement value: how much would it cost to rebuild it, if it would burn to the ground. If homes in a particular neighborhood are selling substancially below replacement value, you have to ask why is this happening? Why is someone selling his home for less than it would cost to build it and even include the lot for that price? It's a strong indicator of a fundamental economic problem: home values are so low - based on the neighborhood and NOT on the structure built on the land - that people are not willing to pay for the structure based on where it is. Essentially the seller is saying: my street is so bad, I will sell you the house for a fraction of the cost it would take to build it, maybe for less than the lumber, shingles and windows would cost. Essentially they are saying I am willing to pay you to take the property from me, because I just don't want to live here anymore. It's so bad. Who would seriousley consider this a good investment?

    The second issue is renovation cost (capex). The test is: would the property value improve by at least the cost of a full top to bottom rehab when it becomes necessary. In other words, would it be worth to fix it or do you just rent it until it's done and then burn it? This ties back to the replacement value - if the market does not pay replacement value plus land value for a home then most likly you cannot afford to put a new roof, windows, kitchen and bathroom in the property without loosing money.

    The question is not how much do you spend on a home. Because hopefully you can buy it below fair market value. The question is would the location of the home support the cost of the sticks and stones it is made from. If it does and you pay 40k for it you have found a really good deal and sometimes you get one of these.

    5Reply
  • Svetlana Foley
    Realtor · New Berlin, WI · Member since 2016 · 118 posts · 47 votes
    9y

    @Rito Altamirano, I have to second @Marcus Auerbach - that logic applies anywhere in the country.  May of investors buy 30k homes here in Milwaukee and get an amazing cash flow.  I have friends living in those neighbourhoods as well  - many choose to do it not because they cant afford to move out, but because they feel strongly that they are part of the community and thats where they run their businesses.  Well, this time of year thieves are out in full force, and not one but two of my friends were robbed at gun point right in their homes - and that was just yesterday. That price point typically buys you a great cash flow and potentially really big losses in the future (not always) - at least in the urban environments like Milwaukee and Vegas.  If you fully understand what you are getting into and willing to take a chance of potentially losing 100% of your investment (one bad tenant will do it quite easy!), then look up @Shawn Ackerman as he specializes in that market.

    1Reply
  • Account Closed
    Rental Property Investor · Orlando, FL · Member since 2016 · 463 posts · 220 votes
    9y

    As has been said many times on the forum, most Midwestern cities will enable you to buy and hold or flip very profitably if you have $40K. I invest in the Cleveland suburbs and in Columbus, OH. Both cities have properties with low entry points in decent areas with good quality tenants- i.e. not war zones, but B-/C areas. You do need to know your neighborhoods though, as that's what determines everything from purchase price to quality of tenants to returns.

    1Reply
  • Rito Altamirano
    OP
    North Las Vegas, NV · Member since 2015 · 77 posts · 27 votes
    9y

    thanks for the tips so far everyone . And i shouldve been a bit more clear i know i can purchase homes at this price anywhere and its usually a risk. But what i meant was more where can i purchase a 40k home to buy and hold or flip in a grade C or higher neighborhood. That can turn a decent profit. I cant find a thing in vegas in c neighborhoods for that cost... 

    I keep hearing midwest is where its at for cost effective flips. 

    @Account Closed

    Thanks what has been the average time to sell your flips once on the market... are homes selling fast in that area? 

    0Reply
  • Jeff Filali
    Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    First thing I learned in real estate... One man's shack is another man's castle!! 

    There's money to be made in any price range, as long as you do your research.  I've flipped multiple houses that were purchased for under $40K and profited off all of them.  You can flip five $40K homes or you can flip one $200K home, as long as the numbers and market are there, its the same money.

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    you can do that in semi to rural little burgs ... were you have no war zones etc.

    you try that in Milwaukee or other major cities and you will have a handful with tenants and such.

    Podcast Guest on Show #222
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    1Reply
  • Account Closed
    Rental Property Investor · Orlando, FL · Member since 2016 · 463 posts · 220 votes
    9y

    I don't flip, so can't really answer your questions. I know of people who are buying in the $40-50K range, put in $30K to rehab/update, and sell for around $100K. These are B/A neighborhoods, so for a C neighborhood you should be able to do it for far less. If you get a hard money lender, your $40K can go far as they will lend 80% of purchase and rehab. You could flip in higher end areas, where the margins are better.

    0Reply
  • Federico Gutierrez
    Realtor · Cleveland, OH · Member since 2015 · 2k+ posts · 857 votes
    9y

    It's much risky price point that you are dealing in. Lets be honest, it's not like you're find a diamond in the rough. It's a rough house that's going to take additional cash to fix up to bring it up a quality standard, do you have this additional cash?.  OR its in a rough area and then you might as well avoid cause you will lose money with tenant turn over and when you go to sell

    0Reply
  • Peter Lohmann
    Property Manager · Columbus, OH · Member since 2012 · 309 posts · 275 votes
    9y

    If you were on the market to buy a home for 40k or less where would you buy and why!?

    I wouldn't.

    0Reply
  • Bob E.
    Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
    9y

    We have bought the following with good results

    Milwaukee   purchase 12.5k    Rehab   5k    Rented for 2 years at $975 with no major issues

    Lansing MI  Purchase 5k,   Back taxes 7k,  Rehab 20k,  Rented $925 on our second year(one tenant change with 4 weeks to re rent.

    It can be done.

    3Reply
  • Rito Altamirano
    OP
    North Las Vegas, NV · Member since 2015 · 77 posts · 27 votes
    9y

    thanks for the replies again everyone!

    @Svetlana Foley

    @Marcus Auerbach

    @Scott Schultz

    I see the 3 of you are from the same state. Hows the market in your areas of wisconsin?

    @Peter Lohmann is the low price market something you consider when the numbers make sense? or would you say most homes in the range are usually more trouble then its worth? 

    0Reply
  • Rito Altamirano
    OP
    North Las Vegas, NV · Member since 2015 · 77 posts · 27 votes
    9y

    @Bob E. thats awesome to hear! Thats exactly what i would like to accomplish! I would love to use my cash to purchase 1 low cost home for a flip but if i could find 2 diamonds in the rough like you for damn near 40k total that would be awesome! What kind of neighborhoods are these 2 homes in though? 

    0Reply
  • Scott Schultz
    Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
    9y

    our market is pretty steady, we never see spikes, even through the crash, we maybe lost 20% from the top of the market. that being said, its not common to sell a house quick either, so a 150 DOM is pretty standard, even if you are priced right. 

    1Reply
  • Account Closed
    Investor · Frederick, MD · Member since 2015 · 43 posts · 21 votes
    9y

    I haven't found anything halfway decent around here for 40k or under. There is a lot of hype around here for these houses. Also a lot of tired landlords trying to sell their empire of crap on MLS or Craigs. Many times in packages. They rushed in and got duped. These houses are too old to be standing and full of toxins that cost a fortune to remediate. They're too far away from any decent paying jobs relative to at least 3x the rent. They usually have high crime. Flipping works and the profit is in duping future tired landlords. I wouldn't do it personally at least around my location.

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Keep in mind on a forum such as this almost everyone will have positive stories. Regrettably there are just as many if not more that have tried and been a total financial failure. Investing is always high risk, the chances of losing everything is high.

    The key is education. This is a start point for research but the only way to truly get answers is for you to do research on the ground. Choose a area, get to know investors in your market, partner with another experienced flipper, learn your chosen area like the back of your hand.

    When you can say to yourself that a certain property will sell for a given amount after your Reno and be reasonably accurate you are ready to begin. That requires a team of professionals working with you to begin.

    As has been said this can be done and is being done in every city and town across the country.

    If you go into this without being prepared to accept that you can lose it all you are not ready to invest.

    2Reply
  • Kristopher HanksPro Member
    Rental Property Investor · Davenport, FL · Member since 2016 · 593 posts · 382 votes
    9y

    @Rito Altamirano I just bought a house in Cleveland near Shaker Square for $12,500. Nice little house that can rent for about $650 per month. I don't flip but this house would be an easy flip. Needs about $8,000 to get it ready for a tenant. This was a great find. So happens that the house was owned by a guy in Australia and he just wanted out. That's how I got it so cheap. If I were to flip it properly, I could probably get $35,000 to $40,000 for it considering the neighborhood it is in. There are places out there that you can realistically do what you want to do with $40,000. Just do your homework and then, DO WORK!

    2Reply
  • Bob E.
    Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
    9y

    For these low price point houses I have found that it we can sell them with owner financing and get the same cashflow as we would with a rental but much less drama and turnover.

    2Reply
  • Scott Schultz
    Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
    9y

    the biggest thing I see is most people dont know how to find deals, I saw this a lot when i was an active broker. An Investor would come to me, and want me to find them deals and just hand it to them on a silver platter, sorry, it doesnt work that way, contrary to popular belief most MLS Deals are not deals at all. I compare what I have purchased this year to what has sold in MLS, mine are WAY better, its about knowing every distressed property in your market, and moving on them when the opportunity arises, dont hesitate, act! dont drag your feet, and close.

    2Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    9y

    I have to echo what @Account Closed said - a lot of hype around low income neighborhoods in Milwaukee. Properties are sold for far less than the sticks and stone would cost to build them, with the lot for free. Looks like gold, right?

    Milwaukee County:

    Inventory: 2551

    Supply: 3.8 months (6 would be normal)

    List Price: 138k

    List to Sales Price: 93%

    DOM: 73

    Price increase YoY: 4.3% (9/2016)

    Greater Milwaukee Area:

    Inventory: 2255

    Supply: 3.4 to 3.7 months

    List Price: 288k to 389k

    List to Sales Price: 94-97%

    DOM: 82-106

    Price Increase YoY: 9.7%-20.5% (9/2016)

    1Reply
  • Svetlana Foley
    Realtor · New Berlin, WI · Member since 2016 · 118 posts · 47 votes
    9y

    Yep, the low priced housing is in abandon around Milwaukee, but there is definitely a reason for it.  As I said before, you can get an amazing cash flow in the low range housing, but once the house is destroyed by the tenant, you are looking at heavy fines by the city and a good possibility of putting in more money than the house is worth or having a foreclosure go on your record - a cheaper option many times, but ruins your credit.  The local inventory for 80k+ is incredibly low, especially this time of the year, and good deals exist but hard to find.  Well worth it if you spot one, as appreciation factor should be a really good factor for the next few years.

    0Reply
  • Justin Taber
    Agent · Columbus, OH · Member since 2014 · 77 posts · 23 votes
    9y

    Most 40K properties will come with a number of problems and your tenant selection will not be great. That being said I am sure many people here have had success and found a great deal paying 40k for a house worth 80k.

    0Reply
  • Paul Ewing
    Investor · Boyd, TX · Member since 2014 · 688 posts · 467 votes
    9y
    Originally posted by @Jay Hinrichs:

    you can do that in semi to rural little burgs ... were you have no war zones etc..

    This is what I do.  Good rental income because lots of people don't want to live in the city limits but the rental stock is lower.

    0Reply
  • Rito Altamirano
    OP
    North Las Vegas, NV · Member since 2015 · 77 posts · 27 votes
    9y

    I greatly appreciate all the responses !! You guys all gave me a solid answer! With that said. Im agreeing with most that it would have to be a bad idea. I wouldnt say entirely and i know its something ill consider in small decemt areas but in the future. For my first rental purchase i want a property that can guarantee cash flow without high turnover. Id sacrifice some money for less headache and almost guaranteed checks anyday! But rentals are my long term goal anyways

    As for a first rehab im going to stack some money and find a better deal and aim for a HML to fund the rest. im starting a wholesale direct mail marketing campaign locally in vegas and hope to close some assignments to add funds to chase that first rehab. I just purchased a solid leads list with 500 properties going to hit them twice a month. Time to grind!!

    0Reply
  • Mike ReynoldsPro Member
    construction · Nacogdoches, TX · Member since 2011 · 2k+ posts · 1k+ votes
    9y

    @Rito Altamirano For me it would be rural areas that I know. Or east of the main drag but you wont find any there anyway. I say rural areas because I live in a rural area that has a college town. Some college kids come to town and want to live quietly. Lots of families do here. Not all rural areas are the same. Know (or learn) the areas.

    0Reply
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