Generating Cash Flow from Low End Houses

   Since the same basic principles of cash flow apply to nearly every facet of real estate investment, it can sometimes be difficult for investors to select a market.  Many investors assume that the big money is in the big, expensive homes; in fact, long-term reliable cash flow is much easier to generate from low-end houses, for a number of reasons.

      First of all, “low-end” does not mean you need to go out into the slums of the nearest major city and buy the cheapest, most dilapidated property you can find.  You are still going to be the owner of this property, so you’ll need to select something reasonable, marketable, inexpensive, and in a good neighborhood.  In other words, you need to find a buyer’s market, like a housing association neighborhood with good-but-inexpensive start-up homes for young families.  It’s called suburbia, people, and there’s no shortage of it.

      The biggest advantage of low-end houses is that they are very common—every town and city in every state has plenty.  More importantly, because there are just so many homes out there, there is also no shortage of home-owners in financial distress (be it due to liens, mortgages, back-taxes, etc.)—especially during a recession.  The sheer numbers suggest that the savvy investor should not have much of a problem finding at least a few good discounted deals on low-end homes at any given time.  What’s more, the relatively inexpensive nature of these investments means you can begin work on a portfolio, collecting homes to generate multiple revenue streams.

      For the investor who has a bit of capital to work with, these start-up houses provide a unique opportunity to make huge profits off the sale of the home.  This is based on the notion that you purchase a home in a buyer’s market, which either means high demand and competitive offers on your home, or the opportunity to sell the home on payment contract (which will earn you even more profit).  If you can afford to float the home loans to the buyer you line up, then you can sell the home at a 10-15% premium based on a structured payment contract over the course of however many years you decide.  For those who can afford the principal investment, this is a great way to go.

      Another major advantage is that these homes can often be purchased at deep discounts due to the owner’s aforementioned financial stress.  Whether through short sale, foreclosure auction, or some other means of acquiring homes below the market value, these low-end homes can typically be purchased between $5,000-$40,000 (if negotiated skillfully); they can then be resold at the market rate, or rented for $400-$600/month for an excellent return of monthly cash flow and yearly profits. 

      Let us know what you think. 

 

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