At the end of the day everyone needs a place to live. If you buy a $5,000 house is a less than desirable neighborhood you should expect that your tenant pool and rent are going to reflect the product you are offering. If you want to win at this game as an hands off out of state investor you need to know how to play the game. You have to determine if you are going to be a wolf investor or a sheep investor.
Lets start with the purchase. A $5,000 house typically is not going to be rent ready/saleable so your numbers must include the costs to make it rent ready or saleable. No matter how well you plan you will miss something like the $800 utility bill from the contractor's equipment or the city inspector's previous warnings to the prior owner.
The wolf investor never buys a $5,000 property without and edge. The edge can be having a great on the ground team, great remodeling skills, a huge reserve of cash, insider knowledge of the property/ area, etc. (Wolf Tip: Be disciplined, build a team, get and use great checklists.)
The sheep investor hands an open checkbook to a realtor/wholesaler and says thanks for the opportunity.
Next, lets talk about the rehab. A $5,000 house is going to need a lot off work.
The wolf investor expects to have difficulty finding a good contractor, knows it will cost more than budgeted and will take longer so they plan accordingly. They know it doesn't matter if it is a handyman or a large national company you are going to get screwed if you are not prudent. (Wolf Tip: Get written detailed estimates, ask to see picture ID, control the money and kick him out early if he is screwing up.)
The sheep investor is so happy to find someone to do the work that they don't properly do their due diligence and gives money up front.
Next, lets talk finding a Property Manager.
The wolf investor knows that generally few property managers are interested in poorly renovated $5,000 houses in bad areas and looks for the least crooked property manager that he communicates with constantly. He understands you get what you pay for and establishes upfront that he is only putting up with minimal BS, controls the money and has a plan B ready. (Wolf Tip: Establish rules on how much they are preapproved to spend of your money and assume your being overcharged if they are to busy to justify and document the basis for the expense.)
The sheep investor looks at their $5,000+ polished turd house and is counting the rent before the first tenant gets identified but is so relieved to not have to manage it they overlook all of the obvious warning signs.
Ok, now that we have a property mis-manager we need a tenant.
The wolf investor knows his house is not going to attract the best tenants and so he looks for the the tenant with the most manageable issues. Even in bad areas there are decent people. (Wolf Tip: Wait to find that type of tenant with significantly more to lose than the investor.)
The sheep investor is so happy to finally have a tenant that they never ask any meaningful questions or screen applications because they have a property mis-manager.
Finally, the time comes to sell the property typically because when things are going good it ok but when it is bad it is so bad.
The wolf investor knows he has a pig with lipstick in a less than desirable area so he looks for the newbie investor looking for a turnkey property in an up and coming area.(Wolf Tip: A buyer has to have something to distract them from the real issues of the house so freshly paint the first room you enter in the house.)
The sheep investor, who may have never visited the property until it was in chaos, dumps the property for whatever they can get and chalks it up to a valuable learning lesson.
Be the wolf and not the sheep and you can make these types of properties work.
