Like fire bolts out of the sky, there have been quite a few posts (or should I say daggers) thrown around the #biggerpocketsphere (yes, you heard this term here first, folks…) about the 2% rule or 1% rule or whether you should buy under $30k or over $30k. Or “I am a better investor because I am taller than you” (I am well over 6 foot, so probably—and I can actually reach the roof if I am on an incline on the side of a ranch house that is headed up hill). Or “My investment makes .09374% over yours,” or “My paint color is actually far superior to yours; let’s be honest, mine is obviously better.”
Why? Because it’s mine.
Welp. That cleared it up.
Or maybe not.
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Why I Like the $30k Investment Property
You see, I initially chose to buy houses in the $30k range because it was an area I understood, they were houses I could afford, and the rate of returns on the properties were solid—in the 2% range.
None of this tells the whole picture. A point many of these posts make is that any place you can buy a $30k house, you can probably buy crack, get shot at, and most likely not walk around after dark—or at all without guns and a bodyguard. I can’t speak for every square block of the continental United States, but I can speak to this:
- I have owned houses that cost more than $30k that were in terrible neighborhoods that I regretted buying.
- I have owned houses that cost more than $30k that were in great neighborhoods.
- I have owned houses that cost less than $30k that were in great neighborhoods.
I can also say, now that I know the neighborhoods to buy in, I haven’t bought a house recently at this price point that wasn’t safe, that wasn’t a solid house, that was in a “bad” area of town, and that didn’t make a great return on investment. The one I just bought a few months ago was $26k, and I put about $5k into it. It’s cute as a button, and my management company calls it “the dollhouse.”
As far as the tenants, they pay on time (usually), everything is ACH transferred, and I receive the funds to my bank account.
After thinking through what some may deem the armpit of the real estate investment world, let me help clear up a few things if you find yourself looking at this price point, interested in making 20-25% ROI, and you can’t figure out if you should pull the trigger or not.
3 Keys to Succeeding With a $30k Rental Property
1. Understand: it’s $30k… Not $300k or $3m
Guess what, I don’t put granite in my $30k rental houses! I know… crazy, you say. And I also don’t put high end finishes or finely crafted vanities or cabinets.
I DO do the following: make sure the roof is in great condition, as well as all other major expense things, like the HVAC, plumbing system, and electrical system—and I have those things built into my purchase and renovation at the beginning of the project. We make sure the property is clean. We have started to put in tub surrounds and new plumbing lines to the shower/tub. The surround is relatively cheap; we are able to check the plumbing in the bathroom at that time, and the surrounding is easily fixable if there is an issue. We also put money into good, working toilets, faucets, and anything that nickel and dimes us with maintenance later.
Also keep in mind, $30k here in the Midwest is definitely different than $30k in South Florida, or San Diego, or Orange County, or Maui. It’s not the prince’s palace. But it’s a house, a pretty decent house. I can’t buy…