We all hear it often and get influenced by the adrenaline it offers, “Investing in real estate is the best type of investment anyone can make.” This is a true statement that sits in the haze of the many branches that stem out of mother real estate. Finding that one lucrative investment strategy that’s going to prove that investing in real estate should be your choice of investment is the difficult part! Keep in mind that it’s not one investment strategy that dominates making money in real estate. Real estate investors can go for fix-and-flips, Traditional or Airbnb rentals, or even buy cheap property for sale to make money flipping it or renting it. It all comes down to having a vision and transforming that vision into cash in your pocket!
So, what are the factors that affect real estate investors when investing in cheap property for sale?
Finding cheap property for sale is not an easy task for the average real estate investor. You will have to sacrifice some of your investment standards in order to gain the low price. We’re definitely not talking about foreclosed homes or fix-and-flips. We’re talking about low-end real estate properties. These real estate properties are usually located in bad neighborhoods with low household incomes. To cut things short, let’s head to the following factors that affect real estate investors when investing in cheap property for sale:
High crime rates are what makes bad neighborhoods and low-end real estate what they are! When looking for cheap property for sale and you’ve found one, the first thing you need to do is check the crime rate in the area you’re interested in.
The thing with low-end real estate and high crime neighborhoods is that you are going to incur costs that arise from illegal activities and violence. Such crimes often include break-ins and robberies. If you ask any real estate investor who opted for cheap property for sale in low-end neighborhoods, you will get an idea of how common it is to be a victim of break-ins and burglaries. This is a result of cheap property for sale and it comes with the territory.
In any case of real estate investing in bad neighborhoods, you’re going to come across illegal activity. It all comes down to making sure your investment properties are safe for your tenants while screening your tenants well to avoid future issues.
Tip #1 Install a security alarm system to ensure the safety of your investment property and keep intruders away.
If you’re wondering how to deal with tenants when investing in cheap property for sale, read this blog post: How to Deal with Bad Income Property Tenants.
High vacancy rates
Vacancy rates should be investor’s go-to detection method when looking for cheap property for sale. Keep in mind that when a property’s value is too low, there’s something hiding in the bushes.
If a real estate investor is interested in Airbnb rentals, the best thing to do is to run a comparative market analysis and find the Airbnb occupancy rate. This gives you the number of nights booked by Airbnb rentals in that area. Accordingly, you can base your real estate investment decision on solid grounds.
Keep in mind that any real estate property can suffer from a percentage of vacancy per year. However, with low-end real estate properties, location plays a major role in determining the occupancy and vacancy rates of the neighborhood which, in many cases, can result in even higher vacancy rates on its own. Just to be clear, population density can stretch out prices to the max and generate a flow of incoming tenants. Meanwhile, scarcity of tenants can result in even higher vacancy rates and low demand for the area.
If you’re suffering from a high vacancy rate and wondering what to do about it, read this blog post: 7 Tips to Avoid a High Rental Vacancy Rate.
Tip #2 Marketing and advertising your rental property can help spread the news that you have availability, so spend the time on advertising to lower your vacancy rate.
High default rates
The fear of default is on every real estate investor’s mind. Always! When tenants are unable to cover their rent, your rental income plummets and you’re left alone paying for a mortgage on a property that’s bleeding you dry. This might happen with any real estate investor when going for cheap property for sale. It’s all a matter of screening your tenants and ensuring that you’re renting to people capable of sustaining a regular lifestyle while ensuring you get your rental income every month.
On the other hand, the wind doesn’t always sway for the sailor’s need. When your investment property is sitting there collecting dust and you’re making mortgage payments out of your pocket, you’ll probably lower your standards to get a cut of any rental income you can get your hands on, and that’s the truth of it!
The most successful real estate investors are those who understand the landlord-tenant dynamic and spend the time to understand the type of tenant that can sustain making rental payments. In the end, generating cash flow is what matters to making investment properties lucrative.
High tenant turnover rates
When talking about high turn over rates when owning cheap property for sale, you will experience two types of turnover (neither are good):
- Eviction turnover
When going through an eviction, and you most likely will, expect to go through a lengthy process to get bad tenants out of your income property. Not to mention the damage that many evicted tenants intentionally cause to the property.
- Voluntary turnover
If a tenant wishes to leave the property by his/her own will, you won’t experience the damage caused by evicted tenants. Keep in mind that you don’t choose to live in low-end real estate properties, your financial situation is what forces you into it.
Tip #3 Make sure to brush up on your county’s law when it comes to the landlord-tenant law. This can save you a substantial amount of money and save you time in the process!
High operational costs
Operating an investment property usually costs more in low-income neighborhoods. Keep in mind that low-end real estate properties tend to have higher property taxes as they are usually centered in cities. Moreover, insurance costs are higher than your average household insurance since the risk factor skyrockets around such properties.
Accordingly, property management costs are much higher when finding cheap property for sale in low-end areas. This can be attributed to the hassle that any property manager will have to go through to collect rent checks and maintain the property as is.
Think you need professional property management? Read this blog post: When Should Landlords Opt for Professional Property Management?
Tip #4 Consider going for HUD homes to lower the operational costs of your investment property.
Should you invest in cheap property for sale?
When going for cheap property for sale, real estate investors must calculate the risk and reward factors of every real estate investment decision. In any case, a real estate investor is going to prefer low-risk investments. While making low-risk investments is going to result in a minimal return on investment (theoretically), the real estate investor takes the low risk as a motive and it overrides the return on investment factor. Meanwhile, dealing with risky real estate investments is the go-to real estate investment strategy that many real estate investors go for as they find a high return on investment when finding a cheap property for sale.
Whether you’re a beginner real estate investor or an expert one, thoroughly analyzing each real estate investment property should be your priority before making any plans. This works by running a comparative market analysis through a comprehensive investment property calculator. Accordingly, this real estate investment investigation tool can help you assess the situation of your real estate investment and come up with the best possible scenario for real estate investing. When conducting a comparative market analysis with Mashvisor, you can find out the cap rate, cash on cash return, and even the Airbnb occupancy rate of any investment property you have your eyes on.
Click here to join the many real estate investors who’ve already found success and enjoy the 14-day free trial offered by Mashvisor.
No one said that investing in real estate was for the faint of heart! In order to become a property investor, you will need to secure financing, come up with an adequate investment strategy, and find a sustainable business plan to grow your real estate investment portfolio. On the other hand, finding cheap property for sale is something that all real estate investors should investigate; you can cut costs and build equity much faster than buying high-end real estate. In the end, ensure you’re making intelligent decisions and remember that the investments of today are what gets you rental income tomorrow!
If you have any more insights on buying cheap property for sale, please share them with us in the comments section below.
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