Is this property OK?

I am thinking about starting to invest in property
The property that i am looking at is a 3 bed room row house selling for 38,500, After searching tax records, I found that a real estate investment company (which is listing this property)
bought it in Aug.of this year for 25,000. The property is not in the greatest area of town (and not the worst) As a beginner should I start with a low priced property such as this, or buy a higher priced property? – thanks

Howdy LMK:

What was the condition of the house when it sold for $25,000. If they did some repairs you may have a good deal. They probably just bought and are trying to resell without repairs. If you are faster you too can get the same kind of house for $25,000.

I too prefer cheaper houses especially in bad times. A $300 vacant house is easier to rent than a $200,000 home and the payment is a lot less. If you screen your tenants better than I did when I owned 45 rentals you can do well.

How much can you rent the house for? You should be able to get a positive cash flow too on less expensive houses. I used to rent a $25,000 house for $500 to $600 per month here in Austin. That same house will rent today at $700 to $800 and will sell for $50,000 or better.

Even the worst areas in town will appreciate when the economy recovers or we have inflation. It will not be as high but you propably will not have negative cash flow. My goal in the past was to buy one low income house and buy one nicer house and let the cheaper house help pay for the more valuable one. You may consider this approach as well. Look at duplexes too. I was kind of partial to the cash flow from them as well and the idea that one sides rent would make the payment. That may not be the case in a lot of areas today with some areas having inflated prices.

Hope this gives you some ideas

Thank you very much for your reply . this is a great site!

TEDJR is right on the money the only thing I would even add to that is what is the property worth? If it is only worth 35k and you are getting it for 34k it might not be as good as a house that is worth 150k that you are getting for 105k!! Don’t but a house just to say you did!! BEEN THERE DONE THAT! Look for the good deal!

just an update, I went to see this property, it was completely gutted ! I thought that it was being all remodeled and when finished would be sold for the price listed 38,500. however, when I called the company back, they told me when finished the price will be 79,900 !!! I was born at nite, but not last nite !
theres not a house with in that block that is or will be worth 80,000
anytime soon. Unfortunately, they’ll probably find some unsuspecting first time home buyer to give 5 or 10 thousand down then hold their mortgage

The question is how many other properties that company owns on the block.

In 1999, I bought a HUD foreclosure in a townhome community for $49K then put another $8K into the rehab. I found out that a company had purchased a block of the homes when the original builder went bankrupt. They were doing a little rehab, holding for rental use for a year or two, then reselling at $90K. By selling at $90K, perhaps even holding the mortgage, the seller was forcing appreciation for all the other properties on the same block.

I sold that property in Jul of this year for $153K and exchanged into two other properties. Even after exchange expenses, selling expenses, and loan payoff, I had $100K and change in my exchange escrow account to reinvest.