Every once in a while I get a desperation call from a real estate investor who has “just about had it”. Maybe the tenants are not paying on time. Or at all. Maybe the property has just been torn up again. Maybe the local housing authority has given a long list of inspection items that need to be repaired.
And I want to share with you what a very large majority of these callers all have in common:
They almost all own lower priced properties that attract lower paying clients.
Generally, an investor just getting started out will have to wrestle with whether or not they are looking for Growth or Cash Flow. And the would be income property owner that is strictly looking for cash will almost always end up drifting down into the lower price ranges of Kansas City. I’m talking about the homes priced in the $30s, the $40s and the $50,000 price ranges.
(Of course, they may also not be able to afford any more at this particular time. So you may be “forced” into this situation rather than be patient and accumulate more savings.)
Yes, it is true that homes for sale in those price ranges are very much more affordable. (Is that proper English?) It is also true that if you can pick up a rental house for $45,000 and rent it out for $500 a month that you will instantly be in a cash flowing position!
If you can collect the rent.
This is not a condemnation on every tenant only able to afford $300 to $600 a month for rent. Most tenants in that price range are good, hardworking and responsible people. It’s the ones that are not that get you in trouble. How good does that cash flow look when you have an eviction every 12 – 16 months? What about the cost of clean-up after a less than desirable person has finally vacated the property?
Turnover, for whatever reason, just seems to be a lot higher.
There are many real estate investors out there that focus on these lower priced homes as a strategy. And that strategy has served them well. But by in large, the calls I get suffering from Investor Burnout are almost always in the market described above.