If you want to build wealth, real estate is by far one of the best investment strategies around. Not only can the right real estate produce steady monthly income, but the underlying asset also appreciates in value over time.
Unfortunately, many people don’t think they have the financial resources to get involved in real estate investing – so they don’t pursue it. But who says you need $500,000 or $1 million in cash to buy a rental property? There’s cheap real estate in almost every market – you just have to find it!
How to Find Cheap Properties
Before delving too deep into strategies for finding cheap rental properties, let’s be clear about one thing: “cheap” is a highly relative term. Your location and financial position will determine what’s “cheap” for you. (For example, if you’re living in San Francisco, you aren’t going to find a rental property for $75,000.) But if you’re in the Houston area – or a similar market – there are plenty of properties available on the lower end of the market. You’ll just have to get creative!
Look for Foreclosures
The obvious place to start is with foreclosures and bank-owned properties. Banks are in the business of lending money, not managing real estate. They want to avoid taking ownership of a property. If they have to take ownership, they’ll sell as quickly as possible.
Not every foreclosure is a good deal, but many are. To find these listings, you might have to do some digging. (They aren’t always readily available on a site like Zillow.) The best method is to use a real estate agent who has access to the Multiple Listing Service (MLS) in your area. They can search for REOs (real estate owned by lenders) and pull some listings for you to view.
While less common, some foreclosures will be advertised as such with signs that read “foreclosure,” “bank-owned,” or “bank repo.”
Drive for Dollars
“Driving for dollars is a term that real estate investors use to describe a technique for finding great deals on houses. You drive around until you find a house that looks vacant or distressed and then attempt to buy that home from the owners,” investor Mark Ferguson writes.
This strategy isn’t for everyone. It takes time, a well-trained eye, and a little bit of guts to ask random people to sell their houses. However, it works! Do your research and you may just find a deal.
Study MLS Reports
If you have access to the MLS (or have an agent with access), there are certain signs and signals you can look for to find good deals. One of the telling factors is the amount of time a listing has been on the market.
In a hot market like the one we’re currently in, properties shouldn’t be sitting for long periods of time. If you find a listing that’s been active for months, it’s a sign that there’s something wrong. (Look at the listing’s CDOM (continuous days on market) or PMP (property marketing period). Come in with a lowball offer; you never know what the seller will say.
Look For These Two Words
There’s certain language real estate agents and sellers will use in a listing that indicate they’re struggling to sell the property. (Which is ultimately a signal that you can get a deal.) Two words in particular should catch your eye: “price reduced.”
When a sign or listing says “price reduced,” it means there’s a lack of interest in the home. This gives you the chance to come in and make an offer, which the seller could jump at. Other language that indicates a potential deal: “new low price” and “below market value.”
Be Willing to Work
If you’re looking for a cheap property to fit into your budget, you aren’t going to get an immaculate house with all of the latest trends. With a willingness to put in some elbow grease, you can often get a good deal that’s below market value.
Though you never want to buy a house that has serious foundational issues or roof problems, there are other easy fixes that can be done quickly and cost-effectively. Examples include: new appliances, fresh carpet, fresh paint, and new hardware.
Look on the Outskirts of Town
If you’re trying to buy a rental property in an extremely desirable area, you’re going to pay a premium for the location. But there are plenty of renters who are willing to live on the outskirts of town and drive in for work or entertainment.
Open yourself up to properties that are further out of town. You’ll find that your dollar stretches much further, giving you ample flexibility.
Look for FSBOs
For-Sale-By-Owner (FSBO) properties should catch your eye. While they’re often priced too high by cheapskates who don’t want to hire an agent to represent them, some are simply shots in the dark by people who don’t know what they’re doing. There’s always a chance that you could snag a deal without putting in much effort.
Make Lots of Offers
“Many real estate investors abide by the 100-10-1 rule, which says you should look at 100 houses, offer on 10, and get just one accepted,” investor Brandon Turner says. “By submitting a lot of offers, assuming most of them will fall through, you increase your odds of getting a really great deal on a cheap house.”
You also can’t be afraid of offending someone with an offer. Many real estate investors operate by the principle that they should blush when making an offer. Otherwise, it’s too high.
Partner With Green Residential
At Green Residential, we work with some of the most successful landlords in the Houston area to provide exceptional property management services that save time and money while providing invaluable peace of mind. If you’d like to learn more about our services and what they could mean for you, feel free to contact us!