Should You Buy Cheap Rental Properties? In this video I give my best buy to let advice regarding cheap houses and apartments. If you see a possible buy to let property for sale at a low cost price, you should do your due diligence as normal, and not overlook the potential of cheap rental properties.
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Should You Buy Cheap Rental Properties?
Andy Walker is the creator of monoperty.com, where he blogs online as a property investor and landlord, sharing what works, and what doesn’t, to help you start or expand your property portfolio. Check out Andy’s informative videos and join the conversation. If you have any questions, please leave a comment in one of the videos or head over to www.monoperty.com/ask.
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- A question I'm often asked is,: do you recommend buying cheap houses as rental properties in the 30 to 70,000 price range? And? My answer is yes.
And in this video, I'll.
Give you several reasons why buying cheap houses, where there's a demand can be a great investment, especially when you're first starting out as a landlord., (upbeat music), Hi, I'm, Andy Walker from monoperty.com and on this channel, I share my experiences as a property investor and landlord.
And also interview other investors, so we can learn from their advice.
So, if you're new here, consider subscribing for more videos like this.
Now, there's a common misconception that the more expensive, a more attractive a property, the more that can be charged for rent and the bigger return, you'll receive.
That's simply not true., Cheap rental properties can make very good investments.
Now I've not bought a house in the 30 to 70,000 price range yet, but I plan, to.
In fact, the cheapest property I have bought has been my best performing property.
It's been a good, solid investment.
It has never been vacant for more than 3 weeks in a year.
That's only happened once in the 14 years that I've owned it.
And I've also seen some nice capital growth in that time, too.
I remember when I first viewed it I wasn't that keen.
But after listening to the letting agent about the demand in the area, I decided to go for it and I'm so glad I, did.
By owning a cheap, single unit, property, you're still going to experience as a landlord and investor.
Depending on your approach, you may decide to look for one that requires some cosmetic work to bring it up to scratch.
You can add value before your first tenant moves.
And, so you'll gain some experience with renovations, as well.
Some people say that they're not going to make a significant income with a cheap rental, property.
And, although that may be true when you compare it to a large HMO.
You, have to consider that smaller, single-family properties will require less capital to get started, less time to get up and running, and less time to be managed once a tenant is in situ., Typically, they're, less of a headache.
I would also add that your rental yield is likely to be better compared to buying a property in a city centre or a more expensive region.
I have a video on calculating the rental yield and the return on investment up here, which you should watch if you're not familiar with these terms.
Property investing is a long term.
And businesses are all about cash.
Your goal is to replace your salary from your current job in the future, then buying several cheap properties will help you reach that goal, providing you stay focused on the rental yield and cash flow.
And, not the potential for capital.
Each property you buy will be a stepping stone to the next one.
And, your experiences of being both a landlord and investor will skyrocket.
It makes sense, right? The more you purchase and hold, the more experiences you'll gain.
Recent research conducted by UPAD has shown that two bedroom properties for both houses and apartments bring in the best rental, yield.
And I, know from experience that these types of properties are rented by key workers such as teachers, nurses, taxi drivers., Both, white and blue collar workers.
They, don't necessarily want to buy their own property, but want a nice place that they can call their home.
So, if you're a first time, investor, cheaper properties can really work for you, for a number of reasons.
Firstly, lending will be far easier.
If you're looking for 40,000 as opposed to 200,000, because when you start there will be fewer lenders available to you.
You have some experience with owning a rental property and operating as a landlord.
You will find that there will be more lenders that will be willing to do business with you.
There's a better chance that you'll be able to reduce your loans to value, to increase your cash flow.
You have 30,000 to invest, for example, and you use that as a depsosit on a 120,000 property, you will need to mortgage with the loan to value of 75.
And you'll find the interest you pay on.
Your mortgage will be higher.
Then, if you used your 30,000 to purchase a 60,000 property and took out a mortgage with a 50 percent loan to value.
Less capital will be required, but you'll still gain experience of purchasing an investment, working with a mortgage broker and a solicitor, and operating as a landlord.
If you bought a more expensive property in a city centre or different region.
If, you have a sizable amount to invest, but you're, not 100 percent.
If property is the right asset class for you, then a cheaper property will allow you to dip your toe in the water.
Before you decide to go all in.
Running costs will be cheaper and I'm.
Talking about buildings insurance, as well as mortgage repayments., And utility bills, if you find yourself letting a property with bills, included.
Cheaper properties won't cost as much to fix compared to more expensive ones.
You'll gain experience of solving and fixing problems, and any mistakes you make won't be as costly compared to the bigger, more expensive.
There's, also a good chance that a cheaper rental will not be near where you live.
Which will force you to look for a good managing agent and then allow you to put it in the back of your mind once it's up and running, so you can focus on your normal routine and enjoy the passive income that it brings.
Experience, with working with the letting agent is good to have in my opinion.
I think that cheap rental properties are a great way to start as a landlord and shouldn't be overlooked.
Start as soon as possible, buy cheap, gain some experience, and start to build your empire and your legacy.
While providing a good service to your customers.
Over to you.
Have, you bought cheap, property? Are you thinking of buying a cheap property, as your first investment? Let me know.
In the comments section, below.
And I'll also be happy to answer any questions you might have.
Please like and share.
If you found this video useful and definitely subscribe, if you haven't already so you won't miss my future videos which will all be geared towards helping you start or improve your property.
Thank you so much for watching and I'll, see you in the next video.
2% Rule. The 2% rule is the same as the 1% rule – it just uses a different number. The 2% rule states that the monthly rent for an investment property should be equal to or no less than 2% of the purchase price. Here's an example of the 2% rule for a home with the purchase price of $150,000: $150,000 x 0.02 = $3,000.Is it risky to buy a rental property? ›
Most lenders require about 25% down for a rental property mortgage, experts say. That contrasts the 6% to 7% paid by homeowners in recent years. Lenders view a rental property mortgage as riskier than a regular mortgage because an investor's own home loan is likely to take priority in hard times.Is buying a house and renting it out a good investment? ›
Rental properties generate recurring income meaning that can be relied on for years to come. It can be an excellent way to ensure financial security before you retire, or just have extra money in the bank. This is especially true if you plan to buy an apartment building as a rental investment.What is the 50% rule in real estate? ›
Like many rules of real estate investing, the 50 percent rule isn't always accurate, but it can be a helpful way to estimate expenses for rental property. To use it, an investor takes the property's gross rent and multiplies it by 50 percent, providing the estimated monthly operating expenses. That sounds easy, right?What is the 80% rule in real estate? ›
The 80% rule means that an insurer will only fully cover the cost of damage to a house if the owner has purchased insurance coverage equal to at least 80% of the house's total replacement value.What are 3 drawbacks to owning rental real estate? ›
The drawbacks of having rental properties include a lack of liquidity, the cost of upkeep, and the potential for difficult tenants and for the neighborhood's appeal to decline.How much profit should you make on a rental property? ›
The amount will depend on your specific situation, but a good rule of thumb is to aim for at least 10% profit after all expenses and taxes. While 10% is a good target, you may be able to make more depending on the property and the rental market.What is the biggest risk of owning a rental property? ›
#1: Vacancy Rates
The biggest and most common risk that real estate investors need to consider is high vacancy rates! Tenants will be the primary income source for all your rental properties. So, if you want them to make money, you need to keep your property occupied!
Most lenders require a down payment of at least 15 percent for an investment property. You'll also need to have enough cash to cover closing costs, homeowners insurance, property taxes and maintenance issues that come up at the property.How long does it take to make a profit on a rental property? ›
Most of the time, you can get positive cash flow right from day one with your rental. Figuring out your profit for the year is a matter of taking how much rent comes in and subtract how much money goes out for expenses like taxes, insurance, and mortgage payments. What you're left with is your profit for the year.
Generally, a good ROI for rental property is considered to be around 8 to 12% or higher. However, many investors aim for even higher returns. It's important to remember that ROI isn't the only factor to consider while evaluating the profitability of a rental property investment.What are the downsides of being a landlord? ›
- Annual Upkeep and Long-Term Maintenance. Rental properties require thorough budgeting. ...
- Time-Consuming Investment. ...
- Running Your Properties Like a Business. ...
- Liability and Staying Compliant with the Law. ...
- Tenant Screening and Bad Tenant Risks. ...
- Evicting the Occasional Bad Apple.
The overall cost of homeownership tends to be higher than renting even if your mortgage payment is lower than the rent. Here are some expenses you'll be spending money on as a homeowner that you generally do not have to pay as a renter: Property taxes. Trash pickup (some landlords require renters to pay this)Is rental property a good investment in 2023? ›
Despite what some may think, 2023 is still a good year to invest in real estate, thanks to advantages like long-term appreciation, steady rental income, and the opportunity to hedge against inflation. Mortgage rates are expected to decline, but the housing market is likely to remain competitive due to low supply.What is the 70 rule in real estate? ›
Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.What is the 36 rule in real estate? ›
A household should spend a maximum of 28% of its gross monthly income on total housing expenses according to this rule, and no more than 36% on total debt service. This includes housing and other debt such as car loans and credit cards. Lenders often use this rule to assess whether to extend credit to borrowers.How much of rental income goes to expenses? ›
If a property costs $100,000 to purchase, the gross rent should be at least $1,000 per month, according to the 1% Rule. The 50% Rule states that normal operating expenses – excluding the mortgage payment – for a rental property can be estimated to be about one-half of the gross rental income.What is the 100 times rule in real estate investing? ›
Savvy real estate investors often pay no more than 100 times the monthly rent to purchase a property. In the case of the couple above, an investor following the 100 times monthly rent rule wouldn't pay more than $750,000 because the monthly market rent was $7,500.What is the 10 rule in real estate? ›
A good rule is that a 1% increase in interest rates will equal 10% less you are able to borrow but still keep your same monthly payment. It's said that when interest rates climb, every 1% increase in rate will decrease your buying power by 10%. The higher the interest rate, the higher your monthly payment.What is the 4 rule in real estate? ›
This is a simple enough question and one many investors ask when checking on their progress toward retirement. The “4% rule” is a theory that states you should be able to retire and safely withdraw 4% of your savings every year and your money should last 30 years.
The biggest potential benefits of owning a rental property include a hedge against inflation, rental income, equity, and having control of the investment. Drawbacks to consider before buying a rental property include a large down payment, dealing with tenants, and lack of liquidity.Why is rental income negative? ›
Negative cash flow means an investor is losing money on a rental property. Negative cash flow can happen if the property sits vacant for extended periods of time or if rental prices aren't able to keep pace with what it costs an investor to maintain the property.Why are landlords a problem? ›
By buying up houses to rent out, landlords not only decrease the opportunities others have to own a home, but also restrict the supply of housing and increase their profits at the expense of others. “Housing should be a universal right,” senior Sneha Nagarakanti said.How many rental properties will make you a millionaire? ›
To become a real estate millionaire, you may have to own at least ten properties. If this is your goal, you need to accumulate rental properties with a total value of at least a million.Is it more profitable to rent or flip? ›
As previously mentioned, flipping can earn a lot of money in a relatively short amount of time. Whereas renting an investment property usually produces less upfront income, but generates income consistently over a long period of time.What happens if my expenses are more than my rental income? ›
If your rental expenses exceed rental income your loss may be limited. The amount of loss you can deduct may be limited by the passive activity loss rules and the at-risk rules. See Form 8582, Passive Activity Loss Limitations, and Form 6198, At-Risk Limitations, to determine if your loss is limited.Why everyone should own at least one rental property? ›
Owning real estate means you have an income-generating asset that will continue generating income virtually forever. You'll have some downtime when your unit is vacant, but that's normal. However, once you pay off your mortgage, your rental income becomes pure profit — minus your expenses.Why owning is always better than renting? ›
As a renter, you don't build equity over the long term and if you leave, you don't get to take any profits with you. Owning a home can be empowering and emotionally rewarding. The money you spend on your mortgage every month and improving your home yields a long-term investment benefit for you instead of a landlord.Is rental income at risk? ›
At-risk refers to what you've invested in a particular activity. For rental activities, you're usually at risk for the: Adjusted basis of real properties. Certain amounts you've borrowed.What is the cheapest way to invest in real estate? ›
The Cheapest Option: REITs—$1,000 to $25,000 or more
A REIT offers the investor a relatively high dividend as well as a highly liquid method of investing in real estate. Most real estate investments are not easy or quick to get out of. An exchange-traded REIT is. Moreover, you can start small with a little bit of cash.
Using the 50 percent rule , set aside half the annual property rent. Using the 1 percent rule , set aside 1 percent of the property value per year. Using the square footage rule, set aside $1 per square foot per year.How much of your portfolio should be in rental property? ›
The decision of how much real estate to own in your portfolio is personal. If you're looking for a rule of thumb, adding 5% to 10% to your portfolio is a reasonable range. However, the best approach is to discuss with your financial advisor how adding real estate would best advance your goals.How long does it take to break even in real estate? ›
How Long Does It Take to Break Even? Usually it takes between five and seven years of home ownership to reach a point at which you could break even should you sell the property, considering the costs of purchasing, owning, and selling your home.What is the rule of thumb for rent? ›
Try the 30% rule. One popular rule of thumb is the 30% rule, which says to spend around 30% of your gross income on rent. So if you earn $3,200 per month before taxes, you should spend about $960 per month on rent. This is a solid guideline, but it's not one-size-fits-all advice.How can I maximize my rental profit? ›
- Screen Tenants. Eviction. ...
- Rent Parking Spots and Storage to Tenants. Providing on-site parking is one of the top ways to attract renters. ...
- Require Renters Insurance. ...
- Install Solar Panels on Your Roof. ...
- Consider Short Term Rentals.
What state has the highest ROI on real estate? The state with the highest one-year ROI on residential single-family homes is Arizona with 27.42 percent, according to iPropertyManagement data. The next two highest states are Utah with 27.05 percent and Idaho with 27.02 percent.How do you calculate rental income? ›
Lease Agreements or Form 1007 or Form 1025: When current lease agreements or market rents reported on Form 1007 or Form 1025 are used, the lender must calculate the rental income by multiplying the gross monthly rent(s) by 75%. (This is referred to as “Monthly Market Rent” on the Form 1007.)Is the stock market or real estate a better investment? ›
Historically, stocks have offered better returns than real estate investments. "Stocks have returned, on average, about 8% to 12% per year while real estate has generated returns of 2% to 4% per year," says Peter Earle, an economist at the American Institute for Economic Research.What are landlords biggest fears? ›
Our landlords usually have two major concerns when it comes to renting out their properties. First, they are afraid the tenant won't pay the rent on time or ever. Second, they are afraid the tenant will trash the property. We have systems in place to substantially minimize the risk of those two things happening.What is the hardest part about being a landlord? ›
Challenges that come with owning a rental property include finding a suitable property, preparing the unit, finding good tenants, maintenance issues, hassles that arise, and changing interest rates impacting the rental price.
How long are you planning to settle down? If you're only going to live in a place for only a year or two, renting makes more sense. However, if you're going to stay there for three years or more, then buying would be a good idea and it becomes a better idea the longer you stay.Is it smarter to rent or buy? ›
Buying a house gives you ownership, privacy and home equity, but the expensive repairs, taxes, interest and insurance can really get you. Renting a home or apartment is lower maintenance and gives you more flexibility to move. But you may have to deal with rent increases, loud neighbors or a grumpy landlord.Is it worth buying instead of renting? ›
Renting provides much more flexibility. However, if you have returned to the office, either full-time or partially, and assume you'll remain in your current job for a few years, then buying might be wiser. A common rule of thumb is if you plan to stay in the home for five to seven years, then buying is a good option.Will 2023 be a good time to buy a house? ›
Experts say hopeful buyers should not expect today's high prices to plummet anytime soon. “Home prices won't drop in 2023,” Evangelou says.Will there be a housing recession in 2023? ›
Home sales also declined by 3.4% between March 2023 and April 2023. Experts at Fannie Mae's Economic and Strategic Research (ESR) Group believe that the housing market downturn could lead to a “modest recession” overall in the second half of 2023.Is right now a good time to invest in real estate? ›
As a result of the Federal Reserve's quick interest rate rises, housing prices are shifting down from their 2020-2021 peaks. Investors in rental properties continue to enjoy historically low and reasonable interest rates. Real estate is a long-term investment with a favorable long-term prognosis for current investors.Is the 2 rule in real estate realistic? ›
The 2% rule is a rule of thumb that determines how much rental income a property should theoretically be able to generate. Following the 2% rule, an investor can expect to realize a positive cash flow from a rental property if the monthly rent is at least 2% of the purchase price.What is the cap rate 2% rule? ›
The 2% rule states that a property's monthly rent needs to be at least 2% of its purchase price in order for the owner to make a sustainable profit.What is the 4 3 2 1 real estate strategy? ›
The 4-3-2-1 Approach
This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance.
A good way to remember the documentation you'll need is to remember the 2-2-2 rule: 2 years of W-2s. 2 years of tax returns (federal and state) Your two most recent pay stubs.
Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.Is a 7.5% cap rate good? ›
Investors hoping for deals with a lower purchase price may, therefore, want a high cap rate. Following this logic, a cap rate between four and ten percent may be considered a “good” investment. According to Rasti Nikolic, a financial consultant at Loan Advisor, “in general though, 5% to 10% rate is considered good.Is 3.5% cap rate good? ›
A “good” cap rate varies depending on the investor and the property. Generally, the higher the cap rate, the higher the risk and return. Market analysts say an ideal cap rate is between five and 10 percent; the exact number will depend on the property type and location.Is a 15% cap rate good? ›
So the next time you spot an “irresistible” 15% cap rate property, you can generally assume it's not in a great neighborhood. Lower cap rates mean less risk and higher cap rates are higher risk... so, it's up to you to decide on the investment type you want.Which is generally the riskiest real estate strategy? ›
Opportunistic is the riskiest of all real estate investment strategies. It is also synonymous with 'growth' in the stock market, like 'value-add,' but it is even riskier. Opportunistic investors take on the most complicated projects and may not see a return on their investment for three or more years.What are the 4 C's in real estate? ›
Standards may differ from lender to lender, but there are four core components — the four C's — that lender will evaluate in determining whether they will make a loan: capacity, capital, collateral and credit.What are the three C's of real estate? ›
They evaluate credit and payment history, income and assets available for a down payment and categorize their findings as the Three C's: Capacity, Credit and Collateral.What is a reasonable mortgage? ›
In other words, if your monthly gross income is $10,000 or $120,000 annually, your mortgage payment should be $2,800 or less. $10,000 X 28% = $2,800 – maximum monthly housing costs. Lenders usually require housing expenses plus long-term debt to less than or equal to 33% or 36% of monthly gross income.How many times my salary should I borrow for a mortgage? ›
The 28% rule
To determine how much you can afford using this rule, multiply your monthly gross income by 28%. For example, if you make $10,000 every month, multiply $10,000 by 0.28 to get $2,800. Using these figures, your monthly mortgage payment should be no more than $2,800.
A “piggyback” second mortgage is a home equity loan or home equity line of credit (HELOC) that is made at the same time as your main mortgage. Its purpose is to allow borrowers with low down payment savings to borrow additional money in order to qualify for a main mortgage without paying for private mortgage insurance.