To be successful, it is important to learn how to find cheap investment properties. Follow this guide to make the process easier for you.
Table of Contents
- Why Invest in Cheap Properties
- 6 Websites for Finding Cheap Investment Properties
- How to Evaluate an Investment Property
- 3 Ways to Save on Your Next Investment Property Purchase
- How Mashvisor Can Help
Nowadays, when the real estate market is practically thriving, you may find yourself unable to choose among several options. It is important to find a golden medium between the property’s price and the profit you can get from your investment.
However, the process is not easy, especially for beginner investors. Despite the current abundance of potentially profitable properties in online listings, not all of them are quite affordable.
In this article, you will learn about several options on how to find cheap investment properties. Find out how to make the most of real estate bargains despite the difficulties that may occur on your way. You will also look closer at some of the reputable real estate platforms for finding cheap investment properties in a matter of minutes.
Why Invest in Cheap Properties
What are the benefits of investing in cheap real estate properties? First things first, not every investor possesses an inexhaustible budget. Sometimes, you may find yourself unable to invest in a property you targeted a long time ago. In this case, it would be wise to look at the cheaper alternatives.
However, investing in a more expensive property may not lead you to the profit you initially expected. On the other hand, there are some advantages to investing in cheap properties, including:
Lower Down Payments
It is not a secret that low property prices also mean lower down payments. There are plenty of mortgage lenders who willfully lend against low-cost investment properties.
In addition, the average interest rates on fixed-rate mortgages are on a downward trend at present. As a result, it is now much easier to get a loan on your desired real estate property.
Different Ways of Financing
In case you’re considering investing in cheap real estate, you must be aware that you can choose among several financing options. Some sellers of low-cost properties even accept all-cash payments.
However, if you’re taking a loan to buy your future property, check your lender’s requirements for minimum loan amounts. They may not fit in your initially planned budget.
Great Opportunity to Diversify Your Portfolio
Investing in numerous low-cost properties is certainly less risky than purchasing one expensive asset. Additionally, it is a perfect way to enrich your investor’s portfolio.
By purchasing several cheap properties in different areas and with different characteristics, you can also evaluate and compare the profitability of different real estate markets.
In case you’re looking for an investment property to fix and flip, you’ll be pleasantly surprised by the number of options at your disposal. Nowadays, house flipping is quite popular within the real estate market.
Above all, there are cases in which you don’t even need to do very costly renovations before reselling your property. As a result, you simply purchase a low-cost property and flip it for a higher price, thus making a profit.
Related: Real Estate Investment Strategies Guide: Fix and Flip
6 Websites for Finding Cheap Investment Properties
Doing all the needed risk estimates manually is certainly stressful, even for experienced investors. Luckily, there are plenty of diverse online platforms designed to facilitate your research on all levels. Let’s take a closer look at several options:
Mashvisor is probably one of the most reliable and intuitively simple real estate platforms today. The start page promises that your search for investment property begins and ends there, and you can be sure there are solid grounds for such a statement.
The thing is, Mashvisor was developed primarily as a tool for effective and fast real estate analysis. However, over time, it was improved with numerous additional tools to facilitate an otherwise tedious investment property search completely.
With Mashvisor, it is easy to find cheap investment properties, as you can set up all the characteristics you’re looking for in your desired house. Also, various search filters help you compare similarly-priced properties in different areas. You can also evaluate the impact of additional expenses that may occur during your deal.
AirDNA is another platform for investment property search, but it’s rather suited for investors who are interested in short-term rentals like vacation properties. The platform analyzes the recent booking activity in a certain area. Thus, it creates listings of such vital characteristics as dynamic pricing, Airbnb income, occupancy rate, and much more.
Although AirDNA is certainly not a less preferable alternative, it primarily uses the data from public records for its analytics. Consequently, certain errors may occur within the results of your research. Bear it in mind when using AirDNA for finding cheap investment properties.
Roofstock is a name that is widely known within the real estate market. The platform’s main advantage is the fact that it mostly deals with single-family homes. Roofstock, as a tool for finding cheap investment properties, provides quite an abundant inventory to choose from.
Investors tend to place greater value on single-family properties due to their comparatively lower purchase price. Roofstock can be a viable option when you’re looking for certified low-cost investment properties.
Estated is quite popular among investors due to the wide range of tools it offers for investment property search. One of the advantages of the platform is that it’s largely business-oriented. A lot of CEOs consult Estated while looking for ways to expand their businesses.
The platform provides various search options to find and compare low-cost assets. It gives investors an opportunity to significantly expand their investment portfolio.
Wheelhouse is a real estate platform that uses recent market data in order to estimate and predict pricing dynamics. It offers various search features that you can always customize according to your primary needs.
Additionally, being a completely automated tool, Wheelhouse is very easy to use, even for inexperienced investors.
Alongside the search options we’ve already mentioned, Crexi offers an innovative auction feature. That is to say, on the platform, investors get the opportunity not only to find, compare, and purchase their desired investment properties but also to bid for auctioned assets.
The platform can be helpful for those planning to get a loan for their home purchase. If the minimum loan amount from the lender is higher than expected, homebuyers can shoot for the stars and try to get their hands on a pricier but also more profitable home.
How to Evaluate an Investment Property
Every investment property has unique features that usually significantly influence the property’s value. This is where even experienced investors may hesitate on how to evaluate an investment property according to all essential factors and, on top of that, without bias.
Defining the property’s market value is best done by comparison. Look for similar properties nearby that have been sold recently. Check their characteristics, and, the most important thing, price. The price of recently sold properties in your chosen area is a good indicator of the local market’s profitability.
In addition, checking your chosen neighborhood is another must-do. Bear in mind that a thriving real estate investment market doesn’t necessarily make your location profitable. There are still some essential factors to consider, such as:
Low Crime Rates
It’s no surprise that people want to live in a neighborhood that is, above all, safe. That is why real estate investors shouldn’t overlook this factor while assessing their deals.
Taking time to do some criminal activity research in your chosen area of investment would be a wise decision. Low crime rates in the neighborhood not only make it an alluring place for residents but also keep the property prices stable for a long time.
Related: Best Places to Buy Real Estate: 5 Cities with Low Crime Rates
Diverse Retail Environment
It’s not a secret that an economically thriving neighborhood is particularly attractive for renters. As an investor, consider checking the retail environment of the area beforehand. The availability of globally known retail stores and businesses is an important part of a profitable real estate investment.
A lot of renters believe the neighborhood’s appearance to be a crucial factor in their property search. But does it really matter? Well, here’s when you can look at the situation from the renter’s perspective: the abundance of cozy and well-kept community places, as well as the alluring landscapes of the area, can surely make any neighborhood much more appealing.
Also, notice how fast real estate properties sell in different areas. It can say a lot about what makes a certain place so popular as an investment.
The 70% Rule in Investment Property Search
The 70% rule is one of the most important factors to consider when it comes to house flipping. It is a good way to establish a positive and balanced cash flow if you’re preparing to resell your real estate property.
The 70% rule encompasses such factors as the after repair value (ARV) and estimated repair costs (ERC). It suggests that an investor shouldn’t pay more than 70% of the ARV minus the estimated ERC. For this rule to be applied effectively, it is important to obtain accurate initial calculations.
When you decide to fix and flip your investment property, the 70% rule is an excellent tool but not the only one you may need. While it is based mainly on the fixed ARV and ERC numbers depending on your investment strategy, it doesn’t take other critical factors into consideration.
The 2% Rule in Property Evaluation
The 2% rule can also be of great help when it comes to property assessment. Also, it’s quite easy to calculate: the 2% rule suggests that if the monthly rental income equals or is higher than 2% of the investment property price, then the property is considered a good investment.
However, the rule is applicable only to properties in certain areas, mostly the Midwest and the Southern US. You can understand whether the 2% rule is of any use to you if you set your principal goal and decide on the area first.
Pros and Cons of the 2% Rule
It would be wise to start with the 2% rule of investment before you can delve into a more profound real estate analysis. The estimation formula is simple and easily applicable even for first-time investors. However, there’s much more to accurate analytics than just the property’s price and its potential monthly rental income.
Despite the simplicity of the rule and its comparative effectiveness, real estate experts consider the 2% rule as sort of a myth. It can’t give you the rounded investment property analysis you crave but only calculate the rent-to-price ratio.
Even if you’re a beginner investor, you probably already know that there are much more factors to consider in a thorough evaluation. Nevertheless, the 2% Rule is certainly a good starting point.
3 Ways to Save on Your Next Investment Property Purchase
Planning your budget beforehand is essential while looking for cheap investment properties. It would be wise to take into account several ways of saving.
1. Track Your Expenses
Budget planning is an essential milestone of profitable deals for a successful investment. Keep an eye on your regular expenses, even the ones that seem too insignificant to consider.
You’ll probably be surprised by the amount of unreasonable spending. Start by slowly cutting off the most unnecessary ones. Even a small amount of money is capable of making a difference and considerably improving your savings.
2. Start Putting Away Your Income
It may sound challenging, and it is indeed challenging at first, but gradually you will get better at putting away some parts of your regular income. Planning an investment, particularly your first one, is a multifaceted process.
There are a lot of aspects to take into account, but it is wise to set the budget plan and follow it above anything else. As soon as you construct a well-balanced method for regularly saving small sums of money, you’ll be able to see a bigger picture of your financial situation and get prepared for purchases in advance.
3. Avoid the 20% Down Payment on an Investment Property
It is commonly accepted that you need to put a 20% down payment on a loan in case you’re investing in a property. For investors who are trying to keep their budgets within reasonable limits, it may pose a serious expense.
You can sidestep putting a 20% down payment by avoiding an FHA loan. FHA loan is a government-based loan that expects your property to meet some essential requirements. That is to say, a home must satisfy FHA safety standards, and the owner must take out mandatory mortgage insurance. Also, an FHA loan does not apply to properties that are owned by investors for less than 90 days.
While an FHA loan is suitable for first-time real estate investors, it is not obligatory and you can avoid it in case you’re not ready for additional expenses.
Related: 6 Non Conventional Loans for Investment Property
How Mashvisor Can Help
Finding cheap investment properties may seem a tedious process. However, if you dig a little deeper, the different aspects are quite easy to manage. Still, it takes some time to make a considerate analysis and see the bigger picture of your deal.
You’ve probably already learned that if the investment property is cheap it doesn’t mean that it can’t be profitable. Above all, there is always a solid chance that such kind of property turns out to be even more beneficial than you expected. The success of any investment depends mostly on the accuracy of your measurements.
With Mashvisor’s help, real estate analysis becomes easier than ever. All the tools you need for deep analytics can now be found in one platform. In addition to the essential calculations, such as pricing or occupancy rate, Mashvisor also helps you with finding the most profitable locations for your investment and, as a result, saves you a lot of time doing manual research.
Eager to give Mashvisor a try? Click here to start your 7-day free trial, followed by 15% off for life.