Should You Buy Cheap Houses for Investment in Pennsylvania/Delaware?

Buying a house for investment, especially when it comes to properties priced under $20,000, requires careful consideration. In the Pennsylvania/Delaware area, such properties present both opportunities and challenges. Whether you plan to manage the property yourself or go through a professional property management company, this guide aims to provide insight into the key factors you should consider.

Rental Opportunities and Management Costs

If your goal is to be a landlord or start a property management business, investing in a cheap house could be a viable strategy. However, it's important to factor in the costs associated with rental management. Property management companies typically charge around 6% of the monthly rent. This can be a significant expense, especially when you're dealing with low-rent properties.

Property Condition and Maintenance

Properties in the $20,000 price range often come with a set of challenges. These homes are frequently located in neighborhoods that are high in crime and poverty. This can make them less appealing to potential tenants and raise concerns about safety and maintenance.

The property may also need extensive repairs, which can be both time-consuming and expensive. You have two options: either develop skills in property maintenance and repair or budget for professional help. Both options require a significant upfront investment, so it's essential to weigh your resources carefully.

Government Assistance Programs

One way to mitigate the risks associated with low-income neighborhoods is to consider renting to Section 8 tenants. This program guarantees that you will receive a significant portion of the rent, and tenants are required to maintain the property. However, it's important to note that the government inspect the property annually to ensure it meets its standards. Regular maintenance checks may add to your workload and costs.

Mortgage Challenges

Borrowing money to purchase a property in this price range can be challenging. The area often has a high number of foreclosures, and lenders may be hesitant to offer mortgages due to the potential for repairs and the creditworthiness of the borrower. If you plan to use a mortgage, be prepared for a thorough evaluation process and possibly higher interest rates.

Investment Strategy and Long-Term Outlook

Buying a property under $20,000 for immediate resale is not a recommended strategy. These properties tend to be located in blighted areas, making them difficult to sell for a profit. Instead, consider a long-term investment plan. Once the property is in habitable condition and stabilized, you can secure a mortgage to finance another property, enabling you to increase your investment portfolio.

By purchasing properties at lower prices, you can buy more properties over time, leveraging the strength of the rental market. This approach, often referred to as rental real estate investing, allows you to build a diversified portfolio and grow your wealth over time. Remember, the key to successful property investment is to have a strategic plan and be prepared for the challenges that come with managing low-income properties.

Conclusion

While buying a cheap house for investment in Pennsylvania/Delaware requires careful consideration, the strategy can be rewarding if approached with the right mindset and planning. Whether you're a first-time investor or an experienced landlord, it's crucial to understand the local market, the needs of tenants, and the potential for long-term gains. By taking the time to research and prepare, you can make informed decisions that will lead to a successful investment journey.