Should I Start With Good Or Bad Neighborhoods

I have been "kicking the tires" in real estate and would like to start my venture off with flipping run down homes. I am working on my Masters and work full time to pay off my wife's and my college debt. I have a hard-money lender lined up and I have the construction experience so I am planning on doing the work myself with vacation time/nights/weekends.

My question is, should I shoot for the moon and try to get a house that will be worth over 100K when done or just stick with a cheapy in a run-down neighborhood? I am leaning towards the cheapy because:
1) it's less money to owe;
2) it's smaller (less material needed to fix)
3) I could eat a smaller loan faster than a bigger one.

Any comments are greatly appreciated!

Joe[ Edited by joecrane on Date 03/25/2004 ]

Comments(2)

  • tanya121528th March, 2004

    Joe,

    First determine what the maxium monthly payment you can afford to make without tearing your hair out. That will determine what price house you can afford to purchase. For example, if you pick up a $50,000 house, then you're monthly payment will be a lot less (i.e., $400/mo. versus $800/mo.). You also have to factor in the hard money lender's fees. They usually charge high points and high interest rates. I think you can do better with a mortgage broker who can find a non-owner occupied (NOO) or investment property loan. Also factor in materials for repairing the property. You shouldn't limit yourself to all cheap homes. What if you can find a property that is worth $100,000 and the seller is willing to let you have it for $50,000 because it needs $15,000 in repairs?

    Come up with a budget and stick to it. Start finding homes that need rehabbing and if you can't afford to buy it, then advertise "handyman special", charge a $1,000 finder's fee or whatever and see all the other rehab investors who can afford it come out of the wood works...

    Tanya

  • labellavita29th March, 2004

    I'm new at this, so I'm not talking through experience mind you wink but I plan on looking at neighborhood and rentability, not price alone. Yes, I need to be able to afford to pay for the note if its not rented, but if I get in a hot neighborhood, hopefully that won't be a big issue. I could have a cheap note and pay for it for 6 months because nobody wants to live in a run-down neighborhood, or I can buy a more expensive house and just sit on it long enough for the ink to dry on the lease. Check out your neighborhoods and see what they are doing.
    Good luck!

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