We get it – houses are expensive, now more than ever. It’s only natural that investors would turn to low-cost properties. On the surface, there’s clear appeal: less capital upfront for an income-generating rental property. Why wouldn’t you go with the cheapest houses you can find?

If you’re like many people, you like to browse real estate listings. Sometimes, you come across a property with a shockingly low price tag in a great part of town. You might think, “Wow! What a deal!” Then, you start looking at the pictures and realize that the whole thing has been stripped down to the studs, and it would take double the asking price or more to get it habitable. Oof. 

That opportunity might excite some more hands-on, flip-minded investors, but it’s not for us. At that point, it’s pretty evident that the property will cost you far more than the seemingly low asking price. But it’s not always so obvious. Some properties may not look the best – they’re serviceable – or be in the best neighborhood, but they’re affordable, so why not?

Well, we’re here to tell you. Here’s why investors shouldn’t target low-cost properties.

When buying an investment property, there are a lot of factors that go into the decisionmaking process. As real estate investors, you’re dedicated to optimizing your passive income—and that means weighing not only the cost of the property from the outset, but weighing its long-term potential.

People pass by abandoned properties every day. You know the type: no one lives there, no one works there. Weeds take over, windows are broken or boarded up and everything falls into disrepair.  I am not talking about the run down parts of town either.  Every day real estate investors can look in many neighborhoods where the last thing you would expect to find is an abandoned home and yet, right there in the middle of the block is a home with weeds three feet tall and pieces of colored paper taped inside the windows.  Those are the notices that the water has been turned off or that a management company has been contacted to look after the property.