Should Investors Buy the Cheapest Home on the Block?

I just did a 1031 exchange into a rental home I currently manage that has about $30,000 equity built into the purchase price and over the next 5 years I will UPgrade the bathrooms and kitchen and sell once the current resident moves out.....good investment with tenant in it already AND the home has good bones to add value to my UPgrades when I do them....not the cheapest, the one with the most potential

recall the rule being never buy the best house in the worst neighborhood too. i suppose the investor should take into consideration how much work is needed too. Buying the worst home in an area of exensive homes is a good rule of thumb though.

These "rules of thumb" are great, but in the end we need to help our clients make specific decisions about individual homes on a case by case basis.

Paddy, good points to take into consideration when investing wisely.

I am a firm believer in buying anything from the mid point down the range in a  neighborhood. The biggest, best, most expensive...never!

Great advice here Paddy.  I believe buying the lowest priced homes in the area is the way to go.                                          

Good points.  If you are an investor it is better to buy at the lowest price possible.  As you pointed out, calculating the square footage price is a good idea since all houses are not the same size.

I find that investors try to use as much quantitative data as possible. Regular buyers on the other hand, frequently go with their gut instinct.

I will know it when I see it and finding it is the challenge now a days....good post

Invest in some neighborhoods for cash flow and others for appreciation.  Ideally make money three ways with cash flow, appreciation, and depreciation.  We say buy low and sell high, but if the property obsoletes you need to get out fast.

A dog in a good neighborhood can only go up in value. But if the foundation, roof line, everything is looking like Stephen King made a movie, used the place as a set, whoa. Walk, run, and do the math. Ask yourself if you are up for the Bob Vila and bills to pull off the renovations still applies.

Good point.  Sometimes the cheapest home is not the best home for your investment goals.  There are so many factors that go into it, and I have found that most people just don't get it.  

Paddy -- buying the most expensive home in the area is probably not going to make much sense for the investor, as there is not much room for added value.   The lowest priced home might also be a problem, in that there may to be too much deferred maintenance to make it profitable.  Perhaps looking at the bottom five houses will help find the best fit.

Being cheap costs you in the long run.