For “hands on” type investors like myself, I have long held the notion that the best type of real estate to buy, when you are just starting out, is something between rundown and ugly and a complete “Junker”. The degree of rundown or ugliness will be mostly dependent upon how brave you choose to be. Personally, I think the braver you can be the better off you’ll be with your first several acquisitions.
You can almost always buy these properties for much less cash up front (lower down payments). Also, it’s likely the seller will be forced to accept much weaker terms. Lower equity payments and carry back notes are very common. Many of these deals can be 100 percent owner financing. Ugly, junker type properties are generally older properties, too. Many of them, no longer having conventional mortgages, like bank loans or savings and loan mortgages to payoff.
When they do, they are most often low balance loans with good interest rates and almost always assumable to new buyers. For “start out” investors especially, let me say this loud and clear – Owner financing is the kind you want. Owners are almost always more flexible to deal with than banks.
Sellers of these kinds of properties ate not in a position to be very picky about who they sell to. They can’t play “hardball” with the price and terms like owners of higher quality, nicer looking properties. The main reason is because 95 percent of all potential buyers are “turned off” by the rundown condition and ugliness. Consequently, lack of buyer competition will greatly limit the owner’s ability to sell.