Buying rental property can be one of the smartest long-term real estate investments, but not every “deal” is what it seems. Many new real estate investors get excited about cheap rental properties without understanding the risks behind the low purchase price.
In this post, Jason Marcordes, Founder and Managing Broker of Landmark Property Management, explains why investors should be cautious with “too-good-to-be-true” properties and how due diligence, location, and rental income potential are the true keys to successful real estate investing.
The Truth About Cheap Rental Properties
Cheap rental property investing can seem appealing because it allows you to start investing with a smaller down payment and build your investment portfolio faster. But often, the lowest-priced homes sit in less desirable rental markets with weaker tenant demand, higher turnover, and increased management intensity.
The real estate market dictates price. If something is selling well below market value, it usually means there’s a reason - deferred maintenance, problem tenants, high property taxes, location, or a variety of other possible issues. Real estate investors must perform thorough market research before assuming they’ve found a bargain.
Location: The Key Factor in Every Real Estate Investment
When buying investment property, never overlook location. A property’s rental income depends on tenant quality, and tenant quality depends on the neighborhood.
You might find a two-unit property for $200,000 in a challenging area or one for $400,000 in a stronger market. While the cheaper building looks like a better deal, it may attract unreliable tenants, lower monthly rent, and higher turnover costs.
Successful investors focus on the property type, tenant base, and rental demand of the local market, not just the upfront price.
Why the Market Always Wins
We live in an age where real estate professionals, local real estate agents, and even tenants have instant access to property data. That means finding “hidden gems” is harder than ever. Unless you’re sourcing directly from motivated sellers, the real estate market sets the value.
This is why “steals” rarely exist in high-demand areas. Great neighborhoods maintain strong property values and steady rental income. Cheap properties often require substantial repairs or come with tenant issues that quickly erode returns and cash flow.
The Real Cost of Buying Cheap
New real estate investors often underestimate the expenses that come with cheaper investment properties. These assets may have outdated electrical systems, older roofs, or persistent code violations that inflate operating expenses and hurt net operating income (NOI).
Evictions, frequent maintenance, and inconsistent rent collection can destroy what looked like positive cash flow on paper. Even with tax deductions or mortgage interest write-offs, these properties can turn into a financial drain.
Why Many First-Time Real Estate Investors Fail
Many people buy their first rental property hoping for passive income but end up overwhelmed by tenant management, property repairs, and unexpected vacancies. Jason has seen investors lose money and give up after their first deal because the property required more time, money, and effort than expected.
While some successful investors can make tough areas work, they usually have deep experience or run their own property management company to control all the expenses. For most buyers, that’s not realistic.
Do Your Due Diligence Before You Buy
Before you purchase, verify every number in the proforma and build your own model. Check annual rental income, mortgage payments, and total cash investment against realistic market data.
Here’s what to review:
Rental history and tenant turnover
Comparable monthly rent in the area
Estimated maintenance and property management costs
Mortgage payment projections including insurance and taxes
Property appreciation trends and resale value
Tax benefits and tax advantages available to investors
Work with a professional property manager or local real estate agent who knows the local market and can flag potential problems before you close.
The Rare Times a Cheap Investment Property Works
There are times when buying a cheap property can make sense:
You specialize in value-add real estate investments
You have hands-on management experience and vendor relationships
You budget aggressively for renovations and mortgage interest
You’re prepared to self-manage for a period to improve cash flow
Even then, successful real estate investors underwrite conservatively and assume higher repair costs, longer vacancy periods, and slower property appreciation.
Alternative Investment Strategies
If you want exposure to real estate without managing tenants, consider real estate investment trusts (REITs) or publicly traded real estate assets. These can provide passive income and taxable income benefits without the risk of dealing directly with rental property owners or commercial property maintenance.
Other investment strategies like buy and hold strategy, house hacking, or mutual fund REITs allow investors to diversify while minimizing day-to-day responsibilities.
Watch: Jason Marcordes on Cheap Rental Properties
Jason shares his real-world experience managing rental properties across Chicago and breaks down why buying rental property in the wrong area can turn into a costly mistake.
Watch the video here:
https://youtu.be/vJCt_9ABTr8
Final Thoughts and More On Chicago Property Management
When it comes to rental property investing, there are no shortcuts. Cheap deals rarely deliver strong long-term rental income. Focus on properties in stable neighborhoods with solid tenant demand and reliable cash flow.
Smart real estate investors understand that buying investment property is not just about finding the lowest price, it’s about finding the best balance between risk tolerance, location, and return.
If you’re evaluating an investment property in the Chicago area and want a second opinion, Landmark Property Management can help. We assist rental property owners in identifying the right investment strategies, managing properties efficiently, and maximizing real estate investments for sustainable growth.
👉 Contact Landmark Property Management to learn about our services and how we can help today!
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