If you are into property flipping or on a shoestring budget and are looking for cheap houses for sale then let us take a look at 7 smart and effective ways to buy a cheap house in 2023.
But before that, let us discuss some basics about what exactly is a cheap house, why you should buy it, what comes with a cheap house on sale, and most importantly what are the pros and cons of buying a cheap house in 2023.
In this article, you will get to know all the things you need to know before investing in a cheap house, reasons why you should invest in a cheap house rather than a lavish property and most importantly how to find these cheap properties that can give you good returns when flipped.
We have a bonus section for you where we have discussed the top 10 most affordable states to buy a house in 2023.
So, let’s begin.
What is a Cheap House and Why They Sell Cheap?
The word cheap sometimes comes with a negative connotation which denotes that something lacks quality, or is inadequate and insufficient in performance.
Sometimes it is true, but sometimes it might not be the case.
The housing market is a complicated space at the moment, and confusing yard signs and deceiving realtors doesn’t make it any better. You might be instigated to purchase a cheap house just because it is on sale but you’ll be left scratching your head when you will have to splurge heavily on renovations and repairs.
There’s always some kind of a reason why cheap houses are priced cheaply, maybe because they are smaller in size or maybe because they have inadequate carpet area, or maybe they don’t look that attractive, or maybe they just require an exorbitant overhaul. Still, if you are excited enough to buy a cheap house in 2023 then there are several important aspects that you should keep in mind.
Reasons to Buy a Cheap House – Investment, Lease, or Stay
It is easy to fall into a trap set by low mortgage interests as the lenders might entice you to go over your budget and explore homes that you can’t afford.
However, buying a cheaper house that is currently on sale has its own advantages. If you are considering investing in a residential property rather than renting it then it is recommended that you go for a cheap house that’s available on sale.
Buying a cheap house will give you the following benefits:
- Keep your mortgage payments lower than mortgage payments for a new, lavish property. You can use the saved money to get rid of your debts quicker, save for retirement or even create a college fund for your kids.
- As you will buying a property cheaply, you can use the saved money to customize your new house or do the repairs without spending extra.
- Pay lower EMIs on the house.
- Enables you to repay the debt quicker.
- Keeps you safe from unfortunate financial situations in the future.
A financially sound piece of advice that you can follow while buying a house is that buy at less than you can afford. For example, if you have a buying budget of $300,000 then try to buy a property at not more than $250,000. This decision will surely yield favorable financial benefits in the near future.
Is 2023 a Good Year to Buy a House?
Yes, 2023 could be an amazing year to buy a house, even if you are a first-time homebuyer.
Too fantastical for you to believe?
Let us explain.
In the United States, mortgage interest rates have seen a downfall and are at historic lows, they are likely to stay unchanged for the next couple of years. This means you have to pay lower monthly mortgage payments.
What does this do?
This allows the buyers to increase their buying budget and buy a higher-priced house. Minimized interest rates can help borrowers to afford more expensive properties, however, low-interest rates have also triggered more competition in the market. The home prices have gone up and there are more bidding wars than ever as a result of low-interest rates. (Source: HousingWire)
You might need to process your buying journey quickly in this seller’s market and you should proactively figure out how much money over the asking price are you willing to pay if the need arises.
Why 2023 could be just the perfect time to buy a cheap house?
Because, as more and more people are now working remotely 2023 has allowed them to reconsider where they reside and given them the freedom to relocate to a budget-friendly area without any impact on their jobs. You might be looking for a small house that can adequately accommodate your home office and this year just might be the right time to do that investment.
Advantages and Disadvantages of Buying a Cheap House
- Little investment – Buying a cheap house requires you to make a lesser initial investment than buying an exorbitant property as the down payments and deposits are quite low compared to high-priced properties. Have a look at this, a 20% deposit on a $500,000 house requires you to pay $100,000 but a 20% deposit on a $100,000 house requires you to pay only $20,000. Which one would you prefer?
- Less financial risks – Purchasing a house cheaply allows you to protect yourself from potential financial risks. If your $100,000 property drops by $50,000 then you are at a lesser financial risk than someone whose $500,000 property has dropped by $50,000.
- Potential upside – Sometimes you get a house cheaply because the locality is underdeveloped but there is a potential benefit in these scenarios. Once the locality develops in terms of standard of living and infrastructure, your property will see an amazing appreciation in its valuation.
- Potential positive cash flow – Some home sellers have noted that cheaper properties often generate higher rental yields than more expensive properties. This insight enables you to generate a positive cash flow and establish it as your source of passive income.
If you are into the house flipping business then buying a cheap house on sale in 2023 would be a profitable endeavor for you. However, cheap properties do come with their own cons and it is your responsibility to sell the house for more than what you paid for it.
As discussed above cheap properties have their own disadvantages and their low prices may be because of the following reasons:
- Damaged property
- Unfavorable neighborhood (lack of amenities, high crime rates etc.)
- Underdeveloped localities
- Far-flung location
- The property is too old and might require major repairing
Prior to investing your money in a cheap property, it is recommended to assess all of the aforementioned factors and then make the buying decision. Ascertain how much can you flip the property for, after making the repairs.
If you can’t sell the cheap house for more than you pay for it then it’s wise not to indulge in such a transaction at all.
Here is our step-by-step process on how to flip a house in 2023.
7 Ways of Discovering and Buying a Cheap House
Sometimes a house that does not have an attractive edifice or has been abandoned for the past couple of years sells for a lesser price compared to a more attractive and regulated house. If you are okay with DIY and do the repairs out of your own pocket then buying an abandoned house can be a good bet for you.
A pocket listing is an agreement between a seller and the realtor to not list the property on the Multiple Listing Service (MLS). Instead, the sellers instruct their agents to sell through their private network. This way the house doesn’t sit for a prolonged time on the MLS but it also inhibits the exposure that MLS might give it.
These kinds of properties can also be bought cheaply if you find them.
Word of Mouth
Some sellers know that their property is not worth much and that’s why instead of investing in a professional realtor or a listing platform they choose the most traditional way of selling their house i.e. word of mouth.
Keep your ears open to such kinds of offers.
Drive for Dollars
This is the practice of driving through the neighborhoods in which you are interested to buy a house and ask someone if they know of anyone in the neighborhood looking to sell their home. If you strike a deal this way, you not only have the chance to get the property cheap but you can also save a lot on the seller and buyer agent’s commission.
Auction Sales and Tax Liens
Finding foreclosure auctions varies by city, county, and state. Some cities list foreclosures for auction on the town website; Others require that banks publish auction listings in the local newspaper. If you attend a foreclosure auction, you need to have proof of funds and be able to pay cash for the property.
Old Listings, Far-Flung Areas, and Ghost Towns
Some properties that have been lying in the market unsold for a long period of time can be bought cheaply. If you negotiate properly and get an edge over the seller – who probably had no other offers for a long time – you can strike gold here.
Also, while buying a house you need to be flexible about your location choice. A property in an urban city will always be priced higher than a property that is on the outskirts of the city. If you are willing to make some sacrifices for your comforts then buying a property in a far-flung area can be beneficial for you.
» Cheapest Places to Live in the US: Find the most affordable locations in the country!
FSBO Platforms and Foreclosure Sites
For Sale by Owner (FSBO) platforms allow sellers to sell their houses themselves by listing their properties on platforms like Houzeo which enables the seller to list their property on MLS with their flat-fee MLS services, and save thousands of dollars on seller’s commission as well.
Since the seller is already saving on the commission they might be a little flexible on negotiating for a lower price.
Foreclosure sites can be an amazing way of buying a cheap house in 2023 but there are some drawbacks that come with this method. You are not allowed to inspect the property in advance, so you won’t be knowing the insides of the house and how much it might cost you for repairs and renovation. Also, if you win the house in a foreclosure auction, you can get the home inspection done, but again, you won’t be able to negotiate on the price if you don’t like the property, you will have to either accept the house or walk away from the offer.
One more bummer, you cannot ask for an inspection fee refund!
So, it is advised to be cautious while buying a house from foreclosure auctions.
To make this process even easier for you Houzeo has just the right article for you about 8 Steps on How to Find and Buy Homes for Sale by Owner (FSBO), do check it out.
Top 10 Most Affordable States to Buy a House in 2023
|State||Median Household Income||Average Home Value||Estimated Monthly Mortgage Payment|
|West Virginia||$48,850||$109,182||$355 (8.7% of monthly income)|
|Iowa||$61,691||$158,002||$513 (9.9% of monthly income)|
|Oklahoma||$54,449||$140,270||$456 (10% of monthly income)|
|Kansas||$62,087||$167,248||$543 (10.5% of monthly income)|
|Ohio||$58,642||$162,933||$529 (10.8% of monthly income)|
|Arkansas||$48,952||$141,806||$461 (11.3% of monthly income)|
|Indiana||$57,603||$167,897||$546 (11.4% of monthly income)|
|Mississippi||$45,792||$135,563||$440 (11.5% of monthly income)|
|Kentucky||$52,295||$155,599||$506 (11.6% of monthly income)|
|Nebraska||$63,229||$189,034||$614 (11.7% of monthly income)|
United States Census Bureau (for median household income)
Things to Keep in Mind While Buying a Cheap or Any House in 2023
Housing Inventory Is Limited
In 2023, buying a cheap house on sale is a good idea but a practically difficult one. As discussed above, the interest rates are at historic lows, and there is a bidding war raging in the market for a limited number of houses available for sale.
Yes, you heard it right. The supply of houses on the market is much lower than the demand.
If you do find a good property that is reasonably priced, there are high chances that you won’t be the only one bidding for that property.
“It is a seller’s market in just about every part of the country,” says Christopher Arienti, broker and owner of Re/Max Executive Realty in Franklin, Massachusetts. “Seller’s market” is a term in the real estate housing market where the number of buyers is higher than the number of sellers.
Home Buying Process Will Be Done Online In 2023
2023 has forced most industries to adopt remote working and processing and real estate is no different.
Most real estate professionals (buyers and sellers as well) have adopted technological advancements like e-closings, online listings, virtual home tours, Zoom meetings, and smaller open houses and, “going into 2023, that’s not going to change,” Arienti has predicted.
Houzeo provides a technologically advanced platform for buyers where they can make an offer on the listed homes with ease. The seller will be able to see and compare all the offers they have received on their listed house, and they can choose the best offer.
Social distancing norms change with every city, state, and country and they will loosen with now vaccines being available, however, the reliance on online tools that 2023 has taught us will not only increase the process’s efficiency but also outlast the pandemic.
What Credit Score and Down Payment Do I Need?
The credit score needed to buy a house depends on the type of mortgage and the lender. Some lenders raised their credit score requirements amid the economic fallout from the pandemic. Near the end of 2023, credit availability was 30% under pre-pandemic levels, according to the Mortgage Bankers Association. Credit availability decreases when lenders tighten their standards.
Some lenders may loosen credit requirements if the economy improves in 2023, but it may still be hard to find a lender if you have a lower credit score. Down payment requirements also vary by the type of mortgage and the lender, but could be as low as 3% for some conventional loans.
Buying a cheap house that is available on sale in 2023, or any house for that matter, is a concoction of pros and cons, whether you are a flipper, a buyer, a seller or just an investor.
While this is a seller’s market and as a buyer you might have to overpay over your budget, you can save a lot by paying low mortgage interest than you normally would. Hence, it is advised to assess your personal goals and financial capacity to see if you should buy or not. Also, if you are buying property to hold or stay then ensure that you’re an optimal mortgage candidate.
The primary advantage of buying a house this year is that you will get a home loan at lower mortgage interest, so make sure that you are capable to pay the loan off. The interest rates might be at a historic low currently but that doesn’t mean they will stay like that for a long time. So, if you have a chance (and credibility, of course!) to buy a house cheaply in 2023 then taking action today might prove beneficial to you in the future.
We hope you are still not wondering about how to find cheap houses for sale!
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