Low Income Housing
I am curious if anyone has a formula or some good advise on when a property is a good investment. There are several properties in my area which can be bought for 25,000-30,000. They are mostly small 1-2 bedroom houses in moerate condition, however the neighborhood is not no great. I struggle with this because I know ideally a house in a good neighborhood is the best way to go, but I really think these can turn a positive cash flow. Any thoughts on low income property purchases? Thanks. Neil
The most important thing with real estate is location and the most important thing to know about business is supply and demand.
This being said there is always a market for every house on the market. You have to look at supply and demand and then price it at a level that supports the market.
As you probably figure it will take more work with low income tenants. For some unknown reason to me at least poverty and filth and lack of pride go hand in hand. I have had hundreds of tenants and have only given back one deposit ever. This may say something about my screening process but what do I have to choose from. They do not expect near as much but it needs to be safe and clean to rent to start. I do not buy unless the rent is double the payments and I do not like one bedroom properties. They all move at the drop of a hat but these are faster to go. They are easy to rent because all the cousins and uncles can live cheaper. Just a few points I felt like saying. Get a big stick. Rent the movie "The Super" and see what it is like in low income areas. Hang out by the grocery and convience stores and see how much rot gut and beer is sold.
Good LUCK and HAPPY HOLIDAYS
Hope this helps some
Ted Jr
Some of the courses I have taken recommend buying property near the mid to upper end of lower middle-class neighborhoods. I have found this to be very sound practice. The trouble with higher-end pride-of-ownership properties is 1) cash flow 2) when the economy gets soft higher vacancies or lower rents soon follow.
I have owned places that I would not want to own now because they were a little lower class than this. Even these improved over time as local property values increased.
Hello!
Good topic as I've been looking at places in neighborhoods I wouldn't walk in after dark. The lure of making double and triple the mortgage is seductive.
The way I've thought of entering this market is to hire a management company. I'd pay'em their 6%, but then I'd not have to go into that neighborhood, but that may be faulty thinking...
What I'm going to do today is contact some of management companies in that area to find out what they charge, the rent to be expected/unit and the vacancy and eviction rates as well. I'll then talk with my partner, my wife, and she'll put the kibosh on that -maybe!
Thanks,
OnTheWater
Ok, I just got off the phone with a property management firm, and they charge 9%, but they're in the war zone that I'm looking at.
Here are the typical rents for the area:
Single fam. $650
1bd $325-$450
2bd $450-$550
3bd $550 $650
So, depending on the purchase price, mortgage, insurance and taxes, I'll make $ or I'll not.
Now, I just gotta float the trial balloon and see what my lovely bride has to say.
Thanks,
OnTheWater
You can make money there also. Just dont count on any appreciation. And plan on double the repairs.
Make your money with the higher cash flow and not appreciation. A few more problems but can make more sometimes with more homes and higher cash flow than appreciation and less cash flow.
Main thing is condition of home. Any upgrades, what you will need to put into it over the next 10 to 20 years. Make sure cash flow will cover this. Will you have to almost rebuild it over the years. If the cash flow will not cover this, dont plan on getting anything back when you sell like you would replaceing a bathroom in a 100K home.
Good Topic. What's clear is that there's more than one way to skin a cat.
I prefer to buy nice homes in good stable neighborhoods in the 2nd best high school district in town. Rents for a 3/2 are $900-1000. Generally, I get a better class of tenant - people who are generally sane who may have been or may be homeowners someday. At this point in my life, I just don't want the hassle that I associate with low income rentals - altho, in all fairness, that's where I started 25 years ago. It was an Education.
So, I guess the upshot here is to know yourself - what you're good at, what you're willing and able to do, and what your game plan is. The deal has to make sense, but even if it does: if it feels like a stroll through Dante's Circles of Hell, it's not a good deal FOR YOU.
Be well . . . .
2 more cents - -
I would take into consideration all experienced words advised above and then:
a) Trust your instinct
b) If you decide to go for it and then realize it isn't for you, consider how long it will take to sell the property and whether this is acceptable. (Bail out plan).
Positive cash flow is good. Often the best place to find the greatest cash flow is in the neighborhoods that you wouldn't live in personally. And that's okay. I say, try one out, see if it works for you and keep a BOP, (bail out plan)
Good luck -
noel
[ Edited by noel2 on Date 12/04/2003 ]
I enjoy investing in low income areas and I have found them the most profitable areas all around. However, I have never seen a good book that clearly spells out a clear strategy for investing in these areas. Roger Neal probably has the best book, but even that strictly deals with doubles and doesn't mention the very best tricks of the trade(maybe he doesn't want to help the competition too much). There are numerous pitfalls in this market. Without attempting to write a book(which I have no intention of ever doing) I would suggest that you buy a really, really cheap house in a low income area and give it a try. Believe it or not, the houses in these areas sell like hotcakes(to investors) but you have to get the property so cheap that another investor will find it irresistable to buy it. Owners of property in low income areas are much more open to low ball offers. I have commonly seen properties sell for 1/2 to 1/3 list price. Just for starters, make sure you spend time with the tenants and neighbors and try to give some odd jobs to people in the neighborhood to generate good will, buy small houses that will have low utilities and lower maintenance, make the houses bright and warm(these are people), keep rents 10% below competitors. Don't be too worried about crime. Just do like your tenants do, don't walk the streets at night and don't even drive through on Friday night.