Want to Invest in Urban Communities? Read These 3 Crucial Tips First!
As many newbies quickly realize, there are tons of strategies and differing opinions about where, when, and how to invest in real estate. There are many BP blog articles written on the dangers of buying "cheaper" properties and properties in urban communities. Clearly, you need to be careful and conduct your own due diligence on whichever path you decide to follow with your real estate investing business.
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Over 10 years ago, my husband Matt and I made a conscious decision to invest in our state capital, Trenton, NJ. Trenton has the characteristics of many other state capital cities. The city continues to work towards making improvements to increase safety, homeownership, and commerce, while struggling in some areas. We have made some great purchases and investments in this city, while there have been other purchases that, well, if we had to do it over again, we might not have purchased.
Currently we own and manage over 60 units in the Trenton area. We have about 30 units outside of the city. Just like any niche in real estate investing, you have to do your research and know your market. However, I would go one step further to say that there are even more considerations to keep an eye out for when a person is looking to invest in urban communities.
After spending 10 years in Trenton investing in real estate, here are some learned lessons that I hope will help you as you look to invest in a small, local urban communities.
3 Important Tips for Investing in Urban Communities
1. Ensure your strategy aligns with the market.
I wish I could say that when we began investing, we made all the right decisions with where and how to invest. However, this would not be true! We have made our share of mistakes. However, the key is that we have learned from them and become stronger as a result of them. One of these mistakes was deciding to "flip property" in Trenton. Our vision was to take these large, historic homes and turn them around into something beautiful for a homeowner. However, what we did not realize at the beginning was that the percentage of homeownership (and still the same for today's market) has declined in Trenton. In 2008 (of all years!), we flipped a handful of homes. We only sold one home and still have the others as rentals. Remember, you have control over implementing your strategy. You don't have control over the market conditions. Make sure you align with them!
2. Don’t just invest in the city; become part of the community.
Not everyone that we meet who invests in Trenton wants to become part of the community. Quite honestly, they have no interest in making a difference in the community. They simply want to make money. Well, we have a philosophy that we believe: You can make money while making a difference. When we began investing in Trenton, we worked hard to become part of the local community. This has been critical to our growth. For example, we own a commercial building on a fairly busy street called South Broad Street. We have an agreement with the church across the street that if our tenants park in their lot, then once a month they need to volunteer in their church. This is one small way to help build community.
Additionally, over the years we have decided to focus our energy on this particular area of Trenton. In addition to the 10,000 SF office building in our portfolio, we have one 4,000 SF mixed use building under construction on the street, and we are purchasing two other buildings on the same street. It is critical in urban communities to improve not just one property but a cluster of them.
3. Build a strong, local team.
Many people are very attracted to investing in urban communities. Properties tend to be a little cheaper and rents remain high. However, you can’t just invest because cash flow will be high. You have to know your neighborhoods or have someone on your team who knows each neighborhood. There are neighborhoods we invest in and neighborhoods we avoid investing in in Trenton.
Unfortunately the media tends to only report on the things that are going wrong in urban communities. Not every potential team member will be comfortable working in the city you are choosing to invest in. We have been able to build a team of in-house property management staff, contractors, attorneys, real estate agents, wholesalers, and lenders who are comfortable in Trenton. You will need to find local team members as well who are comfortable working in the areas you are considering investing in.
While the overall population has been declining in Trenton, the Latino population has been increasing. About six months ago, we decided to hire a leasing agent who spoke Spanish. This has made a huge difference in decreasing our vacancy. It pays to have someone on your team who is equipped to serve the growing community.
In summary, make sure you conduct your due diligence and talk to as many investors as you can in the urban communities you are looking to invest in.
I would love to get some chatter going. What did I miss? Do you agree or disagree with what I have shared?
Thanks for reading and happy investing!