To 'hood or not to 'hood
Property Manager · CT · Member since 2009 · 5 posts · 0 votes
Hi Everyone--
I am looking for some insight about investing in the hood aka rougher part of town, where properties are much less inexpensive - it would be nice to help contribute to these rough areas by making them look nicer and more inviting.
At the same time, there are a lot of concerning elements to contend with.
I look forward to your feedback!
Alison
The other point that I wanted to interject is that while Tim and I believe anyone can find great deals with a lot of work, I would also like to say that these deals don't literally occur every day (at least not here in Ohio). That's certainly another issue, especially if you're in the business of selling property. If I were in the sales business, there is NO WAY that I could find a couple of deals each and every week that would meet the 2% rule or cash flow using the 50% Rule. There's a lot different between buying one rental each month to hold and needing to continuously buy rentals so that you have inventory to sell. In the sales business, if you don't keep doing deals, you're out of business. In the rental business, if you couldn't find a deal for a month or two (or even a few months), it wouldn't matter. In fact, once you have the number of rentals you need to generate the monthly cash flow you want, you never have to find another deal. So, that's a big difference that could affect our perspectives on the availability of cash flow properties.
Mike
A valid point Mike. I would have to say that great cash flow deals (if you are willing to invest in the areas and in the format that Mike does) are much easier to find in OH. Even for a sales guy, I am confident you could line one up each week minimum which would support a sales income.
Sounds like a deal Tim!
No telling if I will get it but I will keep you posted for sure :) Somehow I will work out the best way to invest there for myself. Worst case I might end up visiting (if I don't transfer) in order to invest. If that's the case, we can split the bill ;)
Tim, I'm very impress with your geographic knowledge. You are correct, in Richmond, it is possible to find deals. I choose not too cause Richmond is always on the news and it's not a good thing. Oakland is another area. Funny story, in college, I took African American Study, I was the only asian in the class out of 163 students. Professor was giving out extra credit for those who visited a Black Museum, but there was only one problem, it was in Oakland, located in one of the most challenging neighborhood, you should saw all the reaction, no one from class wanted to go. Professor response, "Hey guys, it's safe during the day." lol
Eric,
It's not terribly difficult to figure out where price points start in an area. Sure you'll have some dogs at the bottom, but Richmond for example, has 50 houses currently listed at/under 50k. Like you said though, some have an issue with comfort.
One of my previous jobs was adjusting insurance claims in Chicago and I was frequently sent into some of the worst neighborhoods of Chicago. During that time I was the victim of an attempted break in - in one of the nicest neighborhoods of Chicago. I lost a fear of "bad neighborhoods" but at the same time, it's no mistake I took my business to Indiana where I'm allowed to be an armed citizen.
Honestly though - if you're not even comfortable being there and don't want to outsource "everything" to a PM (you will be managing your pm, make no mistake), you're going to have a very hard time having the comfort to enforce a lease there.
Tim
I lived in Milpitas for 3 years and would not buy anything in Richmond. The crime rate is ridiculous! It is not only one of the highest in the Bay area, but ranks up there for the entire state of California!
That place is really rough!!!!
:shoot:
I like properties where my wife would not be afraid to pick up the rent.....well, at least during daylight hours! :mrgreen:
Investing in the hood can be lucrative. You will really have to have your stuff together though. It will take contracts that are month to month because you do not want to be tied down to a contract. Another key aspect of renting in low income areas are the wear and tear on your house. I always try to make the house better each time someone leaves. When one renter leaves it is time to update the house!
It can be done but there will be more headache then upper level houses. I think you should find a multi unit place so you can have diversity. If the renter is gone you still have income from another renter with multi-housing.
To Ascention Success,
-TLS
Since you mention assigning contracts in your profile, I wanted to offer a wholesaler’s perspective. Actual “investing†in the hood has both pros and cons, which has already been discussed. But if you’re talking about wholesaling, YES, get your mind out of the burbs and into the gutter!
Many, if not most, new wholesalers, who haven’t spent much, if any, time in the hood, are the same way I was when I got started, apprehensive, if not, fearful.. The natural tendency is to look for deals in the suburbs. It ain’t gonna happen. When I talk with new investors who say, no war zones or not these zip codes, I say, call me back in a couple years when you’ve found your first deal. The “spreads†or profit margins simply aren’t there. The deals in the burbs are usually proportionate to the repairs required, where the deals in the “rougher†areas have disproportionately higher profit margins.
For the purpose of wholesaling, the inner-cities or older, lower-end neighborhoods are where you wholesale. I have come to learn that whether or not a neighborhood or individual house is “nice†is all perception, anyway. I now see beauty in all structures. A good wholesaler looks beyond the filth, stench and decay. A good wholesaler sees a house just like a good rehabber, for what it could be, not for what it currently is.
Having grown up in a small, all-white town in Ohio, the inner-city of Atlanta where I got started was culture shock to me. But I gotta say, living in the North Georgia Mountains when I first arrived, where every person I saw had some sort of camouflage clothing on and a bloody deer strapped to the hood of their car, was culture shock, too. Can anyone say, “Deliverance?†The fact is there are good people every where, just as there are bad people. The bad people are just better concealed in the burbs.
I’m not trying to suggest that some of these neighborhoods are not truly scary and dangerous. They can be. I sold a few houses in an area known as “The Bluffâ€. It was only several blocks big, but accounted for the highest murders per capita in all of Atlanta. The thing to keep in mind is most of the crime takes place at night, against and among hooligans who live there. It’s not like investors, delivery drivers, mail carriers, utility workers, service technicians, and other outsiders are being slaughtered by day!
What I’m trying to get across is you don’t want to fear the place you work. Bad elements can smell fear like paint on a wall, and fear breeds vulnerability. I see it all the time, investors driving neighborhoods with their windows rolled up, doors locked, afraid to glance too far from their notebooks. I even know investors who won’t go down to the hood unless they’re packing heat. To each his own, but sometimes I think some issues run a little deeper than practical safety.
Be cautious, not nervous. Simple eye contact can go a long way in dissuading malicious intent. Just like the mighty lion in the savanna … whenever their prey looks away or looks down to eat, the lion creeps closer, and if the prey looks in the direction of the lion, the lion will cease its movement and remain still. Act like you are in control, like you belong there, and you will be fine. Even though I know many independent and confident female investors who get along just fine by themselves, I normally recommend that women take someone along with them whenever possible.
I just joined this forum yesterday and I saw your post. I've been investing full time in primarily New Haven Ct since 1992.
I own 2-6 unit unit buildings and do flips when timing is right.
Anyway, I've owned in hood and some war zones although in 06 I did 1031 exchanges and got rid of war zone properties .
Anyway, to answer your post, investing in the hood is very profitable but do do it to " it would be nice to help contribute to these rough areas by making them look nicer and more inviting." you'll be very disappointed.
MORE THE MOST PART - people living in the hood have a very different reality than you.
If you decide to invest in the hood, be happy and take pride that your offering a DECENT apartment - not a slum lord apartment.
That will be appreciated but anything more in my opinion, is fruitless. It won't get cared for.
Feel free to contact me if I can be of any assistance.
Mark
•Vacant houses return to the tax roles providing more revenues for local government
•Rehabilitated property reduces that impact of housing shortages
•Investors utilize many resources from agents, lenders and appraisers to title agencies, attorneys, construction crews, landscapers and on and on
•Incomes are generated and local businesses are patronized
•A flourishing housing market equals a flourishing economy
•And I help other aspiring entrepreneurs become successful real estate investors
In 1999, after a year of reading books, “harassing†other investors and faxing typed letters from the floor of my apartment (Yes, with a typewriter. I didn’t even own a computer.), I bought my first house, a duplex, with a no-credit-check loan at 10 points - 18% interest, yikes. I had just quit my 3rd shift job working in an archaic, limb and digit risking envelope factory. I had two weeks before my rent and car payments were due, and I had no money.
I was able to pull some cash out of the repair escrow to stay afloat. While putting on a new roof and painting the house, a lady from across the street who managed a rooming house (or more accurately, a drug dealer who managed a crack house) had come over to me and said she wished I could do that to her house. I said give me the name and number of your landlord. Within two weeks, I had seven rooming houses (drug houses) under contract. These houses were beyond imagination, piled with filth, raw sewage and lived in.
I ended up buying and selling four other houses on that same street. The rehabilitation that was going on, in turn, had brought other investors into the area. Over the course of a couple years, the whole street had turned from a war zone into a neighborhood.
You CAN do good in the hood!
Yes, you can make a difference buying property in the hood. With a few key purchases, you can turn an entire street around. You can make properties look better and you can provide a safer and cleaner environment for the tenants. You can cut down on crime. You can turn vacant buildings into properties that generate income for the community.
BIG DEAL!!! That same community (government) that you are "helping" will try to screw you at every turn - through landlord registration, fees, inspections, trying to make the landlord pay the tenant's water bill, etc. The tenants that you are trying to "help" will also screw you at every turn. They'll destroy that newly renovated apartment; they'll sell drugs out of your apartment; they'll steal the appliances, they'll move in 10 of their best felon buddies, etc.
So, while it is possible to do some good, that is strictly a side issue. I'm all for taking pride in what you do. I have turned several entire streets around in my area and am proud of that. However, that's just a side benefit and I certainly don't do it for the tenants or the community! THE ONLY REASON to be in the rental business in the hood is to MAKE MONEY! If you want to "help" people, my suggestion is to volunteer to feed the druggies at the food bank!
Good Luck,
Mike
There are grant programs for buying properties in lower income areas. Check with your local office where you can inquire about grant programs for buying those types of properties. I have a good friend in North Carolina who received over $800K to buy and rehabilitate "hood" properties. It'll be worth it to make an inquiry if you're wanting to pursue "hood" properties...