Let me open with this. If the houses in the hood are so profitable, how is it do you suppose that the locals have not already jumped all over them? Do you think the fly-over states are void of people with capital? Are we all just so incredibly stupid here?
Incurable. It's an appraisal term. It's when the cost of repairing something will not return in value at least the same amount it cost to make the repairs. This is one-part of the simple explanation of why the houses in the ghetto remain houses in the ghetto (the other part is cap-ex in relation to rent). As Joe pointed out, there is a difference between a $30k house that could sell for $100k after repair and a house that will never be worth more than $30K no matter how much you sink into it.
That means, if you want to buy in the hood, it's buy and hold only. That appreciation you think is coming, might take longer than you will live. It might take longer than your kids will live. It might not ever happen. We are not talking about a block or two here, we are talking about thousands of homes on thousands of blocks.
You gotta see it to believe it folks. Ever been to Gary IN? Heck, Gary is literally next door to Chicago. Part of it even. Closer to downtown than most of the Chicago suburbs. Talk about depressing. (Sorry Gary, you are what you are.) How is it that investors are not scrambling to buy in Gary?
I really liked Joe's post and am going to reiterate it again. The profitable way to buy in the hood is to not make any repairs. And this is truly the part of the story where it gets personal for me and I start to get angry. Slumlords help nobody but themselves and leave destruction in their wake. It is money over respect. Heck, money over humanity. Me, myself and I. Screw the rest of the world.
The thing is, the rest of us live in that wake. Human beings. This is the part where everyone can take their self-help crap and stick it where the sun don't shine. The game is, and always has been, rigged. It's not fair. I'm not a commie and I'm not saying the U.S. is not the land of opportunity - not at all. I'm just saying it isn't as even-steven as some dreamers imply. I'll give you one example from my home town, and it's an ugly, ugly thing.
The United States as-founded and has long-been, extremely right-wing (and for goodness sake, learn what right and left actually mean people - omg). However we have also long had many left-wing traditions, one of them being the ideal of upward mobility through equal opportunity, brought by the great equalizer of a quality public education for all our children. The education system in the City Of Milwaukee is so bad, one could say it is a crime against humanity. I have a friend who worked in the system for a time. She was reporting her students grades to her superiors and they were not good. The response from her superiors was, dumb-down the tests so the scores will go up. Wow. That's what I'm talking about. This is also why anybody around here that can afford to live outside of Milwaukee in a better school district does. (And by contrast, the suburbs can boast some of the best school systems in the country.)
If investors want to come to a place like Milwaukee and give it a go, fine. I can't stop you. Don't say I didn't warn you. I might even laugh a little when you step on a landmine. But know this, slumlords are NOT welcome. We have enough systemic and generational problems already, we don't need greedy out-of-towners, who don't care about us, who refer to us as fly-overs, coming in here and sucking the last bits of life out of an already dying community.
That's the nice version. The not-so-nice version is GFY.
I put my heart and soul into each property I buy. I fix it up nice so my tenants have a nice place to live. Some of that is respect, some of that is strategy. Every time I get a new one, I go down the street and pick up all the trash on the entire block, both sides of the street, each and every time I go to the property. Neighbors take notice. Neighbors get friendly. People follow suit. When people start to feel good about where they live, they start to feel good about everything else too. It's absolutely contagious. Things begin to get better. People stop shooting each other. The same is true in the opposite way. Slumlords are the last thing an already distressed city needs. Please go away.
And finally, because the only thing people on here seem to understand is numbers, the second piece of the financial story is cap ex. Dan's post explains this dynamic perfectly. Every house is costing you money in cap ex if it is vacant or rented, no matter the cash flow. Envision a dial that spins continuously and never stops. Most repairs cost the same per sf if you have a ghetto house or a suburban one. Rents to pay for these however, vary greatly. Run the math on that and get back to me.
Now, if you do not intend on being a slumlord, welcome. I mean that. We need the properties fixed up. However, I still suggest you run the math again. I make it work because I self-manage, self-repair, self-books, self-taxes, all of it.
And for the guy who said people like me are naysayers because we don't want the competition? Plueeze. I would love nothing more than to see the thousands of distressed homes in Milwaukee and Detroit and Gary and everywhere descended on by a swarm of investors who were interested in fixing them up and improving the communities. There is plenty for everyone and really, there aren't enough investors out there to get the job done.
Sigh.
In a somewhat related vein, I can't figure out why people always say they want 20 doors. That just seems so dumb to me. Why not have 1 door that is 20 times as valuable? My strategy is to start where I must, and then when I have the cash flow that suits me, begin to trade up and out of bad areas to better, from more units to less. Of course that can only be taken so far, but I just wonder why nobody ever seems to talk about doing it.
My uncle is pretty loaded. He has one rental property. It's a million dollar condo on the coast of Florida he rents for $300-400 a day. I hardly think it's the most profitable rental property out there, but it sure is easy. The best part is, I can stay for free. I sure am glad he doesn't own 50 ghetto houses instead.
K. I've said my peace/piece.