Re: Why I Don't Like Cheap Properties

58 Replies

@Donna Brown

Welcome to BP, but lets keep the thread and not divert the attention on the topic at hand....You may ask the question on a different forum..

If you send me your pm, I can send you one.

Thanks

@Radhika M.

I agree...that's the point being made here.

Thanks for your contribution

NA Onyido

I understand. Buying cheap doesn't mean buying bad properties. The key thing is to buy in good areas.

It's all relative to the asset class and what your goals are.

I avoid marginal areas regardless of what the cap rate is. The reason is the area can go from average to bad quick and you are upside down on your investment that was mainly a high cash flow play.

I like buying opportunistic properties in great areas that have an equity growth upside component. The value properties in commercial like this are a few million to start instead of the 30k houses.

If national median income is about 54,000 and I can find an area with income over 80,000, low unemployment, high population growth, low crime with most offenses being non-violent in nature, and a strong county or city base with a strong economic planning department then my odds are good. Where I am suburban areas thrive and urban core is too expensive and doesn't make sense. Rural unless you are a local investor the value isn't there to be unlocked for the intense focus it takes. 

@Joel Owens

"national median income is about 54,000 and I can find an area with income over 80,000, low unemployment, high population growth, low crime with most offenses being non-violent in nature, and a strong county or city base with a strong economic planning department then my odds are good. Where I am suburban areas thrive and urban core is too expensive and doesn't make sense. Rural unless you are a local investor the value isn't there to be unlocked for the intense focus it takes."

I like these metrics... one can retail flip with these metrics and a rental should appreciate very nicely over time.. and not get beat up.

Cheap is were you find it.  you could pay 700k in Cupertino and that would be Cheap but its not a bad area. 

I think in the context of what gets talked about on BP its the 5 to 30k all in homes that are defined as Cheap.... and you can find these jewels in many smaller towns in the mid west that are cheap but not in BAD areas.. they are cheap for a reason.. population has left. Farming has mechanized ..

Originally posted by NA Onyido:

Hi BP Nation,

Although a number of experts on BP specialize on sub 30-40k properties and have made a good success out of it, Mike argues that it is a nightmare for out of staters and this should be a no-go area…

Read full article here:

http://www.investwithpinnacle.com/#!Why-I-Dont-Like-Cheap-Properties/cepd/5525afef0cf2aa18119295ff

Do you have a different opinion?

Let me hear your views.

So I've read the article & the title should be changed from "I don't like cheap Properties" to "I don't like high crime neighborhoods."  

We've purchased properties over the years in various markets for flips & rentals for our own portfolio.  And we've learned not to generalize.  Cheapest property ever purchased in Chicago was $17.5K; $80K in renovation;  later sold for $180K.  We didn't live in Chicago @ the time.  Our Chicago brokerage manages properties for ourselves & some clients.  Some of the property was originally purchased sub 30-40K properties & the crime map for the block & surrounding area is low crime.  Many times it's because of a strong block or neighborhood association, a strong church near by...  Whatever the reason it's a stable block.  Then we have properties in 6 figure areas around Chicago & guess what- crime map for the area is high.  I agree w/ the use of the crime map & the general notion that you'll find more crime in low property value areas but....

Example:  We owned several properties in Texas & Florida.  Average after repair market values between $250K to $.5M.  Purchased the properties from auctions, wholesalers, realtors....  @ deep discounts, renovated & prepared them for either sale or rentals. Totally ignored the sub $100K.  Great properties, good neighborhoods but it took a long time to sell and/or rent them.  We found we had too many eggs (capital) in this price point basket.  We did ok, but the experience moved us to rebalancing our portfolio so we're not dependent on one niche.

Last point regarding the article & the crime maps.  While the crime map is a good barometer, sometimes it's wrong.  I can't speak for the rest of the country but in Chicago there's a correlation between the crime map & weather.  One of my partners, not a native,  purchased in a so called low crime area using the crime heat map.  He didn't discuss the area w/ me before making the purchase.  When he finished the reno he had problems moving/renting  the property.  He called & asked for advice.  When he told me where it was located I told him that it was a problem area.  He said "But it's green area"  We got on line & looked @ it together & he was shocked to see that the crime map had changed.  My explanation: Cold weather kept the criminals inside for a few weeks.

@Crystal Smith

I want to thank you for the details and your personal experience with this type of investements..

of particular interest is the correlation between crime and weather; is this your hypothesis or do you have any proven statistics/research on this?

Thanks again.

I'd love to chime in but I'd hate to get my slime all over this thread. 

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