Does Real Estate Investing Revitalize Neighborhoods?
Real Estate Agent · Madison, WI · Member since 2015 · 328 posts · 88 votes
So My friend @Dawn Anastasi
just posted a story: http://www.biggerpockets.com/forums/311/topics/201...
about rough neighborhoods in the US and it got me thinking. I know that in the roughest neighborhoods you have a hard time spending money on rehabs and still making a good return with vacancies and maintenance as well as keeping equity in the house. I have heard that investing around the edges of the rough neighborhoods can help though. You bring in cash in the places where it's needed and provide quality housing while enforcing the rules. So you have a decent ROI and in theory you help out the neighborhood. So my question is: do you believe that real estate investing helps revitalize neighborhoods? In other words, are we like a for-profit Habitat For Humanity or is that just dreaming?
Only if its done right. And here is what I mean.. If you invest in rougher areas to get a high cap rate, lets say 15%... more than likely you are going to sacrifice on quality of tenant, quality of rehab, or you choose an area that has no redeeming qualities what so ever. IMO somewhat of a slum lord approach and values will never increase. You will be the reason they won't increase.
But.. if you are buying in rougher areas that happen to be located conveniently close to something, like "downtown" or the "nightlife district" or something noteworthy and desirable. But still rough. Not super ghetto but "rough". Then, you price your rents slightly below market value, and make sure your house is a cut above the competition. You settle for a 10 cap, and screen the hell out of your tenants. Once you have 1, you look for the worst neighboring house on your block. Try to buy that one. And repeat the process. If you bring other investors on board (sell them turnkey, or just raise money) you can actually acquire enough houses on one block to change the entire demographic of that block in just a couple years. A lot of times other investors will take note of what you are doing or better yet you find other investors doing the same thing and jump in on action. I love having relationships with wholesalers (that sell to retail flippers) and retail flippers themselves because they always know where the next highest comp will be. Their current or next flip! right? I will always pay a little bit more than I normally would for a house if I know properties close by are getting fixed up by reputable investors that have a like minded approach of bringing values up.
Its also nice to really pay attention to areas that are rough but have a group of homeowners that have meetings, hold neighborhood "clean ups", block parties, festivals etc. People that care. If you jump on board with folks like that and fix up dilapidated houses in there area they will love you forever and try there hardest to refer good tenants or buyers your way.
I think the most important factor is the same in all real estate. Location, location, location. For me if an area is geographically close to valuable property then it has a chance. It just takes vision, commitment, and of course the king of everything. Cash. lol.
Only if its done right. And here is what I mean.. If you invest in rougher areas to get a high cap rate, lets say 15%... more than likely you are going to sacrifice on quality of tenant, quality of rehab, or you choose an area that has no redeeming qualities what so ever. IMO somewhat of a slum lord approach and values will never increase. You will be the reason they won't increase.
But.. if you are buying in rougher areas that happen to be located conveniently close to something, like "downtown" or the "nightlife district" or something noteworthy and desirable. But still rough. Not super ghetto but "rough". Then, you price your rents slightly below market value, and make sure your house is a cut above the competition. You settle for a 10 cap, and screen the hell out of your tenants. Once you have 1, you look for the worst neighboring house on your block. Try to buy that one. And repeat the process. If you bring other investors on board (sell them turnkey, or just raise money) you can actually acquire enough houses on one block to change the entire demographic of that block in just a couple years. A lot of times other investors will take note of what you are doing or better yet you find other investors doing the same thing and jump in on action. I love having relationships with wholesalers (that sell to retail flippers) and retail flippers themselves because they always know where the next highest comp will be. Their current or next flip! right? I will always pay a little bit more than I normally would for a house if I know properties close by are getting fixed up by reputable investors that have a like minded approach of bringing values up.
Its also nice to really pay attention to areas that are rough but have a group of homeowners that have meetings, hold neighborhood "clean ups", block parties, festivals etc. People that care. If you jump on board with folks like that and fix up dilapidated houses in there area they will love you forever and try there hardest to refer good tenants or buyers your way.
I think the most important factor is the same in all real estate. Location, location, location. For me if an area is geographically close to valuable property then it has a chance. It just takes vision, commitment, and of course the king of everything. Cash. lol.
I think that saying investors are able to revitalize neighborhoods is a bit of wishful thinking.
We certainly tried with property management where we had a couple hundred doors within a fairly tight radius. We thought that by badgering owners to address deferred maintenance, improve landscaping, etc the rising tide would raise all ships.
Our efforts didn't hurt, but they didn't hold a candle to young owner occupants moving to the area and getting engaged. Interacting with their neighbors and going to the community meetings, etc.
Pretty much everything @Ryan Mullin said:
If you acquire enough properties on one block you can affect change. I believe this is true, but the density has to be extremely high. In our experience 3 or 4 properties on a block (15-20%) didn't make enough of a difference to change the feel of the neighborhood. (But the neighbors sure did appreciate it)
As investors I think we can both contribute to and benefit from a trend, but to move markets by rehabbing some run down houses is a bit of a stretch. At the end of the day, it's the people who live there that shape the communities.
and @Ryan Mullin
What I'm hearing you fellas say is that investing in marginal neighborhoods is good for a neighborhood but may not have significant measurable impact until you get the density and/or grassroots locals to push it. I wonder what it would be like to specifically partner with neighborhood associations and provide flips or buy, fix, holds there. Maybe those groups would be a good source of wholesale deals?
Certainly get involved. Just knowing what's going on in the communities your investing in is important.
If you can figure out how to turn it into $$, let us know.