Depreciating Honey Hole

2 Replies

There is a show on TV where guys go searching for ginseng in several parts of the U.S. Apparently, the ginseng root yields high profits. These guys go looking in wooded areas and sometimes they find a spot where there is a bunch of ginseng. When they find these high yielding properties with ginseng they call it a "honey hole". They also call ginseng, seng.

I think I found a "honey hole" for real estate investing. The neighborhood is very much blue collar. The neighborhood is 15-20 minutes, walking distance, from a wal-mart and a ton of other business, i.e. Restaurants, auto mechanics, massage spas and tanning spas. I mean it seems to be the right kind of place because at night you don't see questionable behavior, i.e. prostitutes, drug deals, etc. If there are drug dealers and prostitutes they're doing a damn good job at hiding it.

Unfortunately, there seems to be some sort of discrepancy with the city appraised valuation. I looked at the plat maps and appraised valuation for the homes in the neighborhood and the houses have depreciated in the last year. There was a history in the neighborhood where all the homes were appreciating by as much as $20,000/year or more in the past five years, but within the last year depreciation of the homes have gone up to $40,000 +. That is a very nasty loss.

Upon further review there were several factors causing the neighborhood to drop in value. One was that when Hurricane Harvey hit, some homes were flooded. Many neighbors told me the water only got up to the front lawn, but no further than where their lawn meets the sidewalk. Then, I found out that many of the homes in the area have foreclosed.

My question is, is there a way to make this work? No one knows what tomorrow has to offer and I don't feel comfortable buying and flipping a house knowing this information. The neighborhood has all the makings of an excellent neighborhood for investing, but does something like this make investing EXTRA risky. It sounds like it would be a great opportunity to buy low and make a profit, but is it worth it?

Anyways, get that seng, guys and gals.

@Sergio L. Garza

Sergio, where is it at?  There's enough different folks on this forum operating in different markets that you might get some valuable input.

I think one of the biggest things is, does the macro environment signal growth?

Every city has its own mix of 'good area' and 'bad area' thing going on to some extent, but the bigger picture needs to be solid firstly.

Beyond that, I think you're touching on numerous different things here but my mind would be on getting actual numbers/data.  Find out how many foreclosures have happened.  Get data on insurance claims, flooding, etc.

My personal view is that leadership within a city/municipality needs to have more of a 'we all rise together' kind of mentality.  When pockets of generational poverty exist within certain areas, its really hard to have assurances that there's not lots of risk to equity over time.  I'm not going to name specific markets but there are a LOT of cities throughout the US within geographic boundaries that are often very close to each other, that have extreme disparities in income, educational attainment, safety, etc.  Almost like you're in different countries.  I would want to stay away from cities that meet that kind of description and invest somewhere else.

@Jim Goebel I live in Houston, Texas. The properties I am looking into are outside of Houston. This area has many oil and gas factories, plastic factories, steel factories, etc. Like I said, it's only one year of depreciation on homes, but still something to stall and confuse me. I haven't really looked into the planning department for that area, but I will, now that you brought that important point up. So far, it seems like about 4-6 foreclosures in that area, but I haven't done a complete check-up. There may be more, but from looking into the neighborhood there are also a lot of vacant homes owned by...da dada dum...investors. At first it seemed like the perfect place to invest, but just by digging a little deeper that "honey hole" turned into a "cemetery". I'm just slightly turned off by the area, but still curious.