Hello All! My name is jeremy, and im a relatively new member of this greatly appreciated and informative site. Im thinking that ill be able to get some good advice and/or info on implementing an idea that ive had for quite some time....I live in an area of St Louis that really shows its 100+ years wear and tear. As with most old buildings, there is so much character, and I see so much potential for this south city neighborhood. To me the solution is simple: Buy up all the foreclosures and other cheap properties and control the market. Rehab much nicer than the area is used to (houses can be bought at 10-30k in this area) and sell or rent but on a very strict screening process. The area has what could be a very cool shopping business district and it would be wise to invite some creative minded entrepreneurs to begin their business in the area with some sort of grants. Im kind of rambling here but long story short the area could be Great and i wanna know others thoughts on moving forward with a plan and who to present to for financing/grants etc...Any input appreciated even "hey dummy you cant save the world, Move on!!" haha
Are you with Habitat for Humanity? They have 2 affiliates in teh St. Louis area and possibly share your vision.
you said what can be bought for but not 'exact' cost of rehab,,,and finished sale price. Keeping them all for long term rental would take deep pockets till you built the numbers. Once you own 10 to 20 properties free and clear then gaining more is easy.
My advice, start slow, go easy till you find exact finished cost. Those little things add up fast,,,and hidden must do's are uncovered every day.
I have done work for habitat, but i dont think they necessarily would be a target investor for what i have in mind. I dont think they improve neighborhoods as much as they provide a service for families. That would be an interesting statistic to find..Is there a study out there on the long term value that habitat brings to a neighborhood.
Don i didnt speculate on the cost of rehab because it could range from 5k to 100k on these houses- the low purchase price gives you a little breathing room. the house prices will stay low here for awhile at least until these houses are bought up and even then, hopefully bought by good investors. regardless though the rents are pretty nice and my places are full and positive. i have a 4 family that nets 900/mo..and there are plenty to be had. i want more haha!
I guess im just looking for some advice on how to organize a plan and present it to the right people so i can pick up more props by myself or with others..
Jeremy you have an extremely lofty idea here. I'm going to give you advice based on one who has attempted to invest in a distressed area, informally along with other investors, hoping the area would eventually be revitalized. It never happened. I soon learned that in order for a neighborhood to be revitalized, eventually all of the players - residents, businesses and ESPECIALLY the local government - will need to be on board.
IMO, you can tackle this from two angles:
Pull together the local government, businesses and Investors (don't try and go this alone. Share the wealth and work involved. The revilization will be more effective the more diverse the investment.) and draft a plan to bring back the area. You will need the full cooperation of the police department and eventually the residents as you work to rid the area of one of the main factors bringing it down: crime. As crime is being pushed out you will have to work HARD to convince business owners, other investors AND homebuyers and tenants that this is the real deal. The biggest challenge (and this is what I had to learn the hard way) will be to overcome the decades-long stigma that has plagued the neighborhood and get prospective tenants to sign on. Most will only remember how crime-ridden the neighborhood was and will not be coming back in a hurry. Unless of course you will be primarily attracting the young, educated and professional crowd. If so then forget about the stigma as it likely won't matter much. They will just be concerned that this are places to eat, shop and do it safely. Which brings us back to the cooperation of trendy businesses, the local government and the police. Without them signing on, imo, this doesn't happen.
You will also want to get together with the responsible tenants in the area and encourage the start of homeowners associations. Your challenges will be to get them to work together to clean up the neighborhood. Some might be fearful of the criminals. Others may actually be housing them as family members and friends. Start with the responsible and brave ones first. The ones who don't give a damn about a drug dealer and will smack the lights out of one like he was his son. Get enough of them together and you can clean up a neighborhood. Again, this is a LOT of work.
Finally, check with the city's 'Master Plan'. Every major city should have one and it should tell you the path of improvement (there's actually a term for this which I can't remember right now) the city will take in the coming years. You may find out that the city already plans to start revitalizing the area in 5 years.
These are just my thoughts.
I think youre speaking of strategic plan- You have hit on EXACTLY everything that i have gone over in my head numerous times and have attempted to try and explain to others. How about you come to St Louis and we get this project rolling! haha seriously though i need to find others that at least see how it could be done. Most are exactly as you say, only remembering the decades of bad and see no hope.
I actually own a small construction co. and have recently chose to only use my crew in this area..I am building a website that will incorporate the neighborhood on certain pages, one of which will be a page that posts photos of suspicious activity. Ill work out all the legal issues and be careful not to accuse anyone but it will be more or less known whats happening. the most prevalent crime here is prostitution..so ive got some good ideas on how to keep the customers away and make it a little humorous for the residents at the same time. I really to start with a plan but the organization of it is a little overwhelming. it will get done though...Anyway nice to see a person with the same faith and vision. Then again im glad that most dont see things the same way...The beauty of being an entrepreneur and investor!
Not sure how much you're working with, but FNMA recently came out with a program that more or less has the same effect of what you have in mind. $5MM probably buys a heck of a lot more in STL than it does in these parts... I can only imagine!
Is the the investor pooling? Fannie is supposed to be calling me this week. I have a feeling their criteria for this will be out of my league but maybe i can bring others along from the area.. And yeah jake 5mil would get me over 200 houses here!
A great example is Washington, DC.
S.E. was always joked about as being totally ghetto. But now its tuning into a hip yuppie area. You need to try to determine which way the gentrification is moving and jump in ahead of the wave. Buying up some properties as good rentals and holding them until you are ready to rehab and sell for big $$ is the best way.
Ibrahim is dead on. The revitilization of a similar neighborhood in my area started in the 70's. It is finally gaining traction now!!! A lot of home owners and investors bought in early hoping things would turn fast... They did not! Businesses are KEY to sucess. You need nice bars & resturants as well as botiques. A handful to start. Locally owned is preferred. Micro brews on tap... Coffee roasters / cafes. If you are lacking these things, only buy extremely good deals, as the hold time could be quite long before the exponential curve starts to effect rates. Find other young motivated entrepreneurs and focus exclusively on this area. Get good online presence including beighborhood message boards, book exchanges, public art, parks, clean up crews, neighborhood watch, dog walking clubs. Find businesses that are sucessful in other parts of town and convince them to mive shop to the new area. Yelp, buzz, google, and local websites are your friend. Get the most popular local band on board. Plan festivals in the commercial area. A beer fest works great. A pet parade. Think different & get others excited and active. Cluster your renovations so people driving by SEE the transformation (3 in a row better than three on different streets. Start as close to the commercial as you can. In fact Buy the commercial (mixed use) now while it is rock bottom. As soon as people start talking the 'perceived value' jumps and people start overpricing junk houses (and idiots buy them). Pushing everything up and reducing your future returns.
Feel free to PM me if u want to chat.
Thanks for your responses- Youve inspired even more ideas on my project- mark ive split my area up into quadrants but i really like your idea of three in a row that makes perfect sense! I think my first step is really just buying what i can when i can- it will be hard at this point to find others. Ill pick up a commercial spot or two along the way- after a few houses have been rehabbed and a little buzz is beginning id like to find an up and coming chef that i could offer a free year lease to begin a new restaurant- my ideas get lofty i know but in reality im not trying to travel the moon!
Wow, it's hard to add to all the great advice offered on this topic, but I'll try. Let me tackle your prostitution elimination goal - there are many best practices you should be able to Google - no secret there. Here in Sacramento, we offered assistance to the working ladies in addition to adding deterrents to their customers. The program is called CASH (Community Against Sexual Harm). Here's the link http://cashsac.org/about_us
Also, we gained a lot of traction from annual festivals and a farmers market.
Let me underscore the importance of recruiting businesses to your area.
Lastly, as Ibrahim noted, getting a neighborhood association engaged in your effort is critical. You need them to help you fight blight.
Take my advice and stay out of the hood. Your tenants won't be housebroken, collections will be difficult, and you're likely not going to change the demographics of an entire city region just by picking up a few junky properties.
Look for stronger markets if you want to make money with good hardworking tenants who pay on time and respect the units.
You're asking for trouble going into very low income areas. You want to help, but likely no one wants your help there. And the caliber of individual you will deal with is so low you'll wish you never started. They are hard on the rentals, not to mention waiting for +40 years for an investment payout on a nickel and dime bet on housing in a very poor area is not a good investment strategy. Make a few more posts and have BP help you fine tune that thinking.
If you are bent on low income try picking up bigger buildings and section 8ing them for the cash flow because there will likely be no gains on the sale of that real estate.
I like your idea, I am thinking along the same lines as you and have an area I am sort of targeting, but I am thinking very long term. Right now, just buying some properties in a working class area (not a war zone by my definition) and in a few years, with enough properties under my control, I may start improving the properties beyond the neighborhood's current standards and screen more strictly to try to bring up the neighborhood value.
@John you are exactly why i want to do what im doing- and that is not a shot at you because you are actually the majority in your thinking. By no means am i trying to be a hero, but your thinking has created a challenge and opportunity that doesnt outweigh the reward- Ive always been a risk taker, not for some "thrilling feeling", but because i know that no matter what happens, absolutely anything, EVERYTHING, EVERYTHING will be OK. I promise. The potential in this area in my eyes is unreal and the fear is nonexistent, maybe replaced with stupidity in your eyes, but thats irrelevant if im so naive to see it. This is what people call a vision, and this is what inspires great things. So while i thank you for your intentions im going to ignore your advice and do something worthwhile.
@Kyle thats awesome!
Removing emotion from the equation will help you develop a more pragmatic approach. I think every new'b at some point thought just like that then eventually found it was a dead end and a major headache, including me.
In contrast, there is a guy in Indy running an operation that buys 50 packs of these types of SFRs refurbishes them and sells them for 40-50k, and he is helping improve the area while profiting. Don't expect to move the market through the purchase of a couple 999sqft SFRs. To replicate, you'll need a large volume of homes to purchase, political buy in, an experienced crew, a million dollar line of credit, and management experience to pull off a deal like that. The money is made on volume of buying and selling, like a Wal-mart for little houses, not on holding them.
I'd recommend putting your plan on paper and working the numbers see if it makes sense. Shop the plan around to other investors who are in the are and see if they think its madness or a practical and executable plan.
Every real estate investment should be analyzed for maximum capitalization. If capitalizing deals isn't interesting to an individual, then that individual is not investor and I'd recommend looking into habitat for humanity or a similar NPO to affect social change.
@John S. Your statements are generalizations. "Hood" is a broad term thrown around with absolutely no real definition.
Assessed values in my "hood" rose 23% this year. Know why? Because of people like @Jeremy Namen ! Risk = reward. If you're happy with a 10 cap, do it. We're not & we're young enough, and smart enough to see the bigger picture. We value honesty, integrity, high levels of craftsmanship. We also respect architecture, history, culture, diversity, entrepreneurship. Our goals are lofty enough to make others laugh. Mainly because our passion is so great that we can actually accomplish what we set out to do.
We're the neighborhood investors, not the neighborhood exploiters. And when it's done right, it works better than you can imagine.
http://www.urbandictionary.com/define.php?term=hood, the definition is implied through the content of my posts. Real estate is local, so voicing the speculative nature of your strategy in the Roc is general, despite it being successful. The only trite text I see in this thread is a strange love affair people are having with very low income and warzone areas.
Knowing your market, putting a plan on paper and working numbers is advice I've bestowed, all I see in your post is blind encouragement and it oozes of naivete. Anyone can buy a 30 cap in the worst neighborhood, but whats the exit?
Btw, assessed values raise your taxes, every investor out there is trying to lower their assessments. Try using comps to price your real estate. Also, cap rates are typically not applied to SFRs due to the impact of vacancy and collection on NOI as well as the cost of maintenance for a single occupant. Use $/sq ft based on comparable sales.
Have fun in the hood. We'll have fun improving the neighborhood.
You should read the post, I'm advising against it.
Big Section 8? Whatevs, read it again yourself.
You have read some great advice on this post already, but i will echo one sentiment that i learned first hand here in Memphis by buying all of the properties in one particular cove. We controlled 90% of the cove made up entirely of duplexes and the area was low income. We renovated the properties and the cove completely redoing the properties themselves and adding fences to cut off walkways and cut-throughs from other neighborhoods and apartments, planting trees, shrubs and flowers, painting the brick to bring vibrant colors and generally raised the "look" of this area from urban decay to urban renewal.
What we did not do was reach out to neighborhood organizations and churches whose support and membership would have been very helpful in making the project work. Unfortunately, we were not changing the attitudes or providing for better income and opportunity in the area. The tenants still faced their own harsh realities and took it out on the properties. There was also resentment from residents of surrounding areas and it was not long before the fences were knocked down, trees were stolen, graphite covered the painted brick and the properties continued to be revolving with tenants every few months.
You really need to enlist the help of neighborhood centric organizations and businesses if you want o be successful long-term, in my opinion.
best of luck
Chris Clothier, Memphis Invest, GP | 901‑751‑7191 | http://www.memphisinvest.com
John I have been working on a business plan to present to anyone i can. I realize this is no small project and will take years. Ive got a few of those. As far as your stated concern of myself and others "The only trite text I see in this thread is a strange love affair people are having with very low income and warzone areas".... I would say its the area that i feel i could impact the most and im excited about that, so i guess my emotion is involved...Im not in love with the area im concentrating on, but you could say im in love with its potential. There are many factors in this love: 1. I have 5 properties (4rent and res) in this area already 2. the houses are very cheap (10-40k), I dont need huge down payments. 3. the area is neglected and depressed, but by no means a war zone. I can walk to starbucks grocery, parks, etc at any given hour. 4.The area is rich in history. I could go on and I do in my business plan... But regardless, someone taking an interest and putting some money and sweat in a neighborhood could never hurt anything, and if i were an investor who chose to let all the other "idiots" do the dirty work and possibly get burned, Id probably just let them, because its only helping the big picture. So i thank you for your warnings! Ill post info soon i would love to continue getting encouragement as well as warnings, both are
@Mark i really appreciate your naivety and lack of pure investment soundness :p
@Chris we have some neighborhood organizations but i think theyve been exhausted and havent really done much for years- they need to be restructured, revamped..We a huge church community, a large beautiful motherhouse for the sisters of josphine of carondelet- here is a link to their site. We have good boundaries too.. miss river to the east highway to the north and west and stable neighborhood with development happening to the south. im interested in the Actual number of house are in the area you worked- you said 90% but of what number?
Off to work and hope to see more comments later!
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