Real Estate Investor · Saint Louis, MO · Member since 2012 · 113 posts · 12 votes
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
Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
14y
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.
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
14y
There were 15 properties in this one cove area and we purchased 12 of them and another individual owned the other three. His lack of work really had nothing to do with the failure of the project. Something else I would suggest would be to use as many hyper-local contractors as possible. I.E. - put your possible tenants and neighbors to work.
Real Estate Investor · Saint Louis, MO · Member since 2012 · 113 posts · 12 votes
14y
Its hard to find "good" contractors, and thats part of the problem of this area... a lot of mickey mouse patch and caulk jobs! if i could find a good contractor and tenant it would be a blessing. I do look though when i am renting. Chris i really like your website and company structure- You seem to have a pretty good thing going!
Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
14y
John: investing in low income areas is not for the faint of heart as you very aptly pointed out. My business plan calls for buying in neighborhoods that come to know as well if not better than the neighborhood I live in. Currently I am farming Dayton Ohio in the zip code 45403. Since I am an out of state investor here I need to have a reliable team to make sure my properties are rented, rent is collected and properties are maintained. All my properties have been upgraded to the degree that would be suitable for me to live in and I have gotten to personally know most people who live in the surrounding area. Perhaps I have violated a belief that many landlords have in that I have taken an interest in the lives of my tenants and of course this may back fire at times. I enjoy fixing up these older small SF homes and renting them to families who enjoy living in them. I find that small inexpensive properties that
rent for $550 to $650 per month are mane able for the majority of the renters I have encountered in this area. And yes if properties here are vacant they will most likely loose the copper plumbing and copper electric wire. The vast majority of the people I have encountered are good people just trying to get by. My investment will double every 5 years if I reinvest the net rental income in additional properties. My exit strategy is to leave these properties to my daughters twins 8 years old and a 7 year old. This plan will create wealth for them even if we have no appreciation in value as long as rental income keeps up with real estate taxes.
John, having said all this I appreciate your observations and would be very interesting in hearing about your failure in this type of market. What are some of the specific lessons you learned investing in small single family properties in low income areas?
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
14y
I can appreciate the dedication and enormous work one wants to take on trying to turn an area.There are many forces working against you.
Personally it's not a mission I want to take on but I respect others for trying it.
If people think the drug dealers and criminals will go quietly they are kidding themselves.They have taken a long time to set up their local network and build their bank roll.When you start messing with their cash they will fight back pretty hard.If the police couldn't get them out how do you plan on doing it??
I think just buying a few properties will not do it.You really have to go in there and buy up blocks to clean up.Then you are making an impact that can start effecting change.If you have just a few houses renovated on a street it will be very hard to convince only but the bravest of tenants to go buy a war zone to get to where they will live and sleep at night.
I see this affect with apartments in nicer areas much less war zones.I would get with the owners of the other buildings and try to form a coalition to turn things around.
Real Estate Investor · Saint Louis, MO · Member since 2012 · 113 posts · 12 votes
14y
Joel
The drug dealers and criminals will go away when they have no options. Its not like what the movies portray, drug dealers and criminals are not very smart for the most part (I said most because there are some!), and most are what they are because they are lazy, therefore will move on, with their tails between their legs, when they are challenged. You are correct that it will take blocks at a time and much neighborhood involvement to make this work, and that is the plan that I am putting together.
Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
14y
Interesting thread. I wish you the best of luck in turning around the area. I do agree that it is really important to have local organizations and government to help. It is sad that there are so many communities where the people do not care anymore. It seems politicians only care about the areas where they know they have vocal voters. It sounds like you are determined and you are willing to partner with others in order to turn around the area. You realize that it will not happen overnight which is good.
Also it's hard to say how far downhill the neighborhood is.
I recently read about a new project that is happening in the Oakland area , which is an attempt to revitalize the neighborhood. It is called Popup Hood . If you Google Popup Hood the site should come up at the top of google. "
"
Sarah Filley and Alfonso Dominguez launched popuphood in September of 2011. This pilot location served as the testing ground for our urban initiative to bring retail to Old Oakland. We offered each store six months free rent through cross sector partnerships and provided marketing to rebrand the neighborhood towards the goal of each business signing a long term lease. We are passionate urbanists creating partnerships to solve epic problems, starting with a city we know and love while participating in the global conversation of social entrepreneurship.
Maybe you could try and do something similar in the area you are targeting? It sounds like a good idea. Apparently they were able to get landlords on board because their storefronts had been empty for over a year.
If anything doing something like this isn't going to make the neighborhood worse.
Looking forward to hearing about your next moves. I've heard the St Louis market is a great market to invest in. You are fortunate to live in an area that can actually cash flow!
Chicago, IL · Member since 2012 · 24 posts · 6 votes
14y
Originally posted by Michael Lauther:
John, having said all this I appreciate your observations and would be very interesting in hearing about your failure in this type of market. What are some of the specific lessons you learned investing in small single family properties in low income areas?
Very Low-education/High Crime/Hood areas are very risky because of the systematic risk associated with the area, mainly the inhabitants of the area.
About 20% of my portfolio is low income and they are more work than the 80% of my units in more livable neighborhoods. I wouldn't define those units as a failure as they were my first investment and provide strong cashflow but the maitainance and legwork relative to the return just isn't worth it IMO. I've found the low prices and allure of large profits and improving the area from such low priced property is an illusion and the savy investor should consider areas with better economics before placing high risk bets in these areas.
Here are some bullets on lessons learned:
- If you have debt service and tax payments, you may not have time to wait and find those housebroken tenants as your expenses clip away. There aren't many well qualified renters in low income areas. I use housebroken because tenants who grew up in bad homes with low education likely never learned to respect a house and don't know how to keep an apartment regardless of how nice they are to you before they move-in. For Ex. Tenants complaining about a broken stove when its stopped working because the grease build-up on the burner was not cleaned since the unit was rehabbed.
-You can screen your tenants but not who might and likely will end up in your unit. Ex. Grandma might look like a great tenant but her son who is getting out of prison and coming to live with her in six months is not. Be prepared for overcrowding and long term unwanted guests, this is a fact of life in these areas. Do you want to spend the $$$$ on an evicition, vacancy, lost rent, debt service, and repairs to make a point and risk getting a trashed unit returned to you? Or do you want to let it slide and send the signal that your soft and can be taken advantage of, a very slippery slope. Be prepared for these types of decisions.
-Low education/Low income tenants have a different thought process and will take and take until you can't give anymore, then they will turn on you and take off. Control the situation and never promise or commit to anything until you have thoroughly thought it threw. Think twice before agreeing to improve the unit for the tenant, they may learn they can ask for anything and you will do it. Never befriend your tenants or think they appreciate you. Your tenants should respect you and know you're serious. They will sniff out weakness/inexperience quickly and exploit them.
-The area will not improve just because you buy a building there. Its easy to think that things will get automatically better this simply isn't true. Take a look at all the other properties that have closed over they years and wonder if every buyer though like that. Everything seems easier at a 10,000 ft view.
-Secure your unit during rehab or you'll be sorry. These areas typically have very high unemployment, which mean means a lot of people just looking around all day doing nothing. Be under the impression you are being watched at all times. Locals will know your schedule and when your crew works and when they aren't there. They will see you brining in hot water tanks and copper. Many will not have a qualm ripping off a guy from a nicer part of town wearing a north face jacket and nice jeans.
Chicago, IL · Member since 2012 · 24 posts · 6 votes
14y
Originally posted by John S.:
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.
Mark Updegraff I am advising against it but balanced my posts with counter examples about a simliar model that is successful in Indy as well as a another avenue to investigate (Sec 8) for profiting from RE in this type of market. This thread needs a realist so Jeremy can see both sides of what he is considering and inform his plans appropriately. Learn to read and please don't use phrases like whatevs ever again.
Chicago, IL · Member since 2012 · 24 posts · 6 votes
14y
-Be prepared for every story in the book on the first of the month. See my comments on evictions in the second bullet.
-Track you hours, you may find that after all the running around, repairs, gas for car etc., you’re only getting paid $2/hour (example) and a whole lot of stress. These types of properties just require more commitment by design.
Residential Landlord · Kailua-Kona, HI · Member since 2012 · 111 posts · 15 votes
14y
First off I salute you for remembering how to look up. Your post reminds me of "all of us are in the gutter but some are staring at the stars." These are the beginnings of change but you will need to commit yourself to seeing them through. It's also going to take a hell of a lot more investment than you think and to that end you are going to need to really plan this out and don't use only your resources - there are untapped ones you cannot have alone but can just by starting something that attracts others. Yes get investors but here's what else - form a nonprofit. Call it St. Louis renaissance or something cut out of silver linings. It's seriously easy / inexpensive versus what your doing here make yourself the agent and elect at least 3 other motivated people that care about the project ... they become board members. Then do what you're doing under that flag. Make house investments separate but research some of the really interesting grants nonprofits have that investors do not. Government offices like USDA and business development work with you more readily. Your going to need more capital but you can start this now and then use the grants when you have the resources.
About getting businesses in hold that carriage - go the NPO way and you can get loans to give to other businesses at low interest rates ... guess what you pay - zero. You also take the risk so you had better get good at determining profit potential and helping them so they don't screw your credit. You play venture capital here that can be a double edged sword so learn before you dive in and it may actually work. Research Non profits and see if you can get other less effective nonprofits on board if they have better reputation, resources or could get the neighborhood to respect itself. Help them because as a NPO they will trust you.
Residential Real Estate Agent · Costa Mesa, CA · Member since 2008 · 1k+ posts · 380 votes
14y
I think this is a very noble and interesting undertaking. As John S. points out, this doesn't necessarily make it a sound investment decision. But maybe that's not the point.
The point is basically that NBA teams are typically awful businesses, yet shrewd, wealthy business people buy them, so there has to be some type of intrinsic value or non-financial utility that owning an NBA team provides to the owners, otherwise all owners would sell and the league would eventually shut down. I would argue, as does Gladwell, that a primary benefit of owning an NBA team is that you FREAKING OWN AN NBA TEAM!
If Jeremy is as passionate about reviving this particular neighborhood as owners of basketball teams are about their franchises, then who are we to judge? Based on Gladwell's article, Jeremy probably has a better shot at turning a profit, too.
Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
14y
A slightly more sinister perspective:
If we are honest about what our intentions are, or at least the impacts of our actions (if successful) in “neighborhood revival” we are not talking about benefitting the community that currently resides in said neighborhood.
What I mean is that, this neighborhood is in the dumps because the community of people living there are in the dumps by mind, body and spirit.
So, “revitalization” of neighborhood tends to be “gentrification” of a neighborhood. I am not making a moral case out of this either as I would be thrilled if my low income neighborhood became gentrified. But what is the actual cause that shifts the momentum toward gentrification? Getting the poor people out. How do you get them out? Raise taxes. How do you raise taxes? Raise real estate values. The last part is the hard part. This is where you need the help from the civic organizations who, in the process of trying to save the poor people, end up getting them relocated.
I know not all poor people are bad and dirty and stupid and etc. But let’s be frank; most of them are. Not that they woke up one day and said, “I want to suck” , but just that there is no other reality for most of them from the inception of their birth.
So there is helping a neighborhood and there is helping people. East Austin is a great example of an up and coming neighborhood. However, it has nothing to do with raising the people up, rather everything to do with raising the property values up and raising the degree of convenience up for affluent folks who want to live close to their jobs (down town). It all started with civic activities, eclectic graffiti programs, libraries, parks and all the stuff intended to benefit the lives of the people who can no longer afford to live there, but instead live a little farther east from their jobs (down town) and in the same crappy neighborhoods they can afford to rent in.
Point in case, you can deploy negative strategies like trying to get property taxes increased and other dissincentives to remove the riff raff in addition to the positive things you may be considering. One of the best places to start out is the chamber of commerce, and especially the Hispanic chamber of commerce if you were in Austin, to start meeting the people who make the local world go 'round.
Real Estate Investor · Saint Louis, MO · Member since 2012 · 113 posts · 12 votes
14y
Wow - Im so happy to have received so many comments, insights, warnings and encouragements!
Joseph M Thanks for the reference on oakland, i plan to read that tonight, and Jake Kucheck, you are exactly right, while I 100% believe that it is a sound investment, I think im more driven by the fact that i have an opportunity to make an impact and leave my footprint. I also plan to read the NBA article tonight, Thanks!
Chicago, IL · Member since 2012 · 24 posts · 6 votes
14y
Something else to consider: Maybe seperating RE investing from wanting to help will be more effective. Consider making clean dollars on investments with stronger economics to fund an NPO that will achieve the desired social goals. Investing and charity are two very different things to me and combining them may be less than optimal for both.
Real Estate Investor · Saint Louis, MO · Member since 2012 · 113 posts · 12 votes
14y
John S. You are right, you do provide balance to the post, but i see your balance in a different way. To me you are like the devil on my shoulder telling me to let the "others" do the dirty! No good deeds, only sound investments! haha.. despite that i am grateful for your perspective, I am aware of much of what you are talking about, and trust me i dont plan on dedicating everything i have to change the neighborhood while keeping the same residents. Again its a HUGE project that im planning not a couple houses to be handed to problem citizens.
Real Estate Investor · Saint Louis, MO · Member since 2012 · 113 posts · 12 votes
14y
Sam Sagor I plan to definitely keep you updated, Ive thought NPO, but i need more info on this. You seem knowledgeable in this, is this something youve had experience with?
Real Estate Investor · Saint Louis, MO · Member since 2012 · 113 posts · 12 votes
14y
John S. Im going to look into this, my main business is a small rehab construction co. I have a crew of guys that will need to eat, theyre pretty tough so at least every other day. So i intially through NPO out the window, but i dont think i know enough about it, and/or how they could work together.
Real Estate Investor · Saint Louis, MO · Member since 2012 · 113 posts · 12 votes
14y
Brian Hoyt the neighborhood is in the dumps for many reasons i strongly feel that it has largely been a domino effect of a loss of pride and even depression. Maybe a slummy landlord contributed initially by letting a whole block go to crap, and that slowly oozed over to another block and eventually the whole neighborhood. Ive seen first the city not do their part while performing inspections for me and have actually made my inspector go down my basement stairs to complete the inspection! There is industry along the river that provides a not so bright picture of the area, this needs to be regulated and the business' need to be held accountable. I think Pride is the number one factor in my neighborhood, and if this could be restored, I sh@#t you not, I really think it could be one of the greatest working class communities in the country. Raising taxes would not be the right thing to do right now, but inevitably with the plan, it would happen. A strategic plan to provide a new look is what will help this area and create buzz. Actually the area boasts one st louis' lowest crime rates!
Chicago, IL · Member since 2012 · 24 posts · 6 votes
14y
Let’s hypothesize: Split your RE operation into two distinct lines of business 1. Profit from Rehab/Grip It Flip It operations to generate gains in more favorable economic areas leveraging your rehab team. 2. An NPO LOB focused on community improvement.
Donate your profits to the NPO. This will make your gains tax free and fund a 501(c)3, there is some arm’s length stuff you'll have to get around but a slick lawyer/accountant will set it up right, I know mine would string a baby up with a lamp cord for enough billable hours.
There is a lot of funding available to a 501(c)3 that isn't made available to for profit entities namely the 203k rehab loan by FHA. For example, qualifying NPOs can take out as many 203(k) rehab loans as they want at 5% down, unlike an individual who can only have one FHA insurance loan at a time.
Try picking up an NPO on the verge of being defunct in your area that’s been in operating at least two years, a big requirement for grants and 203k. See if you can find one with a similar mission that busted out and reach out to the 'owner' of it and ask to take over the paperwork. The NOP history along with you rehab experience may get you qualified.
Be sure to start meeting with your alderman/councilman regularly once you have some traction and pay him........visits, and fill him in on what great work your NPO is doing for his district. This will come in handy later.
Residential Landlord · Kailua-Kona, HI · Member since 2012 · 111 posts · 15 votes
14y
What you would do best with is use both the devil and the angel on your shoulder.
You should pursue a nonprofit for the "angel" activities and a pure investor strategy for your business. You do both. An example : keep the realestate profit first but also put time and effort into helping the community under the nonprofit. The parades, the patrols and dog and pony shows those you do under the non-profit. This gives you many benefits the most important being control what gets done in the revival, charisma for your business (you help rebuild the neighborhood people can feel warm and fuzzy about that when they buy a house) and tax advantages. You make a good profit (with the devil on your shoulder) and then do the angle thing - you can help stabilize the area because you can now access bigger financing grants and the local government is more likely to help because they see more of a chance of pulling it off the more money you can bring to the table.
Like the conscious metaphor nonprofit and for profit are really two sides of the same coin. Nonprofit does not mean you can't make money - it's a matter of where that money goes. You want to commit funds to this place a nonprofit setup to do that will allow you to do so with using less of your out of pocket personal finance. It means you can fund raise, people can donate things like cars or real estate to you and receive tax deductions. You can donate to your non profit as a business and receive tax deductions and use that to fuel the revival campaign. As long as it is a legitimate non profit and you aren't using that money to buy real estate - that's what your business is for. This obviously requires people willing to donate (and that pay taxes if you are motivating them with deductions) It's going to take a lot to get that message out there but if you are championing the revival and it looks like there could be something to your dream they can help.
Non-profits are a way to store resources. The benefits are unpreceptable. You aren't selling it you don't get profit from it ... but you do get what it is. You build a school you have a school. Control the curriculum. Own an MBA team? You get a point of pride. It is a means and it grows with all you put into it. Bishop estates is a good example they own land in Hawaii. A lot of it and they use it to make profit by developing, leasing and running the cattle industry. So they have a nonprofit to offset the taxes and give them a front which in turn gives influence and PR. This is having a profit arm and non profit arm.
John S. Has some very valid points and if you keep the advice of people like him in mind you will have a better chance of not falling for the pitfalls of trusting people who lack your altruistic perspective. For one due diligence should be a stepped up in an area like this.
For now I suggest look into the post above and try to figure out community things you want to do that could be fundraisers - i.e festival all profit to NPO cleaning up the riverfront. Oh and members (not board members) you get them and your nonprofit looks better to the government offices. Have sign ups at the events it shows that you can convince people to support you.
Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes
14y
There are investment strategies that work in all areas. You need to select the correct one for the area.
If you have an experienced team behind you it makes all the difference.
An associate is buying in Detroit gets a duplex for 6K puts short money in it and gets 1K month cashflow when rented. He will invest 60K to get 10K a month cashflow. He know the best areas to go into it. There is a large number of investors from Asia investing in Detroit.
The best Sec 8 story was a woman from St. Louis was living in a project single parent 4 young kids. She moved to Vegas got a $10 per hour job at the casino Sec 8 pays for her 4 bedroom house she rents in a gated community, swimming pool, workout room, sunken living room and gas fireplace. She is living large but the investor is given the monthly rent each month.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
14y
Originally posted by Jeremy Namen:
That sec8 story is a bit disgusting,but a perfect example of the many flaws in govt programs costing tax payers.
Section 8 established fair market rent prices and operates with a 'rent ceiling'. I'm guessing the swimming pool is a community pool since wouldn't otherwise pass inspection.
It sounds like the investor is the one losing out.
Real Estate Investor · Saint Louis, MO · Member since 2012 · 113 posts · 12 votes
14y
Carondelet Renovations
Slogan
PROJECT PHOENIX: CARONDELET IS RISING
Description
Carondelet Renovations is a construction company, and more specifically a remodeling company, based in the Carondelet neighborhood of St. Louis, Missouri. The company specializes in complete gut-rehabs, but performs smaller tasks as well. Some typical jobs are garage and room additions, kitchen and bath remodels, flooring, painting, roofing, siding, and window installations.
Mission Statement
Our purpose is to drastically improve and revitalize the Carondelet neighborhood. We feel that our time and services must remain strictly dedicated to only this area. Our purpose welcomes any and all other contractors willing to raise their standards and compete for the betterment of Carondelet. Through affordability, special financing, and intelligent marketing our high-quality services will be accessible to all real estate improvement projects, allowing us to become the premiere contractor of the Carondelet neighborhood.
