How to create a niche in rundown areas?

[Tony Marcelle]

Stay out of poor rundown areas. That has been said before. What if that is the majority of the neighborhoods in a person's market? No one wants touch severely damaged homes in the poor communities. That also means less competition. Since there is less competition, what kind of niche can someone create in a market like this that can be profitable?

[Pat L.]

We've been investing in these for 20+ years. BUT we concentrate on the small multi's & try to pick them up cheap for cash as foreclosures/tax lien auctions & get a wanna be investor on-board for a NNN contract-for-deed. They run it, landlord it & pay to maintain it & it has been a VERY successful endeavor.

Case in point, we picked up a foreclosure back in 2005 for $13,500, spent $2000 to make it livable then sold it (CFD) for $38,000 @ 13% over 15 years & he has the same tenants & has never missed a payment. (Run those numbers for a COC).

Picked up another in 2008 for $46k. It was in an industrial area so few buyers were interested. The 'clients' put down $8,000 & paid us $1300/month (expenses avg $525/month) for 9.5 years then stopped paying (got into drugs). We took it back, did nothing & re-sold it immediately. Now that was a very nice COC return.

In 2007 we picked up a mixed use commercial, (in an area I would not drive through after dark), for $50k & hold it CFD, COC 28%. Picked up another small commercial at auction in 2008 for $55k & that paid it-self off in 6 years & the CFD kid simply walked away. It's now on a NNN lease for $1200/month.

Last week we picked up an old 3 unit for $46k & flipped it CFD to an investor, (who has 5 with us), using the same strategy COC 22%. His last text to me was 'all rented , all paying on-time just the way I like it'.

We will be looking at a couple more potential multi-units this week, admittedly they may be C class but they are not in the ghetto per se. 

It has been an uncanny niche that has provided us with exceptional arms length, 'absentee' returns!!!.