Buying in a depressed market

11 Replies

Hello everyone!  I just joined BP 2+ months ago and have been listening to every podcast and reading whatever it is I can.  My question is, what are you thoughts on buying in a slightly depressed market?  As for my area, home prices range between 50k - 120k  with most being 30+ years old.  Rents range from $400 - $700 for 2 br units/small houses.  The area is located about 30 minutes from a large city (Pittsburgh).  There never was really any boom or bust and it seems that Pittsburgh is starting to slowly attract more people to the city.  Where I am located (North of Pittsburgh near Kittanning), very little seems to change - no new businesses.  I will mention that the area has a highway that runs directly into Pittsburgh so that is a plus for the area.

The low rents were nice when I had to pay them but now that I'm considering becoming a landlord, I can't quite understand how these folks can make any cash in a market like this.  I don't have much cash at the moment because my wife and I just bought our first home 2 months ago but we could have 5k or so set aside within a 5-6 month period.  If you need more info, please let me know but I'm very curious to find out what the community thinks.  I appreciate your thoughts in advance and am totally digging bigger pockets.

Check on the low income housing demand for Section 8 tenants. Sometimes the housing authority is desperate for decent housing.

Thank you Stephanie, I will consider that avenue as well.  Perhaps I'm wrong but I've always thought that Section 8 tenants are not always the most desirable to have.  Have you any experience in dealing with these folks?  I'm sure there are just some people that have fallen on hard times but I've always thought that catering to that clientele would not really be worth the hassle potentially involved.

@Brad Kirkwood  

There has been a lot of talk and possibly capital allocation on a commuter train that would run up the Allegheny valley to Lower Burrell/New  Ken which would provide a nice alternative to using 28 to get to Pittsburgh. I think that would lead to more people moving to the area for the Westmoreland Co taxes if nothing else. How are the schools?

@Jeremy Timko

They are decent.  A new high school will be finished by next summer which will service 3/4 of the county.  Property taxes have always been around $3000/yr for "higher end" properties but I think the average runs between $1000-$2000.

I too have heard about the commuter train project in the area.  If it could help clean up New Ken then that may even be something else to consider.

I see you're from around Pittsburgh.  Have you attended any local REIAs?  If so which one should I consider attending?  I believe there are a few in the area.

If you can find properties for 30k or less, you will have good cash flow at $700 per month rent.

@Wilson Churchill

Thanks for your insight.  With a price that low, what kinds of financing options would you suggest if you were doing the purchasing?  My wife and I just bought our first home and are a bit strapped for cash right now but in about 6 mo we should have around 5k.  Are there any books you could suggest for reading?  Right now I'm reading "Building Wealth One House at a Time" by John Schaub.  I'm fascinated by this type of investing and appreciate any insight.  Thank you.

I would say either a conventional loan, land contract, or credit cards (if you can get 0% for 18 months and pay them down). A lease option would be fine if you could negotiate very favorable terms, like all or half of your payment going towards the down payment. You could call every "for rent" sign you see in the city and ask the owner if they would consider selling the home to you.

Books? I actually got started by reading Carleton Sheets' "How to buy your first home or investment property with no down payment". But I would warn that some of the strategies are not practical, and I would look for 2% as a benchmark for cash flow.

There are some other books I have read, but I think I let someone borrow them. One was called "landlording". In general, the more books you read on the subject, the better.

Brad, your area sounds similar to my investment area, except I an an hour rather than 30 minutes from a city, Portland.  In this case, we have to assume almost no appreciation in properties, so the numbers have to pencil out for cash flow.  Although, buying on a new transit line or something else that could drive improvement or gentrification can help that.  We invested in an area that has a big revitalization plan, but it is moving oh so slow.  For our investment area and the larger town, there is not enough employment to support the area, so it's strength is a low cost place for people on government assistance to live.  That is a rough market to cater to, but can be profitable.  I'd suggest looking on Craigslist to see how the properties are being marketed (safe and clean means basic low end, look at the words used to describe) and if different streets/areas command different rents or are hard to rent (on Craigslist for weeks), drive or walk the areas to get really familiar with the area, and use your time saving to find the most desirable areas and run the financials on many properties so you'll recognizance the right deal when you are ready.

your right, this is a depressed area, most of wig is cause by lazy property managers for rentals or the  lack of ambition to update properties or screen tenants.   There are definitely a lot of cheap properties on the market that need a lot of work to be disirable!

The 2 main REIA groups I have heard in the area are Pittsburgh REIA and ACRE. They both let you attend 1 meeting for free to check them out.

If you are trying to figure out how to find deals the REIA groups are a great place to start.

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