Investing in the rougher neighborhoods

2 Replies

Hi All,

So I've signed up to several cash buyer's lists on wholesaler's sites in my city, Miami. As a newbie, I did this for several reasons but mainly to get a feel for what other the wholesalers are teeing up for their buyers and maybe even jump on one of their deals for my own. 

I've noticed (what may seem obvious to the more experienced) that the majority of the deals are in the rougher areas of town; even more evident when looking at a geographical map of recent cash transactions.  What I'm trying to figure out, and hope I can get some answers from local investors, is whether the rehabers and landlords prefer these less expensive homes or are they just easier to obtain from the wholesaler point of view.  

See I'm just starting my marketing campaigns but I chose the neighborhood I live in to begin with, where the median SFH home value is roughly $250K. I figured it'd be easier to become an expert of my own neighborhood. I have a full time job here and two small children, which obviously limits my availability to drive around and study. I really just want to break the ice here and then potentially expand. But I'm worried that I may be looking in the wrong places. My #1 focus right now is to wholesale that very first contract just to go through the process and the confirmation that it can be done. I'm not even too worried about cashing in; just want to experience it and learn. The sooner the better.

Thoughts?

P.S.  As I was writing this, I thought of an idea of even giving up all my profits to a good-quality buyer just as a display of me being serious about this and in it for the long run. I can view my marketing expenses as tuition for the best course there...hands-on experience.  Still thinking about it though...  =)

@Luis Lopez  

Supply will generally exceed demand by a lot in the rough areas. It is true in my area. There are tons of houses available for sale in real rough areas, but no where near enough buyers.

Focus on areas that you feel comfortable with. Don't go out of your comfort area just because a deal seems attractive. There is good money to be made in rough areas, but you need special skill set to deal with the problems that come with investing in rough areas, which may not be ideal when you are starting out.

The money will be competitive as you go into better areas, but stick to your game plan and you will do well.

Here's the thing: if you're going to wholesale (I'm gathering that's what you want to do) you're going to have to understand your market. I would start by calling rehabbers and landlords and asking them if they're in the market for a house, and if so what they're criteria is ie price, condition, beds and baths, how long it takes them to close, do they have to get a loan, etc etc. This helps you to understand what the end buyer want, and also helps to build a list of buyers, and to get to know them. As far as the seller goes, what you're going to eventually understand that the seller is going to have to be a motivated seller. In other words, maybe he has a house in such poor condition that it can't be sold to a regular retail type buyer who has to get a loan. They have no choice but to seller their house to a cash buyer who is in all likelihood offering a severely discounted price. Or maybe they have to sell their house quick for some reason. In any case, you need to study the sellers and the transactions. Go out and look at what these other wholesalers are selling. Walk thru it. Find out what deals sold, for how much, where they were, who the buyer was. Was he a landlord, rehabber? You can find this information out many times int he MLS, the public records, etc. It will take some time and effort, but if you want to understand the market I really can't think of any shortcuts.

As far as your neighborhood?  Well, I don't know Miami, or your neighborhood, but let's put it this way:  the worse the neighborhood the more apt the seller is to be motivated.  It's hard to do very much wholesale type business in a great neighborhood.  Just my opinion.  We all have a little different idea about this, but trust me on one thing, something has to be wrong with the seller or the house in order for him/her to become motivated.  If that isn't happening in your neighborhood, then you've picked the wrong neighborhood to wholesale in.

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