Low Income Properties VS. Nicer Neighborhoods

General Real Estate Investing
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Low Income Properties VS. Nicer Neighborhoods

Zamir Kazi
Real Estate Investor/Syndicator · Orlando, FL · Member since 2014 · 109 posts · 22 votes

I am currently investing in low income neighborhoods, finding it is easy to get 20% on rentals through regular renters and Section 8. What I have found however is that my Section 8 tenants are dream tenants, as most of them will follow all rules and keep their places pretty nice so they do not violate rules and lose their Section 8 voucher.

The ones who are not on Section 8 however it has been a revolving door. Even though they sign a lease it seems like it doesn't really mean anything to them. Even though those units are Section 8 approved, its just hard to get Section 8 renters in as there are many locations for them to choose from and it seems like every landlord is fighting to get one.

Also, I have noticed that although there are very high ROI, the appreciation in these areas are non existent. Also, I have started to begin questioning the ease of liquidation if necessary in these areas. The low-income investment for me has not been terrible. Just noting some difficulties. I have owned these properties for over one year now and have netted $60,000 off a $300,000 investment.

Would it be better to invest on something in the future which has a lower ROI but a higher appreciation in a better area?

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Michele FischerPro Member
Rental Property Investor · Seattle, WA · Member since 2013 · 2k+ posts · 1k+ votes
11y

The advantage of staying in all one asset class is that you can get really good at that type of tenant and property and gain efficiencies.  

The advantage of diversifying is that you are spreading your risk out, balancing your less stable tenants with better ones, allowing for more upside potential in rents and values, and reducing the headache factor.

If I were you I'd look at expanding into nearby neighborhoods where the tenant is just a few notches better.  Tenants with white collar jobs, one step above needing a housing voucher. The worst house on a decent block.   Stay in the same general area, don't drastically change the game plan, and decide from there what direction to go.

I'm in the low end of the spectrum, with a bit of variability between the best and the worst. But all in a non-appreciating area.   We don't do section 8 (my husband is a housing commissioner, conflict of interest), all of our tenants are the revolving door type that you describe.  I will have paid off properties in another 10 years, but I'm not sure they will be very marketable.  Rents are going up in our city, but not at my properties, because the low end cannot afford any increases.  I think I would have diversified more if if present Michele could go back and talk to past Michele.

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  • Carlos Asuaje
    Weston, FL · Member since 2014 · 22 posts · 4 votes
    11y

    Something to keep in mind is that appreciation is not guaranteed, regardless of the area. Just because a property is in a nicer part of town doesn't necessarily mean the rate of appreciation is going to be higher then a property in a lower income area...

    Also, there has been a few studies done, one of which is written about in a book called "Investing in Real Estate" by Gary Eldred, that states that overtime the buyers for higher-end markets eventually decrease, due to inflated prices for so called "desired areas". Everyday buyers and investors with minimal capitol will then be "forced" or at least be more likely to purchase homes in lower end markets, where the better deals are.....just something else to think about..

    with that being said you've made a pretty solid ROI so far. As long as the tenants aren't destroying your properties and causing havoc, I would say stick with what you are(clearly) good at. For now at least.

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  • Michele FischerPro Member
    Rental Property Investor · Seattle, WA · Member since 2013 · 2k+ posts · 1k+ votes
    11y

    The advantage of staying in all one asset class is that you can get really good at that type of tenant and property and gain efficiencies.  

    The advantage of diversifying is that you are spreading your risk out, balancing your less stable tenants with better ones, allowing for more upside potential in rents and values, and reducing the headache factor.

    If I were you I'd look at expanding into nearby neighborhoods where the tenant is just a few notches better.  Tenants with white collar jobs, one step above needing a housing voucher. The worst house on a decent block.   Stay in the same general area, don't drastically change the game plan, and decide from there what direction to go.

    I'm in the low end of the spectrum, with a bit of variability between the best and the worst. But all in a non-appreciating area.   We don't do section 8 (my husband is a housing commissioner, conflict of interest), all of our tenants are the revolving door type that you describe.  I will have paid off properties in another 10 years, but I'm not sure they will be very marketable.  Rents are going up in our city, but not at my properties, because the low end cannot afford any increases.  I think I would have diversified more if if present Michele could go back and talk to past Michele.

    Podcast Guest on Show #79
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  • Account Closed
    Investor · Baltimore, MD · Member since 2014 · 1k+ posts · 688 votes
    11y
    Thats a question for you as "better" is a relative term. I, personally, like the low income areas. True what you said about their feelings towards leases. however, if you account for the headache then you will have fewer problems, ( there are several ways to do this).
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  • Zamir Kazi
    OP
    Real Estate Investor/Syndicator · Orlando, FL · Member since 2014 · 109 posts · 22 votes
    11y

    @Account Closed @Michele Fischer @Carlos Asuaje 

    Thanks guys for your feed back.

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  • Aly W.
    Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
    11y

    We have low end SFRs and higher end condos (2 different states) and have far less headaches in the better properties. All have appreciated over the last few years, although as others have said, appreciation isn't guaranteed. The low end properties have challenges that my husband and I decided we didn't want to deal with after we bought those first 2. 

    Vacant properties in those areas are targets, finding decent tenants is much more arduous, and values have gone down. We also can't really raise the rent, because market rate tenants who can afford more will go to better areas. We did Section 8 and rental assistance in the beginning, and won't do it again. Thankfully, our current tenants have been with us several years, and we hope they never move. Turnovers in those properties are very costly.

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  • Zamir Kazi
    OP
    Real Estate Investor/Syndicator · Orlando, FL · Member since 2014 · 109 posts · 22 votes
    11y

    @Aly W.  Wow, where in Florida do you own properties?

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  • Dawn BrenengenBusiness Member
    Moderator
    Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes
    11y

    @Zamir Kazi It's the age old debate on BP.  I personally prefer properties in better neighborhoods with a chance of appreciating, but if the high cash flow, lower end market is working for you, I wouldn't change it.  Do what works for you!

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  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    11y

    Everyone has their own thoughts and strategies. Personally we are buy and hold investors in single family homes. Specifically in class A investments so we can self manage from a distance. While we have smaller margins we are able to keep more of them. We make 25% gross after tax and insurance before expenses. Closer to 45% when you count principle and we are able to keep more of it because of our clientele. . We invest in areas were appreciation is higher than inflations. As our goal is for early retirement in 15 years :)

    You will love the diverse community and all the resources. There are tons of methods and niches with everyone having different specialities. So a great place is to look around the blogs, forums and listen to the podcasts for different niches. If you see a post you enjoy check out the persons signature. Many of us including myself talk about our strategies, styles, niches and business model on our website. So definitely check that out as it is an amazing additional resource. For example, my blog is about while working full time, buy and hold investing, 0% Down Rentals, Personal Properties turned rentals, Long distancing investing, self-managing 3,000+ miles away. Definitely list your blog or website in your signature, if you have one. Its a great additional networking source.

    Look forward to seeing and connecting with you around! 

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