Updated almost 11 years ago on . Most recent reply
Low Income Properties VS. Nicer Neighborhoods
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?
Most Popular Reply
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.