Ethically investing in poorer urban areas

David Faulkner

Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes

10y

Ethical is necessary but not sufficient. What you need is ethical AND profitable. Doing good does you no good if you go broke doing it. On the other hand, getting rich by cheating others is not sustainable either. You need both.

There is a good reason that most experienced, successful investors avoid and advise against investing in the ghetto; it is too risky and too difficult to be consistently profitable. There are also good reasons why many of the poor in those neighborhoods stay that way, and most of those reasons are NOT fixable by you as a landlord.

Ethically providing high quality rental property to good, hard working, middle class families at a reasonable rate is good enough for me, and profitable.

15 Reply

Account Closed

San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes

10y

Originally posted by @Madeline J.:

For a few months I've been learning about how to use my unused income from a full-time job to invest in real estate and have been reading lots of books like Hold: How to Find, Buy and Rent Houses for Wealth, Brandon Turner's books, E-Myth Real Estate Investor, the Rich Dad Poor Dad series, and listening to the BiggerPockets podcasts.

Now I'm realizing that for this whole idea to fit in line with my values I'd really like to use my investing to not only create a passive income for myself but also to contribute to making low socioeconomic urban neighborhoods better, particularly for kids who grow up in those areas, like helping them be less exposed to toxic substances and pollution, or have safer neighborhoods to play in, or more access to health/education resources.

I have no idea if this is a feasible goal as a landlord or if/how people have tried to accomplish this in the past. But I'm having trouble finding books to read on this topic, especially ones that are directed at how potential investors could get involved. If anyone has any resources to suggest, please let me know! Thank you.

Note: My main market would be the Twin Cities area but I'm curious about this topic nationwide.

I suggest you not try to turn charity work into passive income. You can donate to organizations that build community gardens or help non-profits write grants for projects. But, to turn that kind of activity into a for-profit venture simply won't work. People who live in blighted areas, don't pay people to help them.

And you've probably read lots of threads here about the problems landlords have had by giving someone a break. So, providing housing to tenants who would otherwise not find anyone else to rent to them, would not be profitable.

Perhaps a compromise would be to start a nonprofit business of some kind, get yourself some grants, and let the nonprofit business pay you a salary. Non-profits don't equal non-salaries. But, that wouldn't be "passive" income.

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Dawn AnastasiPro Member

Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes

10y

I have to agree, this venture is more charitable based versus profit based.

One thing that lower income people lack in many cases is financial literacy. They simply have never been taught budgeting, what a credit score is and why its important, how to have and manage a checking and savings account, among other things. Those seem like the most basic things, but its true.

Paul Timmins

Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes

10y

@Madeline J.

Find your local affordable housing agency see what resources might be available.

Check and see if Neighborhood Stabilization Funds (NSF) monies are available. A buddy was given SFR from the town the rehab $ came from NSF when it sold my buddy got 75% the town 25%

Change several houses on the same street you have changed the neighborhood.

Consider making the projects green.

Paul

David Coleman

Houston, TX · Member since 2016 · 104 posts · 22 votes

10y

Madeline Welcome to Bp all people need housing have you heard of section 8 your money is guaranteed every month on time don't down play area because of hear day that might be your gold mine just because don't work for others it might just work for you Good luck.David c

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

10y

@Madeline J. to just echo whats been said and I would have voted @David Faulkner but he has made great post today and I can only vote for him twice :)

I highly suggest you separate your Real Estate investments from your charitable ideas or giving.

Habitat for Humans is very active in PDX you could work with them... on your Charity then buy sustainable investment grade properties so you can afford to give to charity.

I have worked in the low end areas of the US.. and its dog tough and ONLY appropriate for those that live there and work in those communities and fully understand the tenant base..

@Dawn Anastasi is very correct.. you get into those areas and folks live life so foreign to what you probably do that its really quite astounding.. NO checking accounts ( can't get one because they have bounced to many checks and their SSN is flagged ) Very unstable home life leads to a lot of moving about.. not to mention the other social problems that frankly plague both the poorer areas and the Wealthy areas alike.

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Account Closed

Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes

10y

Heres the basic problem. You want to do good. Which means being understanding and flexible with tenants who will be sick, have cars break down, lose jobs etc etc. However, the bank that holds your mortgage however will still demand payment every month. As will the county for property tax and you insurance company and your handyman and your property manager. They don't care about your tenants. As others say, separate the business from the charity. There is place for both in your life. Just not at the same time!

Ian Tudor

Specialist · Charlotte, NC · Member since 2013 · 260 posts · 245 votes

10y

Madeline J. Look at mobile home parks. They are highly profitable and work with the lowest level of income tenants. You can still be ethical and provide a great community in this niche

Phoenix, AZ · Member since 2016 · 208 posts · 76 votes

10y

@David Coleman & @Ian Tudor thank you

@Paul Timmins on the nose, I bought my home with NSP funds...$15k forgivable to stay in this freshly rehabbed house with all new appliances, plus another 5k from the county. NSP went away in Phoenix, but another great program came in right behind it, and there others still to be had.

@Dawn Anastasi if I write into my business plan (not a non-profit, btw) some basic financial literacy counseling (Financial Peace Uni comes to mind, churches all over the nation do it in English and Spanish) as an offering for those buyers/sellers willing to take it, on MY dime, am I not improving the area by investing in the person? If I focus on the area heavily and exclusively, and make it part of my company mission statement to change the neighborhood by investing in the people as well as the real estate, does that make my business substantially less profitable or scalable?

I see signs all over the place for "House for sale, $5000 down $1000 a month no credit check no qualifying." I know what that is, and I know what kind of person would sign up for something like that, because I was born as one, raised as one, and am still scolded and criticized by one (my Poor Dad).

@Madeline J. don't be discouraged. You can do anything you set your heart and mind to do. Just educate yourself and network with like-minded people, and don't lose sight of your end game.

10 Reply

Dan Schwartz

Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes

10y

Robert Lorenz how do I send you a contact request from the iOS app??? I've done this in the W Buckeye corridor and got a lot out of it. Would love to connect.

Madeline J.

OP

Portland, OR · Member since 2016 · 12 posts · 13 votes

10y

I appreciate all these comments and love the concept of partnering with reputable community agencies that would enable me to avoid excessive risks like some people described here. I appreciate hearing about the potential pitfalls.

@Robert Lorenz -- your story is inspiring -- I really want to hear more success stories about how this has been done. How did you learn?

Phoenix, AZ · Member since 2016 · 208 posts · 76 votes

10y

Jimmy Carter ;)

http://m.yourinvestmentpropertymag.com.au/buying-p...

Phoenix, AZ · Member since 2016 · 208 posts · 76 votes

10y

http://homeguides.sfgate.com/real-estate-investing...

http://www.whatworksforamerica.org/ideas/fighting-...

start there

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Michael Wentzel

Investor · Colorado Springs, CO · Member since 2013 · 643 posts · 280 votes

10y

@Madeline J.

Great question. I have been wrestling with this for a few years. My background is in international development, so I tend to look at communities from that lens. Ethical business is a good starting point, but we should try to go beyond that. I am now aspiring to engage in social entrepreneurship, so my business needs to make a profit, but also needs to have a positive impact on employees, contractors and customers/ tenants.

@Robert Lorenz

@Dawn Anastasi

I have been kicking around the idea of offering all of my tenants a scholarship into a Dave Ramsey financial peace course in the community. If they complete it, I would give them a rebate on a half of a month of rent. This would give them access to soft money skills that both rich and poor in America often lack.

I am also chewing on the idea of a scholarship fund that would be available to my tenants. Finally a big dream would helping tenants become bankable and buy the houses they are renting from me.

Let's be creative. I think Real Estate investors do have opportunities to impact their communities in many ways.

Mike

8 Reply

Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

10y

It is admirable that you want to help people....however I would not mix your investing with your desire for social justice. You can certainly do both, just do not mix them. It is a recipe for disaster.

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Larry Turowski

Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes

10y

Run a business for profit, give back what you can or are willing to from that profit.

@Madeline J. I think just by being a good landlord (running well maintained properties) you would be doing a lot.

What are you doing for the poor right now without having a business? Maybe you could do more of that by having a profitable business renting properties to the lower middle class.

3 Reply

Amy E.

Investor · Bonaire, GA · Member since 2014 · 177 posts · 82 votes

10y

When you embark on you real estate empire building journey, you must ask yourself if your primary goal is to fix the societal problems you mentioned above, or if it is to make money.

If your primary goal is to help others, you would be better off working with charities. You may even get paid for your work, depending on how you go about this, but at the end of the day the goal is to help others....not make money.

If your primary goal is to make money, then your task is very simple. Rent houses that are good, clean, and well maintained. I don't forsee any problem accomplishing this in any market. And you will have a good, well run business, that also helps the societal problems you mentioned earlier. Win-win in my opinion.

I rent low income housing in a rural area, so I doubt I'd have the same issues you may have in a city, but I'm happy to answer any questions. All of my tenants simply want good, quality housing to raise their families in and are very good, just poor, tenants.

Roy Oliphant

Rockwall, TX · Member since 2014 · 380 posts · 211 votes

10y

@Madeline J.

1) Get rich by doing well (ethical business):

Treat people fairly but hold them accountable. It doesn't do them or the community any good if you let them think someone will bail them out of every occurrence.

2) Spend it all by doing good:

Once you have provided for your responsibilities give the excess in a way that promotes what you think is important. Habitat might be a great way to start giving back something until you reach a point to do something more. Find out what they need and work towards that. (For example, donate a lot in a neighborhood you are both working)

Lot's of great suggestions in this thread; separating your profit efforts from your giving efforts, making the effort to learn and use program funds, etc. The fact that you are asking the question will help you find the path. Hope you find both success and joy as your travel it.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

10y

@Madeline J. google www.Naca.com this is a non profit lender ( don't think they are in Oregon) they do what I think it is you trying to do.. they educate those who need it.. and help them with sweet heart loans to get into home ownership.

but before you can get a sweatheart no money down loan from them you must go through there class's you must do volunteer work, you have to keep your credit clean for 1 year.. IE they train folks like Dawn is talking about how to be responsible. then when you graduate you get a certificate and then can go shopping for your home.

I sold two of my OREO to people that graduated from this.. they look for seller who also contribute to help them buy down the interest rates.. I sold one property for 110k donated back 15k to buy down rate .. and the buyer got into the house with nothing down and 1% 30 year fixed.. his insurance premium per month was higher than his mortgage LOL... reason being of course insurance rates vary by your credit.. these folks usually have bruised credit but its a second chance for them.

I have also donated about 15 properties in the Deep South to habitat... but do I want to get in there and try to save the world.. Not possible.. you need to let those that are in the business attack this..

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Panela Leung

Kansas City, MO · Member since 2016 · 8 posts · 3 votes

10y

I admire the idea. I have a giving heart too but I also have experience. what I will tell you is my experience living in a low income community was that none of the tenants took advantage of financial classes they only swamped the food banks. The outside property was never kept clean. The property had to pay a person every week go out and pick up chicken bones,poop, and demolished toys. The children often would make it a game of purposely destroying the beautiful streetlamps and the sidewalks and the yards. The housing project owned by a company called Community Builders. They operate in the east coast. They offer quality housing, maintain a community center that offered financial classes, and food banks. They also worked to create mixed income communities. A friend of mine earns very well working as a director for them. Look into companies that are already doing what you feel in your heart you want to do. What I think you'll find is that these people are independently wealthy in other areas. Looking to create a passive income business from low income populations typically end up looking like predatory profit-making.

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Alex Franks

Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes

10y

Originally posted by @Madeline J.:

For a few months I've been learning about how to use my unused income from a full-time job to invest in real estate and have been reading lots of books like Hold: How to Find, Buy and Rent Houses for Wealth, Brandon Turner's books, E-Myth Real Estate Investor, the Rich Dad Poor Dad series, and listening to the BiggerPockets podcasts.

Now I'm realizing that for this whole idea to fit in line with my values I'd really like to use my investing to not only create a passive income for myself but also to contribute to making low socioeconomic urban neighborhoods better, particularly for kids who grow up in those areas, like helping them be less exposed to toxic substances and pollution, or have safer neighborhoods to play in, or more access to health/education resources.

I have no idea if this is a feasible goal as a landlord or if/how people have tried to accomplish this in the past. But I'm having trouble finding books to read on this topic, especially ones that are directed at how potential investors could get involved. If anyone has any resources to suggest, please let me know! Thank you.

Note: My main market would be the Twin Cities area but I'm curious about this topic nationwide.

This is my little story.

There were four (investor) friends and I that took on one area in the small town of Rock Hill, SC. The location was about 1,200 houses in a 6-block area. This was the second worst of the worst areas in Rock Hill on Police list. What we did was start hammering away, fixing low income houses. Giving folks a nice safe place to live. Out of the 10 areas in our city we brought it to 7 for lack of volume of police calls. With that we thought we were doing some good by fixing the houses.

We worked with the city to see if any programs were available to help (renters and potential home owners). Was going to take a 68-house package area of the #1 worst area. I am very glad that deal fell apart.

An off duty police offiecer was hired to provide security for $25/hour. We started out with 25hours/week that all investors chipped in. Convereted almost 200 homes within the group. We were not partners and everyone did their own volume. I was more of the wholesaler; a turnkey guy.

Long story short, we improved the houses, raised the rents and thought we changed the area. Instead I learned some times you cannot change the mind set of renters no matter what you provide or do. There are great people in all areas of the market. Just understand the lower-end market folks are struggling and have a much different mindset all together.

I think what you want to do is great and is always needed. Just thinking with your heart in this business will cost you money.

Now fast forward to a few weeks ago. This area is 15 minutes from my house. I had a local investor friend looking at two houses over in the same area. So I did police check on stats and it was back to #2 worst area. There was recently shooting and murder (always nice to hear). Mutilple houses are now drug houses. After years in this business you can tell by the signs. I decided to check the area out myself. There were 10 - 15 guys out side sitting around and I saw cars slow down by those houses then someone would run over to that car. Then a minute late another guy run back to the car. Now, I'm not an officer of the law, but I knew exactly what was happening.

I sat with another local investor who is actually rehabbing and selling in those areas. So it does work just for myself it didn't pan out. I love to fix the worlds problems in real estate, but I feel everything we did in those areas did not accomplish the goals I/we expected.

Just my two cents

Alex

Phoenix, AZ · Member since 2016 · 208 posts · 76 votes

10y

We all have different experiences and expectations, and results will vary... but what happens if everyone just gives up and declares these people and the areas they live in lost causes? If that really makes you more comfortable, then don't invest in those areas. It's not for everybody, and no one will think you're a bad person for it. The fact that this conversation has gotten as far as it has is testimony enough that there are many facets to the discussion. There is also the fact that not every attempt is successful.

That doesn't change whether or not it can be done. It HAS been done, and is still being done in America and abroad. Mistakes will be made... I don't know about you but I make mistakes every single day. But I try to learn and grow from them, not use them as an excuse to give up and walk away.

Alice K.

Investor · San Francisco, CA · Member since 2015 · 306 posts · 211 votes

10y

That sounds all fine and dandy. Here are some thoughts, some similar with the people above:
* "Poorer" areas may have some "fleas" -- yes, you can now afford these class D areas and clean them up, but if you've never been a landlord in them, be careful. That tenant type is different from the things you may be used to hearing (e.g.: I heard of some mobile home owners having units stripped)
* Now, if you can get some great tenants, then by all means, use that excess cash flow to help the community! Forget what we money-grubbing naysayers say!
* I honestly wouldn't do this if I wasn't nearby the property. A property manager will be a lot less dedicated than you (most likely) to have this perspective, as they just need to get food on the table.
* By investing in less desirable areas, and cleaning them up-- you are helping! If you're just buying a crumby place, not fixing it up / not keeping it maintained, then you are not helping at all. Most of the people here are all about making places habitable-- which in turn, makes the location better !

* An extreme thought: You may inadvertently gentrify the place... Like what happened in SF, sure it's "nicer" now (depending where you go), but now most of the average-income renters (esp families) have had to move out.

Account Closed

Investor · LOUISVILLE, KY · Member since 2013 · 299 posts · 137 votes

10y

If you want to be charitable, go join Habitat for Humanity or donate money to the United Way.

If you want to invest in real estate, do that. Do not mix the two. What you are trying to do wont work, and it will bankrupt you in the process.

Everybody else above is trying to beat around the bush; just like normal, nice people are prone to do. If you do what you are thinking of, it will probably ruin you financially.

Go out and invest in real estate. Run it as a for-profit business. Then, if you want to help people, take the profits and either donate them, or start a second (and completely) separate non-profit that covers your charitable objectives.

Again, to be clear, if you do both of them in the same company, you will fail. If you do both of them in the same company, you will, more than likely, bankrupt yourself.