Purchasing Duplex's in lower income area (Need Help)
Rental Property Investor · Jonesboro, AR · Member since 2019 · 105 posts · 59 votes
Hello, I am a new real estate investor from Arkansas. I am considering purchasing a property in a neighborhood that has a history of drugs and some other crimes. Rent, in this neighborhood is in the lower 50% but this property will provide great cash flow. I have never purchased an investment property in a lower income area such as this and would like some insight as to what I should expect for tenants, repairs, and capital. How do you collect rent? With my other property people just pay me online while with these some people may or may not have bank accounts to pay me directly with. What are some things I can do to really add value to the neighborhood and bring in good renters? I don't want to not purchase the property just because it is in a bad neighborhood. I'd like to add value to the neighborhood, while also being prepared for the worst.
@Matthew Reid if the numbers make sense go for it! I own multi families in low income areas here in STL and I even grew up in a low income area when I was growing up in Chicago. There are a fair amount of good people that will do right by their units, pay on time and take care of the property...the reason why they are in those areas because they dont make enough money to live in other good areas; it does not mean they are bad. There is nothing wrong with renting to section 8 tenants. I have a section 8 tenant whom section 8 pays a portion of her rent but she works a job that she has been at for 10 plus years.....everything comes down to doing proper screening of your tenants that is the biggest thing. Last year i bought a 4 family on a state street in South City STL...now if you ask anybody that is from here they will tell you state streets have a bad rep from a decade ago which right now the area is in a transition but none the less this property was in horrible shape and had all the wrong tenants. I bought it for $85k...moved everybody out.. put about $90k into it and im doing a refi right now and it appraised for $230k... I have two graduate students renting one unit, a nurse renting the other, a dental hygienist in the other and a t-shirt business owner and the other. I have some great tenants in place....because during showings I let people know I am not the landlord they can walk over and inform them of how intense i screen and my deposit is pretty high which filters alot of tenants out. I don't look at credit score only concern with them not having recent evictions within the past 5 years and they don't have utilities in collection agency. I do a search through the court system and a social media search as well...oh boy the things you find on peoples facebook accounts. I also incentivize my tenants... once they are accepted I inform them that if they dont miss a payment and pass the quarterly inspections that if I ask them to renew they become part of my rewards program where I get them a renewal bonus.. for instance one of my tenants just renewed and I gave her a 55 inch smart TV... cost me $299..... I don't have to spend money on turning the unit around and i am going to continue getting the $1000 a month coming in on time and no headaches not to mention I can write the TV off. All in all you can minimize your risk of getting bad tenants by being firm on your screening process and providing really good quality units. trust me it will stand out when you list your place vs all the other run down places.
@Shaun Hatton
I really like that idea. I'm gonna text a few people that are in PM today to see what they think.
@Matthew Reid also go to your city planning and development office and see how many permits have been pulled in your area... for instance two years ago the alderman inform us at a local community meeting that we had right under a $1 million dollars in permits and last year 2018 over $10 Million in permits have been pulled....and we see the development and now investors want to flock to the area to buy up things but its so much bidding war because the inventory is super low and investors like myself who bought years ago are holding on... If you can see if any major development is planning to happen in the area/city then that is a huge indicator also look to see if that area is classified as an opportunity zone which is getting a lot of investors to buy up properties in these areas. I see this all too often back in Chicago during the 90s... you couldn't pay people to go to a White Sox game which was surrounded around public housing which was a very high crime area.... Now because of gentrification you can't buy a house over down by that area for under $250k. Some of these investors who comment might bought the property without even doing due diligence and bought in a very very high crime area with no potential of transitioning. My first duplex I bought in 2007 for $75k in foreclosure is not worth $150-$165k range. You can make your properties look good without breaking the budget....also for the maintenance issues.. its true in those areas you have alot of slum lords so you have to go in understanding that you will have to do a big update. I own 5 mulitfamilies.. and will be adding 2 more to my portfolio by January. All of them are like a half block walking radius from each other...yeah im buying up a small section because one ill control the environment and the comps. This out of town investor is trying to sell me his 4 family building that is boarded up for under $10k. it is on the next block from my 4 family that just appraised for $230k. I anticipate an $120k renovation on it from my contractors quote so ill be all in for $130k and once done it will be worth $230k. my properties will comp off my properties. All in all do your home work.. call your alderman, planning and zoning office ..and understand everybody story is different
@Andre Taylor
That is freaking awesome man, I wish nothing but the best for you. I hope I get to hear about how your deals go in the next few months.
Hello, I am a new real estate investor from Arkansas. I am considering purchasing a property in a neighborhood that has a history of drugs and some other crimes. Rent, in this neighborhood is in the lower 50% but this property will provide great cash flow. I have never purchased an investment property in a lower income area such as this and would like some insight as to what I should expect for tenants, repairs, and capital. How do you collect rent? With my other property people just pay me online while with these some people may or may not have bank accounts to pay me directly with. What are some things I can do to really add value to the neighborhood and bring in good renters? I don't want to not purchase the property just because it is in a bad neighborhood. I'd like to add value to the neighborhood, while also being prepared for the worst.
Worst thing an investor can do is think that they can change the ghetto. You can't. Doesn't mean you can't survive and make some money but you sure aren't going to change anything. It takes a lot more than what one mom and pop investor can put into an area to make any measurable change. Punch Tenants From Hell into the BP search bar to see some more of what you're up against I've started a ton of threads with pics on the topic. It's straight savage man lol.
@Douglas Gratz
If I assume the average cost per square foot ($45/sqft) of homes in the area it will be valued at just over $180,000.
Well if it appraises for that much you will get around 125k less closing costs on the loan. at 5% your payment not including insurance and tax would be around $600 .
$2400rent
-600
-100 insure
-300 taxes
-240 10% for repair
-200 misc
Cashflow $960
Total Cash out your pocket if you get the refi Around 20k
8% ROI and 57% CoC . If you can manage the low income tenants which can be harder but not always, i like the deal
@Douglas Gratz
If I assume the average cost per square foot ($45/sqft) of homes in the area it will be valued at just over $180,000.
Mind you, on properties like this, Id rather be all in for no more than 110K so I do not have any cash on the table
I have done some more research on government subsidized housing in my city and for a 2 BR they pay $735 in rent. That multiplied by 4 units is over $2900 in rental income. I was originally only going to rent each unit for $600 a month but am considering using HUD. With those rental numbers it will boost my cash flow considerably. My numbers and assumptions are below. This is once I refinance at $180,000 ARV with 5% interest.
New Loan amount: $144,000
Mortgage: $803.94
Taxes/Insurance: $230
Vacancy (10%) $290
Capital (10%) $294
Repairs (15%) $440
Management (10%) $294
Misc: $80
Cash Flow: $502
NOI: $1,905
Thats good cash flow. Whats appreciation or deprecations like in that neighborhood? Where I buy, seems to be stuck in time and all around neighboring cities, booming! I can only hope! Just make sure HUD will give you what you are anticipating.
If you are going to be able to REFI and at the rate and appraised value, in my strategy, seems like a good one
I have done some more research on government subsidized housing in my city and for a 2 BR they pay $735 in rent. That multiplied by 4 units is over $2900 in rental income. I was originally only going to rent each unit for $600 a month but am considering using HUD. With those rental numbers it will boost my cash flow considerably. My numbers and assumptions are below. This is once I refinance at $180,000 ARV with 5% interest.
New Loan amount: $144,000
Mortgage: $803.94
Taxes/Insurance: $230
Vacancy (10%) $290
Capital (10%) $294
Repairs (15%) $440
Management (10%) $294
Misc: $80
Cash Flow: $502
NOI: $1,905
Idont know why I cannot tag your name, so i reposted with a qoute
Appreciation in the middle of Jonesboro seems pretty slow. However, there are certain parts of town that seem to have absolutely exploded. This property is in a bit of a unique location. It is in an area that has remained stagnant for a long time. However, within the past 3 years there has been several new businesses and new construction added within a mile of these two duplexes which may cause the value of them to increase. Tomorrow I am going to call the alderman, or development office per Andre to see what kind of permits are being pulled in this part of town to see what kind of developments are going on.