All Forum Posts by: Kevin Dickson

A year ago I ran this ad in Craigslist and the phone rang off the hook. I found an excellent tenant who was more interested in "character" than quality.

"Spooky House Ready for Halloween $860

One and a half story house on huge lot. One bath, clawfoot tub, gas range, old everything.

I'm pretty sure it isn't haunted, but it's kind of scary. Creaky floors, steep narrow stairs, and a little moaning when it's windy.

Washer and dryer included. It definitely needs remodeling, but everything still works and of course we repair or replace anything that might break.

One year lease, $400 security deposit, $30 application fee, Dog deposit $200, cat $150, no smoking, sketchy fireplace.

The 550 sq. ft. basement is truly frightening, but great for storage. It has an extra "hobby" room for "experiments" "

I'll be there, Monday is good.

Malcolm Gladwell was mentioned earlier.. . this is indeed a "tipping point" project. The book has some relevant info.

A group of investors called Affinity Neighborhoods got some publicity about similar projects: http://articles.latimes.com/2004/jul/25/realestate/re-fixup25

http://money.cnn.com/2004/07/15/real_estate/investment_prop/affinity/

I started a website for the neighborhood, and tried to post optimistic things on it. It didn't take long until a Google search on the neighborhood name went straight to the website. It was free using "neighborhoodlink.com"

One young couple with an eye on a house in the neighborhood found me through the website and contacted me for an opinion. I encouraged them to go for it. Ironically, the downturn probably hurt their home value for 3 years, but we've definitely turned the corner now.

Here's my neighborhood website:
http://www.neighborhoodlink.com/Overland

Here's a thread I found that discusses the neighborhood gentrification strategy:
https://www.biggerpockets.com/forums/311/topics/70927

Jeremy,

Great thread here. I'm in the 10th year of a similar project here in Denver. 25 homes acquired so far.

My involvement with the neighborhood association has started to bear fruit - folks know I'm the "go to guy" for an off-market sale.

My strategy is find a cheap neighborhood with "potential".

It must be adjacent to other neighborhoods that are obviously gentrifying. You'll find that rents are about the same, but purchase prices could be 20%-60% cheaper.

Price pressure eventually spreads to the cheaper neighborhood, and the price gap closes to 0%-20%.

I've seen this general scenario play out many times over the last 30 years in Denver.

Once you own several homes in the cheap neighborhood, you can even try to help "tip" the neighborhood toward gentrification by improving or redeveloping your properties.

New light rail lines tend to help a neighborhood's values.

I haven't had the guts to try it yet, mainly because the vacancies I've had lately aren't perfect homes in a great neighborhood.

I reactivated the link for anyone who is curious.

Online rental applications through Padmapper.com saves you time at showings because the prospect can fill it out AND pay for it after the showing. It also happens to have a fill-in-the-blank for "price you want to pay"

To sum up my take on it:

A 15% cap rate with SFRs is something you do whatever it takes to get done.
Borrow, cross-collateralize, whatever.

You would control the entire neighborhood, and it will gentrify as you make improvements. This is the most important thing about the deal. You don't have the downside risk of the neighborhood decaying further. With you in control, it can't. The money for the improvements can come from the rental profits.

We've hit definitely hit bottom in most areas of the country (inner city Detroit may still be falling). Therefore sale prices can only go up.

Borrowing isn't something to be afraid of because it makes the overall ROI higher.

If the bank will let you buy them gradually over the next 9 - 18 months you can get them all turned with just one good general contractor.

Once all 42 have better tenants and better curb appeal, you don't need to get the word out - by definition the word is already out.

Minimize the number that you need to sell off before you are done with the whole project. Profits will be much lower on those.

Find out what your zoning is. When you have this much contiguous land there may be a way to add value through more density.

Some cities call it a PUD - planned unit development.

Two more quotes coming.