@Jordan Moorhead
@Denise Brown-Puryear
My experiences have been very similiar to Denise's experience.
We also would have experienced a large rent and value appreciation, depending on which neighborhood we owned our investments.
Several of my properties trippled in Value and one increased 7 TIMES the value that I had bought it.
I would like to comment based upon a REAL example.
Year: 2000
Area: Windsor Terrace, Brooklyn, NY
Purchase Price: $140k
Investment: $28k ($21k down, $7k Closing)
Renovations: $50k
Rent: 2 apts at $500 per month
Current Year: 2017
Current Value: $1 Million (Conservatively)
Current Rents: $1,900 per month
In terms of the topic and this is just MY strategy, renting to low income, my preference is:
1) I don't invest in Low Income Rentals unless I fully can anticipate the rentals to move up. In the building mentioned above, the rents started out at $500 per month. Today, it is $1,900 per month.
2) The Quality of the tenants must improve over time and full due diligence can be done.
If I am going to take the risk of investing in a "higher risk" area, which generally means a lower income neighborhood, then I need to have a "higher reward."
The "higher reward" is achieved by purchasing in fringe neighborhoods which are eventually going to Gentrify. The above property was in Windsor Terrace which was somewhat sketchy in comparison to other, more prime neighborhoods almost 20 years ago.
Particularly, on that block, there was a specific drug dealer who terrorized the neighborhood. It sort of kept out the spill over of people who were out priced of the higher cost areas.
HOWEVER, eventually the drug dealing family finally sold their home for much more than the drug money they made.... it was inevitable that this would happen because they were greedy.
$140k for that property was not a discount, btw... it was just the price at that time on a fringe block. Everyone I speak to believe I got a bargain. That's correct, but not in the traditional sense.
A bargain is is generally when you get a discount for something. An example is a pair of shoes that sells for 50% cheaper in a discount store.
HOWEVER, an INVESTMENT bargain in Real Estate is more to do with it's future price because unlike the shoes which is worthless after a while, Real Estate will either keep it's value or increase in value.
I'm buying for an INVESTMENT bargain.
I try to buy low income, low value, low cash flow to achieve high income, high value and high cash flow.
It's worked for me for the last 20 years and every year I have heard that it's a big mistake to think you can predict future appreciation.
I guess I have been luck 7 times (I bought 7 multi-family buildings) in a row for the last 20 years. Seemingly an impossible odds.
So if you are open-minded to the possibility that you can buy low income where in 10 years you can do enough research to determine what metrics you can use to predict some value increase in either cash flow and/or value, then I fully recommend this strategy, that I have successfully implemented. You would just need to make conservative assumptions that are as accurate as you can and run a spreadsheet which will tell you how much you can make based on those conservative assumptions.
For instance, if the 30 year appreciation rate is say, 5%, then conservatively, you can use 2%. If the rents move up 3% per year, then assume 1% per year. If the expenses move up historically 4% per year, then assume 6%, and so on. Then create a spreadsheet which takes it all into account for the next 10 years and see what it tells you. Does it give you a substantial profit? Is it mediocre? Is it a bad investment?
Then go to several low income properties in different neighborhoods and eventually, you may find that diamond in the rough.
I also want to point out that when you go to low income, you may not be able to do a full due diligence tenant screening. I'm not sure if anyone had pointed that out just yet.
I have a friend that bought in a low income area and he eventually couldn't really use the Credit Reports because EVERYONE... with out exception.... had poor credit. What was the point?! So while he checks, what's more important was that the person made reliable income.
However, that's a big part of the tenant screening that Denise and I can do here in Brooklyn in good neighborhoods. In my case, no one can rent under a 700 and we get normally 750 or above. Occassionally, we get over 800. Like Denise, I have not done an eviction over 15 years and only by inherited tenants from buildings I bought.
The one eviction I did in 2014 was because I bought a building with another inherited tenant... but that building DOUBLED in price and made approximately $900k in appreciation in 3 years. That was in Bed-Stuy, Brooklyn.
Again, this specific Bed-Stuy Building was renting 2 bedroom apts for $1k per month in 2014. Today, after some renovations, we rent it out for $2,200 per month.
Please note, I'm not trying to convince anyone to do it my way, I'm just trying give an opinion and stategy that has worked for me for 20 years.
