Rental Property In Bad Area ! Need Your Advice
What are the advantages of purchasing a fairly (and i mean only fairly) good rental property in a bad area. I have read and heard that alot of your best rentals are in bad areas (i believe there was a discuss threat here on tci about it) I just can't seem to see how it can be profitable.....for example. Here in Maryland there is a property for sale for 35K. Tenants are already in place paying 650.00 a month. The house is in a bad neighborhood and when I checked our tax assessment website, it is showing the house is not worth more than 14K. How in the world can this be profitable. I would love to purchase some rental properties but can not see how they are going to be of profit to me especially since the FMV is so low. I look forward to hearing from you.
I think John's a good guy, but as far as owing rental properties in low income areas, that is where your cashflow is the highest. But, you have to have the right mentality. Using local help can keep your rehab costs down and encourage the locals to look out for your best interests and find you more deals. We have taken over several properties that were ran like absolute crap and the tenants treated like dirt. We go through, fix things that are broken, establish communication with the tenants and their concerns and it has been very profitable. We do not get mad or even raise our voice when someone doesn't pay, no pay, we evict them, simple as that, then we fix up that unit a little nicer and get higher rent. Low income rental properties are certainly not for everyone though.
[addsig]
John, I am not so sure about the Gang leader idea, I bought a property in Bflo,Ny in an area where you need to carry a gun, just in case. I hired a management co, who did the worst job ever, they had put a tenant without performing credit / criminal or any kind of checks, it took 6 months of legal work to get the tenants out, as it turned out they were drug dealers, the house got boarded up, and I had to hire a contractor inorder to re-fix everything and get things back up to city code.
My own experience, buying an out of state property can be hazardous to your financial health, if you don't have someone you trust to manage your property, as you won't find reputable mgmt companies that want to deal with drug dealers unless they themselves are.
by the way the mgmt company is RJ properties, worst ever. they promise you the world and give you a stick to plant no where.
Quote:
On 2005-01-14 20:45, JohnMichael wrote:
have some properties in Detroit, MI - Compton, CA and Memphis, TN in not so positive areas that are at best open prisons and vary gang influenced.
You will not find to many property management companies willing to take on such properties and in the area that I have properties in Detroit, MI I can not even get property insurance!
What I did to make sure my properties are protected and that I get my rent on time, I approached the most powerful gang in the neighborhood and this information came from the county probation department and gang unit of the local authorities.
I approached the one in charge of the gang and asked them to help me with my properties and take care of them and I would pay them a fee and it has been a positive but scary relationship - when in Rome do as the Romans do!
John, you know you sound exactly like an experienced investor friend of mine. He also suggested that I approach one of the locals to look after the property. I just dont have the time nor the energy to look for gang leaders etc. to watch the property. I can't handle that. keep in touch.
HAHAHAHAHAHA SOME OF YOU GUYS ARE CRAZY. if you want a thrill for a couple hundred bucks a month......join your local police force!
REMEMBER: LOCATION, LOCATION, LOCATION!!!
John responds to lots of posts, and that is time, he likes to help, we all need to make money to meet our obligations, honest money is the best as it has a special feeling of its own, and as the Chinease say give me a fish and I'll eat for one day teach me how to fish and I'll eat forever.
We all differ from time to time in our opinion, but those who spend their time giving knowledge to those who ask for it are the true winners.
Bad areas are hard to put good honest families, IMO esp long term tenants.
thanx for the reply but even IF they were honest families, HOW would or could it be profitable to meet especially since the FMV is so low?
Hi,
I live outside of Baltimore. I have been studying the Balt. REI market for a while. Unlike other areas, the assessed value doesn't mean too much in Baltimore. Suggest you contact a realtor to provide comparables before making a decision. Lastly, make sure you factor in the ability to get landlord insurance for the older homes. I avoid the bad areas, being a landlord has enough headaches without having to worry about crime in the area. Of course "bad" is a relative term. Drive by on a nice Fri/Sat evening to get a feel for the neighborhood.
thank you....a real good investor friend of mine believes that as long as you have tenants that will pay on time, etc....i should not worry about the area. Im just scared to death to purchase a home in the "ghetto" although I also realize unfortunately it is in the ghetto where most people "rent". I would love to put some work into the home and raise the rent....one because I dont want to have any property attached to ME that is totally run down...but im not sure that most of the tenants can handle a 100.00 - 150.00 a month increase.
Quote:
On 2005-01-14 18:29, fdi wrote:
Hi,
I live outside of Baltimore. I have been studying the Balt. REI market for a while. Unlike other areas, the assessed value doesn't mean too much in Baltimore. Suggest you contact a realtor to provide comparables
before making a decision. Lastly, make sure you factor in the ability to get landlord insurance for the older homes. I avoid the bad areas, being a landlord has enough headaches without having to worry about crime in the area. Of course "bad" is a relative term. Drive by on a nice Fri/Sat evening to get a feel for the neighborhood.
Thank you... to be honest with you....some of the areas I would not ride through during MORNING hours but I am finding that that is where most of the renting is going on. What is your opinion in terms of Section 8 properties.....it seems that rent is MUCH higher when your house is approved for Section 8. I look forward to hearing from you
I would not advise owning in areas that you are that concerned about going in unless you hire a property manager to handle all of your personal interactions. However, that will eat into your profit margin. I own in Pasadena (MD), Severn and upstate NY. I have put in several offers in Balt but theyhaven't panned out. I do have a local mentor who owns several Balt properties including a 9 unit. He is not crazy about the city's Section 8 program. They have been know to hold onto YOUR rent while minor repairs are being made. He only rents to working Section 8 tenants.
Hope this helps
have some properties in Detroit, MI - Compton, CA and Memphis, TN in not so positive areas that are at best open prisons and vary gang influenced.
You will not find to many property management companies willing to take on such properties and in the area that I have properties in Detroit, MI I can not even get property insurance!
What I did to make sure my properties are protected and that I get my rent on time, I approached the most powerful gang in the neighborhood and this information came from the county probation department and gang unit of the local authorities.
I approached the one in charge of the gang and asked them to help me with my properties and take care of them and I would pay them a fee and it has been a positive but scary relationship - when in Rome do as the Romans do!
[addsig]
Where did you find this property info? Have you talked with the owner or realtor?
I have bought several houses from landlords at good prices. Tired landlords can be motivated sellers. I bought two cheaply from a man who's wife said, "those houses or me! You can't have both!" Unfortunately, she left him after he dumped the houses.
Your target house already has tenants paying $650. Say you bought for $30k, your PITI would be about $325. If you only had to put in closing costs ($2500?), a monthly cash flow of $325 is a pretty good ROI (return on investment.)
If most houses in the neighborhood are lived in and kept up, you could make money there. I have found that the more often I visit my "slum" tenants, the better they are to me.
Seems people often keep a better house if you are looking regularly. And they pay better if you act like you care about them.
If you cannot be with poor people without looking down your nose, you shouldn't do business there. They may feel your disdain and perform poorly.
Good luck.
Dan
John,
Would you care to share the "fee" arrangement in your previous post? Creative...
Quote:
On 2005-01-14 21:48, rvrnorth wrote:
John,
Would you care to share the "fee" arrangement in your previous post? Creative...
Sure
Detroit, MI - $100 per unit - best insurance I could get
Compton, CA - $65 per unit
Memphis, TN - $50 per unit
This is factored into the rent.
Moreover, it is not tax deductible!
I have also been able to take a few of them to bird dog for me also.
You will find that they really are not bad to deal with, but I do no my place in this game!!!!!!!!!!
This has worked vary well and we have built a strange trust. And I get my rent on time for obvious reasons.
This ideal came from a friend who owns a collection agency in California who owns a collection agency and he uses biker folks to go door to door to collect bad debts so it got my out of the box thinking to kick in.
[addsig]
Quote:
On 2005-01-14 21:34, Apprentice2Him wrote:
Where did you find this property info? Have you talked with the owner or realtor?
I have bought several houses from landlords at good prices. Tired landlords can be motivated sellers. I bought two cheaply from a man who's wife said, "those houses or me! You can't have both!" Unfortunately, she left him after he dumped the houses.
Your target house already has tenants paying $650. Say you bought for $30k, your PITI would be about $325. If you only had to put in closing costs ($2500?), a monthly cash flow of $325 is a pretty good ROI (return on investment.)
If most houses in the neighborhood are lived in and kept up, you could make money there. I have found that the more often I visit my "slum" tenants, the better they are to me.
Seems people often keep a better house if you are looking regularly. And they pay better if you act like you care about them.
If you cannot be with poor people without looking down your nose, you shouldn't do business there. They may feel your disdain and perform poorly.
Good luck.
Dan
Hi Dan,
I dont think it has anything to do with looking down on the poor people. I am FAR from wealthy myself. I have never nor would I ever look down on anyone. My issue is whether or not it would be profitable for me to purchase a home in a "slum" or "ghetto" neighborhood when most of the homes in the area are NOT in good condition at all. Also, i believe you should in fact have a good "business" relationship with your tenants; however, I dont feel that I should HAVE to be a "buddy" just to assure that they will pay me for renting MY house. keep in touch
Hey JohnMichael, are you in the RE business or Mafia Business? Did you also authorize your collector to break bones? I don't know about you guys, but money is not the ultimate goal here. The goal is to make an honest living and to live with a clear conscious. And also to be doing what we like to do. Having said that, It's clear to me that this deal is not making JohnMichael happy.
JohnMichael, I'm not trying to discredit you, or make any assumptions about you, we are just having a discussion here. Knowing your connections, I have to keep you cool & nice. I don't want any of your guys knocking on my door
What I'm saying is that when you play with fire, you stand the chance of getting burned.
On the other hand, from reading your second post, It seems that you have created a management team to take care of your properties. Good idea. But I would take it a step further, let these "powerful gangs" as you put it, form their own company therefore relieving you from future liabilities. I hope you know what I mean. As it stands now, you are the head gang leader and all liabilities come back to you.
Good Luck and stay out of jail
Wow, seems like someone here is really worried about JohnMichaels affairs? Is someone upset that their grass is not as green as JohnMichaels? LOL.
You act as though you are judging JohnMichaels and his business ethics when in actuality he is a tame kitten compared to how some big businesses in America conduct themselves...
Get real. This is capitalism at it's finest. This man has found a way to make money in an area that he has very few competitors. No harm and no foul.
Sounds like you're just jealous. Don't worry you aren't alone, I am jealous too that I didn't think of it.
And yes, I came out of lurkdom just to post in reply to this pompous, condescending tone. Have a great day!
Patience925
Low income rental property is not for everyone but there is money in it; I am sure JohnMichael would not be doing it if there was not. I never invest in a property if it is in an area that I am afraid to get out of my car. I have missed out on some good deals. I sold over the years about 20 houses to an investor priced at $20-30K which he rents for between $600-800/month. He bought many more from others. I call his home and his wife often says he is out collecting rent. He drives around collecting rent in his primer gray '86 truck banging on doors with his paint spattered clothes. I love to sell him houses. He takes about 15 minutes to look over a property, maybe lets out a belch, then makes his decision. No moaning and groaning. I wish I had his money.