Renting In Rough Parts Of Town.
I've been looking for rental properties that can cashflow for me. The only ones I've found are in a rough part of town.
So I've found a couple that would cashflow (even with a 10% management fee added on).
Whats your take on these type of properties?
I used to feel like "If I wouldn't live there, I don't want it". But I'm seeing many people make some good money doing this.
Have you had problems with Property Managers? or contractors?
Am I over my head even trying to look into these?
I belong to a landlord group and have never heard anyone discuss this type of insurance. Give me a company name please that writes this type of insurance and give me the generic name for this type of insurance so I can ask around.
Thanks
Brenda
amen...
It does take time and experience.
I rent in the rougher parts of town and I get GREAT cashflo even with a rental company. The houses are inexpensive compared to the rents (50K-75K). I just made sure I found a management company that did good screening of the prospective residents. Just realize these aren't the properties that you are going to show off to your friends and family, these are the houses that are going to make you the money that will allow you to show off your bank account to friend and family. As to the poster above me, 215K for a house in the rougher neighborhoods? wow that would be the price on a home in one of the upper class neighborhoods here in South bend! What kind of rents do you charge on something like that in the rougher neighborhoods so that it cashflows out?
Joe
[addsig]
Welcome to the ghetto =)
All of my stuff (not my primary residence) is in the rougher side of the tracks, your very best friend for these areas is Robert Shemins Secrets of a millionaire landlord book.
Cashflow is strong and if you treat the people right and do your homework, it's been great so far.
[addsig]
We have one home in a rough neighborhood. The cashflow is awesome - mort is 30K, rent is $650/mo. It takes longer to fill because you have to be a little picky - and in those areas, your homework will pay for itself big time.
Can't help you with the prop. manager - we do that ourselves 'cause we are poor. But treat people like people, within reason, and all is good.
We will certainly buy in rough neighborhoods again when we go to GA - there is a section of town that has about 10 homes for sale reasonably there. Purchase for 20K, put your 10K in, rent it to nice people needing a nice place that's still affordable - they are happy, and so are you. And your bank account is sweet!
I recently bought a property in a 'rough part of town'. The cash flow is good, but it comes with a price. I have no regrets, but be prepared for some extra hassles.
I'm on my third eviction in three months, a tenant arrest and drug dealing on the street corner. We have turned around the property through the evictions, installing fake security cameras and motion sensored lights on the exterior portions of the building.
We have decided to pull eviction and criminal records on potential tenants, which I have not had to do on buildings in great neighborhoods.
Do you mind the extra work involved? Where are you looking in the Chicago area?
Breadman,
I've only looked into a couple of buildings. Being I'm not originally from Chicago and seeing the area where this property was in...I was a bit skeptical.
It was on the southside of Chicago, completely rehabbed. Section 8, and was cashflowing about 800-1000 per month. It was a 2flat. 5 bed & 4 bed.
I'm not against hard work, just walking in slowly if you know what I mean. I do believe in giving a nice place to nice people and they will take better care of it.
How long you been renting and in what areas? Are you still looking in rougher parts of town? or have you moved on to other areas?
When you are renting in the "rougher" neighborhoods, would you ever consider weekly rents? I am looking at a property that with 3 of the six units rented weekly (which they currently are) I can still net $450 @ month.
Thoughts?
You can make more money renting weekly, just realize it is also more time spent collecting and typically less quality of tenant. I was looking at an apt complex where people had been in these 1br apts for years paying $150-200 a week, That's $600 - $800 a month! Crazy
who_me,
I have been renting 6 years with buildings in Humboldt Park, Logan Square, Ukranian Village and East Village. I have a total of 19 units and not looking to add anymore as this is not my primary job.
I chose those areas because they are within 15 minutes of my residence which is a big plus. I also like properties that are on the fringe of becoming the 'next hot neighborhood'. My exit strategy on most of these properties are condo conversions.
I have never bought on the Southside, but I know people who are doing big business on the Southside. They all say they will never go back North because the cashflow is so good.
I would definately invest in that area if I decide to become a full time investor because I would need cash flow.
Keep in mind that there is a significant gap between the nicest property you would not want to live in and a property that is a social sewer. In many cities there is revitalization happening and you may find a property that is in one of those where you can expect appreciation over the long haul with nice cash flow now.
The prevailing wisdom for buying SFRs used to be (maybe still is) that if you were to divide neghborhoods into 4 segments -- wealthy, upper middle class, lower middle class and dirt poor, you should buy in the lower middle class areas.
Does it matter where you buy rental property? I live in CA, but am from IN and my home town properties are cheaper, but the RE appreciation is nowhere near CA. Can you still make money in area of US that may have slow RE growth. How do you decide that? (Newbie - 1st post)
$210k (100+110)was the price I paid for 2 properties, not one. I am selling them for $315k(140+175). I could not make money from rentals; obviously somebody else thinks he can.
I'M LOOKING TO INVEST IN THESE TYPES OF NEIGHBORHOODS, AND THE THE POST THAT I'M READING ARE VERY HELPFUL KEEP GIVING THE ADVISE IT IS VERY HELPFUL TO US NEWBIES...
Hey breadman, I left chicago in 97. I look at properties in the paper now and freak. Englewood area (formally getto) has advertised rehabbed 2-3 flats/condos with granite counters, cherry cabinets, jacuzzi's and selling for 450-700K ! When we left in 97, we could (and should of) bought a 3 flat in Wicker Park for 30K-Now 700K-1Mil+. Point is- Areas change. Just look at what went on around the famous "Cabrini Green" housing project. The secret is...Timing. Every neighborhood in Chicago is going thru change-finding the one that is going to change the fastest is the key. Is it worth putting up with loser tenants for a large bankroll in the future??
If you buy at rock bottom, there's only one place for those values to go, course, if you are holding for cashflow and long term, apprecaition should be the "gravy" calculation, not the major influence.
[addsig]
I have made lots of $$ in low income. I found a hard hose PM who takes care of business and the tenants. A bad PM or a weak stomach can spell disaster
One thing I am SURE of - Screening the tenant properly makes all the difference in the world. I go to the courthouse records dept. and computers there hold everything, much more than what I can obtain on home computer. A definite denial includes past evictions criminal arrests. I have all of my profitable weekly rentals in a war zone. There are good people that will want to rent and they will pay the rent. It is one of the nicest houses they have ever lived in. Weekly rent gives me another month of income per year, a quick look over at my investement, and shows the slow payer a lot quicker. I do 7 month leases and require full payment at move in NO EXCEPTIONS. I am a "full time" landlord because of these properties. Is it work, sure, but only about 5 hours a week.
It took me some time and some expensive lessons before really understanding that screening is 90% of my success.
I bought 2 properties at Bridgeport, cashflow positive, establshed tenants. Prices may have doubled since I bought them-what a good story.
Then I got greedy, bought at Waterbury, rougher town, rough neighborhood. So many people are buying there because houses are relatively cheaper. "Tenants" know this, will rent from you, won't pay. You evict them, they get something else-have mastered the loopholes. Everything that could go wrong did. So I am selling those after 1 year at $315k (I paid $210k), keeping the ones at Bridgeport.
amen...
It does take time and experience.
This topic is of great interest to me. I have four SFR properties in good neighborhoods and several in more rough areas and despite a few issues similar to the others previously mentioned, my lower end properties out perform the others hands down. So, I count on my higher end units for appreciation and leverage them to buy more profitable cash flow units.
[ Edited by abbaird2000 on Date 07/26/2005 ]
[ Edited by abbaird2000 on Date 07/26/2005 ]
Thanks for the information.
Can local insurance companies provided info on commerical insurance (ie state farm )?
I do not understand this "commerical route". Are you saying that you can get one commercial policy that will cover the hazard insurance on all buildings? What do you mean by "commercial route".
Brenda
I have all of my rentals with Westfield Insurance. Independent agents sell this insurance and they have been really good to work with. Ask an Independent agent about them. EB
I mean a commercial package policy, or for that matter, a policy that does not expose your "personal" assets" and homoewoners policy (such as the dwelling contract to which a post here refers). As a Floridian, you will find it inherently tougher to find such a package policy (as I am sure you are already aware).
Quote:
On 2005-08-08 15:54, bgrossnickle wrote:
I do not understand this "commerical route". Are you saying that you can get one commercial policy that will cover the hazard insurance on all buildings? What do you mean by "commercial route".
Brenda
One of the challenges is finding the carrier that offers such coverage, in your specific market. Many carriers (even the "big ones"
shy away from habitational in a lot, if not all geographic areas.
Quote:
On 2005-08-08 15:58, Ebellis wrote:
I have all of my rentals with Westfield Insurance. Independent agents sell this insurance and they have been really good to work with. Ask an Independent agent about them. EB
Since we are on the subject of commercial insurance, here are some points to consider:
(Reasons A Commercial Package Policy Is Better)
1.Many commercial forms will include coverages such as rental loss and additions and alterations coverage.
2.To increase liability on a commercial form from the typical $300,000 to even $2,000,000 is minimal (around $50 per year for the entire contract---regardless of number of units) with most carriers
3.The generic pollution exclusion found on most personal type contracts is addressed by some commercial policies to consider/cover pollution that emanates from a heating source (i.e. carbon monoxide).
4.With a master package (AKA “blanket”) policy, as you grow and add properties, the rate drops proportionately. Personal policies only insure one property per policy.
5.Related to #4, in the event of a catastrophe, such as a tornado, the deductible applies once for the occurrence, not per location.
6.The deviations (discounts) to carry higher deductibles are cost-effective under a commercial policy much more so than most personal contracts. In other words, carrying a $2500 deductible on the commercial policy may save 15% of premium versus a $1000 deductible. On a personal policy, the same change my only generate half the savings…gives some food for thought on consideration of catastrophic deductibles such as a $5000 or more especially as you add more units.
7.Many insurers limit the number of units they will insure under personal contracts, and as you’ve discovered, will not consider non-personally owned properties for coverage. I don’t like the idea of the insurance company limiting my asset protection options in this manner.
8.The “fire and hazard” policy you have may be a named-peril policy only. The commercial policy can and should be written on an “all-risk” form. “All-risk” simply means that unless a peril is excluded, it is covered.
9.With one of the commercial policies we have, you have the ability to add newly acquired properties up to $250,000 automatically for 90 days. You have 90 days to call us and add the location to the policy.
[ Edited by norrist on Date 08/08/2005 ]
I have had rental property in good and bad areas and I know there are people making money doing it. In a tough area you need a strong stomach and good assett protection. I prefer better areas that attract better tenants. In New England however, the values have gone so high, rents don't even cover the note on smaller multi's. Condo conversions are big here since the rental market went flat. Being a landlord is not for everyone. There are easier ways of making money in real estate...just my 2 cents worth.
There are many companies that write it, but they are tough to find in Florida. Where we are located (Ohio), Nationwide, Erie, and a few others write it as such. As for a genric name, "commercial insurance", "package policy", "blanket", or "master" contract are all terms that REI-savvy Agent should recognize...[ Edited by norrist on Date 08/08/2005 ]
am I missing something here? you are talking about the Insurance included in your loan? this is only to protect the stracture against damages for the protection of the Lender, not you personally. It is a Hazard Policy. Find out if METLIFE INS. have offices in your State and ask them for a quote,if they will insure the units without you living in one of them. There are very few companies that will insure 4 units with out you including a home www.owners.Then you top it all with a mil. dollars ombrella policy. The Mortgage company should be informed of your new coverage and they should cancel the Hazard coverage from you Mortgage. Assuming you are in good standing they will agree .Every year your Insurance policy is renewed they have to be informed in writting by your Insurance Company. Having said all of the above you may have to live in one of the units or you may not but premiums are higher.
No, we are not discussing the insurance "force-placed" by the lender...