Crime Area .cheap Property. Time To Buy?
Is it smart to invest in a crime stricken metropolitan area if the price is right?
We`re talking 3 fam row houses for under 60k.
3 blocks in every other direction is doing well 120k+.
I believe the owners in these areas are highly motivated.
Let me know what you think.
do you mind or want to be a "slum" lord?
Is there speculation that the neighborhood would be cleaned up?
I believe it will be cleaned up but then again the area needs more non slum lords for this to occur. That is why I would like to buy properties on the same street and bump the rents.
the only way your going to turn a neighborhood around by yourself is by buying the entire block, no matter how much effort you put into making those homes nice and pretty you also have to realize whats going on outside that house.
The real question is if I buy these out right for cash and they return 500 ea in a 3 fam, isnt that a nice return on investment?
That is a nice rate of return, however You should check the history of the place regarding vacancy rates. What are the payment records of the tenants? If they don't pay, or there is high turn over, you will be missing out on alot of that positive cash flow that you're expecting. Also pay attention to maintenance records. What has been done? What needs to be done? Were the repairs performed quality work? Deferred maintenance could cause you a real headache. $500 a month in positive cash flow may not be worth the problems.
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That's a cap rate of 10 (how much you pay for a cash flow). Lower cap rate paying more, higher cap paying less. You have to be the judge if it's a good return or not.
If in 2 yrs, the places are worth 20K, but you're received "6000"/yr is that a good deal? Look at but don't focus on the down side.
I would buy them .
All money is green.
Lori
[addsig]
Not sure if it is understood that 500 per month times 3 apartments = 1500 per month. I think with that type of cashflow its a no lose situation.
Quote:
On 2004-06-02 16:29, 2good2bme wrote:
Not sure if it is understood that 500 per month times 3 apartments = 1500 per month. I think with that type of cashflow its a no lose situation.
You have to be able to collect. You will find that in high crime rate areas it is harder to collect. And you will find that repairs will be a lot higher.
That said I know people who only invest in these areas. Reason? If you have what it takes the ROI is higher.
I can buy deals like that close to where I live but I don't. Reason? I don't have the time to manage them.
Thanks for the advice. Dont you think though that with that type of ROI, that I could just hire a management company?
Quote:
On 2004-06-01 21:33, 2good2bme wrote:
Is it smart to invest in a crime stricken metropolitan area if the price is right?
I would think, it depends on how much value you place on your life.
Quote:
On 2004-06-03 22:33, 2good2bme wrote:
Thanks for the advice. Dont you think though that with that type of ROI, that I could just hire a management company?
You would have to hire one with experince in high crime areas. But most of the investors that I have meet who invest in these areas say it is better to do it yourself.
I have had property in similar areas.
1. You can not think that bumping the rent will reduce the negatives. Your rent levels do not improve the area.
2. What is the % of owner occupied properties. When this is increasing then the area will likely be stable or rising in quality.
3. The cash flow will support a property manager. Likely they will charge more then in a good area. The added costs of the manager reduce the ROI. You might be heading towards the same ROI you find in a better area.
4. Buy low. Then you can decide if you want to lease/option or sell on a contract. Shifts the management and might actually help the area. If you only care about the cash flow then it works even better as you have largely reduced or given up appreciation if you sell on terms.
John
Quote:
On 2004-06-01 21:44, 2good2bme wrote:
I believe it will be cleaned up but then again the area needs more non slum lords for this to occur. That is why I would like to buy properties on the same street and bump the rents.
[addsig]
As to whether you should buy them or not, that is, of course, a personal issue. If you think you can deal with the tenants and the neighborhood by all means go ahead.
Just to be clear: the $60K purchase price is each or for all three? And what do the operating expenses look like? If it is each and the expenses are high then its not such a good deal.
But I have the impression that part of your motivation here is that you believe that those higher prices "3 blocks away" are moving this direction. There are some rules for figuring out whether that is happening or not. One, for example, is to look for "natural" obsticles that might divert the flow of gentrification. Is there a major thoroughfare in between? An expressway ramp, etc.?
That said, if you get confinced this is the path of progress then I say "in for a penny in for a pound". Don't just buy these three units. Buy everything you can in the neighborhood. You talk about paying all cash for these units. Don't do it. Lever them up, borrow all you can (especially in today's low-interest market). Use the cash remaining for reserves and to buy more buildings in the neighborhood. Run the tax records and find out who owns the other buildings around you. Talk to them-- they maybe tired of the area or otherwise motivated. As you control more and more buildings here and take care of your stuff and improve the quality of the tenancy you help the flow of progress toward your properties.
At that point spend a few bucks on a good publicist to get the papers to start talking about how your neighborhood has improved dramatically and is the next turn-around neighborhood. Keep buying until the cash-flows don't make sense anymore. Then wait a year or two and sell. Take your money and do it again someplace else or buy yourself an island in the carribean.
I love it!