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I own rentals in low income areas, and one condo in a pretty bad neighborhood. I get a better return on my investment than higher priced properties give for return. I have good tenants. Just because people are low income doesn't mean they are not going to pay rent. I take really good care of our properties, and I am selective about tenants. I do criminal, eviction background checks, and landlord refs before I lease to someone.
No. UNLESS YOU CAN BUY THE HOUSES CASH ONLY. If the LL thing doesn't work out you'll be saddled with a house you'll have to sell at a loss while making payments. If you buy cash you can take the loss and unload them. That's if you maybe get good tenants in a bad neighborhood. I guess you can turn them into HUD homes and that's guaranteed rent if you want to go that route
No. UNLESS YOU CAN BUY THE HOUSES CASH ONLY. If the LL thing doesn't work out you'll be saddled with a house you'll have to sell at a loss while making payments. If you buy cash you can take the loss and unload them. That's if you maybe get good tenants in a bad neighborhood. I guess you can turn them into HUD homes and that's guaranteed rent if you want to go that route
If you go into anything thinking it will not workout you will fail. If you buy right why would you have to sell at a loss do your homework. Getting good tenants is not a maybe or luck its doing your homework.
I say do it. Over the past couple of years, we have bought a half dozen two or three family homes in New Britain, CT - a former factory town that is now mostly Hispanic low income, some areas that are heavily Polish immigrant. Our first property was in a druggie area (that was a mistake). The rest have been in slightly better areas. We had all the qualifications that you have, and we live close to the properties - about a twenty min drive. The reason we did it was that it was the best return on our money that we could find, sometimes as good as 20 percent/year. We bought for cash - carry no notes on the properties. We made a very bad mistake with the first set of tenants - a group of young men - and boy did we ever pay for it. Suffice it to say that it wound up with the tenants being charged with a hate crime against us, having vandalized and defaced the unit. But since then, we have vetted tenants more carefully, and things have gone more smoothly.
The reason that we were willing to do this was that the return on the investment is much higher than in any desirable location, because the purchase prices are so much lower. Although the area is not great, it's not the kind of place with drive by shootings happening (except for near the first property, rarely). I would not have done it in Hartford, which is largely AA slums. A white LL there is an obvious target. If you feel comfortable driving around the area that you are considering, and would feel comfortable working on the building there during the day, then I think you should do it. Would be a good idea to talk to someone at the local precinct, too, to find out which areas are truly warzones.
Check recent sales prices. Look at how many properties are in foreclosure - that will tell you that a lot more are coming on the market soon. Bargain hard on a lot of properties, and hopefully you'll get one at a good price.
Know that if people have anything on record in LL tenant court, no matter what their excuse, no matter how long ago, they will wind up not paying the rent. These are people who consider the LL the last person to pay, and consider entry into a property a license to stay until they are evicted for non-payment. Make sure you speak with their LL prior to their current one. If they're a problem, the current one won't want to tell you, because he wants them to get them out of his unit. Don't automatically cross Section 8 off the list. We have some very good Section 8 tenants, and the subsidy comes in like clockwork every month. Remember when renovating that you are not going to live there. Keep it simple and low cost. Consider taking pets, with a hefty pet deposit. It will make it much easier to rent the unit. Make sure no tenant moves in without having gotten the utilities into their name beforehand. Only get into properties where the tenant pays for all the utilities. If you can do only single family homes, make the tenant responsible for the grounds and snow removal. Get the book Landlording, and read it cover to cover.
You're not going to be running there at 2 AM. Show every tenant where the water shutoff for the unit/whole house is, and for every sink/fixture. That way, when they call you about a leak late at night, you can tell them to shut off the main, or that fixture, and it can wait until morning. There's nothing else you'd have to run out for at 2 AM, other than a flood. Anything else, including a fire, can wait until morning.
Don't be afraid of this. If you can do your own work on the property, and if you carefully vet your tenants, you'll do fine. And the return on investment cannot be beat. The property might even go up in value. If it doesn't, who cares? You paid 25K for a property that nets about 10K/year! That's AMAZING return on investment! It would be a decent deal if the property costs you 50K total. Don't think of it as an investment property - you're not counting on the property increasing in value. Think of it as buying a bond that pays a high dividend, or a business that has a high annual cash flow. You're buying it for the annual yield, and if it goes up in value, that's gravy.
I have 3 buildings in "bad" areas and 1 building in a good area. There are 3 or 4 units in each building.
We have had endless problems with the bad area properties and very much regret buying them.
-- One tenant has caused a firebomb and a stabbing.
-- Two have been drug dealers (started off as a nice tenant working as a manager at a store, she quits her job, joins a strip club and gets a drug dealing bf).
-- Over 5 tenants have brought dogs into their homes, and one other tenant was bitten by a dog.
-- One tenant shot his girlfriend with a bibi gun.
-- One tenant left owing me 2 months rent and the place had 30 syringes left behind and 3 broken doors.
-- Doors seem to be a favorite thing to kick or punch. I have had to replace over 12 doors in 5 years.
-- Two buildings had so many police calls that I was threatened by the city that they would shut the buildings down. Sometimes the police were called by a tenant complaining that another tenant was sending her horrible text messages.
-- The buildings have gone down in value, even though we have put huge amounts of money into them. Bought for 50K each, two have had $30,000 put in for remodelling and today their value is less than $50,000.
The property we bought in the good area was $160,000 and is now worth over $210,000. I have never had to evict a tenant, or replace a door. The tenants have increased the property value by adding gardens, landscaping, doing amazing decorating and upgrading with my permission and a little help. It's like night and day.
The other thing is, the bad area poor tenants, who lose jobs, who are on disability, who collect from Social Services, who have ex's threatening them, are emotionally draining. It's not always easy to distance oneself from these problems. Ive had tenants crying on the phone to me, while my husband is wondering what the hell is going on and making signals to me that we CANNOT just look the other way when someone can't pay, we cannot subsidize their rent or wait until they are in a good spot. It can be very stressful. And when you have 12 tenants and suddenly one month, 4 of them can't pay you, it is a MASSIVE problem.
This is just my experience. Yours may be quite different, OP. I suppose it all depends on the area and the economy.
If you go into anything thinking it will not workout you will fail. If you buy right why would you have to sell at a loss do your homework. Getting good tenants is not a maybe or luck its doing your homework.
Its a investment. There is no guarantee it will work out. That's why I said IF. People invest in properties or other types of investments all the time and fail. What if the guy buys right as you say then borrows against the property and stretches financially. People have been known to do stupid things when they think they are Donald Trump.There are MANY scenarios why something may not work out. Nobody goes in with the mindset it won't work. But sometimes it doesn't work.
And you can do all the homework you want and sometimes you still get crap tenants because that's all there is in the area. And you can't move the property. Most people that buy investment properties do so with a loan. That means a payment. And you don't always have a tenant in the place. Now you're scrambling to get a tenant in there. ANY tenant just to make payment. And considering OP is a NEW LL there is a learning curve which can cost a lot of money if she doesn't do everything right. I've been doing this for over 20 years and once in a while I catch myself making a oopsie. Granted I've been lucky and diligent. And I don't have any low income housing.
And good tenants can go bad. I had two good tenants and when they lost their jobs I was the one that ended up losing out. Sure I got a judgement but I didn't get any money out of it. There is absolutely NO guarantee of success in investing.
Last edited by Electrician4you; 03-19-2014 at 05:23 AM..
I have 3 buildings in "bad" areas and 1 building in a good area. There are 3 or 4 units in each building.
We have had endless problems with the bad area properties and very much regret buying them.
-- One tenant has caused a firebomb and a stabbing.
-- Two have been drug dealers (started off as a nice tenant working as a manager at a store, she quits her job, joins a strip club and gets a drug dealing bf).
-- Over 5 tenants have brought dogs into their homes, and one other tenant was bitten by a dog.
-- One tenant shot his girlfriend with a bibi gun.
-- One tenant left owing me 2 months rent and the place had 30 syringes left behind and 3 broken doors.
-- Doors seem to be a favorite thing to kick or punch. I have had to replace over 12 doors in 5 years.
-- Two buildings had so many police calls that I was threatened by the city that they would shut the buildings down. Sometimes the police were called by a tenant complaining that another tenant was sending her horrible text messages.
-- The buildings have gone down in value, even though we have put huge amounts of money into them. Bought for 50K each, two have had $30,000 put in for remodelling and today their value is less than $50,000.
The property we bought in the good area was $160,000 and is now worth over $210,000. I have never had to evict a tenant, or replace a door. The tenants have increased the property value by adding gardens, landscaping, doing amazing decorating and upgrading with my permission and a little help. It's like night and day.
The other thing is, the bad area poor tenants, who lose jobs, who are on disability, who collect from Social Services, who have ex's threatening them, are emotionally draining. It's not always easy to distance oneself from these problems. Ive had tenants crying on the phone to me, while my husband is wondering what the hell is going on and making signals to me that we CANNOT just look the other way when someone can't pay, we cannot subsidize their rent or wait until they are in a good spot. It can be very stressful. And when you have 12 tenants and suddenly one month, 4 of them can't pay you, it is a MASSIVE problem.
This is just my experience. Yours may be quite different, OP. I suppose it all depends on the area and the economy.
Sounds like your buildings were in a war zone not a low income area a big difference. I do not see how putting 30k into a 50k building would be a good idea but for that one in a million. It would be the same percent if you put 96k into the 160k building thats crazy. If you cannot distance yourself you should not be a landlord it will happen with high end rental and low income people of all income lose their jobs.
Its a investment. There is no guarantee it will work out. That's why I said IF. People invest in properties or other types of investments all the time and fail. What if the guy buys right as you say then borrows against the property and stretches financially. People have been known to do stupid things when they think they are Donald Trump.There are MANY scenarios why something may not work out. Nobody goes in with the mindset it won't work. But sometimes it doesn't work.
And you can do all the homework you want and sometimes you still get crap tenants because that's all there is in the area. And you can't move the property. Most people that buy investment properties do so with a loan. That means a payment. And you don't always have a tenant in the place. Now you're scrambling to get a tenant in there. ANY tenant just to make payment.
The OP was talking about homes under 50K no bank will give you a lone under 50k so it had to be cash. Everything you said in this post would be the landlords fault if he lost the house, but a bad tenant and that can be fixed. The biggest mistake a new landlord makes is getting ANY tenant in to make a payment.
^^^ True...but finding the right tenant that wants to live in that are is also hard. Most have credit issues, most of financial issues, most have criminal records...none of which would approve them to rent from me (if I was a landlord) People look to low income areas because the rent is cheap, most landlords don't give a damn about the tenant, the property or anything else other than their monthly check.
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