I would like to get some advice from experienced property owners on this topic. I am in the process of purchasing my first rental property. I have a few nice towns picked out and I would be stretching my budget to the max to purchase a Multi in this area. It is a great town that gets a higher rent then surrounding towns.
Here is the thing… As I look at more inner city properties there are some smokin deals! The cash flow is crazy and your property gets you a much better return.
Is it worth the higher price tag to deal with more upscale clientele? Or should I be a slumlord? :help
You’re going to have to be more specific with the type of deal you found and where and how it relates to other buildings in the city.
Generally speaking, if you’re going to be dealing with welfare tenants, you will have a lot more work maintaining and managing that property, especially if you’ve got some with criminal records or mental heath issues like schizophrenia or bipolar disorder. It can end up being a full-time job depending on the size. The best property is the one that has rents in the price range of working middle class tenants, blue collar types. If something minor goes, they’ll generally fix it themselves; whereas, generally speaking, the low income/welfare have nothing better to do than to complain to you all day about the problems with the building and other tenants. Is a property a good deal if you spend 60 hours a week managing it vs. 5 hours a week for a better building? Is it crazy cash flow when you calculate the opportunity cost of not being able to hold another job or do something else with your time? Is it worth getting a stroke or heart attack from all the stress?
I’m not sure what you mean by upscale, so I’m not going to answer it.
Purchasing multi-family housing in low-income areas can be a risky investment. The initial investment may be less then in more affluent areas of town but there may be more regular expenditures of money related to the upkeep and maintenance of the property. In a down economy low-income families are often hit the hardest because of the type of jobs they hold. If a financial crisis hits a low-income family the family is often times unable to pay their rent regardless of how cheap the rent is. Non-payment of rent directly impacts the great returns presented at the beginning of the investment. The other thing to consider is the upkeep of the rental units themselves. Some low-income tenants do not maintain their units well, which costs the investor in the future each time they need to flip the unit.
It is possible that you will run into many of the same problems in the more affluent part of town as well. Whatever you decide just make sure that in this market you plan for the worst-case scenario and adjust your models to reflect that.
My target town was West Hartford since I was going to occupy the property… However the taxes are absurd and I’m not finding the deal I want. I could be patient or buy strickley for investment purposes in East Hartford (my hood), Manchester or a decent area in Hartford. There are some great deals out there. Where do you invest???
PS I have been a Realtor for five years so I know these markets. THANKS! :beer
If you’ve been an agent there that long and know the area well stick to those areas. You know as well as I do that from neighborhood to neighborhood values change wildly in some towns. I know Waterbury better than Hartford so for me that makes more sense. But for you stick to the greater Hartford area.
They are excellent deals. But you have to know your neighborhood - some low income areas are turning around or are stable, while some are going downhilll…aka frequently described as war zones.
I just recently considered purchasing a 24 (or was it a 28?) unit apartment complex for $99k cash! The last I checked, the property had dropped to $89k cash. I drove by the place…in South Dallas off Cedar Crest Blvd & Keist, between highway 45 & 35 a few miles south of downtown…and that place has been stripped of everything except the sheetrock, PVC and wood. The windows, interior copper, doors, outside metal fence…man…it’s all gone. I was told the previous owner did this, because he was getting foreclosed on by the bank. I actually kind of feel sorry for the bank!
Anyway - I passed on the deal due to the immense amount of work required and also it’s not in a “lower income” area of Dallas I would want to invest in - but in reality that same apartment complex probably could of been picked up for $300k if it was a foreclosure and in decent condition, and I could of rented all 24 units for $12000 a month or $144000 per year in gross rent (or if was 28 units, $14000 a month or $168000 per year in gross rent)…theoretically. In reality it would probably clear $75k a year NET if I paid cash for it, after factoring in all expenses and vacancy rates. But that is still an incredible return.