You hear the advice all the time: Don’t look for investment property in bad neighborhoods. Or sometimes, you hear the same advice about low income neighborhoods—in fact, mostly the terms “bad” and “low income” are used interchangeably. That’s a crime—because there are definitely low income neighborhoods that are good neighborhoods to invest in. Let’s look at what separates the two.

Rule Zero: Don’t Trust Your Eyes

It’s easy and intuitive to look at a property and if you don’t like the first impression you get of it, walk away. Unfortunately, real estate investing isn’t that kind of party: If you want to win this game, you have to play strictly by the numbers. This means looking at statistics, prices, and environmental factors, not at the faded siding, broken windows, and missing shingles. Each of the points that follows is a guide about which factors mean “low income” but don’t mean “bad” when it comes to investing in a home in that neighborhood.

“High Crime” Can Mean “Bad”—Or Just “Low Income”

Every neighborhood has a few different crime rates—for the purposes of investing, you want to pay primary attention to property crimes, as they’re going to affect the security of your investment. But far more important are the “quality of life” crimes, like vandalism, littering, and public urination. Why? Because those crimes indicate that a neighborhood isn’t just desperate, it’s also “self-loathing”—the people who live there aren’t just committing crimes to get by, but they’re doing it because they simply don’t care about the neighborhood. (It can be hard to get stats on those kinds of crime specifics; your best bet is to call the local police department and ask them.)

Related: 8 Myths About Section 8, Corrected: Here’s the Profitable Truth

A neighborhood that has prostitution, drug dealing, and other money-making crimes but doesn’t have the “quality of life” crimes isn’t necessarily bad—it’s just low income, and low income-but-good means there’s a potential for a value investment. Genuine “war zones” where the police don’t even visit if you call in a vandalism report because the bangers break every window in the neighborhood every Friday just on principle? Yeah, don’t buy there.

low-income-housing

Growth Potential Can Make the Difference Between “Bad” and Just “Low Income”

One of the most important ways of separating a low income-but-good-investment neighborhood from a just-plain-bad neighborhood is by looking at what is going to happen in that neighborhood over the next few years. For example, buying a home in a neighborhood where there is currently a large lot being cleared for the addition of a Costco is significantly better than buying one where the local Wal-Mart just moved out, and nothing is moving in to replace it—even if, at the moment, the Costco neighborhood house looks like the worse investment.

Alternatively, if you can find a neighborhood with a clear downside with a clear expiration date, you could be looking at a winner. For example, imagine a place where it sucks to live because there’s a stanky breeze from a mushroom farm that blows over the whole city—but the mushroom farm just declared that they’ve purchased a new facility and they’re moving a town over in six months. That window, after the declaration has been made but before the move occurs, is your window. Property values are depressed because only desperate people are willing to live there right now, but that will change once the smell goes away, so buy before they shoot upward.

[Bonus: One more subtle way to pick up on a just-starting-to-grow neighborhood is to look at the days-on-market of the homes that are selling in the neighborhood. If the average DoM six months ago was 90+, but today it’s down to 45 or less without a rise in property prices (and the rest of the numbers look good), buy! A downward-trending DoM is almost always a sign of soon-to-rise property values.]

Low Geographic Mobility

Let’s be frank: Moving costs money, which means that people in low income neighborhoods tend to move less often. Look up the net migration numbers in your chosen neighborhood—if they’re very low (below 9%), you may be able to take advantage. Warning: This can be a genuine downside if you land a problem tenant who simply won’t move until the police show up and physically drag him away—that’s a lot of lost rent and probably a lot of vengeance damage you’ll have to repair.

But! If your tenant screening techniques are on par and you maintain yourself as an available, easy-to-talk-to landlord that is willing to deal with an occasional legitimate disaster empathetically, you can keep a hardworking low income tenant paying mostly on time for year after year. Statistically speaking, the best low-income tenants have a reliable if low source of income — often, they’re retired or disabled and collecting stable monthly benefits. Other than the occasional late payment due to something like an unexpected car repair, these tenants can handily turn “low income” into a benefit.

Your Investment Goals Can Change What “Bad” Is

Some investors are looking to buy a property that they can maintain using the rent and have their wealth build up as the property appreciates over time. Others are looking for a property that they intend to hold for as long as they can continue to pull a solid monthly cash flow out of it. Investors looking for that appreciating property are honestly probably not going to find it in a low income neighborhood (unless you can find one on the verge of a major improvement, as above).

Related: What’s More Costly: Rental Vacancies or Filling Rentals With Subpar Tenants?

But investors looking for high cash-flow can definitely find a killer investment in a low income neighborhood—because rents tend to move less than property values do. So it’s relatively easy to buy a home that costs 50% of the identical home one neighborhood over, and charge only 15% less in rent. The end result is that you can set up a high cash flow investment with relatively little initial investment—at which point, yes, you might have slightly more difficulty with tenant screening and maintenance requests than you would one neighborhood over, but your capitalization rate will be well worth it.

invest_low_income_neighborhood

Bonus: The Difference Between Rented and Unrented Properties in Very Low Income Areas

There’s one catch to all of this that novice low-income investors can easily miss: if the home you’re buying is in a critically low income area and there’s not currently a renter, you absolutely must inspect it (or pay someone to inspect it) before you buy it. The reason why is simple: In many very low income areas, an empty house is almost immediately stripped of everything inside that can be sold, including plumbing, HVAC, water heater, appliances, and basically anything made of metal or worth a dime on the street corner.

It’s terribly easy to buy a home that looks like a legitimate structure, only to find out that you need to invest four or five times what you paid just to make it legally livable again. All of which you can avoid by purchasing a home that currently has a renter (and thus a certificate of habitability or whatever your city’s equivalent is). Even a seller that offers written evidence of an inspection on Monday can end up with a home stripped by Wednesday morning—unless someone is physically living there, and you buy the lease along with the property.

In short, you don’t need to be scared of investing in low income areas—you just have to be aware of when “low income” and “bad” don’t match up, and prepare to take advantage of how the two don’t overlap. Good luck!

We are republishing this article to help out our newer readers.

Investors: What’s your take? What’s the difference between a “low income” and a “bad” neighborhood? Do you invest in lower income areas? Why or why not?

Let me know with a comment!





Source link




Flat-fee real estate agency Purplebricks expanded into the U.S. last year after building a successful business in the United Kingdom and Australia, and after securing a sizable investment from European media giant Axel Springer, Purplebricks’ U.S. expansion is about to shift into overdrive.



Source link


I get this question all the time: “Should I buy cheap property somewhere else with higher cap rates or more expensive property where I live?”

I wanted to buy cheap property once. It’s very tempting. So is it a good idea? Let’s run some numbers and find out.

Most investors turn to cap rates to decide which property to buy, almost like a magic wand. But cap rates can be deceiving and should be used with caution because there is a lot they don’t take into account.

What is a cap rate exactly?

Cap Rate = Net Operating Income/Sales Price

  • Net operating income is simply the yearly gross income minus operating expenses (i.e. property manager, yard maintenance, vacancies, repairs).
  • Sales price is what you will pay for the property.

Related: The $30k Rental Property: How to Finance & Profit From Cheap Real Estate

Real World Example

We’ll use two very different different homes for this example.

Expensive Property

  • You make $29,000 a year in rental income
  • Property costs you $270,000
  • Manage property yourself
  • Yard maintenance is $1,200 a year
  • Vacancy loss is about $200 a year
  • A typical year in repairs costs you $1,000 (not replacing major components)
  • NOI: ($29,000 – $1,200 – $200 – $1,000)/$270,000 = 0.099 or 9.9% cap rate (very good for a single family home)

Dirt Cheap Property

  • You make $6,000 a year in rental income
  • Property costs you $30,000
  • Manage property yourself
  • Yard maintenance is $1,200 a year
  • Vacancy loss is about $100 a year
  • A typical year in repairs costs you $600 (not replacing major components)
  • NOI: ($6,000 – $600 – $100 – $1200)/$30,000=0.14 or 14% cap rate (unrealistically excellent cap rate to prove a point)

Based on the analysis, the cheaper property has a lot better return on the income invested. What most people don’t put into cap rates is the cost of major repairs which tend to be similar between really cheap and more expensive houses. Let’s see how that changes things.

BRRRR-strategy-deal

 

Here is an example of prices for different components of a house and how fast they wear out.

Lifespan Cost Cost Per Month
Paint

8

$2000

$21

Roofing

20

$4000

$17

Oven

15

$700

$4

Washing Machine

10

$500

$4

Dryer

10

$500

$4

Interior Paint

15

$1500

$8

Carpet

10

$3000

$25

Bathroom and Kitchen Linoleum

15

$700

$4

Furnace

20

$3500

$15

Kitchen Remodel

30

$15000

$42

Bathroom Remodel

30

$5000

$14

Total Monthly Cost

$157

More expensive property:

  • Monthly income = $2,400 – mortgage ($1,600) = $800 a month left over
  • Average operating expenses are $200 a month
  • Average costs to repair major systems in the house over time are $157 a month
  • Monthly profit $800 – $200 – $157 = $443

Less expensive property:

  • Monthly income = $600 – mortgage ($142) = $458 a month left over
  • Average operating expenses are $158 a month
  • Average monthly costs for major systems in the house $157 a month
  • Monthly profit $458 – $158 – $157 = $143

So, to make the same monthly profit while paying off the loan as a $270,000 house, you will need three $30,000 homes. That might not be bad. Considering that you are putting 20% down on each investment, you will make more monthly profit per dollar invested when buying the cheaper homes. It doesn’t end here. There is so much more to consider.

Appreciation

What about appreciation (increase in home value over time) if you want to sell one day? Let’s say appreciation is 5% for the more expensive home (that’s why homes are more expensive in those areas) and 3% for the cheaper home (that’s why prices are cheaper in those areas).

If you wanted to sell in 20 years, the cheaper home would be worth about $54,000 and the more expensive home about $720,000. A little after year three, you will have made more in just appreciation (not including profit or pay down) on the more expensive house than the cost, appreciation and profit of the cheaper house. By year 18 you will make more in appreciation every year than the cheaper house costs. To get the same appreciation return using cheaper homes, you will need to buy and manage 13 ($390,000 in cheaper homes) of them.

Let’s look at how much your time spent managing was worth in just appreciation assuming three hours a month per house over 20 years. The cheaper house will be worth $75/hour and the more expensive home $995/hour. 

Management Time

Let’s say you pay the houses off and want to retire on that income. If you manage the more expensive property, you will make $2,400 a month (assuming the value of money never changes over time). You will need 5 cheaper properties to get the same amount of cash flow. In other words, you make 5 times more per hour of work with the more expensive house.

Going the more expensive route gives you a lot more time to do things that truly make you happy. That’s why we invest in the first place, right?

Related: Why Buying Cheaper May Come with a Hidden Price Tag

Economy of Scale

At the front end, cheaper properties are very tempting because they can bring in more money per dollar. At the back end, the more expensive properties bring in a lot more per amount of work and per year from appreciation. Whichever you choose is up to you.

I’m sure some of you are thinking, “Well, I can’t afford an expensive property.” My advice to you is to buy what you can afford as long as there is cash flow. Over time you will be able to gain equity and save up money so you can buy something that will increases your income per hour.

Things to keep in mind:

  • Costs for long term and short term repairs are similar between cheap and more expensive properties because of the cost of materials and labor. This usually isn’t taken into account when using cap rates.
  • High end homes will tend to have much lower cap rates, but the income per effort will be much higher.
  • Low end homes cash flow better, but you are more likely you will end up with tenants who don’t take care of your property and end up costing you more in repairs. The time you spend finding tenants and dealing with problems goes way up. They won’t be the same between cheap and expensive properties.
  • Don’t go too high end. It’s easier to find tenants and keep vacancies low if you buy properties in the price range most people in your area can afford. Higher demand properties are going to be easier than higher end properties.

“Happiness is not something ready-made. It comes from your own actions.” —Dalai Lama

We are republishing this article to help out our newer readers.

So, what do you think, investors? Have you opted for cheap homes or have you gone the pricier route?

Leave a comment, and let’s talk!





Source link


(Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne… ~ Frank Buys Philly | Building Opportunities ~ Frank Buys Philly | Building Opportunities ~ Frank Buys Philly | Building Opportunities) Frank Buys Philly | Building Opportunities

Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne… ~ Frank Buys Philly | Building Opportunities ~ Frank Buys Philly | Building Opportunities ~ Frank Buys Philly | Building Opportunities ~ Frank Buys Philly |…

(Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne… ~ Frank Buys Philly | Building Opportunities ~ Frank Buys Philly | Building Opportunities) Frank Buys Philly | Building Opportunities Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne….


(Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne… ~ Frank Buys Philly | Building Opportunities ~ Frank Buys Philly | Building Opportunities) Frank Buys Philly | Building Opportunities

Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne… ~ Frank Buys Philly | Building Opportunities ~ Frank Buys Philly | Building Opportunities ~ Frank Buys Philly | Building Opportunities

(Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne… ~ Frank Buys Philly | Building Opportunities) Frank Buys Philly | Building Opportunities Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne… ~ Frank Buys Philly | Building Opportuniti…


(Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne… ~ Frank Buys Philly | Building Opportunities) Frank Buys Philly | Building Opportunities

Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne… ~ Frank Buys Philly | Building Opportunities ~ Frank Buys Philly | Building Opportunities

(Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne…) Frank Buys Philly | Building Opportunities Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne… ~ Frank Buys Philly | Building Opportunities Fronts are done !! Gonna be closing up nex…


(Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne…) Frank Buys Philly | Building Opportunities

Fronts are done !! Gonna be closing up next week. Gonna start marketing these ne… ~ Frank Buys Philly | Building Opportunities

Fronts are done !! Gonna be closing up next week. Gonna start marketing these next week and get sold before completion. #philly #19125 #phillyrealestate #developer #buildinganempire


Fronts are done !! Gonna be closing up next week. Gonna start marketing these next week and get sold before completion. #philly #19125 #phillyrealestate #developer #buildinganempire




It is no secret that the most successful people in the world are early risers. If this is new to you, take a look here. Do you recognize any of them? Clearly, there is a positive correlation between early risers and extreme success. So why is it that you hate mornings? Why do you wake up the last possible moment before scurrying to work?

My guess is that waking up is likely the most stressful part of the day. First, you start the day with multiple alarm clocks that wake you up in five-minute intervals. Talk about annoying and completely irrational! If you hate waking up, why the heck do you do so multiple times? That’s just stOOpid (with TWO O’s!).

You get out of bed at the last possible moment, quickly get ready, and drive your car 20 minutes in traffic to work—a place you would likely not frequent if you were not paid.

You do all of this with a mind and body that has been deprived of food and water for the past eight hours. No wonder you hate mornings!

Have you ever noticed how weekend mornings aren’t nearly as bad? You take the time to get up, and if you do get up early, it is in order to do something that you love to do (i.e. hike, vacation, etc.). It’s not the morning that you hate; it’s what you do in the morning that you hate.

Related: Not a “Morning Person”? Why That’s Simply a Lie You’re Telling Yourself

Miracle Morning

Thanks to Hal Elrod and his best-selling book The Miracle Morning, mornings (and lives) around the world have been transformed forever. In the book, Hal goes into his findings from studying the most successful people’s morning routines. He takes note of six different activities many of them do and calls them “SAVERS.” Many successful people practice at least four of six of these activities, but rarely do all six. So what happens if you do all six? That’s for you to find out!

Just a note: I did NOT get paid to write this article for Hal. His book changed my life, and I want to share with you my routine, what it has done for me, and how it can have a similar impact on you.

Pre-Routine

First things first. You are groggy in the morning because you are dehydrated. How do you remedy that? You drink water (call me doctor). I chug a 24 oz. bottle of water as the first thing I do when I awake.

After you have chugged your water, go take a shower (or wash your face), brush your teeth, and mouthwash. Psychologically, there is something about taking a shower and brushing your teeth that tells your body that you are awake for the day.

“Brush my teeth before I eat?! That’s a savage move!” Actually, it’s better for you. Check it out.

Now you are ready to start your miracle morning!

The Routine (SAVERS)

Hal Elrod coined the acronym “SAVERS” to help us remember each aspect of the ideal morning routine. Perhaps you do a few of these already, but why not try them all? Here is the list:

  • Silence/Meditation
  • Affirmation
  • Visualizations
  • Exercise
  • Reading
  • Scribing

As an example, I will take you through my miracle morning. It may seem like a bunch of hocus pocus. I didn’t believe it at first either. I’ll admit, it’s weird. But it works, and I like it!

I have been doing this for about six months now. Here is what I have accomplished in that timeframe.

  • I went from a job that I did not love in San Francisco to my dream job at BiggerPockets in Denver.
  • I was able to kick my weekend drinking habit.
  • I was able to remove all added sugar from my diet.
  • I rented an apartment in downtown Denver for less than half of market rent.
  • I purchased a car for 75% of its listing price from the dealer.
  • I purchased a brand new remodeled duplex in an up-and-coming part of Denver with an FHA loan at under listing price. At this time, almost all properties have multiple offers and are going above listing price.
  • I created passive income streams of more than $1,000 monthly.
  • I was able to accomplish moves in Crossfit that I once struggled with (muscle ups and double unders).

I am not telling you this to brag. Truthfully, there isn’t much to brag about. There are many people who are doing much better than me. However, if you compare this to six months prior, you will see a tremendous improvement. You will see that I have taken many steps towards accomplishing my goals, resulting in a much happier life.

So, now that you know the impact the miracle morning has, let me give you an example of my routine.

My Morning Routine

1. Silence/Meditation (10 Minutes)

The first thing I do is meditate for 10 minutes. I use a playlist on Spotify called “10 minute meditation,” and it works perfectly. This helps me stay calm, focused, and concentrating throughout the day. If you’re questioning the effects on meditation, you can check out all of the benefits here.

2. Scribing/Journaling, Part 1 (5 Minutes)

Next, write down three things I am grateful for. Yes, this can get repetitive and you might start appreciating really small things. Either way, that’s great! It puts a positive perspective to start your day and reminds you that all of the things you have right now are, well, great!

In an effort to continuously improve, I write down three things I need to be better at. Can’t think of anything? Could your spending habits improve? How about fitness or dietary habits? Anything at work or in your family life that you can improve upon? I am sure you can think of something.

Related: 6 Words That Will Forever Change How You Wake Up in the Morning

Next, I write down three goals that I would like to accomplish for the day and make sure that these are aligned with my weekly, monthly, and annual goals.

3. Affirmations or Prayer (5 Minutes)

As Napoleon Hill (and also my mom) says, “Anything you can conceive and believe, you can achieve.”

This may sound silly, and I do not mean to offend anyone, but affirmations are the simplest form of prayer. Repeating my goals to myself causes my brain to subconsciously focus on them throughout the day. You will be surprised how things tend to fall into your lap, allowing you to easily accomplish your goals, when doing this.

I use the Miracle Morning app on my phone. I write my affirmations in there and read them every morning emphatically.

4. Visualizations (5 Minutes)

Visualizations are similar to meditating. The difference? In meditation, you do your best to think about nothing except your breathing. In visualization, you envision yourself accomplishing your goals.

This can be done in many different ways. Some people create a bulletin board and pin pictures of their desires to the board. I personally shut my eyes and visualize myself achieving both my short and long-term goals. This keeps the fire burning.

In all of the feats I outlined above, visualization was a huge part. I envisioned myself accomplishing these, and they came true. It’s weird, even eerie in a sense, but I am not complaining.

property-management-checklist

5. Scribing/Journaling, Part 2 (30 Minutes)

Now that my mind is focused, I take the next 20-30 minutes to write freely. I used to HATE writing. But once I started writing about things I have passion for, I realized it is quite refreshing.

Oftentimes this writing ends up in the form of a BiggerPocktes blog post. Yes, it is currently 5:15 a.m. as I write this as part of my miracle morning. ?

6. Reading (90 Minutes)

For some people, reading for 90 minutes might be overkill. However, I set a goal to read 60 books this year. A big reason why I am well on my way to accomplishing this is that I take 90 minutes every morning to feed my brain. You will be amazed how much you can learn just by reading at least one book per week.

7. Exercising (40 minutes)

Maybe this means going for a morning run before the sun wakes you. For me, I prefer my rigorous workouts in the afternoon. So I throw on a podcast and foam roll/stretch for 30-40 minutes. This gets my muscles loose, releases endorphins, and prevents injury from my more intense afternoon workouts. I then do as many pushups as I can to get the blood flowing, hop on my bike, and head to work.

Conclusion

As you can see, my morning routine is long and a bit out of order. All in all, it is about 3.5 hours long. Now, I am not asking you to wake up 3.5 hours earlier. That’s absurd! And in no way is that initially sustainable.

My suggestion for you would be to try to wake up 30 minutes earlier and do all of the SAVERS for 5 minutes each. As you become more comfortable waking up earlier and you begin to want to spend more time in your miracle morning, you can extend it to one hour, two hours, etc. Before you know it, you will be a super early riser and will be able to get more done before 8:00 a.m. than most people accomplish in a week!

We are republishing this article to help out our newer readers.

Happy SAVERing!

Would you consider waking up earlier to adopt some of the SAVER habits? Why or why not?

Weigh in below!





Source link




Renters Warehouse, a property management company that specializes in managing rental houses, announced recently that it hired Nolan Jacobson to serve as the company’s executive vice president of finance. Prior to joining Renters Warehouse, Jacobson worked as the treasurer of Silver Bay Realty Trust, a real estate investment trust that owned and operated single-family rental homes.



Source link