October 2018 – Investor Biz

Are There Real Estate Agents that Specialize in Low-Income Neighborhoods?

There are real estate agents that do specialize in catering to investors. You want to find an agent that charges between 5% and 7%. You’ll also want to find an agent that you could see their profile online as well as a picture of them with their listings. Be wary of agents that charge an additional commission fee.

During my first few property purchases, I realized that I was being charged a $400 commission fee while being a buyer. I’ve never heard of that before and nor have many other buyers and sellers. Let alone other real estate agents. Unfortunately, I learned of this fee after the fact. It was mentioned in one line in the real estate agent contract. However, you will want a real estate agent that knows the neighborhood landscape. This is critical in areas where a one-block distance can make a $100,000 difference in pricing. It’s not uncommon to see neighborhoods drastically change from one block to the next. You’ll want to get as much information from the real estate agent. Before meeting with the real estate agent create a list of questions.

Develop relevant questions such as: has there been any new development in the area? where are the bus stations located? Has there been an increase or drop in the population of this area? Where do people in this neighborhood work? What Industries or companies dominate the area? Apart from sinking economic rent, you’ll want to get a sense of why someone would move into the neighborhood. Is there a hospital nearby? Or is there a manufacturing company that employs many people nearby? You’ll also want to keep an eye out for empty lots or abandoned homes.

This will give you an indication of the density. Usually less dense neighborhood means less economic activity. All these factors are to be considered and can be useful information when deciding on buying a property. Most of the time especially good real estate agent will have this information readily available especially if they know the landscape of the neighborhood and specializes in investors

What Type of Tenants Should I Expect?

It is no surprise that in low-income neighborhoods, you may encounter a greater probability of eviction and a longer time spans in vacancies. These two caveats are inversely correlated. You will normally have a greater probability of evictions if you’re less selective in the tenant screening process however you may fill up your rental units faster. In addition, you may experience a longer time span of vacancies due to being more selective in your tenant screening process.

A key element to keep in mind is that the majority of your tenants will have past credit problems, an eviction, low income or minimum wage, a single parent struggling financially, and possibly felons that will have a hard time finding a job should they get fired or laid off or quit. Of all the applicants you may find approximately 15% will pass your screening process and be worthy tenants. You’re basically competing for the top 15% tenant pool and so you’ll want your rental unit to stand out to help procure them. Something that will tell give you an advantage such as a fresh paint job.

My screening process is no past evictions a monthly gross household income of three times the rent amount, no past felonies on their record, two people per room occupancy limit, no pets allowed, and a cherry on top would be if they have a credit score of 620 or better. At times you’ll come to realize that no one is passing your screen test so you might become anxious and start being more flexible. When this occurs I may be flexible with the past eviction so long as it’s been at least 5 years or longer since the last eviction.

However, there are some things that should not be bent too much such as monthly gross income. A low monthly gross income will indicate whether that person can pay or not the rent.

Is There a Specific Type of Property I Should be Focusing on?

There is much debate about which is a better investment: single-family rentals (SFR) or multi-unit properties. Due to the possible High rate of evictions along with making payments on the pending on how selective you want to screen your tenants which will have a correlated effect of timespan vacancies your best bet is to focus on multi-units. That way if you’re going through a rough time with one of your tenants such that they’re not paying their rent you have rent coming from the other unit and that is why you’re always producing Revenue from one unit or another. Due to this reason, for rentals in low-income neighborhoods, it is usually best to focus on multi-units.

What Type of Condition are These Properties in

The conditions of these properties vary greatly from being abandoned and nearly crumbling to pieces to being completely renovated and rental ready. The ideal property is one that has tenants already living in them. There are two major factors why you should consider purchasing a rental property with tenants living in them.

The first one is instant cash flow. The day you buy the property you are making money. You’re generating revenue for your new real estate investment and the second reason is if there are tenants living in the property it means that it at least is functional enough or that if you need to make repairs they shouldn’t be major.

You at the very least know that the electrical system works, that the drainage system works, and that the mechanical items which are Heating & Cooling work. Now this isn’t always the case but for the most part that indicates that it’s a functional rental unit. Depending on what state and Market you’re invested in houses will have a similarity in their Construction.

Mid-West homes for example many are built with bricks and are 100 years or more old. In such cases you’ll want to check to see how old is plumbing does it still have the original galvanized steel or has it been switched to PVC and the water lines have been converted from Galvanized Steel 2 PEX tubing which is flexible and rupture proof? And the electrical system are they still using tie knots or have they upgraded to code? Are there leaks coming from the bathroom in the tub or the toilet and if so has it rotted the floor joist and surrounding wood underneath? How are the floor joists are they split or broken making the floor uneven? Are the sockets grounded?

Many old homes don’t have grounded sockets even though they may have a three-prong socket. Do the windows need replacement? check if they can be opened and closed without them falling apart due to the frame being cemented by previous coats of paint. One window may not be too expensive but when you have to replace 15 windows it really adds up. And how about the roof? What condition is it in? Do you see water stains on the ceiling? Or how about openings on the soffit where squirrels and others can come wreak havoc? Removing squirrels for example can cost hundreds of dollars until an entire family is eradicated. these are things that should be considered when purchasing a property based on its condition.

You want to have a notepad and take notes of all these observations that need to be repaired. It Will Be Your Arsenal for when you need to request a better price for the property. If you can demonstrate to the seller the reasons why you need the property to go down in price such that you can justify it due to the repairs that need to be addressed and the cost associated with it. Overall it’s best to hire a property inspector. For under $500, you can get it inspected from top to bottom including termites.

How do you find these properties

There are different mediums to find such properties. You’ll have the most exposure on the internet video of sites such as zillow.com redfin.com trulia.com realtor.com loop.net and other similar websites. What many investors do as well is drive by neighborhoods they have an interest in investing and look at houses that need a little TLC or are behind in maintenance and inquire who owns that property. And once they’re able to get in contact with the owner by means of looking up to see city/county records or by sending them a mail asking them if they would like to sell the property.

If someone is living in the property you can leave them a letter with your information and that you’re interested in purchasing the property. This is also the way you purchase real estate with no money down. You are in contact with a property owner that is not doing anything with their property that may live somewhere else and has a property that is not producing anything and decaying while they’re paying taxes basically a liability in their finance and you offer to work out a payment plan with them.

It’s a win-win situation since the owner is losing money holding onto a non-producing property and the investor gets to own a property with no money down and begin the renovation to get it rental-ready. However, there is another way, and that is how I find the best deals.

The way I have found the best deals is through word of mouth. Networking with people that may or may not be involved in real estate that may know someone that is selling a house or know someone that has passed away and the property was inherited by their daughter or son who don’t know what to do with the property nor want to become landlords.

This is opportunity knocking to get a property at a highly discounted rate. Many times the inherited party views property as a nuisance since they have no intentions of becoming landlords nor want to manage the upkeep and pay taxes.

One of my better deals was when I was looking to buy a duplex and met the owner during the viewing of another property. I started conversing with them and ask him about renting and buying properties within the vicinity. After about 20 minutes he mentioned in a nonchalant manner that he was looking to sell another property that he had not placed on the market or had not told anyone yet.

I inquired what the property was and it so happened to be a fourplex building with many upgrades Electrical Plumbing Central AC large units with high ceilings three or two bedrooms one was three bedrooms a lot had been put into this property. The going rate for this property at the time was $125,000 and I bought it for $60,000 even though I inherited subpar tenants it begin to cash flow immediately. I can say undoubtedly that if this 4-Plex would have been placed anywhere on the internet it would have not lasted a day.

The best deals are when they haven’t yet been advertised to the market. Whether that be the internet or newspaper or any other medium. Every time I start a conversation with someone I try to give it to real estate if they know anyone that’s selling property. Big be surprised how many people know someone that’s selling property that hasn’t been placed on the market, I want to get rid of it, and due to external factors need to sell it the sooner the better.

This is one of the pros in this real estate business is everyone in one way or another is involved in it whether you’re a renter or a home buyer or someone who has received property via inheritance. The reason this is a pro is that although everyone is involved not everyone cares to do business with real estate and may not be willing to put the effort to get the most out of their property that’s where an opportunity to get a good deal comes into play.

Are These Neighborhood Safe?

Like most things it depends. It depends on how you manage situations and how you address people. Somewhat of what you can call how street smart are you. In this I mean you treat everyone with an equal level of respect without forfeiting your fortitude.

There is however an advantage to being a landlord. In many of these neighborhoods, there is a very weak economy such that many many people and especially the youth I looking for however they can earn money. And as a landlord, they understand that there’s always work to be done especially manual labor. So if anything you’re somewhat of a Beacon of Hope for the time So if anything you’re seen as somewhat of a Beacon of financial stimulus Hope.

You will get requests for work whether it be sweeping floors or demolishing a wall they’re there ready for the fear. Initially, their work ethic is impressive. You ask yourself why aren’t these guys working in a normal job. But after a few days, you see the wear on them with less stamina all brought down due to their addiction to drugs and soon get the picture of why they’re on the streets and not working a full-time job.

One of the first things I realized being in landlord in a low-income neighborhood where there is a concentration of crime due to drug addiction and crime Carries a weight of respect. One of the first things residence message neighborhoods think is that you’re rich. And it isn’t that you got rich by being like you’re playing the lottery it’s that you got rich by being a Savvy businessman. Whether that be true or not it aids in receiving a sense of respect.

Being alone also signifies that you’re not a landlord to be taken advantage of. It is not as though you are a passerby on the wrong side of town. They know the landlord will be there today and most likely tomorrow and will be able to describe faces and names to the police.

Another aspect of the fear of being in a bad neighborhood is that there’s much bloat of it in the media and word-of-mouth. My wife and I along with our two-year-old daughter lived in one of our duplexes second floor for nearly 3 months. Often times you would come late near midnight hours with no sense of fear or sensitive insecurities. This is not to say that you should leave your guard down and be aware of your surroundings how is it never came to the point where we were attacked or feared for our lives or felt endangered in a way? As long as you keep to yourself keep confidence in what you do and say treat everyone with equal respect and go about your business there should be no problem even when you’re conducting business such as collecting rent or posting pay or quit signs on doors or evicting tenants or showing rental properties, etc.

Never get in disputes with tenants that elevate into a heated argument. You will get in on two arguments with tenants about collecting late payment or property damages but never let it escalate to a point of insults or disrespectful comments. It’s always important to keep business ethics at play. So are these neighborhoods dangerous they can be but that depends a lot on you and how you go about your business and how you interact with everyone. In many ways, you are in control of the situation.