Buying real estate in relatively low-income and high-crime areas undergoing redevelopment has its challenges. On the other hand, the rewards may be high enough to make the challenges worth taking on.
When people think of investing in a questionable neighborhood, they are a little leery. This is understandable, because the cost of maintaining the property may wipe out any profit potential. However, the thing is that while low-income and high-crime are often correlated, this is not always the case. Sometimes, a town may have low-income property because of the high number of student renters.
What you want to avoid is low quality of life neighborhoods that are so dangerous that even the police don’t come when there is a burglary—places where vandalism is a way of life, windows are broken for fun, and violent crimes happen with distressing regularity. Still, there are other places that have prostitution and drug-dealing, but the property is not vandalized or damaged by the tenants.
What’s more, many of these neighborhoods may be scheduled for urban renewal programs, which mean that the value of the property will go up in the future and the criminality will go down or be eliminated altogether. However, if you’re counting on this factor, make sure promises of urban renewal are backed by actual action before going forward.
Here are 6 tips you should consider before investing in a low-income neighborhood:
1. Burglar-proof your investment property.
Have a no-nonsense security system installed. This will give you and your tenants’ peace of mind, and make it much easier to rent the property. Black Hat Security Systems has features like sky control panel, door sensors, a motion detector, and real-time monitoring around the clock all year round.
2. Start small if you’re a first-time investor.
The best way to learn about how to be a good investor is through experience so if you’re new to property investments start with a Single Family Residence. This will help you get the experience you need before you move on to negotiating bigger deals with higher yields.
Timing is everything. Move in quickly in areas where money is being invested in renewing the neighborhood. There is a profit opportunity in real estate when an urban renewal program for a neighborhood is announced. Since property values are based on what’s actually happening rather than what might happen in the future, this means that you can buy property before the prices increase. Be on the lookout for Federal, state, or local urban renewal projects. Another good time to buy is when the neighborhood is in a state of slight disarray because of business construction. Land values fall during the time of construction but go up once the new buildings are in place. If you get in early, you’ll pay a lower price.
4. Don’t be tempted by low costs.
While you can envision huge profit margins in your head when you see a decent looking property at a surprising low price, research possible reasons why the property is selling so cheaply. You may be surprised to find that if things appear to be too good to be true, it’s because there is something that the seller doesn’t want you to know. The crime rate may be far higher than neighboring towns. The town may have built on drained swampland and water erosion over a decade will destroy the foundations. The town may be vulnerable to earthquakes, hurricanes, tornadoes, floods, or tidal waves.
5. Look beyond appearances.
A house may look like a real bargain. It may have a low price and look great. However, things may not be as good as they seem. Although the house looks good, the plumbing, wiring, insulation, and roof are old and will have to be redone. It’s better to buy property that needs a little renovation, but which has good plumbing and electrical wiring, and other desirable features.
6. Make a large down payment.
If everything checks out, then put down a large down payment. This will help you turn a profit faster. By paying off your mortgage as quickly as possible, you’ll be able to minimize your monthly costs and significantly increase your cash flow.
Investing in a low-income neighborhood may be well worth it if you first take the time to research all possible drawbacks.