In any case, I suggest staying in the upper layer of the lower-income areas. Venture into the middle layer if you like, when you become more experienced. You’ll work a little harder for your money, but you can make it work.
The reality is, in these lower-income areas, you’re going to have the greatest ratios in your favor of cash flow per cost basis of the property.
Keep this next technique in your back pocket for now, but a favorite strategy of mine is turning around a neighborhood on my own, or with the help of other investors. What I mean is, you begin investing into a lower-income street—maybe even on the lower end of the lower income—but based on information of the surrounding area and maybe what government money is doing, one which you believe is a good area that is ready for a turnaround.
It’s called gentrification. And I’ve done it. I’m not afraid to do it now, though I was when I first started. It’s better if you can find an investor or two to team up with and you go in together to buy multiple properties in a street. When you fix them up and raise rent to the next level, you will be amazed at the impact you can have on the surrounding houses on the street, and in the area.
People will start trimming the shrubbery more regularly, planting more flowers, washing their cars, and cutting their grass more, even painting their houses. You can literally turn a street, okay? And you can make a lot of money doing that. There is much more risk, so I do not advocate it when you’re first starting out, but I want to make sure you know it’s a future possibility.
I’ve seen entire streets get turned, even entire neighborhoods. It’s amazing and a wonderful sight to see. Sometimes you can even convince the municipality to kick in a little bit of money. Maybe put in new sidewalks and street lights. I’ve seen that. It helps to be cooperative and participative with your community. It’s good old-fashioned kindergarten logic. You scratch my back, I’ll scratch yours.
Any way around it, you want to buy rentals in areas where you see foot traffic. Look for people out walking, jogging, or walking their dogs. Look for children playing in the yards. You can get that in the lower income areas where people are decent. But you may not get it in the war zones.
I do not ever advocate going into war zones. I know people who do, and they take their chances. I was never comfortable with that because here’s the deal. I’ve studied this statistically. They may make as much money as you and I make in these upper lower-income areas, but they’re working a lot harder. I want to make the most amount of money, with the least amount of work.
Hopefully, you want to do the same thing. So my suggestion is, if you’re in the war zones, trust your intuition. If you see multiple homes boarded up, cars up on blocks just get out of there. If you hear any of the old pop, pop, pop, need I say more? You just get the heck out of there, okay? Don’t ask questions, just go. You’ve obviously ventured into the wrong area. It’s not worth it. You won’t make any more money, and as a matter of fact, you’ll probably get burned too many times to make any money.
So, any case, everything I’ve said applies to two-, three-, four-unit buildings, and multi-unit properties, even larger such as 10-, 20-, and 30-unit buildings you’ll find in residential neighborhoods.
When you get to apartment complexes, those are generally in 50 or more. They’re usually going to be all main streets and not so much back of the neighborhoods.I teach a separate class on purchasing larger apartment buildings, so we won’t cover it here.
Within the municipalities, you should have identified specific neighborhoods. Next I’m going to show you some places to research to identify specific properties. You’ll learn how to identify them and where you get the data.
The first one is the HUD website: hudhomestore.com
Here you can pick any state, price range, and property type. You can insert county, city, zip code, street, or if you know a case number, put in a case number. This is an awesome resource, and it’s available to every person on the planet. HUD always lists for homes with realtors though, so you will have to line yourself up with a realtor.
I suggest you call Beverly at my office at 1-800-931-2605, and let her refer an agent to you who knows how to work in the world of investing—someone we’ve personally trained. These realtors are all over. We have them everywhere.
You can begin a search by selecting a state. Generally speaking, when HUD puts a property up for sale, for the first few weeks, it’s only available to non-profits and government entities. If the property is still available after that period, then it becomes available to owner-occupants for a couple of weeks or maybe a month. If it’s still there at the end, then they open it up to all bidders, which means, “Come on in, investors!”
You’ll see listing information, property information, but more importantly addendum’s like disclosures, EP forms, notices, and lead-based paint.
You’ll be able to see the Property Condition Report. It’s not very elaborate, but you’ll get a nice neat little home property inspection report available to you on the website.
Next one is Home Steps, from Freddie Mac. Freddie Mac is the government, quasi-government agency that helps you finance properties on your first income. All these properties that you’re going to see on the Home Steps website, they’re going to be Freddie Mac foreclosed properties.
Awesome data for finding properties.But again, generally speaking, you’re going to have to go through a realtor to buy these.
So let’s go for the next one: VRM. This is where you’re going to find the VA properties. These are properties that the Veteran’s Administration has foreclosed on. Active duty and veterans have VA eligibility, and can finance properties up to 100%. Pretty awesome deal for military personal and they deserve it. But sometimes things happen and those properties get foreclosed. You can buy them. Anybody can buy them. You don’t have to be active duty or a veteran to buy a VA-foreclosed property.
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