A gold mine or waste of time? - Posted by Southern Yankee

Posted by ski on March 12, 2006 at 05:39:36:

And what would a rehab get you? It would be the best looking house in the hood. Will it sell? NO! Why? Who could afford to either buy or rent? My take on these areas is either stay out or buy cheap, rent cheap, and evict often. Many “slumlords” make out very well because the cost of operation is reletivly cheap. They will have a hard time selling to anyone else but another slumlord.

A gold mine or waste of time? - Posted by Southern Yankee

Posted by Southern Yankee on March 12, 2006 at 01:59:29:

In my city there is a spread-out, run-down neighborhood, afflicted with hookers, crackheads, and whinos. Most, if not all the homes there, could use a major rehab. Many are boarded up, and waiting to be condemned. The properties here range from small houses, to older and larger Victorians. Basically, this is area could be thought of as white-trash city.

I am new to REI, and am wondering, is this area a potential rehab/foreclosure goldmine? There are other rehab investors in town, if thats the case, wouldn’t they be jumping in to these projects? Or would this whole chunk of town be a waste of time, since I wouldn’t think that people would be lining up to move there, or buy homes there. What imput could you all offer?

Re: A gold mine or waste of time? - Posted by Chris in FL

Posted by Chris in FL on March 16, 2006 at 14:42:12:

Southern Yankee, How big is the area? How many bad houses? The only way I would consider anything alone is hitting the fringes of neighboring good areas, as mentioned by others. I am a member of local REIA. If the area was not too big, I would consider talking it up, getting a team of investors together, and everyone buying as much as possible in a short period of time. If the team can buy a big enough percentage of the area, everyone could make a ton of money buying ghetto houses and later selling working class neighborhood houses. What an incredible feeling to be part of pulling that off!!! However, if you can’t pull it off you might spend a lot of time and energy beating your head against the wall. I have seen similar, isolated areas here work like that.
Easy way out - look for a similar area where the rehabbing has already started… Areas that are being turned around are a terrific investment, especially if you buy cheap and hold for a while until the area has finished the turn-around.

Being a pioneer when you’re the only pioneer - Posted by David Krulac

Posted by David Krulac on March 13, 2006 at 08:23:32:

there are so many factors. I had some houses where there were signs of gentrification 20 years ago and the neighborhood still hasn’t come back. Functional obselescence and parking are two factors. In the neighborhood that I was working almost all the houses were 3 story row houses (townhouses) with 5 bedrooms, 1 bath and no off street parking. They were functional 100 years ago when few people had cars and families were extended and larger. Today that’s not a formula that you would use to build a new house. The houses have too many bedrooms, too few baths, no air and no parking. Everybody has a car and multiples thereof. A bunch of families have more cars than people.

If there are 30 houses on your street, remodling 1 is not going to have much impact, if the 29 others need work or are boarded up. At another location I bought the ONLY boarded up house and that was a much better situation as others had or were fixing up. Its hard being a pioneer, when you’re the only pioneer.

Re: A gold mine or waste of time? - Posted by Pat

Posted by Pat on March 12, 2006 at 18:57:52:

I’ve done some of these in the past with good success. If you’re going to do it start on the periphery and shrink the neighborhood from the outside in. Start with the properties closest to the better neighborhoods. This has the etffect of “increaseing” the better one.

Something to cansider: The deals I did were funded by the city’s Community Development department. They provided either low interest loans or matching low interest funds when cooperating lenders were involved. Additionally, I was able to use the bank’s funds in lieu of downpayment.After fix-up, the city had a list of pre-qualified buyers who were taking advantage of the other side of the program. It worked well while the program lasted. Find out if your city has anything like that going. If not, put the bug in their ear. It’s a good way to clean up a neighborhood and profit from it.

Re: A gold mine or waste of time? - Posted by Joe

Posted by Joe on March 12, 2006 at 18:27:25:

I have no experience with this type of stuff, but what I might do is go to the fringes of the bad area where it’s the border between bad area / good area. Purchase here and rehab and you’ll probably have an easier time selling. Gradually keep moving in from the edges and you might be able to help eliminate a bad area of town.

Re: A gold mine or waste of time? - Posted by LandVestor

Posted by LandVestor on March 12, 2006 at 12:41:00:

With the current slowdown you might have more difficulty with a project like this. I’d look at it very carefully.

I Like It, but… - Posted by Jimmy

Posted by Jimmy on March 12, 2006 at 08:01:31:

Two or three investor/rehabbers can completely turn around an entire block. and add a ton of value in the process. I’ve done it.

I’ve also stubbed my toe when I tried to be a pioneer in a bad neighborhood, and no one followed suit.

In the situations where my efforts were successful, all of my efforts, and those of others, were directed to a single block, or a couple of contiguous blocks.

Low income, high crime areas can be profitable enterprises. But you need to have super attentive management, a quick trigger with the eviction papers, plenty of insurance, and some nosy neighbors. It does not take much to make your propert more desirable then the ones around it. This will increase your rents and lower your vacancy. But rats and roaches like nice places too. and I am not talking about critters.

It also takes little time for a nice property to get trashed, if you are not watching carefully.

One or two “anchor” tenants can help a lot. I love elderly stay-at-homes. They see everything, and love to talk on the phone. They don’t smoke crack, don’t turn tricks, and don’t have wild parties. and they don’t like it when the neighbors do any of these things.

huge project… - Posted by lukeNC

Posted by lukeNC on March 12, 2006 at 05:24:58:

Could be…

This would be something for someone with connections to get involved in. You could buy the property super cheap, but you’ll need to pull some strings to steer businesses to that area, development, etc. In order to cash out.

Nothing wrong with buying, if you can get them extremely cheaply.

Most rehabbers are looking to buy low, fixup and sell quickly.

Rehab or Urban Renewal - Posted by Frank Chin

Posted by Frank Chin on March 13, 2006 at 09:36:25:


What you described is doing a simple rehab, versus doing an Urban renewal project which requires capital infusion from Federal, State, and local sources, as well as support from local community groups, a totally different enterprise in scale and expertise.

Urban renewal is not often the sphere of private enterprise, or private capital. There are programs out there from various govermental sources that shoulders these risks, and a sharp investor in the know would invest nearby, hoping ride the coattails of the renewal project at much lower risks.

Of course, public funding, and politcal deal making is not a topic often discussed here. None the less, tremendous public spending are made in these areas.

Urban renewal is for a “developer” with “connections”.

Frank Chin