7 Tips For Investing In Low-Income Neighborhoods
Investing in low-income neighborhoods, has quite a few benefits, however, it should be noted that investing in these areas require a specific set of skills and tolerance.
Some benefits of investing in low-income areas are
- Higher ROI
- Lower investment
- Easier to pay off mortgages
- Easier to expand your rental business
Although there are countless benefits to investing in low-income areas, without the right knowledge, you can end up in a bad position.
Low-income doesn’t necessarily mean that the neighborhoods are not
Here are some tips that can help you as a low-income real estate investor!
Know the difference between a low-income neighborhood and a war zone.
You would be surprised how many informed people lump both of these into the same category.
War zones are areas with heavy drug trafficking, drug addicts, and gun violence. You don’t want to have to deal with calls from tenants that need you to come replace a window that was shot out during a neighborhood feud.
Don’t get me wrong you can make money in war zone areas, as well but it can sometimes come with more headache.
Low-income areas are just that. A lot of the residents, fall into the category of low-income. Just like any class, there are both good and bad people, the areas are generally safe.
Some advice I give investors is to drive through the neighborhood at night. Ask yourself…
- What’s the vibe like?
- Do you feel the need to lock your doors?
- Would you walk down the street at night?
- Do you hear gun shots?
This is the best way to tell what kind of area you are dealing with.
Buy properties in up and coming areas
It’s common for areas to change over time, neighborhoods can incline and decline, try to buy rental properties in areas that are showing signs of growth. Newly built grocery stores, and shopping centers are good signs of growth.
When you buy into up and coming neighborhoods, the value of your homes can rise considerably.
On the other hand, try to avoid areas that appear to be on the decline. If there is a steady increase in the amount of abandoned homes and businesses, the area might be deteriorating which will cause your property to lose value, and eventually you to lose money.
Look for the diamond in the rough.
Low-income families are the same as everyone else. They want a home that’s visually appealing, and structurally sound.
Investing in low-income real estate does not mean buying outdated shacks, and becoming a slum lord.
Try to buy houses that are either visually appealing, or are distressed but are sold at a hefty discount. I prefer to buy distressed homes at discount prices because I hate going over someone else’s work. When I buy a distressed property, I have a clean slate to work with, which enables me to have a beautifully updated house, for under market cost.
You can often find a better deal buying a distressed property, but make sure you know how to calculate renovation cost.
Find good tenants
*HINT! This is the most important part of ensuring success when investing in low-income neighborhoods.
You need to know how to find good tenants. As I mentioned earlier there are both good and bad people in every class. Dealing with low-income housing is no different. You need to pick a tenant with a proven track record of consistency.
Good tenants pay rent on time, maintain the property, and build your income.
Bad tenants give you headaches and cost you money. You only have one chance to pick so get it right the first time.
Avoid prospective tenants that:
- Have an unverifiable rental history
- Have been employed less than 2 years
- Have credit scores under 600
- Have ANY evictions
- Have long criminal records
In other words, SCREEN, SCREEN, and then SCREEN the heck out anyone you may want to consider as a prospective tenant to live in your rental property. For a detailed guide on how to find a good tenant click here.
Rent your house section 8
What is section 8?
Section 8 is a government funded program, that covers either a portion or the full amount of rent, and in some cases, utilities, for low-income citizens that apply for the program.
I like section 8, as it’s evolved since its early days. My payment is wired to account monthly every month without delay.
There is a lot of contradicting information as to whether section 8 is good route for your investment. I rented my townhouse to a section 8 tenant and have had 0 problems. I attribute this to knowing how to find a good tenant. But my section 8 tenant is actually the easiest tenant to deal with.
Contrary to popular belief, section 8 people can be a pleasure. The program has a no nonsense policy for drugs and general nonsense. And because the section 8 program can be difficult to get in, most people that are on the program don’t want to lose their free or heavily discounted housing, so they tend generally try to maintain it.
Maintain your properties!
Investing in low-income neighborhoods doesn’t mean be a slumlord, so the same landlord commandments apply. Keep your properties maintained, If a tenant calls with a leak or anything that requires attention, take care of it immediately.
Not only will this prevent the problem from escalating, it will keep your tenants happy. A happy tenant is one that stays, and as an investor, you always want to aim for longevity.
The longer your tenant stays, the less you have to deal with turnovers and vacancies.
Hire a property manager
If handling the day to day operations of owning a low-income rental property, don’t seem don’t seem like your cup of tea, outsource it! Find a property manager that specializes in these type of area.
This will be helpful to you if you are not comfortable in these types of areas, it helps to have someone on call to take care of any problems that should arise.
Investing in low-income neighborhoods is a good way to build up passive rental income, and a great starting point for first-time investors, because of the low cost. As always, its very important that you do your due diligence before buying a rental property in ANY area.
Do you invest in low-income neighborhoods? What are some tips that help you maintain profitability?
Do you have horror stories from investing in low-income areas?
Let me know in the comments section below