investing in low-income neighborhoods

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.investing in low-income neighborhhods

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

Investing in real estate young afford everything

Investing In Real Estate Young

If I could go back in time, to my senior year of high school, with the financial knowledge I have now….I would have retired years ago. It hurts my head to think how uninformed, and uneducated the school system leaves our youth after earning your diploma. All those years chasing grades, learning formulas, and a plethora of other things, yet no talk of rental properties, building passive income, or even the financial basics. Unfortunately, this scenario is all too common. I was in my mid-20s by the time I accidentally started building passive income.

 

The average person graduates high school and college. After college they have incurred student loan debt so they get an entry level job, they rent while dating, get married then search for the dream house. The couple applies for mortgages, they purchase the dream house at the top of their budget. And the cycle begins. This is the point when you stroll up to the starting line of the rat race.

 

Your living arrangements are your biggest expense, for this reason, I recommend beginning savings for your first house right out of high school. Once you establish stable employment or hone your hustling skills, rather than renting, the best way to start investing in real estate, is to find a local duplex or a cheap single family home. In order to find a good deal, you may have to sacrifice, and consider living in a low-income area. Low income doesn’t necessarily mean dangerous, but do your research. There are benefits to each strategy.

 

The benefit to buying a cheap home is that you can pay it off fast. In my area, I can find a 2 bedroom home in a low income, but safe area around 50k. If you concentrate your income on paying this off, you can own this house in under 3 years. By paying off your primary residence, you have eliminated what is generally everyone else’s biggest expense. You now only have to cover your property taxes and insurance. This means now it’s easy for you to save, what would be rent/payments for your next investment. Imagine how fast you could save up for rental if you didn’t have to pay rent.

 

The benefits of buying a duplex as first investment slightly differ in this strategy. The idea here is to find a well-priced duplex. My criteria is that the duplex cost less than if I was buying 2 separate houses. Using the example above, if the average 2 bedroom was 60k, I would be looking at duplexes with a comparable amount of bedrooms per unit for 110k or under. Once purchased, find a good tenant to rent out one side. Make sure the rent you charge is enough to cover the mortgage as well as your bills. At this point, you have your own place, and your living rent free. Continue to save money as if you did have rent and apply this to the mortgage. If you continue this in a few years, you’re going to have the duplex paid off free and clear. Now when you receive your rent payments, they are mostly profit. You can now save up for a down payment on your next place, then replace your old side of the duplex with a new tenant. The income from having 2 new renters will be profit and you will own real estate.

 

By investing in real estate young, by the time you’ve paid off the property In either strategy, you’ve already aggressively taken a large step towards passive income and getting a clear view of the finish line that is the rat race. Once you move out and have either completely paid off and rented, you are now able to buy more rentals, or at the very least you have an asset generating enough monthly passive income to cover your new mortgage payment. Without having to worry about rent\mortgage payments you can begin a fast paced savings plan, that will allow you to grow your portfolio and subsequently, your rental income . The younger you are when you star investing in real estate, the sooner you can start building up your rental portfolio.



the landlord commandments

The 15 Landlord Commandments

For people like me, that accidentally started building passive income. Learning the landlord game has definitely been an interesting journey. As with any career path, when your in it, you get to see a whole different side of things. I believe one of the keys to success is the ability to adapt, so as Ive continued to grow my rental portfolio there are some tips that I have learned that can help to ensure your success with rental properties, and the keep them profitable and passive as possile

  1. Thous shalt Always Screen Tenants. The first line of defense for any landlord against major headaches, and utter destruction. Screen your tenant. Take a look at a persons track record with an online background check. Being able to find a good tenant is the foundation of a strong rental business.
  2. Thou Shalt NOT Rent To People You  Don’t Know. Your friends, your cousins, your moms friends, your brother, ex girlfriends little brother who’s “cleaning up his life now”, these are the people you want to avoid as tenants. When things go left, they will ruin your investment plan.
  3. Thou Shalt Always Do A Video Walkthrough Before Lease. Self explainatory right, which damages or stains were done before then tenant moved in, become merely hersay, when both parties not video evidence is available. I always do a video walk through with the tenant present. This way when they move out, they know if theres any holes in the wall, we both they weren’t there before hand.
  4. Thou Shalt Set A Tone For The Relationship. Always be prompt, professional, and reliable with your tenants. Set a standard for the way you run your rental business. Have policies and procedures in place, and follow them. Let tenants know up front what is expected.
  5. Thou Shalt NOT Discuss Personal Matters With Tenant. This is a big part of professionalism. Some tenants can naturally be friendly, and inviting. Maintain a professional relationship, when tenants begin to think of you as a friend, it can lead to late rent payments, and request to waive late fees, and a plethora of other things, that can undermine the foundation of your rental income
  6. Thou Shalt Be Clear Whats Expected. On time rent payments, how much are late fees, these are things you  need to express . If cutting grass, and raking leaves, or snow removal are the tenants responsibility, make sure this is clear in the beginning. I make sure a tenant knows whats available by including a tenant responsibility sheet.
  7. Thou Shalt Collect Electric Payments. Come on its 2016, I really hope your not driving to pick up a check from a tenants. Always collect rent via online payment service such as Paypal, or get a deposit only bank card from your bank, this lets tenants deposit your rent payment at any local bank of your choosing. Then all you need to do is check your balance from your app. Work smarter not harder!
  8. Thou Shalt Answer Your Tenants Calls. Believe it or not I know a few landlords who actually have a callous attitude towards this. A landlord should be accessible, or atleast have a 24 hour property management company in place. The tenant may be calling you to tell you a pipe burst in the wall, you need to be able to address problems fast, the faster you handle it the faster its in the past.
  9. Thou Shalt Make Repairs Fast. If the fridge goes out or the disposal break go fix it. Remember your tenants are paying you for a fully function living space, when things break fix them fast to keep the space functional. Don’t give your tenants a reason to get upset with you.
  10. Thou Shalt Fix Things Right The First Time. This is one I learned the hard way, in the beginning, I tried to nickel and dime things, cheap $10 fixes, I learned fast that this just creates an everlasting headache. If I’m fixing the same problem for $10 10 times, I probably could have just had it done right in the first place. Im all about keeping it a passive as possible. If you are not handy, get yourself a GOOD handy man that you can call for repairs.
  11. Thou Shalt Set Aside Money For Repairs. When its time to replace the water heater, or a leak from the upstairs shower caused the ceiling to sag. This emergency fund will keep you from hurting your profitability. If you fail to plan, you plan to fail, always set aside ATLEAST $75 per month per rental. I find by saving a designated amount, and setting aside, the emotion is removed from the money. When a tenant calls with an issue, instead of thinking, “more money out the window” you think “thats fine we have money set aside for that”
  12. Thou Shalt Have A Firm Late Fee Policy, and do not defer. Make your tenant sign a copy of your late fee policy before moving in. Let them know what date rent is expected, and how much per day it will cost after that. If you let this slide tenants do not have an incentive to be on time. I need my tenants to make me a priority, the business can only run efficiently with promptness. If something breaks, I fix it fast, I expect my money with the same speed. Now if a tenant tells me they switched jobs and now get paid on a different day, I would be willing to work something out, but never be willing to accept consistent late payments.
  13. Thou Shalt Always Have Eviction Paper Work Ready To Go. Have all late notice and eviction papers ready to go. I keep a folder with these by my desk. If a tenant doest pay, the late notice is sent, which usually rectifies the issue, but if not, Im ready to follow up with the rest of the eviction paper work
  14. Thou Shalt Raise Rents Yearly. This is something I wasn’t doing. You will need to check in you area for local laws regarding raising rent but its a good idea to raise rents yearly. This is one of the reasons I enjoy investing being a landlord, they keep up with inflation. Always check what other rentals are going for in the area. As a general rule I raise my rents by $50 per lease renewal. This is about half of whats allowed in my area!
  15. Thou Shalt Recognize A Good Tenant. If you have a good tenant, know what you have. Be a good landlord, and you will keep good tenants around for many years. These people are the heart of the business, show them respect, and respect their privacy. If you have a good long term tenant that pays well and treats the property good, you will always stay profitable
start building passive income

How I Accidentally Started Building Passive Income.

House #1

I moved to Florida back in 2010 on a whim, I had a little money saved up, and I wanted to make sure my family had a gauranteed place to live. We were staying with my finance’s cousin until we could get on our feet. I spent my days looking for deals on property. After a few weeks I came across a private seller with an 3 bedroom home. The owner needed quick money, and only wanted 21K.  He was renting the property to tenants who were about to move. The tenants were very messy, and had about 5 pets.  The home had roaches and part of the floor coming up in the kitchen and all the carpet smelled like urine. I paid cash for the home and suddenly I owned property, this was house #1.  After purchase my fiancé and I ripped up the carpet and put some cheap carpet in it, we replaced the kitchen floor with some peel and stick tiles, and painted the walls. I wasn’t thinking about building passive income, but rather how much it was going to cost me to fix up.

how i started making passive income, passive income, building passive income, how to build passive income, how to make money, how to invest, real estate, foreclosure, real estate investing, investing in real estate, how to start investing in real estate




I think at the time I spent around $2000 on making the home livable. The house did what it needed to, it provided gauranteed housing for my family and I, the exterior was ugly and it was located in what could be described as an industrial area, and not very attractive. I loved the fact that I had a home, that I didn’t have to pay a mortgage on, all I had to worry about was the taxes which were low. We lived here happily for 2 years.

Fortunately the ambition in me always pushes me to want to upgrade things. I knew on the market I could sell the home for around 35K, and the type of house I wanted to upgrade to was around 65K. I began searching for houses again for about a month before I came across a gem in Clearwater, FL, in a super convient location, close to the Tampa bridge and the major highway in the area. It was a nice looking home with a for sale sign that read 69K with contact info. I called while I was sitting in the homes driveway, and spoke to Phil, who flipped homes for a living. Phil explained he bought this home in a lot of 10 houses from the bank, and that he was looking to sell immediately. I arranged to check out the inside, and was viewing the house the next day. It was a little outdated but I loved it. The location was PERFECT. I had about 30K saved up and I knew I could get close to 35K for my current house, so I immediately listed my home for sale and told Phil I wanted to make an offer of 57K. I figgured listing my primary home cheap it would sell fast, the same day that it was listed I got a call from a gentleman, who appeared to be interested in buying my house, what luck. The buyer told me he wanted to come take a look at my house immediately, and he did the following day. After his walk through he made a verbal offer of full price, luck was on my side.

Now before you rag on me for accepting a verbal offer, I want to just say in my defense, at this point I was new to this, no one ever thought me anything about real estate. But back to the story, the guy who was buying my home arranged to meet me the following Monday to sign the contract, I set up an appointment with a title company and was excited that I was a bout to move into my dream home. Unfortunately, my luck doesn’t usually work out as well as it appears, when Monday rolled around I did not hear from my buyer, I gave him a ring and was sent to the voice mail. WTF! He was just talking to me all every day. I called over the next few days probably somewhere near 30 times, this guy was obviously avoiding me. I hate unreliable people. Saddened, I decided to call Phil and tell him that I wasn’t going to able to get my dream house. Phil asked why, I explained to him what I had been through. Phil then suggested getting a loan, “my credit sucks” I said, but Phil had an answer for me, “what about a hard money loan?”. A hard money loan as I learned, is private loan through and doesn’t involve banks. Phil had a hard money lender named James that he introduced me to. Phil told me as long as I had 20% down  he would approve me and didn’t care about the credit. I just had to make interest only payments and I had 3 years to make a balloon payment. I could come up with the rest in 3 years, this sounded like a good plan. Now I wasn’t relying on selling my old house and I was able to move, but what was I going to do with two houses. The answer almost came like clock work, I could rent it out to cover the monthly payments while I saved up for the balloon. I didn’t realize it then but I was laying the pavement to the road to retirement. I listed my home on craigslist for rent for $650 and found a prospective tenant immediately. I made sure to take the right steps to find a good tenant.  I was happy I was now generating $650 per month without doing anything. I was building passive income. The payments rolled in like clock work and I was able to cover my payments which were $475 a month and still saving $175 toward the balloon without any work. This random chain of events was crucial and a staple in the beginning of my career as a real estate investor, this is how I accidentally started building passive income. My home was now an income generating asset, and no longer a liability.

This is around the time I had just finished up reading Rich Dad, Poor Dad, by Robert T. Kiyosaki which is an excellent read, frankly the man is a genius. If you are interested in building passive income, I highly recommend reading it if you are looking to get into real estate investing. The book itself isn’t going to teach you any real estate methods, however it changed the way I thought about home ownership vs owning properties that allowed me to begin building passive income.