Investing in war zones?

[Jason Utley]

Who invest in war zones? And why? 

[Tariq B.]

Great ROI if you stomach more hassle.

[Jay Hinrichs]

I would say predominantly local investors who know how to handle the demographic and can stay right on top of the assets.. those trying this from afar run into some major issues with fully 50% or better get completely wiped out and lose their investment .

1. PM  what PM WANTS to deal in those assets not the top tier PM's .. and if your out area you going to have this as a constant issue.

2. Tenants bounce around in these areas like rolling stones... you can get lucky.. but generally they just Stay in a place they don't live.. and when you have moved 30 to 60 times in your short life.. there is no trama with moving like many folks would think

3. areas unless some Major reno is coming LIKE big time developers .. the areas just fester and get worse with age.. Think blocks of Detroit that have gone to seed.

4. exit can be next to impossible these assets only trade usually between other locals who know the values and the risks or they trade to unsuspecting foreigners or out of state folks who have no clue until they own it and get a big lesson.

If you live them work them and make it your life mission they can work but its a skill set and a life choice.. many I know in the asset class and I know many... they get pretty jaded after a few years.. but this what they do for a living.. they live on the cash flow.. Its just another job.. It is NOT Investing in the traditional sense.

that's my take on it.

[Michaela G.]

I've been investing in a 'war zone' and I don't regret it. 

As Jay Hinrichs mentioned above, I'm doing it because there're several major developments happening right next to this neighborhood. 

I started buying end of '08, when houses there were sold for 10K (now those houses have reached about 50K), so, the risk was small. 

Would I want to do this longterm? No. It's difficult. There's much turnover. Every eviction requires a certain amount of renovation. The nicest people turn nasty, when they're facing an eviction. 

But I can say that I'm glad I've done this. I bought all cash and I can live off my rental income. Whatever I've put in I've already gotten back out with the rents. It's been a great learning experience. The properties have increased in value and the developments still haven't fully started, so, there'll be even much more of an upside coming. 

I have collected several assemblages, that will be even more valuable in the near future.

I've done it long-distance, being in California and having bought in Atlanta, but I knew every street in that neighborhood, because I used to wholesale vacant lots in the area. I've spent about 250K on buying and renovating and own 5 SFH and 7 duplexes free and clear. That's the best money I've ever spent.

So, I would say that it really depends on the neighborhood and if there's potential for other development, where a low value can only go up. But be prepared, that it can be very labor intensive and you will need to have some cash available to redo the properties between tenants.

[Jason Utley]

Originally posted by @Jay Hinrichs:

I would say predominantly local investors who know how to handle the demographic and can stay right on top of the assets.. those trying this from afar run into some major issues with fully 50% or better get completely wiped out and lose their investment .

1. PM  what PM WANTS to deal in those assets not the top tier PM's .. and if your out area you going to have this as a constant issue.

2. Tenants bounce around in these areas like rolling stones... you can get lucky.. but generally they just Stay in a place they don't live.. and when you have moved 30 to 60 times in your short life.. there is no trama with moving like many folks would think

3. areas unless some Major reno is coming LIKE big time developers .. the areas just fester and get worse with age.. Think blocks of Detroit that have gone to seed.

4. exit can be next to impossible these assets only trade usually between other locals who know the values and the risks or they trade to unsuspecting foreigners or out of state folks who have no clue until they own it and get a big lesson.

If you live them work them and make it your life mission they can work but its a skill set and a life choice.. many I know in the asset class and I know many... they get pretty jaded after a few years.. but this what they do for a living.. they live on the cash flow.. Its just another job.. It is NOT Investing in the traditional sense.

that's my take on it.

Jay thanks for your input!

 I know of developers here in the Fort Worth market that are buying in these areas and sitting on the property until they can reach "critical mass", at that point they will begin to redevelop the area. That to me seems a bit risky, but I guess if you have the capital and the patience it could pay off big in the end. 

I've owned a couple of rentals in these "war zone" areas and that was the biggest financial mistake that I've ever made.  

[Jay Hinrichs]

@Jason Utley  there is definatly a play like @Michaela G.  is talking about and it takes some foresight / risk/ guts...

In our market here in PDX this has defiantly happened.. and I see it happening in many major areas.. you had the flight to the burbs.. now you have those same people stuck in 2 and 3 hour commutes and they want back into the urban core.. also walk score in our area is HUGE>.. the millinials want to walk to things.. its very much back to the 1920's were you went to your corner tavern on Friday for fish fry.. and everything you needed was within walking distance.

If a New Seasons or Whole Foods pops up into an area here WHAM housing follows. Old gets renovated and or demolished and rebuilt. price points though are higher of course 500 to 1 mil.. but I was just in Dallas and saw the same thing in N. Dallas one of my vendors did a flip there we sold it in 5 days multiple offer and over ask.. and its was just a ranch house with a very good remodel but it when in the mid 400's and us West coast folks think of Texas we think Mansion for 400k.. that was very much priced like a PDX home.. and of course for those from Silicon valley they are still a steal as in Palo Alto it would be 2 million for the same house.. which is why PDX gets a lot of in flow  from CA

[Christine Sykes]

@Jason Utley, thanks for posting! Great information here from everyone who weighed in. 

@Jay Hinrichs and @Michaela G. thanks for your expertise. 

[Account Closed]

@Jason Utley   The reason we do assemblages in those areas is simple.  Those are the places where the properties are cheap enough to allow the margins to be big enough for redevelopment to be profitable.

[Jason Utley]

Originally posted by @Account Closed:

@Jason Utley   The reason we do assemblages in those areas is simple.  Those are the places where the properties are cheap enough to allow the margins to be big enough for redevelopment to be profitable.

 I think that is a great investment to accumulate property in those areas in order to redevelop in the future. If I had the capital to do it I would. My mistake was buying one (duplex) and trying to cash flow it. 

[Michaela G.]

Originally posted by @Jason Utley:

Originally posted by @Account Closed:

@Jason Utley   The reason we do assemblages in those areas is simple.  Those are the places where the properties are cheap enough to allow the margins to be big enough for redevelopment to be profitable.

 I think that is a great investment to accumulate property in those areas in order to redevelop in the future. If I had the capital to do it I would. My mistake was buying one (duplex) and trying to cash flow it. 

 I like to do both. My properties are cash flowing by themselves. I also have a few vacant lots, that are part of the assemblage, but I owned them before I bought the homes. 

[Bill Campbell]

Originally posted by @Michaela G.:

I've been investing in a 'war zone' and I don't regret it. 

As Jay Hinrichs mentioned above, I'm doing it because there're several major developments happening right next to this neighborhood. 

I started buying end of '08, when houses there were sold for 10K (now those houses have reached about 50K), so, the risk was small. 

Would I want to do this longterm? No. It's difficult. There's much turnover. Every eviction requires a certain amount of renovation. The nicest people turn nasty, when they're facing an eviction. 

But I can say that I'm glad I've done this. I bought all cash and I can live off my rental income. Whatever I've put in I've already gotten back out with the rents. It's been a great learning experience. The properties have increased in value and the developments still haven't fully started, so, there'll be even much more of an upside coming. 

I have collected several assemblages, that will be even more valuable in the near future.

I've done it long-distance, being in California and having bought in Atlanta, but I knew every street in that neighborhood, because I used to wholesale vacant lots in the area. I've spent about 250K on buying and renovating and own 5 SFH and 7 duplexes free and clear. That's the best money I've ever spent.

So, I would say that it really depends on the neighborhood and if there's potential for other development, where a low value can only go up. But be prepared, that it can be very labor intensive and you will need to have some cash available to redo the properties between tenants.

 What area(s) have you invested in?

[Michaela G.]

Atlanta