Bad neighborhood, Bad house, should I?

Question

Another dilapidated property that my family owns in Memphis that they have stopped paying on. The back tax is around 5k. The house looks like this

My family said if I pay back tax the house is mine. I would do most of the rehab myself. This would be the first house I would try and flip or rent out. Input? Advice? Help!?

Travis Thornton · Answer

I don't know what your financial situation is or the potential of the area but 5k for a house is pretty sweet.. I bought my first house in a similar situation, rough area, abandoned houses everywhere. But I bit the bullet and paid 10k for it. Everyone told me I was crazy but I saw the potential in the house, but more importantly I saw the potential in the area. I fixed up one room and moved into it. Yep a live in gut job remodel... Lol. I actually still live there today and now everyone says it was a very smart buy. The area is blowing up! It's very close to downtown and there is tremendous growth happening right now which is attributing to the growth in all the neighborhoods around it.

You could by it and sit on it and just wait for the area to come up...

Or buy it, fix it just barely enough to live it and stay there rent and mortgage free..

Or hell, you could wholesale if you wanted. Buy it for 5, sell it for 10. Nothing like a quick double up.

Just some thoughts, good luck!!

Travis.

Dwayne Jones · Answer

@Maarifa Arnett if you are interested in an assessment inbox me and I can meet you at the house. I am an contractor and investor but I understand the plight of getting started as well as rebuilding the inner-city. Nothing wrong but many people do not have the ability to start out with investment funds or access to money so getting into real estate the best way you can is essential but be smart. Many people  don't understand the Memphis market and others have only making money as an end game. I don't knock them but my end goal is to provide decent and affordable housing while rebuilding communities but you should make money during the process. How much profit margin is up to you. With that being said, I grew up down the street from the house you showed at the corner of Park and Boston. Also, my grandmother actually lived two doors down from your property and my brother currently lives two blocks over on Enterprise.  Needless to say I have six properties in Orange Mound/ Memphis that are preforming as rooming houses and rentals. The closest rental to your property is located on Deadrick near David. I have cousins that did not want their parents home after they died (my aunt and uncle) and abandoned the house for two years and eventually called me because they didn't want to pay the back taxes and the home had been vandalized because it was never boarded up or secured. Long story short, the house was cleaned up and rehabbed for a little over $7k because I'm a contractor and my cost was a little lower than normal. I converted a 3 bedroom 2 bath with living room and den into seven rooms for rent at $340 per month each. I typically have five to six rooms rented but no vacancies currently or seven renters. With an average monthly income of $2,040 per month less utilities (MLGW) $580 on a high month in the winter = $1,460. I use to provide cable but no longer. Each room has a bed, microwave, and minifrig. I'm not sure investors in other areas are making a similar return on investment. I've found the biggest problem in rooming houses is food theft if stored in a common kitchen. Many people rent rooms for varying reasons. Some receive a government check and can't afford and apartment, some have temporary jobs with unstable income, some can't get utilities due to past mistakes or can't pay the deposit, some can't afford to furnish apartments, and some don't want the cost of monthly upkeep of a house ie lawn care. Finding hard money lenders is impossible for Orange Mound, getting a fair market appraisal is not going to happen, and finding investors who are willing to take a risk is difficult, and people in the area need somewhere to live is a reality. If you want to start in real estate I'm willing to give you some tips about the community and process. I once funded a project years ago out of my pocket after months of rejections for investors, traditional banks, and so called hard money lenders. Once you get started you will always find deals but securing capital will always be a challenge in the inner-city. Again, inbox me if you have additional questions. Oh, one of the best ways to keep vandals out is to introduce yourself to the neighbors and keep them informed of what you are doing. During the initial construction phase allow them to come in and show them your vision. They will be your best security and want to protect your property because they are in the know and feel part of the revitalization of the community. Boarding up every day and maybe waving creates curiosity and distance. People want to know what's going on and if you don't show them someone will want to break in and find out. There are some crooks but the neighbors know who they are and will spread the work to keep out. Just some advice from someone who deals with this daily.

Bryan Blankenship · Answer

If it's truly that rough, I personally wouldn't.  There are always greener pastures to be found with less hassle and stress.  It's a cheap way to learn, but can also be a costly way to learn.In a bad area, you can be 4 days from completion on a rehab and have a vandalism break in that destroys the home.Obviously there are plenty of ways to counteract almost anything (security, insurance, leave windows boarded til very last second during rehab, etc) but for me it's not worth it to work in very rough areas for any reason.  Others will disagree!

Dwayne Jones · Answer

@Maarifa Arnett I'm in Memphis and currently involved in inner-city rehab and rent, rehab for investors, and new cottage home construction. As a general contractor and investor, I would first determine my cost ie. $5K to acquire and how much rehab does the property need. Do you need a new roof, windows, painting, electrical, plumbing, HVAC, flooring, cabinets, or wall repair just to name a few items. I'm working in Orange Mound, Frayser, and Bethel Grove and the market for selling to a new owner is very slim and to an investor depends on the cost. You can rehab the house and rent as a single family property or rent rooms ie boarding house or rooming house. Depending on the amount of capital and experience you have with rehab a wholesale deal to another investor may be your best bet. With $5K in back taxes and the size of the house I'm sure this is a few years delinquent. You may want to check and make sure the total includes city and county taxes and no pending fines for grass or environmental court. The tax sale process has changed effective January 2016 so check to see if the property is up or has been through a tax sale. You don't want to buy or acquire property and its scheduled for demo.

Jay Hinrichs · Answer

If this property is in a very poor area  ... your house will look just like this in a few years after you have spent money rehabbing it... unless your there on site and watch it like a hawk..

these low end war zone dogs just get recycled with the greater fool theory..

Daren H. · Answer

I think you need to work backwards. Figure out what the market is saying about fixed up houses in this neighborhood (the after repair value, market rent value). Then you have to figure out the rehab costs to make the property look like (or slightly better) than what similar fixed up houses are selling for or renting for. Figuring these things out is necessary before proceeding. The amount of back taxes is somewhat irrelevant until you figure out the other stuff, IMO. Also, be careful flipping houses or renting house in places people don't want to be :)

Joel Owens · Answer

If you have 500,000 and want to take 1% on a crap shoot that is one thing for a trashy area.  If this is your only 5,000 or you have 10,000 total then try to assign the deal and double or triple your money.

Save up that capital for a better area.

Have you checked on county or city fines? A notice of condemnation? etc.

Location,location,location.

Alex Craig · Answer

Rough area, biggest challenge would be keeping the vandals out while renovating. Looks like a massive rehab.  Even with getting it for 5k, after rehab, you may still be upside down.

Dwayne Jones · Answer

@Maarifa Arnett I kept looking at the picture and I know exactly where your house is located. It's on Boston Street in the 800 block. That street will be a good rooming house or rental but right now you will not be able to sale to an investor or individual.

https://www.google.com/maps/place/817+boston+memph...

Rick H. · Answer

I'm on the side of @Daren H.. Here's how I would approach this:

Visualize yourself in the future. You are the owner of this property and I presume it's a rental.

Now you've put a fair amount of your own money into this property and devoted a tremendous amount of your labor. This project has required you to spend some of the best months of the year (September thru November) occupying your thoughts and rushing to get this house renovated.

Now that it's completed, you wish to rent it. Are there tenants who'd be attracted to this neighbor! Would they take reasonably good care of your investment? Would they be good payers or would you have to become a "rent stalker?"

I've had properties in areas that were not war zones but appeared pretty rough. Once I completely rehabbed my new acquisition other neighbor's liked what they saw and improved their properties, too.

However, you can't know that the neighborhood will improve in advance. And having the nicest house in a bad area is not good strategy (unless zoning changes work in your favor.

Bad neighborhood, Bad house, should I?

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