WAR ZONES

[Glen S.]

Looking for advice on war zones. I am looking at some low income apartment deals some are section 8.  My questions:

1. Is it worth the return?

2. If you have on site management and separate yourself from the day to day does this work?

3. What size is ideal?

4. Can you do a value add and rehab the property?

5. Is there any issues with insurances?

6. What is the downside ?

7. What is the upside?

Any help is greatly appreciated as I am ready to pull the trigger but want to avoid any fatal mistakes. 

Thank you

Glen Stygar

[Joel Owens]

What pool of tenants do you have in bad areas?? Mostly bad tenants.

Any quality tenants will not live there or are working to get out of the place to move somewhere else nicer.

I will keep saying this over and over again. You find the crappiest building in the best area for value add deals. Something that has fallen in disrepair but in a good area. People left because the place was run down but not because of a bad area.

When I look at value add I look at demographics and the crime going on. If high crime all around the complex then if you rehab it crappy tenants will move in again and abuse the units and you will have a big loss.

If you look at a nice area and this one complex just has bad tenants or is rundown you can then repair and clean it up and get the bad element out and now have a great property to own.

The complex will generally hold it's land value as well in better areas. An older complex on large land is great as well. You can sell out later down the road to build higher density there yourself or let another developer do it.

I want to buy properties to ADD VALUE but in smart ways where I wouldn't be buying in a sh**hole area just for high cash flow. You get a big headache, the cash flow year over year isn't what you thought, and you have no appreciation and generally very little rent increases as the tenants are living hand to mouth.

I think inflation coming will stifle many of these lower income areas as the tenants have less and less to live on.

I am not a big fan of these properties and never will be. Do not be disillusioned and think a PM company will run your crap hole for an 8% fee. The companies that specialize in this stuff charge a mint to run them usually 12% or more for the BS they put up with. The rents per door are low and headache is high so they charge for it.

So a common mistake on analyzing the buy side is allocating low for a PM company to make your numbers look better. Run absolutely horrible worst case numbers possible so if it does do that you still come out okay. If not you do better than you thought you did.

Way more experienced  investors on here than me but 11 years hard knocks in real estate learning through trial by fire.