Effecting a neighborhood through flips?

Question

Hey all,

My family and I live in an area that's not too crazy big, it's about 45 minutes outside of Nashville, but it's very established and has homes ranging from ~$25k up to ~$400k, most of which are rather old, 1950's and older. It's very much an up and coming area; a lot of young movers and shakers are coming in and setting up shop in its rustic charm, investing in the local businesses and culture, and it seems like the local government is riding that wave, investing in public areas and roads. Crime websites say it's a somewhat higher crime city, but it's nothing we've directly experienced, just part of living with other people, and we feel quite safe there.

My question is about some of the neighborhoods in our area. Ours is quite sought after, people are sucking available houses up left and right. But there are communities similar to ours that, while safe enough, just seem tired. The houses are fine, they're going for around $70k or so, but none of them are really being poured into so there are few available comps. What examples there are primarily were just repainted, maybe new gutters, and that's about it. While we're definitely new at this, I'm not sure we're interested in pouring sweat equity (why isn't it called swequity?) into an area if it's going to be a rocky, bloody uphill climb the whole way. So there is potential in those places I'm sure, but I'm curious what effect you think a single flipper could have on a community? It seems like no one is willing to pay more for these properties because the neighborhood is tired and worn down, like ours used to be, and because no one is willing to pay more, no one is willing to invest. It's a weird cycle... But I know that fortune favors the bold, so I was looking for some thoughts on this cycle. I could be foolish in looking at things this way, but I figured I'd ask.

So my concise question- What do you do when there is an area that has potential but the ball hasn't started rolling there yet?

Thank you all!

Chris Kelch · Answer

To answer your question, I would avoid those areas.

Like you said, it's going to be a bloody, uphill climb and no one is willing to pay more for a neighborhood that is predominantly worn down. I'd imagine the profits on the first couple of flips will be weak and it will be tough to build enough momentum / capital to keep going.

Why try to take a neighborhood on yourself when it sounds like there is also neighborhoods around you where you can ride the the wave? It's signing up for huge unnecessary risk and uncertainty right out of the starting gate versus building easier wins in a neighborhood that is more predictably heading in the right direction.

Michele B. · Answer

I think he bought the first two for like 20k....spent 40K to fix them up.....

Luka Milicevic · Answer

@Thomas Long

Get the ball rolling

Think about it- If you believe you have discovered a diamond in the rough, why not start digging?

Imagine the folks that did the same in the Nations area 10 years ago. That place was an absolute dump and is now one of the most desirable locations.

Same thing with 12 south. It's hard to believe that area was once terrible.

Thomas Long · Answer

@Michele B. That's an encouraging story. I'm inclined to lean more towards the idea that that's the exception to the rule, but it certainly shows that outcome is possible. That was pretty much exactly what I was imagining happening though, to be honest. Pipe dreams perhaps, but if someone is going to go in there guns a-blazing, maybe it'll be me? It would be really cool to watch that transformation happen in any case. Do you know what percentage he was returning on those initial flips by chance?

@Mark Newton Hey Mark! I'm down in Columbia, just south of Spring Hill. Word on the street is that it's turning into the next East Nashville, with a Franklin vibe. And that lack of certainty is really the only thing holding us back. Well, that and our funds are tied up in the final remodeling projects of our house. I have time to scope out the area more though and get a better feel for what people are wanting/expecting. Are you familiar with the area at all? If so, any direction down here? We're happy expanding past the township into other areas too!

Mark Newton · Answer

Hey Thomas! What area of Nashville are you talking about? I work in the Nashville market exclusively with investors, so I'm curious. As far as your actual question goes, it is hard to say with absolute certainty what a flip will do to a neighborhood. I have seen some streets where nothing had been renovated, one investor took the chance, and then proved value for the area. All you need is that first sale to set a precedent on what people are actually willing to pay for in that area. I have also worked with many investors who simply have a passion for taking nuisance homes off the market so that they can help the community while making a pretty good stack of cash.

If I can be of any assistance, feel free to reach out.

Michele B. · Answer

I know a gentleman that bought one distressed location in a somewhat bad neighborhood and rehabbed it, turned around and bought the one next to it , and so on and so forth until he had bought a whole block. Then others started to get involved and that is when he saw his investments start to move forward.  Someone just needs to get the ball rolling.