How to build a real estate empire in high Crime area

[John Hickey]

Trying to figure out the best way to close this deal. It's a package of smaller mixed use properties in Newburgh NY. 8 buildings mostly brick 36 units. The gross income is close to 300k expenses 100k. Purchase price 1.375m I have 729k to put down. My credit is good and I have experience in property management. Credit is 754. Net worth is greater then the loan. Here is the problem. One of the buildings is an SRO/ rooming house. It's 14 rooms and generates 7k a month. That and a few of the residents are working the street outside the building. Building is in a drug infested neighborhood and to me looks to be the worst building on the block. This building is part of a 3 building parcel so I need to include it in the package to get keep the LTV good. Another problem is that one of the other mixed use buildings is an illegal SRO/ rooming house. That one is supposed to be a 2 family above a store but instead is 11 rooms generating 5k a month. I've showed it to two hard money lenders and one bank and all have said no way.

[Jamal Irving]

You have the right idea in regards to finding a "deal".  The above mentioned package is going to require some significant work before it could get financed and be legal.

My suggestion to you is lock up the property with a Purchase Contract Option that is in effect for 2-3 years.  Let the current owner continue to collect rents and conduct his/her business.  

While you are in the Purchase Contract Option period:

• you can work on getting the SRO/rooming house legal.
• start working with local non-profits in the city of Newburgh and Orange County who could help you with managing Transitional/Temporary homes
• network with local government on any community development grants that they have to improve the area where the 3 building parcel is located.

The benefit of going the Purchase Contract Option route is that:

• You get time to legalize the building
• Limit your credit risk if you can't get the property to be legal/permitted
• You can improve a down trodden neighborhood in a big way which will further help with gentrification.
• Installing cameras outside of the building and working with local law enforcement can help with the drug dealers.
• You can also continue to look for good cash flowing deals that can be financed without having to the work similar to this one.

@John Hickey I can help you with the research part of non profits and grants.  However, I can't help you with being physically present as I work full time and live down state.

Anyone else, feel free to chime in if you think what I said is an unrealistic, "Pie in the Sky" idea.