Bad Neighborhood Portfolio Questions

[Adam McFadden]

Hey guys. I have a portfolio I own and manage in Rockford, IL. I am up to 33 rental units scattered sight around town, mainly focused in 2 areas: west Rockford and the Mid-Town neighborhood.

These neighborhoods are #7 and #18 on this list:

http://www.arrestrecords.com/the-25-worst-neighbor...

I have 0 business debt and own all these properties outright. It is a portfolio of essentially a lot of the cheapest available properties in town over the past 4 years. Peak value of the portfolio is well over 1 million, but currently would be happy with a valuation of half that. To acquire these properties has cost around $50,000 with at least twice that much in improvements over the years. I am including a vacant large mixed use (8 apts and 4 storefront) building we are still redeveloping in the heart of that 7th worst neighborhood in these figures.

So on paper I'm doing really good right? It doesn't feel like it however. Rent collection is a constant struggle. Total rent roll is around $17,000/month including the new property or around $12,000/month currently. We collect probably around 8.5 - 10k on a given month. Taxes are high even after we won most of our appeals. Utility bills are high. Turnover, court costs, etc... 

 I have some units section 8 and have worked with various social service agencies with rent programs with rent subsidies partial and full. The properties were all pretty much F properties at purchase. Now most are probably B or C for the neighborhood, some better, some worse. A few in particular seem to be more problematic than others. I have some long term tenants of 3+ years. Other places feel like every 6 months we do it again and again and again...

I have tried "professional management" locally which was a joke. They collected less rent than me, did not inform me of vacancies, and caused long term paying tenants to leave with ridiculous enforcement. Stuff like asking: Did you have permission to plant grass? instead of collecting rent... I was fortunately able to sever the contract with no penalty. This particular company has a history of taking landlords to court over breach of contract.

All of this has lead me to a"If you want it done right, do it yourself" mindset. I am constantly worrying about these places. Spending my time chasing relatively small amounts of rent and fixing/remodeling units "my way". I do have a manager/girlfriend who works with me everyday bless her heart! I feel like I should be "rich" not just doing "OK" which is how I would characterize everything now.

So my question to the community is: Short of selling everything, what do you guys recommend I do? Also would like to hear what type of vacancy/turnover you would expect in this type of market. If anyone has a similar type of portfolio, I would like to hear your story too.

Thanks for reading!

[Michaela G.]

Is the 8 unit/4 storefront, that you are developing, vacant? Then maybe consider what we're presently doing in a so-called D neighborhood in Atlanta:

A partner and I have accumulated 6 duplexes (he has 2 and I have 4), total of 12 units, that are all around a common private cul-de-sac. We basically have a block and we have everything fenced, with a big gate, that we close at night. 

We're creating an artist / creative community and people love it. We're attracting people that would have never considered this neighborhood, but they so love the idea to live in a community with other creatives and being able to hang out and brainstorm and have regular powwows in the common sitting/barbecue areas that we've created, that they aren't so concerned about the neighborhood itself. They only see this island that we've created. Sure, some may be turned off by the neighborhood, but those are the ones we don't get to meet. 

We're getting higher rents than what the neighborhood normally gets, we're getting better tenants, who know each other and look out for each other, the artists get much nicer units for their money, than what they'd get in the 'safer'established' neighborhoods, and they will spread the word and bring friends in. We're sort of hoping that we can help change the neighborhood, by other artists seeing this as the 'cool area' and then start buying/renting homes in the area. 

We've only just started leasing and have several showings every day. 4 people moved in last week, several more people moving in beg and middle of october. Things are developing and I think it's a win-win-win for everyone.