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INVESTORS’ CORNER: Is it ok to invest in lower income neighborhoods

by Nasar. El-arabi

Low income neighborhoods have for years remained the preserve of a few as many high-nosed investors have deemed it a waste of money, considering no one wants to live in a not-so-nice neighborhood.

So, to answer your question, yes it is very OK to invest in lower income neighborhoods. The trick lies in watching out for a couple of things.

Placed-based Investing

Place-based investing is the name given to the act of investing in a particular neighborhood or area based on general income levels of that area’s residents.

If you have thought about sinking your money in low-income areas as an investor, you need to get a good handle on these neighborhoods because they are not always one and the same thing. There are the ramshackle kind and then there are others that can be termed upper-level low-income houses.

It is this latter category you want to pay particular attention to. Not only are they located in generally safe surrounds for both tenant and landlord, but also feature multiple properties which are priced reasonably.

Purchasing Investment Properties

There are multiple ways one can acquire property in low-income zones. For example, foreclosure auctions (usually done on county courthouse steps) and also through real estate brokers.

It is possible to acquire a great investment such as a rental property in these neighborhoods for little sums. If you are thinking of carrying out renovations, however, it will raise the overall investment cost. For this reason, it’s always advisable to factor these costs (as well as other ongoing expenses) into the investment property you are eyeing.

Something else you need to consider when investing in low-income neighborhoods is tenant screening and selection policies to ensure you have tenants who will not be defaulting on the rent every other month.

Dealing with Tenants

A low-income neighborhood by its nature means there will be people who cannot afford to pay high amounts of rent, whether we are talking residential or commercial properties.

This is why when you acquire a rental property in any of these neighborhoods, it is good to come up with clearly defined rental policies for your tenants in order to avoid problematic renters. By properly managing the tenants and property though, you should have fewer problems.

Steering Clear of Troubled Properties

The good thing about investing in low-income neighborhoods is that you stand the chance to return a favorable yield in relation to your outlay. However, there are those red flags you need to keep an eye out for to ensure you are purchasing property in the right location.

For starters, the seller should be able to provide statistic-based facts about the particular area you are looking to invest in. Such facts should be based around things like neighborhood appeal, occupancy versus vacancy rates, year-to-year profits, employment rate, average income levels and, obviously, crime rates.

This is a must-do prior to investing in these areas.

Following these simple guidelines will mean success or failure of an investment in a low-income area.

Nasar. El-arabi realestatebusters.com & nasar@realestatedoru.com, is a member of Metrolina Real Estate Investors Association, which provides education, mentoring, and networking for real estate investing in the Charlotte region. For more information, visit www.MetrolinaREIA.org.

 

 

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