investing in bronxy areas

Hi Keith,

I have 2 properties in low socio economic areas and im a fan because home/land/unit value vs Rent return is great, i guess the trick is finding areas that are transitioning from low socio to the next stage so you can get a capital boost (of course things need to be happening for the town also). Discussing with agents helped me gauge percentage of govt housing to owner and how owned was starting to dominate over the years as govt kept selling (was at 20% govt when i bought). You can see when you visit the suburb and see a mixture of original homes, rennovated and new builds. (as opposed to whole suburb being original) I find suburb aesthetic ie the cars people drive and gardens/ property maintanence /duty of care levels combined with the above give me an idea. (also these forums have professional investors talking about the best streets of the worst areas)

Some suburbs just have a bad rep for something that happened in past or ethnicity. I bought a unit in Roselands Sydney back in 2006 and my friends/family said i was mad because it was next to Punchbowl (middle eastern community), not sure if you know sydney but its been the jewel of the everything i ever bought?

I bought an ex government home for 190K last year and has returned 260pw since, a new build was sold a few houses down the street for $325K 6 months ago and have 4 other new builds on street? I have a portfolio loan so I hope when i reevaluate value to borrow on equity that some of those other sales rub off on the e-val. RPdata search with my broker yesterday and a chat with agents has it about $210-$215K atm. (ill be holding this for quite some time)

Ok so heres the bad part, had a gang of “youths” throw a large rock through window and smashed front fence, so yeah insurance protecting you for home and as landlord a standard (more exp). Also be patient with agent its not their fault the home and the market the home attracts might bring difficulty. Also found agents less reluctant to negotiate on management (makes sense but thought i would mention).

People around you find it hard to understand what your doing (Have a mate who calls me the slum lord haha) so if your stout, treat professionally without prejudice or like a challenge then i recommend it, im sure other people would suggest easier alternatives but i like the idea of dusting the dirt off and finding a gem instead of a an old horse apple. :)

With house im looking at this as a strategy at the moment and finding the relocating home industry to be quite evolved, i.e. hard to find land stock, waiting lists of investors at established house moving/seller companies, so i driving out next week to visit a couple of lots where they have houses already moved (they also have listings of houses still at original address awaiting purchase before removal) and pick the brain of sales reps for more info. Purely an information exercise, ive worked out costings but want them to confirm for me. I thinking i should just learn now in case opportunity comes up.

Id be interested to hear from someone with personal experience on this, my research has been to buy private $8-$15K or through dealer $20-$35k for basic standard house (with much more additonal costs). People even give away free to avoid cost of demolition.

Have you researched online? pull together a cost table, contact council, moving company, gumtree, investor forums etc recommended.

Brad

Hi Kieth,

Why are you going with a new build?… that might be another topic, but I’m not 100% sure I would do the same without looking at the numbers.

Anyway, my father has a couple of units that are set up through CentrePay and he actually likes it. Basically, it’s about as low as you can get, when Centrelink pays the rent / bond directly to the landlord. He is basically buyying very cheap places that have limited capital gains, but are delivering positive CF from the start and not much hassle with rent as it’s paid from Centrelink. There are other considerations, but I wouldn’t be doing this with a brand new place…

I love ugly looking houses!

There I’ve said it. You can’t be afraid that that property you want to buy is not one you’d even “like” to live in. I own a handful that I most certainly would NOT want to live in.
However my goal when I purchased was to attain a positve cashflow so I could potentially buy more and more.
In my experience the homes that produce the greatest yield are in smaller towns, are ugly, are cheap!

You often find that there is a basic floor on rental in a region, but house prices may vary wildly.
If you can pick up dwellings for less than replacement cost because someone else thinks there a bit of work then good for you!
My properties are not where I live so I’ve invested time a rental manager, getting to know them and getting them onside to tell me honestly what they think these places are worth and who might tenant them.

So far so good in my case!

Cheers,

Dwight

Jpcashflow wrote:

Just remember demographics are changing every day and people are becoming a bit mor fussier

Spot on.

The suburb I live in was developed for the working classes back in the day. Now they charge $5 for a flat white at cafes and a run-down ex govvy house costs $600k!

Cheers

Jamie

Kieth wrote:

Also how much does a nice no thrills home cost in NSW? I’m conscious that the houses in the area are often wetherboard or fibro.

Why is the search scope limited to NSW?

At the end of the day, capital growth is an unknown entity. You can guestimate based on history, but nobody can guarantee what the growth will be. However the cashflow position of a property is an absolute known, because you know the mortgage interest, council rates, etc from day 1. So you know if a property will cost you a lot, or a little bit, or produce a surplus, in year 1 of ownership.

Unfortunately the checkout lady at the supermarket has no interest in the value of your properties … she just wants you to pay for your groceries, which can only be done with cold hard cash, or a credit card. You won’t have either unless you have yield or a credit card provider to whom you have demonstrated a cashflow position (aka yield).

To answer your question – a dollar earned in a bronxy area buys the same loaf of bread that a dollar earned in a flashy area would have. The difference is how compromised your lifestyle has or has not been whilst earning that dollar ;)