No One Lives Here anymore
What happens when too many homeowners default on their mortgage? After the bank kicks out hundreds of families in a neighborhood, there end up being more vacant homes than those that are occupied. This causes a number of serious problems. First, while the bank has “protected” their investment by taking back the collateral, by emptying hundreds of homes, the value of each home diminishes significantly. Vacant boarded up homes in any neighborhood cause blight and reduce the value of every home nearby.
Decimated Neighborhoods
Have you ever driven through a neighborhood that is decimated because of high vacancies? It’s a scary place because empty homes draw crime. Houses that don’t have occupants often have copper stripped out. The water pipes are probably gone. The air conditioner coil is probably missing. The A frame in the furnace is also missing. The furnace itself might be gone. Drug houses are easy to establish when…no one lives here anymore.
Home Package
I was called today with information about a package of 100 homes for sale in the Cleveland Ohio market. Each home is vacant and has been vacant for some time. The houses have all been through foreclosure. They are available for sale in the package of 100. The price for the entire package is just slightly over $300,000. If you do the math, each home is just over $3,000. If you want to buy a new home for $3,000 please contact me. I guarantee that you can’t build a house for the price of purchase and rehab. Making each home inhabitable for rental will cost between $5,000 and $25,000. Imagine buying a new home for less than $30,000 that originally sold for almost $100,000.
Cash Flow Properties vs. BANK rates of return
If you buy a property for $3,500 and repair it for $5,000 you have invested $8,500. Next you rent the property for $500 per month. What is your cash on cash return for this investment?
Cash flow (annualized) / Cash invested
($500 * 12) / $8,500
$6,000 / $8,500 = 70.58%
Is that better than your CD investment at the bank?
Even if the house were vacant for a couple months or had a few added expenses, your return on investment is astronomical compared to the bank. Naturally the rate of return for each investment property depends on the numbers for that specific property. Some properties need more than $5,000 of repairs to be rented. The coolest thing about this kind of investment is that you don’t have to be the person responsible for renting out the properties. Management can be hired to seriously simplify the process of collecting rents, improving the property and keeping the property occupied. If you are interested in this kind of investment, please contact me. I can help you manage this kind of investment. Managing the managers and making the system work for you.
If are an investor and you partner with several other investors or even several dozen investors, you can radically change the blight of a neighborhood and make the property worth significantly more money in a fairly short period of time. Perhaps you would prefer to own an entire neighborhood and have it managed for you.
Real Estate Tip:
Did you realize that you can radically change the quality of your 401K or IRA. You can use your retirement money to invest in the improvement of a neighborhood. Collecting rents inside your self-directed IRA is a great way to massively improve the returns going into your retirement. If you don’t have a self directed IRA and want more information, I have a fantastic Self Direction recommendation for you to check out.
