The Promise And Pitfalls Of Buying A Slum
The Promise And Pitfalls Of Buying A Slum
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First and foremost, lets address the word “slum”. Let’s change this idea to “low income” or “economically depressed”. This is an important first step in making the most of your new purchase in an area that fits that description.

Buying in a low income area has some great advantages. Purchase price is typically much lower than the national average and can make getting into a first, or new purchase easier. But in a lot of ways, most people see the benefits end there. I would humbly disagree. I think some of the things people fear most about low income areas are the same reasons I seek out these properties.

Building condition – When looking for a new property, and especially when looking in economically depressed areas I have found there is a sweet spot for the building condition. This might go without saying, but it all starts at a good foundation. Some simple rules of thumb are a solid foundation. Decent plumbing and electric architecture (nothing requiring a massive overhaul of either). And this is a biggie, but you have to be able to see a potential curb appeal with no major reconstruction.

Let’s start with the renovations. You must plan this very carefully. Although you have most likely scored a purchase well under average you have a keep a keen eye on your bottom line. Any renovations you do must not exceed 80% of the final value of the purchase price, plus renovation costs. Why 80%? Because that is the point at which your purchase becomes a liability and not an asset (equity is lower than borrowable in a banks eyes). When coming up with a plan, here are things to keep at the top of your priority list. First, the place must have a charm. Get the simple stuff done. New drywall. Painting. Light fixtures and as much kitchen renovations as your budget will allow. Kitchens are a place of pride for anyone, low income or not. You may not find you get more rent, but you will beat out other properties in your area and find more solid renters, making marketing and filling the unit faster and more secure. Last but not least, make sure the insulation is tight. Keeping costs down for your renters will be a big way to keep your rent checks clearing month after month.

Location – In any low income area location is a bit off the radar, but there can be subtle and important differences. Locations within feet of each other will have a major impact on how you approach your new property. The term “other side of the tracks” exists for a reason. In a lot of cases value is separated by a socially agreed upon landmark. How solid this line is and how close you can get to it may make a huge difference down the line, and while marketing you rental.

Think like a potential tenant. How close is it to the necessities of life? Will someone find relative pride here, or are you going to attract potential hazards in this locale?  Even though the closer you get to danger, the lower the cost will be, make sure it’s not at the expense of success.

Safety – When we talk about low income, the gorilla in the room is always the feeling of safety any human wants/needs to feel. Crime can be a real issue, depending on where you are looking, and may need to seriously consider this in your plan to make any renovations.

Carefully consider all the factors that will give your new tenant a good nights sleep. Is parking secure? Is the front gate or door? For windows I always try to find a passive way to keep them feeling unbreachable. Instead of bars or some other obvious obstructive method, see if you can plant some kind of bushes around the accessible windows that make getting into them unpractical. This will add more appeal to your property and, again, make the most choice candidates favor your rental.

Rent cost – After you have put all your effort into making your new property a great home, you deserve to reap the rewards. Find your local market rents, and put your rent at just above the upper-middle cost. Not the most expensive, but certainly above the average. This will keep the kind of people interested in your property most likely prideful working class. Most people looking strictly for a low rent will always make that bottom line their priority, and will, in most cases be a tough tenant to deal with.

Making a new purchase in a low income area work is not rocket science. Always, always, always keep the best interests of your renters in mind and they will find you. Make sure your debt to value is at least 80% or under. Keep your property above the competition with smart renovations and maintenance. Keep it as close to valuable areas as possible, and keep your tenants feeling safe in warm in their new home. If you do this, you will find the good apples anywhere you decide to purchase a new rental property. They will rent long term, and not want to leave. Why would they? You’re the best landlord in town!