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  • Property-a-holics

    Investing in houses in bad/poor areas

    Hi all, after taking a read on buying in bad areas and seeing that some use this as a strategy was looking for more reasons as to why investors do so.

    Personally I’m all for having as little hassle as possible which is more likely to come with better located props along with the greater chances of CG, Lower voids etc 

    Would be great to hear people’s views as to why they chose to go down such a route.

    Appreciate that a bad area is open to interpretation so I’m more so looking for reasons one would do so in the NE / NW as opposed to Jonathon Clarke buying properties in less good areas in MK (as I’ve read) which isn’t going to be half as bad as a lot of bad areas elsewhere and makes more sense.
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    the main reason normally is houses are a lot cheaper and yields can be amazing. but you have to be willing to do a lot of work and lots of headaches along the way

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    `Bad` and  `areas` as you say are words  open to interpretation of course

    They are personal to the individual

    They should be defined in a little more detail i think

    There are bad estates in good areas and good estates in bad areas

    But what is "Bad" ....?

    Is that bad as in badly constructed , bad crime , bad people , bad yield or bad areas for growth ?

    And what is an area ?

    Is that an  area  as in  a particular road on an estate , an estate , a town ,. a region , a country ?

    I can pay £100K for well constructed flat in anti social area but within 1 min of the city centre

    The prospect of growth though is very good and if the council clean up the area then quids in

    Or I could buy a poorly constructed flat in an affluent area and make my money there

    So many factors to consider ....

    When I was going through this exercise of where to invest and what to invest in, I listed all the variables I could think of and then applied an arbitrary  score out of 10 which was applicable for me and my thinking. Everyone`s personal score will be different.

    So for me within 10 mins travel distance scored 10 as this was very important to me where as for others it might score only 5.   I also didnt mind low grade estates with relatively  high crime levels and rubbish on the streets and effing and blinding . I made more money because I didn't mind that aspect and could blank it out .

    It's a bit like paying yourself danger money and everyone has their price.

    If you like the idea of paying yourself on paper £100 an hour rather than £50 an hour but in return you have to listen for 10 mins to a rap group blasting out the window at 1000 decibels and the smell of cannabis when you walk through the communal doors and a heated domestic in the hallway then go for it . 10 mins work for £50 aint bad.

    Many wouldn't  of course especially if they self manage and not cut out for any form of confrontation . fair enough  . But some of my clients have never even visited their properties and wouldn't want to, so a bad area in terms of ASB its not really an issue for them.  Same flat same estate but an entirely different perspective .  Their investment is just a spreadsheet  and I take that fear factor away from them and am represented as 10% on their spreadsheet .

    I am therefore the opposite to them in some things and our score out of 10 charts would look very different but be right for both of us also .

    I personally would never invest in the NE as i would lack control and the ability to do forensic DD , So NE would score 1 on my chart .

    To others who live there like DL maybe 10 and even to a London investor it might score 8 because of say the yield factor and they are happy to put it in the hands of an LA and pay their 10%

    So we all have our strengths and weaknesses . There is no right or wrong .

    So I suggest just analyse yourself first and you will have must haves in there and def no no`s

    Then its just taking a view of the stuff in the middle ground which scores 4/5/6

    Your mind and your critical thinking processes will take you to your eventual answer .

    Thinking is free

    Good Luck !

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    Jonathan Clarke. http://www.buytoletmk.com


    For me it largely comes down to knowing the area and tons of dd and just general research, as Jonathan stated if you are likely to be dealing with your tenants personally then that needs serious consideration too.

    One of the wealthiest landlords I know who lives locally to me, bought most of his properties in areas that I would consider bad.  He has a far different approach to being a landlord to me, but from what I have seen his rental yields are high.  But he also doesn't refurbish the properties he buys to a modern standard, if it has a bathroom suite in place it's fine (even if it is pink and about 40 years old).  Recently he posted to social media two separate tenancies that ended in the places being trashed and huge rent arrears, so it's not all just big rental yields for him.

    Also to me (at least locally to me) if a place has to be boarded up when it's vacant that is of a concern.  Especially if your rental return is going to be sub £5k, because if anyone breaks into said property during voids you will likely lose your profit for a year and then some.

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    Thanks for the responses chaps.
    Jonathon, really like the approach! Will certainly apply the methodology.

    I was referring to bad people, bad crime, let’s take perhaps areas of Liverpool like Bootle, Everton, Anfield.

    For me I feel a mixed portfolio of properties in good areas and ‘so called’ bad areas would be ok for me (albeit id like a bad area where there’s still some CG potential, I know not easy Wink) After a lot of reading on the forum it seemed like the general consensus was that the vast majority of people go for what Vanessa plugs buying the worst house on the best street. Modelling a strategy around this. Perhaps there are a lot more developers out there doing similar to what Jonathon and Gam3 0ver’s landlord acquaintance does and Vanessa’s advice is more geared towards someone starting out / any investors who are less risk adverse? These bad neighbourhood type areas seem like they aren’t for the faint hearted and are more suited to devs that can take the rough with the smooth.

    Gam3 0ver May I ask which areas the local developer you know bought his properties? I’m interested to see what he constitutes as bad areas.

    Back to the areas of Anfield, Everton, Bootle etc are there developers that have say 10-20  of the 2/3 bed terraced houses you see pop up in this area? This I take would be an example of properties in a bad area but without much real chance for CG in the near future. Are people purely going for these sort of deals purely for the cash flow is my question Smile? Perhaps this area as with certain others might just not be worth touching and not many do?

    Thoughts?
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    The landlord I was talking about bought a lot of properties in Grimsby over the last couple of decades.  I heard of many horror stories from a couple of the guys he hired to repair the properties after either tenants wrecked them or they got wrecked during voids.  One thing he definitely benefited from was having some cheap and cheerful tradesmen who would sort the properties out on the cheap.

    I heard how once after a tenancy, I think it was during a void, a property got totally gutted all the pipework and even some of the floorboards were taken.

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    They are probably  using one and only pros algorithms !
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    Bad areas can become good areas and good areas become bad . Its all about knowing the property business and understanding the local and region implications for property.

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    Poor areas will attract poor tenants. Your applicants will probably be vulnerable people without stable income. If you are lucky you may get someone in receipt of benefits, if not, their earnings will simply not be enough to cover the rent. So that is the tenant pool that you will have to choose from.

    If you rent to such tenants you cannot rely on the rent being on time and that your property will be looked after.

    Now your yield on paper may be 15% but that in reality may equate to a monthly cashflow of £150, which you may not actually receive.


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    ``Poor areas will attract poor tenants`

    Not necessarily .

    Some good working tenants rent in poor areas for several diverse reasons

    Tenant selection is key 


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    Jonathan Clarke. http://www.buytoletmk.com