Property Investing in 'Rough' Areas

[MintyFresh]

Hi guys,

My wife and I have saved up a bit of money and I want to begin investing it in something so we're currently looking at the bottom end of rental properties.

Of course the cheapest ones that we can afford are in the less renowned areas. I want to know what your experiences are investing in potentially rough neighbourhoods. I'm optimistic but perhaps we're better off waiting until we can afford a better area? The areas have good yields but not much capital growth. We're looking for something to invest in to eventually build a deposit to buy our own home.

The one we're looking at appears to be kept fairly nicely and the current tenants have young children which may restrain the hooliganism i think?

Your experience and advice is much appreciated to a couple of newbies!

[Sportsvee]

Rough areas of a particular city or all of NZ in general?

[GLin]

Say you make $100/week after mortgage and expenses.

That's $5200 a year if it's fully tenanted.

How long do you have to save for the next deposit?

Also what happens if you do end up with a trashy tenant and you need to renovate the property? Or that tenants are rough and you need to repaint/recarpet every 5 years, and replace kitchen and bathroom every 10 years? Then the cashflow is not so great then...

If you put 0 to 10 scale, 10 being the best suburb/street, and 0 the worst areas you don't even want to step out of your car, I recommend 4 to 6 areas to invest.

Which city that's another topic.

[flyernzl]

Trick is to identify and buy into a 'rough area' which adjoins an area that is currently improving.
Then hopefully quite soon the wave of price appreciation moves out to that area also.

[Don't believe the Hype]

Read the cannons creek blog - was a rough area a decade ago... There are many demographic factors that drive rents and over the past 2 or so years there’s been double digit cap gain.

it is a myth that there are cap gains areas and yield areas.

the reality is if you’re investing in an area with known issues you need to proactively manage the investment to minimize the risk of that issue affecting you.

[McDuck]

Hi guys,

My wife and I have saved up a bit of money and I want to begin investing it in something so we're currently looking at the bottom end of rental properties.
Of course the cheapest ones that we can afford are in the less renowned areas. I want to know what your experiences are investing in potentially rough neighbourhoods.

The main issue you have to consider is one of culture.

You have a particular culture, you instinctively understand its rules and norms.
In some ways, a culture can be considered a product.

The first rule of business is "know your product".
You are about to start trading in a product that you don't understand.

My general impression of low class housing is this.
The people for the most part are beautiful human beings.
Those same beautiful human beings can be very close to their emotions, and that's a double edged sword.

There are historical and control issues that have led to these families being in this social stratification.
Addiction, colonialism, unusual family behaviors, dislocation , disapproval of materialism, epicureanism, tragedy, illness, physiology etc.
Also the interventions of large organisations to skew the social structure of society to benefit their particular objective or ideologies, sometimes it's even more animal driven than that, (the CEO just wants a big bonus).

Anyway.


As many of my friends here have pointed out, life as a landlord isn't easy.
You will be starting out with the problem child in the class.

The best of luck.

[ScottSI]

Money is money. I have made millions from rough area properties, seen 80 to 305% gains in less than 10 years in Dunedin & Christchurch, and 70 to 410% increases in Hawkes Bay since investing there at the end of 2012. This is cold hard cash too as have sold over half my rentals now as moving to commercial investments, just 33 left to sell!

And best of all I made cash flow, left work in 2011, and the tenants paid for it all!

Rough areas are not for the faint hearted though I will say! DIY skills help (but I know people who use contractors) keep your costs down and rent arrears & trashed houses part of life.

[McDuck]

Money is money.

Haha.

sorry to derail.

Seriously?

Would you take drug money or a bribe?


ok, back to the topic.

[artemis]

I don't think it is a good time to buy a first rental. On one hand there is more compliance, cost and tax changes coming. Ring fencing of rental losses has been announced, some sort of capital gains tax as well as the bright line test already in place. Ring fencing can significantly impact returns particularly for investors with high interest and other costs.

I'm not saying don't do it, just do the sums carefully first.

Check these sites for more info.

1. https://www.mbie.govt.nz/info-servic...ousing-quality
- especially the impact statement link on the first one.

2. www.labour.org.nz/housing
- Labour housing policy

3. www.rentersunited.org.nz/vote/
- summary of party policies for renters

OTOH there is more supply and less net immigration coming. Apparently. I would steer clear of developments with a lot of social housing, existing or new dense developments.

[ScottSI]

Haha.

sorry to derail.

Seriously?

Would you take drug money or a bribe?


ok, back to the topic.

Didn't know I was on my drug dealing or corporate corruption forms sorry, thought I was on a property investment form.

If I had listened to 1/2 the posters on this forum when I regularly visited here, I would still be waiting to get house 3 or 4 in a nice area in Auckland.

Money is money and you can make it the owning rentals in rough areas contrary to what some people post heremail (as myself and my property investor friends have). The purpose of investment is to make money (retirement funds, cover life costs, become financiallyfree etc).

And I wonder why I hardly ever visit PT anymore.

[McDuck]

Didn't know I was on my drug dealing or corporate corruption forms sorry, thought I was on a property investment form.

If I had listened to 1/2 the posters on this forum when I regularly visited here, I would still be waiting to get house 3 or 4 in a nice area in Auckland.

Money is money and you can make it the owning rentals in rough areas contrary to what some people post heremail (as myself and my property investor friends have). The purpose of investment is to make money (retirement funds, cover life costs, become financiallyfree etc).

And I wonder why I hardly ever visit PT anymore.

I wasn't having a go at you.
just the idea that there are no ethical considerations in making money.

Anyway, the op is getting into a new game at a time when the economic and political forces are not as favorable as in the recent past.
So its best not the oversell the possibility of large capital gain driven wealth.

[MintyFresh]

Thanks for the comments so far guys. It seems to me that there are plenty of different opinions some of which appear to relate to risk aversion?

The current climate is of concern to me but there isn't a massive capital investment in this property, We're looking less than 200k. So we could be a bit more insulated from the affects.

Say you make $100/week after mortgage and expenses.

That's $5200 a year if it's fully tenanted.

How long do you have to save for the next deposit?

Also what happens if you do end up with a trashy tenant and you need to renovate the property? Or that tenants are rough and you need to repaint/recarpet every 5 years, and replace kitchen and bathroom every 10 years? Then the cashflow is not so great then...

If you put 0 to 10 scale, 10 being the best suburb/street, and 0 the worst areas you don't even want to step out of your car, I recommend 4 to 6 areas to invest.

Which city that's another topic.

Yeah you can't count on the tenant, even if the current one is alright. If was to put the area on your scale I would say about a 3. The area is a known gang hub but it is littered with good people that just can't afford better areas.

I've lived here in Rotorua most of my life and the gang areas have always been gang areas. Some of the areas around it are coming up but there has always been blips in the centres of OK neighbourhoods which appear to be insulted from positive social change. I don't see that changing within the next 5 years.

Based on my projections we could be debt free on this property within 3 years just because its cheap. That would be throwing everything into it and after that we would look at passing it on, hopefully around the same price, and invest in something for ourselves.

My theory is less if we buy at the lower end we loose less if prices dropped but don't make as much if prices went up.

[AlFa]

Didn't know I was on my drug dealing or corporate corruption forms sorry, thought I was on a property investment form.

Don't mind him Scott. McDuck seems lost between monkeys he talk about a lot and the grass he smokes to make sense

[AlexL]

Hi Scott

What is the reason for moving away from residential and towards commercial? Better cash flow, less maintenance?
If you were starting now, would you use the same strategy you did previously?

Money is money. I have made millions from rough area properties, seen 80 to 305% gains in less than 10 years in Dunedin & Christchurch, and 70 to 410% increases in Hawkes Bay since investing there at the end of 2012. This is cold hard cash too as have sold over half my rentals now as moving to commercial investments, just 33 left to sell!

And best of all I made cash flow, left work in 2011, and the tenants paid for it all!

Rough areas are not for the faint hearted though I will say! DIY skills help (but I know people who use contractors) keep your costs down and rent arrears & trashed houses part of life.

[McDuck]

Don't mind him Scott. McDuck seems lost between monkeys he talk about a lot and the grass he smokes to make sense

Ha!

Nice.

Well, I can't come back from your well reasoned and factual reply.

Well done!

Have a banana.