Buy and hold blighted property in neighborhood with future potential

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coalcracker
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Buy and hold blighted property in neighborhood with future potential

Post by coalcracker »

I live within walking distance of mostly rundown town which shares the border with our medium-sized, mostly gentrified city. For complicated reasons, this town has been in decline since the 60s, with many falling down homes, poverty, and crime issues. The downtown has great "bones" from its heyday and could easily accommodate a thriving shop and restaurant scene given time and investment. It's also in a prime location for commuters into the city.

Recently there has been talk (just talk at this point) of the town becoming part of the city. If this happens, and the city uses its resources to revitalize the town, real estate prices will skyrocket. For example, you could now buy a tear-down in this neighborhood for $10-20k. In my neighborhood (15 minutes walk), houses regularly sell for $500k-$1M.

I'm considering buying a blighted property or two as speculation, and holding to see what happens in 5-10 years. Any experience with this? Any unexpected pitfalls?
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JoeRetire
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Re: Buy and hold blighted property in neighborhood with future potential

Post by JoeRetire »

coalcracker wrote: Tue Jun 22, 2021 6:17 am Recently there has been talk (just talk at this point) of the town becoming part of the city. If this happens, and the city uses its resources to revitalize the town, real estate prices will skyrocket.
Lots of if's in there.

If you've got some money you don't need, it might be a fun speculative play. Perhaps the 60 year decline will be reversed at some point in the next 60 years, perhaps not.

I suspect if/when things are actually put into motion, folks closer to the inside than you will have already purchased all the properties. So it goes.
Just remember: it's not a lie if you believe it.
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coalcracker
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Re: Buy and hold blighted property in neighborhood with future potential

Post by coalcracker »

JoeRetire wrote: Tue Jun 22, 2021 6:25 am
coalcracker wrote: Tue Jun 22, 2021 6:17 am Recently there has been talk (just talk at this point) of the town becoming part of the city. If this happens, and the city uses its resources to revitalize the town, real estate prices will skyrocket.
Lots of if's in there.

If you've got some money you don't need, it might be a fun speculative play. Perhaps the 60 year decline will be reversed at some point in the next 60 years, perhaps not.

I suspect if/when things are actually put into motion, folks closer to the inside than you will have already purchased all the properties. So it goes.
At this point there is no movement in the real estate market, and things are still very speculative with merging. I figure I can’t compete with big investors once the Real estate cat is out of the bag, but as of now it’s still in.
alex_686
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Re: Buy and hold blighted property in neighborhood with future potential

Post by alex_686 »

Long uncertain timeframe.

Necessary renovations will be more expensive than anticipated.

You will have to pay property taxes and insurance until it turns profitable.

This type of landlording is harder, more complex.

Your projections of 10k to 1m seem aspirational.

Sounds risky, but then risk and returns are linked.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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JoeRetire
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Re: Buy and hold blighted property in neighborhood with future potential

Post by JoeRetire »

coalcracker wrote: Tue Jun 22, 2021 6:36 am
JoeRetire wrote: Tue Jun 22, 2021 6:25 am
coalcracker wrote: Tue Jun 22, 2021 6:17 am Recently there has been talk (just talk at this point) of the town becoming part of the city. If this happens, and the city uses its resources to revitalize the town, real estate prices will skyrocket.
Lots of if's in there.

If you've got some money you don't need, it might be a fun speculative play. Perhaps the 60 year decline will be reversed at some point in the next 60 years, perhaps not.

I suspect if/when things are actually put into motion, folks closer to the inside than you will have already purchased all the properties. So it goes.
At this point there is no movement in the real estate market, and things are still very speculative with merging. I figure I can’t compete with big investors once the Real estate cat is out of the bag, but as of now it’s still in.
Right. And that's the point.

Where I live in a beach community, there are a large number of undeveloped lots. They have been undeveloped for a long time, even though property values have risen significantly over the years. Everyone has stories like "I wish I had bought property 40 years ago". Perhaps speculating on these properties is a smart move now. But it's more likely that they will still remain undeveloped for the next 40 years.
Just remember: it's not a lie if you believe it.
WyomingFIRE
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Re: Buy and hold blighted property in neighborhood with future potential

Post by WyomingFIRE »

coalcracker wrote: Tue Jun 22, 2021 6:17 am I live within walking distance of mostly rundown town which shares the border with our medium-sized, mostly gentrified city. For complicated reasons, this town has been in decline since the 60s, with many falling down homes, poverty, and crime issues. The downtown has great "bones" from its heyday and could easily accommodate a thriving shop and restaurant scene given time and investment. It's also in a prime location for commuters into the city.

Recently there has been talk (just talk at this point) of the town becoming part of the city. If this happens, and the city uses its resources to revitalize the town, real estate prices will skyrocket. For example, you could now buy a tear-down in this neighborhood for $10-20k. In my neighborhood (15 minutes walk), houses regularly sell for $500k-$1M.

I'm considering buying a blighted property or two as speculation, and holding to see what happens in 5-10 years. Any experience with this? Any unexpected pitfalls?
We did something similar once, and it worked out well. Long ago, when we were young, we bought a condemned crack house in a rough part of town on the outskirts of a HCOL city. It was the only way we could afford a house -- and it got us on the first rung of the HCOL property ladder. We lived in it and fixed it up ourselves. When we moved out about 6 years later, we rented it for another decade or so, then sold it for a very nice profit which we then plowed into a 1031 exchange. It turned out to be great investment. The surrounding area never really improved all that much while we owned the property, but the house -- with our improvements -- appreciated nicely.

It could have ended differently, of course. All real estate is local. In our case, we knew the HCOL area was generally going to lead to increasing property values. The area was also abutting some really well-restored historic areas. We also enjoyed -- and continue to enjoy -- renovating old homes. So, on reflection, it wasn't that much of a gamble, I guess. Still, it felt risky and daring at the time.
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galawdawg
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Re: Buy and hold blighted property in neighborhood with future potential

Post by galawdawg »

coalcracker wrote: Tue Jun 22, 2021 6:17 am I live within walking distance of mostly rundown town which shares the border with our medium-sized, mostly gentrified city. For complicated reasons, this town has been in decline since the 60s, with many falling down homes, poverty, and crime issues. The downtown has great "bones" from its heyday and could easily accommodate a thriving shop and restaurant scene given time and investment. It's also in a prime location for commuters into the city.

Recently there has been talk (just talk at this point) of the town becoming part of the city. If this happens, and the city uses its resources to revitalize the town, real estate prices will skyrocket. For example, you could now buy a tear-down in this neighborhood for $10-20k. In my neighborhood (15 minutes walk), houses regularly sell for $500k-$1M.

I'm considering buying a blighted property or two as speculation, and holding to see what happens in 5-10 years. Any experience with this? Any unexpected pitfalls?
coalcracker wrote: Tue Jun 22, 2021 6:36 am At this point there is no movement in the real estate market, and things are still very speculative with merging. I figure I can’t compete with big investors once the Real estate cat is out of the bag, but as of now it’s still in.
What makes you think that the real estate cat isn't already out of the bag? After all, if you have this information and insight, wouldn't developers or other real estate professionals in your area who are more "connected" with municipal planners and government officials already have this information? Perhaps the big investors just know something you don't!

If you have the funds, you certainly could speculate and purchase some of that blighted property. Just understand that your investment may not pay off in your lifetime yet will result in annual carrying costs. If the property has a structure on it, your carrying costs could be quite substantial as you would likely either need to demolish and remove the structure or secure it properly as well as maintaining sufficient liability coverage.

It isn't for the faint of heart...
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jfn111
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Re: Buy and hold blighted property in neighborhood with future potential

Post by jfn111 »

The tricky part is what are you going to do with the "blighted" property while you wait. A lot of cities have instituted vacant property surcharges where you pay thousands of dollars in fines to leave a building boarded up.
For a 5 or 10 year horizon you need to rent out the property or bulldoze the buildings and sit on the lot.
rascott
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Re: Buy and hold blighted property in neighborhood with future potential

Post by rascott »

Yes this has worked for me.....If it's pure speculation I would either buy vacant land or tear down any existing structures. And just let the land sit there. We had a similar situation near me in last decade where you could buy empty lots or tear downs near the city core for $20-30k. Now the lots are worth $100-$200k and $500k new builds are occurring.

I don't think you want to "landlord" these eyesores. With empty lots all you need to do is have them occasionally mowed. A vacant, dilapidated house is a liability I wouldn't want to mess with.
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alpenglow
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Re: Buy and hold blighted property in neighborhood with future potential

Post by alpenglow »

I've considered this in some areas of upstate NY that seem to be improving. My main concern is liability.

If seen examples of trespassers ("explorers") getting injured on abandoned properties and suing the owners.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by Lumpr »

jfn111 wrote: Tue Jun 22, 2021 6:56 am The tricky part is what are you going to do with the "blighted" property while you wait. A lot of cities have instituted vacant property surcharges where you pay thousands of dollars in fines to leave a building boarded up.
For a 5 or 10 year horizon you need to rent out the property or bulldoze the buildings and sit on the lot.
^^This
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Re: Buy and hold blighted property in neighborhood with future potential

Post by Ramjet »

If you have an extra 10K laying around I would do it. I would demolish the house though.
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coalcracker
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Re: Buy and hold blighted property in neighborhood with future potential

Post by coalcracker »

rascott wrote: Tue Jun 22, 2021 7:09 am Yes this has worked for me.....If it's pure speculation I would either buy vacant land or tear down any existing structures. And just let the land sit there. We had a similar situation near me in last decade where you could buy empty lots or tear downs near the city core for $20-30k. Now the lots are worth $100-$200k and $500k new builds are occurring.

I don't think you want to "landlord" these eyesores. With empty lots all you need to do is have them occasionally mowed. A vacant, dilapidated house is a liability I wouldn't want to mess with.
alpenglow wrote: Tue Jun 22, 2021 7:14 am I've considered this in some areas of upstate NY that seem to be improving. My main concern is liability.

If seen examples of trespassers ("explorers") getting injured on abandoned properties and suing the owners.
Liability would concern me as well. If I tear down or buy vacant land, would it still be covered under a homeowners policy? I have a $5M umbrella policy which I assume would extend to additional properties I own.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by Yarlonkol12 »

Are you going to rehab them and rent them out, or just buy them and wait for a flip?

If the latter, what would your carrying costs be? Taxes, insurance, etc? What about the transaction cost on buy and sell? Not to mention, if someone tresspasses and hurts themselves on your abondon property, you might be on the hook for damages (not a lawyer)
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coalcracker
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Re: Buy and hold blighted property in neighborhood with future potential

Post by coalcracker »

Yarlonkol12 wrote: Tue Jun 22, 2021 7:43 am Are you going to rehab them and rent them out, or just buy them and wait for a flip?

If the latter, what would your carrying costs be? Taxes, insurance, etc? What about the transaction cost on buy and sell? Not to mention, if someone tresspasses and hurts themselves on your abondon property, you might be on the hook for damages (not a lawyer)
I would likely buy the cheapest I can find, i.e. a tear down or vacant property. Definitely don't want to be a landlord or rehab the property myself, rather buy and hold and see what happens. This would be "play money" in my otherwise vanilla investment portfolio.

All the costs you mention may make or break the deal for me. I'm unsure of what they might be at this point.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by mw1739 »

I would absolutely do it. My wife and I talked for years about buying property in the next town over as our town spreads closer and closer. Property there has now tripled in value and the investment opportunity isn’t as great.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by Sandtrap »

Compare and contrast this R/E personal financial investment with the same money in a market based investment portfolio.

Do you have a R/E personal investment finance business plan?
Do you have a market based index fund portfolio to backstop this?
Investing is comprehensive, Etc.

Familiar with your topic.
Feel free to PM me as you wish.
Aloha
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flyfishers83
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Re: Buy and hold blighted property in neighborhood with future potential

Post by flyfishers83 »

Really consider the neighboring properties. It’s easy to go buy one cheap property and cross your fingers. Even if things change, will the neighboring properties be a drag on your property?

There are lots of historic homes in my town that would be amazing if restored. But I’d need to buy whole streets to come close to making it work.
rascott
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Re: Buy and hold blighted property in neighborhood with future potential

Post by rascott »

Taxes and insurance on a $10-20k property are irrelevant. Can't imagine the taxes are more than a few hundred bucks a year, if those values are correct.

You don't need insurance. Other than your PUP. Just confirm with your insurance carrier that it will also cover this vacant land. I can't imagine what possible liability you'll ever have for a vacant city lot, assuming it doesn't have some unknown hazard.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by MrBeaver »

coalcracker wrote: Tue Jun 22, 2021 7:47 am
Yarlonkol12 wrote: Tue Jun 22, 2021 7:43 am Are you going to rehab them and rent them out, or just buy them and wait for a flip?
I would likely buy the cheapest I can find, i.e. a tear down or vacant property. Definitely don't want to be a landlord or rehab the property myself, rather buy and hold and see what happens. This would be "play money" in my otherwise vanilla investment portfolio.
IMHO, speculative buying and sitting on it is being part of the problem for most of these local places. If everyone did that, it would be a bad investment. You’re basically hoping ‘other’ people will invest in nearby properties, raising the value of yours.

If you want to develop the property like WyomingFIRE and improve the town, I have a lot of respect for that. It is a lot of work and risky, but you have much more control of your own destiny than a speculative purchase of any asset where you are banking on ‘others’ to provide your return.
WyomingFIRE wrote: Tue Jun 22, 2021 6:44 am We did something similar once, and it worked out well. Long ago, when we were young, we bought a condemned crack house in a rough part of town on the outskirts of a HCOL city. It was the only way we could afford a house -- and it got us on the first rung of the HCOL property ladder. We lived in it and fixed it up ourselves. When we moved out about 6 years later, we rented it for another decade or so, then sold it for a very nice profit which we then plowed into a 1031 exchange. It turned out to be great investment. The surrounding area never really improved all that much while we owned the property, but the house -- with our improvements -- appreciated nicely.

It could have ended differently, of course. All real estate is local. In our case, we knew the HCOL area was generally going to lead to increasing property values. The area was also abutting some really well-restored historic areas. We also enjoyed -- and continue to enjoy -- renovating old homes. So, on reflection, it wasn't that much of a gamble, I guess. Still, it felt risky and daring at the time.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by mrsgoldilocks »

One thing you need to consider is that when you own a property, it's not like stock which you can let it sit there and ignore it for 20 years. A property needs constant attention.

1) if you plan to renovate it and rent it out. Currently, renovation cost is skyrocketing because of the cost of material and the crazy house market. so renovation will be a very big cost. if you rent it out, I'm not sure what kind of tenants you can find given your description of the area.
2) if you don't plan to renovate and just want to let it vacant and waiting for it to be appreciated. You still need to 1) pay tax/insurance, 2) most insurance company will not really insure a forever vacant property as it's a big liability 3) even if it's vacant, the city may requires you do regular upkeep i.e. keeping the lawn nice, making sure the house looks not too run down from the outside. and if ppl dump trash in your property you do need to clean it out else you will be fined etc etc.

All in all, the plan is a lot more riskier than what you're planning for. As it's definitely not just the initial 10-20K house price, the aftermath can be many times more expensive than the house price.
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coalcracker
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Re: Buy and hold blighted property in neighborhood with future potential

Post by coalcracker »

MrBeaver wrote: Tue Jun 22, 2021 8:23 am
IMHO, speculative buying and sitting on it is being part of the problem for most of these local places. If everyone did that, it would be a bad investment. You’re basically hoping ‘other’ people will invest in nearby properties, raising the value of yours.

If you want to develop the property like WyomingFIRE and improve the town, I have a lot of respect for that. It is a lot of work and risky, but you have much more control of your own destiny than a speculative purchase of any asset where you are banking on ‘others’ to provide your return.
Unfortunately, the economics of buying and developing a property in this town is the reason it's still in decay. I've asked a good architect/contractor friend who actually lives in this town about why he hasn't developed any properties there. He says even at $10k purchase price, a complete gut job would cost close to $150k, and even good houses are simply not selling for $200k yet. He would maybe make $10k for a whole lot of work.

There is another city neighborhood that has been revitalized with financial help from the city in the past decade. One would not want to walk down the street there 20 years ago. Now condos there sell for close to $1M.

ETA: I realize I'm not helping the situation in this town, and it's a purely selfish decision to try to make some money. I don't have the ability, time or desire to rehab a property at this point in my life (or ever, really)
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coalcracker
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Re: Buy and hold blighted property in neighborhood with future potential

Post by coalcracker »

Sandtrap wrote: Tue Jun 22, 2021 7:54 am Compare and contrast this R/E personal financial investment with the same money in a market based investment portfolio.

Do you have a R/E personal investment finance business plan?
Do you have a market based index fund portfolio to backstop this?
Investing is comprehensive, Etc.

Familiar with your topic.
Feel free to PM me as you wish.
Aloha
j🌺
Good thought exercise.

$20k in an equity index fund at 7% annual growth=$40k in 10 years, $80k in 20 years. I would think buying a property has potential to outpace that growth, but who knows.

I'm in good shape financially: have ~$3.3M investment portfolio, 70/30, age 42. No current RE or REIT investments. This would be money I can easily afford to lose.
WyomingFIRE
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Re: Buy and hold blighted property in neighborhood with future potential

Post by WyomingFIRE »

coalcracker wrote: Tue Jun 22, 2021 8:43 am
MrBeaver wrote: Tue Jun 22, 2021 8:23 am
IMHO, speculative buying and sitting on it is being part of the problem for most of these local places. If everyone did that, it would be a bad investment. You’re basically hoping ‘other’ people will invest in nearby properties, raising the value of yours.

If you want to develop the property like WyomingFIRE and improve the town, I have a lot of respect for that. It is a lot of work and risky, but you have much more control of your own destiny than a speculative purchase of any asset where you are banking on ‘others’ to provide your return.
Unfortunately, the economics of buying and developing a property in this town is the reason it's still in decay. I've asked a good architect/contractor friend who actually lives in this town about why he hasn't developed any properties there. He says even at $10k purchase price, a complete gut job would cost close to $150k, and even good houses are simply not selling for $200k yet. He would maybe make $10k for a whole lot of work.

There is another city neighborhood that has been revitalized with financial help from the city in the past decade. One would not want to walk down the street there 20 years ago. Now condos there sell for close to $1M.

ETA: I realize I'm not helping the situation in this town, and it's a purely selfish decision to try to make some money. I don't have the ability, time or desire to rehab a property at this point in my life (or ever, really)
Then I wouldn't buy it as your odds of making money are remote over any reasonable timeframe.

And you aren't being selfish, you are being pragmatic. And there is nothing wrong with wanting to make money on an investment.

We've done this -- i.e., bought really old homes, some in appalling condition -- repeatedly over the years. We always occupied the property, and did much of the renovation ourselves, only hiring out the work that the building code required to be done by licensed professionals. We love fixing up old homes; it is pretty much our hobby, our passion. That approach has worked for us economically (knock on wood). We would never, in contrast, have done "buy and hold" for a depilated house, as doing so would have been too risky for reasons mentioned above by others.
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galawdawg
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Re: Buy and hold blighted property in neighborhood with future potential

Post by galawdawg »

coalcracker wrote: Tue Jun 22, 2021 9:02 am I'm in good shape financially: have ~$3.3M investment portfolio, 70/30, age 42. No current RE or REIT investments. This would be money I can easily afford to lose.
Then why bother? It could just become an illiquid albatross. Even if your $20k property purchase doubles or triples in value in five to ten years, any gain will be less than the daily fluctuation of your portfolio value.
rich126
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Re: Buy and hold blighted property in neighborhood with future potential

Post by rich126 »

I currently live in a part of AZ where it is definitely more low end (think ~$150-200K homes) but the lots are ok sized (~1/5 acre) and can easily support a 2,000 sq ft home.

The homes range from empty, junkyard, not sure how it is still standing to older but decently maintained to very nice home that was built after the old home was torn down. Obviously there is no HOA and the only rules governing what is going on, would be whatever town ordinances, etc.

On the one hand it is tempting to redo the current house, or just tear it down and build something nice but my one major concern is what will happen to the other homes in the area. If they aren't improved, owning a nice home nice to homes that are in disrepair and/or vacant isn't going to help you if you have to sell.

The part that confuses me with the state of the market right now is the clearly vacant/junk lots that are just sitting there. I wonder why anyone would leave it like that when they definitely could sell it and get some money. Owning a lot you can't live in is costing you money with taxes at a minimum.

Years ago (early to mid 90s), a friend and I went skiing in northern Montana (Kalispell/Glacier National Park area) and I was very tempted to buy some land up there since it was very cheap at that time. Not doing so was certainly a huge mistake. I think someone who has enough money where you can afford to lose $10-20K, it wouldn't be a bad idea to take a chance. Just understand the maintenance costs of the property (taxes, etc.) and whether it has any issues with chemicals, etc.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by AerialWombat »

My rentals are my retirement plan. I choose to buy nice properties that I want to live in (because I do).

For speculation purposes, I choose things that have no ongoing potential for cash calls. I would pass on blighted property speculation.
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alex_686
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Re: Buy and hold blighted property in neighborhood with future potential

Post by alex_686 »

rascott wrote: Tue Jun 22, 2021 8:07 am Taxes and insurance on a $10-20k property are irrelevant. Can't imagine the taxes are more than a few hundred bucks a year, if those values are correct.
I will modestly take the other side.

Property taxes tend to be higher as a percentage is distressed needihoods. The city has many fixed costs such as sewer, schools, and police. These have to be spread out on a declining asset base.

Many cities charge extra property taxes on vacant boarded up buildings. See blight. They want a vibrant growing functionally neighborhood. These properties are a drag on the city and thus the property taxes.

Many insurance companies charge extra for these types of buildings. Kids go exploring and fall through a fall. Vagrants start a fire to keep warn and burn down the neighbor's building. Meth lab gets set up and you have to decontaminate the soil.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by Monsterflockster »

coalcracker wrote: Tue Jun 22, 2021 6:17 am I live within walking distance of mostly rundown town which shares the border with our medium-sized, mostly gentrified city. For complicated reasons, this town has been in decline since the 60s, with many falling down homes, poverty, and crime issues. The downtown has great "bones" from its heyday and could easily accommodate a thriving shop and restaurant scene given time and investment. It's also in a prime location for commuters into the city.

Recently there has been talk (just talk at this point) of the town becoming part of the city. If this happens, and the city uses its resources to revitalize the town, real estate prices will skyrocket. For example, you could now buy a tear-down in this neighborhood for $10-20k. In my neighborhood (15 minutes walk), houses regularly sell for $500k-$1M.

I'm considering buying a blighted property or two as speculation, and holding to see what happens in 5-10 years. Any experience with this? Any unexpected pitfalls?
Don’t know if I would buy a 1 million dollar home that sits about a half mile from a blighted, high crime areas. But that’s me.
alex_686
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Re: Buy and hold blighted property in neighborhood with future potential

Post by alex_686 »

coalcracker wrote: Tue Jun 22, 2021 8:43 am ETA: I realize I'm not helping the situation in this town, and it's a purely selfish decision to try to make some money.
I don't think so. Part of the way that the capitalist's system works is that greed and the common good are aligned.

In order for a community to thrive you need ethical landlords who realize that it is in their own self interest to own properties in a thriving neighbor so they can charge higher rents. Long term greed. They don't need slum landlords who are looking for short term profits by squeezing the vulnerable.

It looks like you have the capacity. This may be a fun and interesting flyer of a speculative investment. It will require you to put in some time, so if renovating is not your thing I would pass. Or at least find a partner.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
GT99
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Re: Buy and hold blighted property in neighborhood with future potential

Post by GT99 »

So I was thinking about doing the exact same thing about 7 or 8 years ago. Really bad part of town, but the nicer parts were growing out towards it, and there were other planned developments that made for huge potential, but homes were selling for under $25k. I ended up not doing it, mostly because DW didn't want to. I also was quite frankly scared to go to that neighborhood - hard to own property in a place your scared to be. :D

And there was a risk element of something happening on the property. My plan was to tear down any existing house and then let it sit until I was ready to develop it. But even with that, I was concerned about liability for something happening on the property.

I just took a look, and there are quite a few empty lots on the market in the area for $130k+. The only ones I see under $100k front a 4 lane road. There's not a whole lot of new construction yet, but the ones I do see are going for $400k+. And a Fortune 50 company recently announced a major office development nearby.
:oops:
rascott
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Re: Buy and hold blighted property in neighborhood with future potential

Post by rascott »

alex_686 wrote: Tue Jun 22, 2021 10:16 am
rascott wrote: Tue Jun 22, 2021 8:07 am Taxes and insurance on a $10-20k property are irrelevant. Can't imagine the taxes are more than a few hundred bucks a year, if those values are correct.
I will modestly take the other side.

Property taxes tend to be higher as a percentage is distressed needihoods. The city has many fixed costs such as sewer, schools, and police. These have to be spread out on a declining asset base.

Many cities charge extra property taxes on vacant boarded up buildings. See blight. They want a vibrant growing functionally neighborhood. These properties are a drag on the city and thus the property taxes.

Many insurance companies charge extra for these types of buildings. Kids go exploring and fall through a fall. Vagrants start a fire to keep warn and burn down the neighbor's building. Meth lab gets set up and you have to decontaminate the soil.
As I mentioned above....I would not own something with a vacant boarded up, tear- down house. Either buy a lot already empty or buy and tear down what is there immediately.

My state has property tax caps... so by law can't be more than 2% of value for non owner occupied property. So we'd be talking $400/yr max for an empty lot.
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gwe67
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Re: Buy and hold blighted property in neighborhood with future potential

Post by gwe67 »

People often say "I wish I had bought that land years ago".

But when you adjust for expenses, effort, and risk, how would that land investment have compared to index investing?
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galawdawg
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Re: Buy and hold blighted property in neighborhood with future potential

Post by galawdawg »

gwe67 wrote: Tue Jun 22, 2021 10:52 am People often say "I wish I had bought that land years ago".
As with most speculative ventures, they only say that when their speculation would have been successful. You often don't hear from those whose speculative investment didn't work out.
BrooklynInvest
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Re: Buy and hold blighted property in neighborhood with future potential

Post by BrooklynInvest »

Interesting dilemma.

I've seen "blight" go either way. Would be curious about liquidity and carrying costs.

If you change your mind how easy is it to sell, even at a loss?

Taxes and minimum upkeep if there's a town ordinance about that kinda thing. But given the long term nature of the opportunity and (guessing) not huge upside even small carrying costs might put a damper on potential profits?
novillero
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Re: Buy and hold blighted property in neighborhood with future potential

Post by novillero »

I know a couple towns like this that eventually did turn around, but only in select parts (close to the beach) and it took decades - in one of those towns the local government exercised eminent domain. So much for investing there. In the other towns, some people might have timed things right and also bought in the right location, but I suspect many other investors didn’t. And if there are enough buy-and-hold people, and there are obviously long term residents, who is gentrifying the town?

Do your research and make sure it isn’t money you’d miss.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by IMO »

rascott wrote: Tue Jun 22, 2021 8:07 am Taxes and insurance on a $10-20k property are irrelevant. Can't imagine the taxes are more than a few hundred bucks a year, if those values are correct.

You don't need insurance. Other than your PUP. Just confirm with your insurance carrier that it will also cover this vacant land. I can't imagine what possible liability you'll ever have for a vacant city lot, assuming it doesn't have some unknown hazard.
I could imagine some homeless camping on one's vacant property.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by rascott »

IMO wrote: Tue Jun 22, 2021 11:54 am
rascott wrote: Tue Jun 22, 2021 8:07 am Taxes and insurance on a $10-20k property are irrelevant. Can't imagine the taxes are more than a few hundred bucks a year, if those values are correct.

You don't need insurance. Other than your PUP. Just confirm with your insurance carrier that it will also cover this vacant land. I can't imagine what possible liability you'll ever have for a vacant city lot, assuming it doesn't have some unknown hazard.
I could imagine some homeless camping on one's vacant property.

In decades of being around urban areas I've never seen homeless congregate on a vacant residential lot. Typically they look for places with some elements of shelter (under bridges, under trees, etc)..... and in city owned areas (parks, sidewalks, etc) they can't be easily evicted from. I wouldn't concern myself with this.

A vacant house... that's a different story.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by namajones »

coalcracker wrote: Tue Jun 22, 2021 6:17 am I'm considering buying a blighted property or two as speculation, and holding to see what happens in 5-10 years. Any experience with this? Any unexpected pitfalls?
Unexpected pitfall is that the rumors do not pan out. Then you're stuck with blighted property.

I hate real estate as an investment. It's always illiquid just when you don't want it to be. The rest of the time it's a money pit.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by Grt2bOutdoors »

coalcracker wrote: Tue Jun 22, 2021 9:02 am
Sandtrap wrote: Tue Jun 22, 2021 7:54 am Compare and contrast this R/E personal financial investment with the same money in a market based investment portfolio.

Do you have a R/E personal investment finance business plan?
Do you have a market based index fund portfolio to backstop this?
Investing is comprehensive, Etc.

Familiar with your topic.
Feel free to PM me as you wish.
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Good thought exercise.

$20k in an equity index fund at 7% annual growth=$40k in 10 years, $80k in 20 years. I would think buying a property has potential to outpace that growth, but who knows.

I'm in good shape financially: have ~$3.3M investment portfolio, 70/30, age 42. No current RE or REIT investments. This would be money I can easily afford to lose.
Go for it. A recent story told to me - fellow buys a blighted 3 family home on a large lot in a really bad neighborhood (still bad today) for $27k. Sold it last week for $440k after a bidding war broke out for it (who said easy money doesn’t lead to excess!). He originally bought the home 10 years ago / he rented it out to pay cost of carry including taxes.

I just got out of one and while profitable - having it invested in the markets would have been more profitable with no hassle factor.

You can make money in real estate but a lot of things have to go your way for it to be profitable for you.
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SaveStrong
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Re: Buy and hold blighted property in neighborhood with future potential

Post by SaveStrong »

If this is Kensington (Philly) probably wouldn’t consider it…. Seems like an unnecessarily risky opportunity regardless.

Unless you have some type of insider track/intel or can hold it for the next 100yrs
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Re: Buy and hold blighted property in neighborhood with future potential

Post by LittleMaggieMae »

If you will buy a house = with the intention of someday "rehabbing it" or selling it to a rehabber you may need to do some work to the house before you "shrink wrap" for later use. You may need to do a preliminary "gut" of the house (helps deter squatters and thieves). You will need to keep the roof/gutters in shape to protect it from water damage. You may need to do some exterior work to keep the house from deteriorating. You will need to make sure all the utilities are cut off (maybe in above and beyond ways - to keep savvy squatters from moving in). You will most likely need to mow/clean trash from the yard routinely - year round.

I looked at a lot of unhappy, on their last legs houses searching for one with good bones and worth repairing... (a sibling who did this kind of stuff was my mentor). You want to have some idea of what you are doing, have a good eye (see beyond the horror that is the house in it's current shape), AND have a fairly good vision for what the house would be like fixed AND who the target audience for it would be.

Older homes can be a challenge. It helps if you are familiar with the styles and what types of homeowner DIYs were done in the past. Some old DIYs (say adding a basement bathroom or enclosing a porch to add a room) weren't always well planned or well executed. Sure the DIYs did the job for 20 or 30 years - but they weren't done 'right' and now they really do need to be done over. I'm not talking about the color of the floor tile or the vanity or the paint on the walls. (I can tell you about houses with additions (extra bedrooms or a "family room") added on to houses that were built without foundations and had no heat (we have winters - like single digit cold winters) for example. - yes the floor plan/space looks attractive until you find out you have have to tear off and rebuild a substantial part of the house.)

Of course, if you will be tearing down the house - you might want to get some idea of the cost of tear down. It can be surprisingly expensive. And the local government might not be cooperative - as in you may have to pay the local government and spend months to OK having the house torn down. And then you have to pay to have it removed and you may have to pay for disposal. Don't forget older houses usually have asbestos in some form or shape. Asbestos shingle siding was quite popular in my area. Removing the siding is an astronomical cost. Local building codes say you can't put vinyl siding over it. You can paint it OR pay to have it removed. (You need to know you local housing stock.)

You may need to start schmoozing the local politicians and realtors and any other big "money people" working on the overall big project in order to get the opportunity to purchase or to be included in any "grant money or whatever" to do the tear down.

I doubt it will be as simple as contacting a realtor, proving you have cash for the purchase, putting in a bid and getting it accepted.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by neverpanic »

alex_686 wrote: Tue Jun 22, 2021 6:38 am You will have to pay property taxes and insurance until it turns profitable.
How much is the tax on a $20,000 lot? $200/year? OP has a $5M umbrella policy, so he probably won't care about a couple hundred bucks in taxes.

Absent any real information about the City's future plans, it's pure speculation, but it sounds cheap enough to throw in a few dollars if OP doesn't need them.
coalcracker wrote: Tue Jun 22, 2021 7:42 am Liability would concern me as well. If I tear down or buy vacant land, would it still be covered under a homeowners policy? I have a $5M umbrella policy which I assume would extend to additional properties I own.
You could be right, but on issues of potential liability, assume nothing.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by IMO »

rascott wrote: Tue Jun 22, 2021 11:58 am
IMO wrote: Tue Jun 22, 2021 11:54 am
rascott wrote: Tue Jun 22, 2021 8:07 am Taxes and insurance on a $10-20k property are irrelevant. Can't imagine the taxes are more than a few hundred bucks a year, if those values are correct.

You don't need insurance. Other than your PUP. Just confirm with your insurance carrier that it will also cover this vacant land. I can't imagine what possible liability you'll ever have for a vacant city lot, assuming it doesn't have some unknown hazard.
I could imagine some homeless camping on one's vacant property.

In decades of being around urban areas I've never seen homeless congregate on a vacant residential lot. Typically they look for places with some elements of shelter (under bridges, under trees, etc)..... and in city owned areas (parks, sidewalks, etc) they can't be easily evicted from. I wouldn't concern myself with this.

A vacant house... that's a different story.
My personal experience of similar duration is different. Homeless now have significant tents and I've seen them set up in vacant lots of housing areas especially when they are closer into the city center. Seems it's more of the local politics that determine if they are allowed to set up camp. It is something that I'd personally worry about unless we are talking about a nice suburbs, but just different viewpoint. :sharebeer
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gwe67
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Re: Buy and hold blighted property in neighborhood with future potential

Post by gwe67 »

You have already won the game. Why expose yourself to downside risk for a potential payout that would be insignificant to you? Buy a meme stock instead.

You realize that the seller holds the opposite belief...that the property is not worth hanging onto. This is a borderline "Greater Fool Investing Strategy."
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gougou
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Re: Buy and hold blighted property in neighborhood with future potential

Post by gougou »

Are there no nicer properties in that town which you could buy and rent out? What kind of returns would you get from buy to let?
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Re: Buy and hold blighted property in neighborhood with future potential

Post by JPM »

I looked at doing something like this in Chicago in 1976. A three flat in the way of gentrification near the west side medical complex could be had for 18,000 in poor but rehabbable condition then. Now they are three $500,000 condos. But it was a good 25 years before the investment would have paid off and I would have been 25 years older having dealt with rehabbing, taxes, and tenants for those 25 year. I moved twice during those 25 years. And the S&P 500 was at 100 in 1976 and would have been a better investment IMO. Not sorry I passed.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by afan »

As others have noted, you need to know quite a bit about real estate in this location. Local regulations tax rates, state law as to your liability, whether politics will permit easily evicting squatters, long term prospects for gentrification...

Unlike putting the same amount on some depressed stock whose fortunes you believe will turn around, with this you could lose more than your entire investment. I would take the liability concern seriously. The poster who has never seen people camping on vacant lots needs to get out more. They are all over the place in many areas, most famously perhaps in SF, hardly a low cost region.

In many depressed areas the taxes are high because there are fixed costs and few people to pay them.

If you buy, you may be stuck. No buyers at any price. Literally unable to give it away. In some cities, homes like this are simply abandoned. The city goes after the last known owner for taxes and upkeep, if they can find them. Crimes in that area, on your property, can become your problem.

The real estate pros in your area know the answers to these questions and the houses are priced to reflect their expert opinion.

If you want to gamble, make sure you know how much you could lose if you are stuck with the place. Unlike stock, the carrying costs could be high.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by CurlyDave »

One of Curly's Rules of Real Estate is:

Never buy a property where I need to bring my Smith & Wesson to collect the rent.
Answering a question is easy -- asking the right question is the hard part.
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Re: Buy and hold blighted property in neighborhood with future potential

Post by Freetime76 »

galawdawg wrote: Tue Jun 22, 2021 11:09 am
gwe67 wrote: Tue Jun 22, 2021 10:52 am People often say "I wish I had bought that land years ago".
As with most speculative ventures, they only say that when their speculation would have been successful. You often don't hear from those whose speculative investment didn't work out.
I’ve got one. Somebody in my extended family bought vacant property in Arizona many decades ago. It was a possible expansion of a highway from Phoenix or some such - never happened. A modest offer by a well-known hunting company was turned down (to buy a group of the empty parcels and turn it into a remote off-roading playground).

Land just sold for about $12K. Bought for $10-12K. All those years of “oh, the value”... nope.
No value unless you want to farm scorpions or live an exciting life of catching rattlesnakes - I hear that is lucrative.

On the vacant city lot: we might consider it if we liked the city and could clean up the lot. We like to steward what we have, so it won’t just be sitting as a crack house because it’s vacant. And no point in carrying the liability. Still, it’s speculation, and we should not have anything else better that we want to do with the $10K - or more, since we’d probably look for a section or row.

Our little town recently had a large auction of a bunch of properties. We bought exactly zero, because I just didn’t like the state of the buildings...even though they’re currently rented at a very good return. I’d feel bad renting them.

Whatever you decide, do your own homework. Talk to everyone you can reach - including those in politics. Sometimes plans are decided a long time in advance, and nothing gets announced officially until funding arrives - could be good, like a revitalization project, could be bad, like a Highway expansion smack dab in the middle of your rundown neighborhood.
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