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speculating on regentrification
Old 03-17-2016, 11:37 AM   #1
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speculating on regentrification

Beyond the initial capital outlay, what are risks of buying for speculative investment homes in areas early in their regentrification stage? Online I'm seeing 100 year old houses on 2000 sq ft lots in bad neighborhoods selling for around $1000. They are within view of major commercial and residential redevelopment that is kicking off. The upside is intriguing, even without being rented out (I don't wish to become a slumlord). What are the downside risks? I imagine insurance is prohibitively expensive, leaving the owner at risk in any of a number of legal issues, such as personal injury claims. What else?
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Old 03-17-2016, 11:44 AM   #2
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Gentrification can take a long time or move in another direction or even reverse. We passed on buying a home (a newly built one) in a "gentrifying" neighborhood because we couldn't take that risk with our house principal.
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Old 03-17-2016, 12:07 PM   #3
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What is the overall economy of the metropolitan area like? what are the property taxes and other mandatory fees on those buildings--even if purchased for $1000? Do they have grass to be cut and sidewalks to be shoveled to avoid municipal nuisance citations? How about structural conditions--are all the exterior walls up to Code and in no danger of collapsing, or of being cited by the City?

If you are interested enough to invest the time to learn, there probably is an opportunity--but I'd be willing to bet there are professionals already hard at work in the area you are considering. (On a similar note, we represent some guys who are professional tax sale investors. From the outside it looks like easy money--but after becoming familiar with what is involved, I sure don't see it that way.)

Finally, following up on walkinwood, sometimes "a long time" is never. I was in St. Louis for most of my life. There were always houses and situations like you describe, along with the major redevelopment of the moment. Some folks made money speculating and investing, but many others did not. Even for the successful ones, I wonder what the risk adjusted return was compared to an index fund.
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Old 03-17-2016, 12:09 PM   #4
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Originally Posted by GrayHare View Post
Beyond the initial capital outlay, what are risks of buying for speculative investment homes in areas early in their regentrification stage? Online I'm seeing 100 year old houses on 2000 sq ft lots in bad neighborhoods selling for around $1000. They are within view of major commercial and residential redevelopment that is kicking off. The upside is intriguing, even without being rented out (I don't wish to become a slumlord). What are the downside risks? I imagine insurance is prohibitively expensive, leaving the owner at risk in any of a number of legal issues, such as personal injury claims. What else?
I take it this is a speculation, not a place where you plan to move?

The risks need a lot more information than you have given, such as geography and demography. IMO it is certainly not a retirement hobby. Often, the biggest payoffs are in commercial area, but this is a business, and likely one where a person should start when he is young and tough.

Ha
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Old 03-17-2016, 12:30 PM   #5
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What is the overall economy of the metropolitan area like? what are the property taxes and other mandatory fees on those buildings--even if purchased for $1000? Do they have grass to be cut and sidewalks to be shoveled to avoid municipal nuisance citations? How about structural conditions--are all the exterior walls up to Code and in no danger of collapsing, or of being cited by the City?
Good thoughts, thanks for this and other replies. Adjacent to the $1000-priced houses are ones that have collapsed roofs. The City is probably too busy with murders to worry about issuing citations. In thinking about this more, rather than own such property personally, an LLC would be a better vehicle. I've lost $1000 on stocks more often than I care to admit, so even if a $1000 house becomes worthless, it's not a crisis. IMO in such situations the 2000 square feet of land is where the value lies.
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Old 03-17-2016, 12:57 PM   #6
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Good thoughts, thanks for this and other replies. Adjacent to the $1000-priced houses are ones that have collapsed roofs. The City is probably too busy with murders to worry about issuing citations. In thinking about this more, rather than own such property personally, an LLC would be a better vehicle. I've lost $1000 on stocks more often than I care to admit, so even if a $1000 house becomes worthless, it's not a crisis. IMO in such situations the 2000 square feet of land is where the value lies.
You may already know this, but an LLC (or incorporation) is not an impermeable barrier to personal liability--particularly if you are the only one acting on behalf of the entity. Laws vary among jurisdictions, so probably worth your while to get informed on what the rules are in your state. (Also, sometimes a City finds it easier to hunt revenue than murderers....)
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Old 03-17-2016, 01:10 PM   #7
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2017ish - you are firing on all cylinders this morning.
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Old 03-17-2016, 01:44 PM   #8
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This sounds like a penny stock of real estate. A city or sub area pounded down as far as the garden spot you describe may take decades to pay off.

Demolition costs for old houses run 6 - 10k depending on the local market; more if a hazmat investigation turns up asbestos, etc. I'm guessing you weren't expecting to remodel the structure, and as you point out, the lot is the value.
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