# Entrepreneur of the Week - Post number 5 Property rental in low-income areas. Hello to the forum members! In the post…
# Initiated week Post Number 5
Rental of low-income properties.
Hello to the forum members! In the previous post, we touched on some rental deals in Area C (low-income / no-income). We have noted that renting in these areas can be challenging. But when done right, it is an investment channel capable of generating impressive returns for all opinions.
So what would an investment in such assets look like? In these areas, the purchase price will usually range from $ 20,000 to $ 40,000. Rental prices will range from $ 500 to $ 800. Because these are cheap properties, and U.S. municipal taxes are a derivative of the property price, the amount of municipal taxes will be low. In addition, since it is a low-priced home purchase, an insurance policy relevant to this type of transaction should be adjusted. The $ 700 a year and even less.In the previous post we talked about Vacancy & Repairs. The Vacancy Index, can be a bit higher but the Repairs Index will usually be significantly lower when working with a management company suitable for such areas. For, the level of finish of the properties in these areas Not the same To the assets of Area B, and certainly not to A. Adjustments of these and other components will bring us To a starting point Of impressive double-digit yield.
Beyond the yields, which, on the face of it, are potentially higher, there are some additional benefits. The first, a low entry barrier. Low cost home purchase. The second advantage is the ability to diversify your investment. If I have an amount equal to the price of buying one house in Area B but 2 houses in Area C, it is often better to invest in Area C and also earn the investment spread.
Before proceeding, allow me to refute a widespread claim about rising property prices. Price increases in C regions It is the And even High Of course, prices rise in B. regions Of course, when we look at price increases we look at these as percentages and not in absolute numbers and so many are wrong to think that there is no price increase in C regions.
We will continue for another benefit.
"In the United States, there is a housing assistance program for populations that meet these criteria. This program is called Section 8. In every city, there is a body called the Housing Authority. B. But let me refute this claim - not only is the implementation of the program different from country to country, it also differs from city to city in the same country. Therefore, a good acquaintance with the local Housing authority is key to success in investing in a property whose occupants are supported by the program. The main points of the program are the same everywhere. In order for the tenant to be entitled to meet various threshold conditions and in addition, the tenant must not have an Eviction History. For us property owners this condition is security for receiving the rent payments on time and in full since, although the rent payment often comes from the Housing Authority, the amount of the rent is not 100% and the tenant has an additional monthly payment that he has to name. If he does not pay his share, and Eviction is filed against him, the tenant will be disqualified from receiving assistance in this program. This means that probably from that moment on the tenant will not be able to rent an apartment.
For operational and financial reasons, most Section 8 tenants are long-term tenants. This significantly reduces the Vacancy Index.
Another advantage of a program that most investors see as a disadvantage is the annual audit. A property leased to the Section 8 program undergoes an annual audit that is usually more rigorous than most audits performed by management companies. This audit will yield a report detailing all the defects found in the property and who is responsible for repairing them. Some will say it is an unnecessary expense but in most cases I encountered rental properties that were leased for a long period, the amount of defects found in the properties is huge! Without frequent visits by the management company (and between us, even when the management company recommends doing some maintenance work, we are not always happy to do it) is often considered a real blow! So in my opinion, annual property inspections are an advantage.
In summary, proper behavior in managing a low-income property can reduce marginal costs, raise investment profitability to a level that justifies investing, despite the disadvantages arising primarily from the quality of tenants renting in these areas. Proper work and familiarity with the Housing Authority can yield impressive results while eliminating several risk factors of maintenance status, payment ethics and tenant turnover.
Thank you for taking the time to read this post and see you in the next post!
Noam Davida