this is from one of Jack Miller's ebooks"
Buying El Cheapo Houses
Making money from the earnings of poor people is like getting orange juice from an orange tree without any oranges on it. The same can be said of investment houses that are bought in blighted combat zones. Usually, only through the intervention of government in the form of low-income property improvement grants and rental subsidies can marginal properties in marginal areas be made profitable. This places a would-be investor into the same food chain as the hapless tenant who depends on both rent and government subsidies for financial survival.
Those who buy subsidized properties are gambling their financial independence upon the good will of the taxpayer who has just about reached the limits of his willingness to support these social programs. They also run the risks of high levels of regulatory pressure and litigation by virtue of their renting to legal wards who have access to free lawyers and zealous bureaucrats who see independent investors as a crop to be harvested. Thus, it does little good to garner high cash flow from these rentals only to spend it in higher maintenance, management, and legal costs.
Low income subsidized rentals may return a high gross cash flow, but their total investment value in a growing portfolio is more glitter than gold. One should look at the total return of an investment, not merely the cash flow. These factors would include the numbers of properties that can be managed efficiently; the amount of capital their acquisition consumes (which is function of their down payment and financing terms), the quality and durability of the income stream they produce both in times of inflation and recession, their fiscal independence from government subsidies, and the time one must spend puffing out fires in order to continue to function.
Last, but not least, one should consider the 'burn out' factor. When you've reached your limits in handling these properties, you'll find it difficult to sell them. There's a dearth of people with the money and inclination to cash out your investment in 'high adventure' properties. Moreover, those to whom you might sell on installment terms may not have the perseverance or skills to manage them. Ultimately you may find yourself giving back a lot of your profits just to escape
Buying El Cheapo Houses
Making money from the earnings of poor people is like getting orange juice from an orange tree without any oranges on it. The same can be said of investment houses that are bought in blighted combat zones. Usually, only through the intervention of government in the form of low-income property improvement grants and rental subsidies can marginal properties in marginal areas be made profitable. This places a would-be investor into the same food chain as the hapless tenant who depends on both rent and government subsidies for financial survival.
Those who buy subsidized properties are gambling their financial independence upon the good will of the taxpayer who has just about reached the limits of his willingness to support these social programs. They also run the risks of high levels of regulatory pressure and litigation by virtue of their renting to legal wards who have access to free lawyers and zealous bureaucrats who see independent investors as a crop to be harvested. Thus, it does little good to garner high cash flow from these rentals only to spend it in higher maintenance, management, and legal costs.
Low income subsidized rentals may return a high gross cash flow, but their total investment value in a growing portfolio is more glitter than gold. One should look at the total return of an investment, not merely the cash flow. These factors would include the numbers of properties that can be managed efficiently; the amount of capital their acquisition consumes (which is function of their down payment and financing terms), the quality and durability of the income stream they produce both in times of inflation and recession, their fiscal independence from government subsidies, and the time one must spend puffing out fires in order to continue to function.
Last, but not least, one should consider the 'burn out' factor. When you've reached your limits in handling these properties, you'll find it difficult to sell them. There's a dearth of people with the money and inclination to cash out your investment in 'high adventure' properties. Moreover, those to whom you might sell on installment terms may not have the perseverance or skills to manage them. Ultimately you may find yourself giving back a lot of your profits just to escape
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