Are You A Pseudo-Investor?

Investors maul over many areas in property selection for their portfolios. Eventually, everyone finds that having properties clumped into centralized areas makes doing business much easier. On the other hand, if one is just flipping properties, it does not matter as much.

There is another issue, though, which is in what area to heavily invest and create a substantial portfolio. I find that portfolios in my area can be broken down into three groups; the low-end, the middle, and the suburban properties.

The low-end properties are where many tenants are on welfare and there is a mix of low paying jobs as well. These neighborhoods are ridden with boarded-up buildings, litter, and crime. Evictions are a common occurrence with rental trucks virtually everywhere on Mother’s Day, i.e., on the first of the month when the ADC checks come out. I find that most who rent from me in these neighborhoods have bad credit and couldn’t care less.

For the most part, the middle properties involve a whole different process of buying, managing, selling, and profiting. Unfortunately, these are butted right next to, or in a close proximity of, low-end properties. To me, the infection from the low-end makes it irrational for me to invest in these areas. Upon comparison with fellow investors, I find that they have paid four and five times as much as I have for the same type of tenants in many cases. Admittedly, there are better buildings in most cases and better tenants in many instances.

However, for me, the contamination factor of bad tenants to obtain a dramatically lower cash flow prevents and forbids my investing in those neighborhoods. My interpretation of those investors is that they are Pseudo-Investors. In other words, they paid more to get the same or slightly higher rents because they believe they have purchased something special. I am of the opinion that they did not.

The suburban properties, both houses and multi-units, are of a different breed. Naturally, you have occasions where you are reminded of the pitfalls of the city. I find that most tenants who work for a living and sustain a rigid credit check are up-and-comers. In fact, they desire to be elsewhere, like in a home of their own. Surprisingly, I have also found that in many cases both homes and multi-units have not only higher rents but are cheaper as well.

As for the three areas and their respective scenarios, I find that investors should either go to the top or the bottom. In other words, invest either in the low or the top end if your housing make-up is like mine. Don’t find yourself a Pseudo-Investor with the same belligerents found in the low-end. If you encounter the same problems that I do, why not make the same money?

H. Roger Neal™