Every innercity investment should be measured against five metrics to evaluate its post-transformation potential. The standard “buy low and sell high”, “make your profit when you buy”, and other wise rules of thumb still apply, but the metrics described below account for the unique challenges faced by innercity landlords. Great innercity multifamily or mixed-use investments should be:
- Located on the edge of the innercity and close to your home. Strong opportunities exist along the fringe of the “good” and “bad” part of town. The goal of a Transformational Landlord is to profit from improving the “bad” part of town. So buy into the “bad” area, stay near the fringe, and work to connect your block to the “good” area of town.
This strategy will require your presence. A new owner needs to spend a lot of time magnetizing the complex to create an atmosphere that attracts tenants willing to contribute towards the area’s revitalization. This is why the proximity of the investment to the owner’s residence is an important factor.
- In an area that has an active neighborhood association. Future profits are directly tied to the effectiveness of a neighborhood association or grassroots advocacy group. This group provides passion, credibility, emotional support, media connections, political influence, and more. A Transformational Landlord should look to grow and strengthen this group, but not concoct one from scratch.
- Near good mass transit options. As discussed previously, our strategy is to create innercity housing that appeals to echo-boomers, who we believe will be moving to innercities over the next few years. As the cost of oil increases, so will the demand for walkable and transit-supported communities.
- Large enough to make your efforts worthwhile. Using best practices to transform the largest blighted property on the block should ensure that you’ll reap the large profit associated with solving large problems.
- Within the influence of proposed commercial/economic drivers. Your local redevelopment agency will be able to tell you what private or public efforts are in the pipeline. You’ll want to consider properties near these proposed sites to capture the excitement and economic energy associated from their future efforts.
I love the business adage instructing investors to study the “apple tree” and place their baskets where “apples” should fall. It suggests that careful, strategic planning leads to profits, and I’ve personally found this to be the case. Incorporate as many of these “essentials” into your innercity deal and you will soon have a basket full of equity
For more information on creating passive and residual income streams from rental properties, take a look at some of my other articles: