All Topics / Help Needed! / Investing in dodgy areas

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  • Profile photo of Jacqui MiddletonJacqui Middleton
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    Right let's spice up the afternoon with a new forum topic, shall we?

    It's quite often the case that low-socio-economic areas offer decent rental returns.  So.  Who has investment property in dodgy areas.  ie not just low socio economic areas, but areas where the crime rate is not ideal.

    Tell your stories here!  Are the numbers stacking up for you?  Has the property/tenants been a nuisance?  Do you regret the investment?

    Jacqui Middleton | Middleton Buyers Advocates
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of reddahaydnreddahaydn
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    Good topic JacM,
    I'm currently looking at purchasing in a 'dodgy' area to get a few properties that are cash flow positive from the get go, so I will be following this thread with interest.

    Profile photo of Jacqui MiddletonJacqui Middleton
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    Cool.  Hopefully a few forum-ites have stories to tell!

    Jacqui Middleton | Middleton Buyers Advocates
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    Profile photo of bebabeba
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    I know Doveten near Dandenong, Melbourne is pretty dodgy, not sure if you can find cashflow propeties though

    Profile photo of Jacqui MiddletonJacqui Middleton
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    A property in Doveton would have to come close to paying for itself at least… it's got good rental return, capital growth and vacancy rates stats.

    Either way, keen to hear some stories from people who have invested in dodgy areas…?

    Jacqui Middleton | Middleton Buyers Advocates
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    Profile photo of fWordfWord
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    I don't think you necessarily need to invest in a dodgy area (ie. high crime area) to get good returns on a relatively small investment. Some would recommend rural areas/ regional to you, but I have no knowledge in these. Also, I think high crime and low socio-economic status can occur in supposedly prime and edgy areas close to the CBD. In Melbourne at least there would be a couple on my mind, and these areas are getting supremely expensive as well.

    Profile photo of DWolfeDWolfe
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    Ok. JacM good thread I'll bite. lol.

    I lived in Frankston North years ago. I was paying $150 pw rent for a 3 bed 4 car garage house a street back from the shops. This is when I was 21. Being obsessed with property I cornered the neighbour and asked about the house. He told me it had sold (we were first tenants in) for $114,000. So you tell me? Sounds like a good return. Same properties are now anywhere between 220-240k.

    Then later after moving back from Perth I lived in West Footscray. The guy had a 2 bed house and we were paying $220 a week rent. The housing in that area at the time were worth nothing.

    I have to say living in dodgy areas keeps your heart beating. I have not had any problems (robbed etc) in the dodgy areas but after moving to a "nice" area friends of ours a couple streets away were broken into and had laptop etc stolen. I think with dodgy areas the people around know they have no money and are not worth robbing :P

    Also there are people who have grown up in those areas and will stay on, you get elderly people who have lived there all their lives (when it used to be a nice area and then through the bad times, like when the pub was called the Gundowner) and when I lived in Frankston North it was full of old people, I was the one with the noisy V8.

    And just for anyone who would like to know I have lived on three sides of Melbourne, in Perth and in Sydney. Gypsy lol. Maybe Queensland next??

    D

    DWolfe | www.homestagers.com.au
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    Profile photo of Jacqui MiddletonJacqui Middleton
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    Thanks for the insight Wolfey!  Yeah you are very right about the numbers.  It's a bit of a mental exercise blocking out the noise of the "no no must invest in pricey city fringe trendy suburbs" :-)

    Jacqui Middleton | Middleton Buyers Advocates
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of DWolfeDWolfe
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    No probs, JacM, opinions are free :). R U coming on Friday?

    D

    DWolfe | www.homestagers.com.au
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    Profile photo of Jacqui MiddletonJacqui Middleton
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    No, I'm still in Sydney

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of A MitchellA Mitchell
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    I am looking at investing in both Corio (geelong) and Moe. Both long considered dodgey areas. I know with Corio homes are owned and occupied for a long time with people largely having working in the oil refineries or car manufacturing.  With the expansion of the Geelong Road long time OO's are now trying to realise some capital growth and perhaps downsize or move to what maybe considered a better part of Geelong. Although prices are increasing in Corio there are still deals to be had. As far as Moe goes, people are definitely aware of what they consider a dodgey town but there are a lot of CF+ properties available there if you look and dont let the real estate agents get too carried away with recent forecasts that Moe is a place to buy. Am heading off this pm for the conference and hope to learn a lot from the event and the attendees. Should be great

    Profile photo of catfreecatfree
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    we've just sold an IP in warrnambool – not dodgy, just regional. we were lucky enough to get a govt body as the tennants as there was IT work happening at the local hospital that was going to require the services of contractors not from the area… it was CF- though, and while the tenants were EXCELLENT (paid six months in advance bi-annually) the capital growth has been pretty crap – on a unit within walking distance to the beach and warrnambool CBD, which quite suprised us. It was an emotional buy though, there on holidays, loved the place, saw something for sale – no due diligence, no research (well, some, but limited)… definately newbies to the game back then!

    we are now living in "scumbury" – Sunbury, and find it a really nice area, despite the publicity it gets. it was as close back  to melbourne (i was bought up in eltham/montmorency area) as i could get hubby to move from our central victorian farm near maryborough… we didn't have any IP's in maryborough, but friends that did said the yield was ok, capital growth ok, but that getting good tennants, or getting bad tennants out was a nightmare. Don't know who managed them for them, or how well it was done.

    FIL had some good CF+ yields and capital growth out of wendouree – dodgy part of ballarat over – over many years and several properties.

    fascinating topic!

    Profile photo of petronapetrona
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    Oh my.  This is an interesting topic!

    We bought a 1×1 apartment in the WA suburb of Osborne Park a couple of years ago.  While OP is not that bad overall, the apartment block itself was a bit of a blight on the landscape.  Extremely high proportion of tenants, most of whom were very dodgy types (we heard the block recently referred to as 'Heroin Heights', which seems appropriate.)  The unit itself was beyond revolting, but this was one of the reasons we went for it – structurally fine, just needed a complete reno throughout, which we did.  We bought for $172K, spend about $15K on renos (we did a lot of the work ourselves) and today, it's worth about $230K.

    Interestingly, over the last two years, the tenants have changed from drug addicts etc to young families…. it's definitely cleaned up, in terms of residents.  It has a completely different vibe compared to when we first bought there.

    We've had mixed results with this one.  Good points:  excellent capital growth, due to a combination of OP's proximity to the city and the renovations we did; very manageable mortgage due to the low purchase price.  Bad points:  extremely poor/inactive strata council, meaning very little is actually done in terms of exterior maintenance (gutters peeling incredibly badly, lots of other stuff I won't go into here); the apartment itself is too small (45m2), which we should have worked out ourselves before we bought it; and as we bought and locked in to a high interest rate at the time, it's CF-, despite getting $300/week rent for it!

    Really my key concern from an investment perspective is the fact that it's a one bedroom.  We are looking at selling this and our other 1×1 (also in OP, although a nicer area) to buy a 2×1 instead.

    Anyhow, that's been our experience.  Mixed, basically.

    Profile photo of Jacqui MiddletonJacqui Middleton
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    I'm looking at a couple of "dodgy" areas as possible investment locations at the moment.  I won't go to the extreme and deliberately buy something where tenants have to be the kind of people who are comfortable to live in a street with lots of dodginess going on (lots of drug dealing, regular shootings and so on).  But it is interesting how a particular cluster of streets can be super dodgy like this, and yet a cluster of streets a mere 100m away can be fine.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of Jacqui MiddletonJacqui Middleton
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    Anyone else got stories to share?

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of fatboy1730fatboy1730
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    I do it. Followed the outline in SM’s book and bought in areas that gave me yield. The funny thing was I’ve had good capital growth as well. I only buy ex-Housing Commission properties in Victoria. I imagine they are in what you might call dodgy areas. They do need good management but I could not have got into property any other way. The secret is to treat people well and mostly they treat you well back. Good inspection gets movie tickets and a thank you etc. Dodgy area does not mean dodgy tenant. I live in while I renovate and subdivide. Right now I’m sitting in house in a dodgy area with really nice neighbours on either side, both long term HC tenants. It can be done, just a matter of attitude.

    Profile photo of sonyasalsonyasal
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    Fatboy,

    I have bought a number of my properties in ex housing commission areas. I have been reasonably lucky, one tenant has been in the property from the day that I settled over two years ago. The other haouse had a tenant who looked after the property, however, she had ongoing fights with the neighbours, police being called etc.

    Unfortunately we can't control neighbours in area and/or the interactions of our tenants with them.

    I agree that i would not have been   able to get into the real estate market without being able to buy these lower priced higher return properties.

    Sonya

    Profile photo of JLJL
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    Fatboy,
    We do the same thing, buy ex housing commission – or mainly, and sometimes do them up, sometimes not.  We have had a few problems, but that has mainly been our lack of managament of our agents.  Whenever life gets too busy, and we rely completely on agents, things tend to reflect that.  With a young family, and moving interstate for the 6th time in 10 years, sometimes, things do get slack.  So the last 4 months we have been slack, and in the last  2 weeks we have 2 tenants skip on us.  Neither have been  trashed but for those less experienced, this is a list of what we have had to do:
    Obtain possession through the courts
    replace locks
    clean carpets
    clean house
    mow and clean outdoors.
    Find new tenant.
    This all takes time and money (Our $440 bond at one had an indoor cleaning bill of $800 alone)

    Having said all this, we have insurance and do chase tenants, but this all takes time and money in the meantime.

    As far as the intial comments on this thread, we do invest in low socio economic areas, sometimes with high crime rates. We have had our ups and downs – but we move on and forward and learn and make more money next time.

    For those who are familiar with Melbourne – the 'birds nest' in Werribee is a perfect example of this type of investment.  Over the last 12 months this area has seen some capital gains, and rents have always been good.  The place had been known for high crime and low income – but this is slowly changing.  Our experience is this area has been good, with good tenants who always pay on time or early. 

    JL

    Profile photo of sonyasalsonyasal
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    One of the other 'benefits' of investing in lower socio-economic areas is if the tenants are on some type of Centrelink benefit then have the agent set up a direct rental payment, this avoids the tenant falling behind in rent. Costs 99c a fortnight, claimable and money well spent.

    Profile photo of Jacqui MiddletonJacqui Middleton
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    Those are interesting thoughts about the "birds nest" area in Werribee, JL.  I know the area, but hadn't realised it was slowly changing. 

    I also didn't know people on Centrelink payments might pay rent via direct debit as described by you, Sonya. 

    Thanks for sharing guys!

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

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