Don’t Be a Slum Lord
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An interesting trend seems to be emerging in the real estate investment business. In lieu of the volatile expansions and contractions of property values in popular, rich, safe, suburban neighborhoods, many investors are gravitating to low-income neighborhoods to invest in distressed properties.
Investors are attracted to these types of properties because of the often extremely low selling prices of the homes, which when rented out generate a steady and very profitable cash flow. While not for the flamboyant investor who wants to impress others with their prestigious portfolio of properties, these distressed properties are for the professional landlord who isn’t afraid to get his hands dirty, and has one goal in mind: cash flow
Low purchase prices, and a proportionally high ratio of renters in low-areas means high cash flow for investors in these areas, which encourage the monopoly of entire neighborhoods. Often these neighborhoods are struggling with crime and blight, which leads one to ponder whether the reason why these neighborhoods are blighted at all is the fact they are owned by investors only interested in cash flow.
When properties are seen as investments rather than homes, any aesthetically pleasing aspects an old house may have had naturally become burdens to maintain either get altered to maximize profitability, or removed altogether. A perfect example of this trend is to look at the old Victorian sections of any city, and look at the properties. Once grand mansions are severed into apartments, and bay windows are boxed in to maximize square footage. Old houses deemed too dilapidated to renovate are bulldozed, and unimpressive apartment complexes are erected in their place to maximize profit.
Eventually, as an initially desirable neighborhood slowly gets bought up by investors, one property after another is transformed from home to investment, property values fall, and voila: a blighted neighborhood. And anyone unfortunate enough to still live there after all these transformations sells their property and moves away, leaving even more properties to the investors.
With cities all over this country struggling with urban blight, one wonders what solutions can be implemented to prevent the phenomena. Should investors be responsible for keeping properties properly maintained, or is letting someone rent a dilapidated hovel standard capitalist procedure? Should investors be responsible for letting drug dealers reside near inner city schools, or is that beyond his realm of responsibility?
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