Why a slum lord ?

This question is purely to understand the mindset of investors, and i do believe applicable to many on this forum . let me say i do not believe there is anything wrong with this at all..indeed many have made good money from it.
So..why is it that people, who seemingly can afford a substantial amount, opt to invest/buy in low socio areas? when they can likely afford in more gentrified areas?
is it purely for the opportunity to make money? consistent with strategy ? or something else?
I can totally understand if thats all you can afford..and thats obvious...however im fairly sure from reading these posts that many on here can afford more gentrified areas.

 

The cashflow is better (better yields) and you can buy more frequently as cheaper areas need smaller deposits. Having said that... i'm not a slumlord myself.

 

Whats the official definition of slum lord?

 

For one to be dubbed 'Lord of the Slum' you must first have crawled out of the gutter.

 

You dont buy in low socio areas if they are going to forever remain a low socio area. You buy in areas that are going to go through changes and will give you CG in the mid term and be neutral/positive cashflow in the interim.

 

It's all about numbers you see.

You can afford more IPs is scumville.

Work collegue: "Wow, you really got six houses! Where are they again?"

Slumlord: "Arrh, look, there's my cab. I'll speak to you tomorrow".

The ego may have a bit to do with it.

 

Lol..
Thats not what i mean, and i know you are kidding...
I mean why consistently buy in low socio areas when you can afford something much better. @Gockie makes a good point about yields and buy in prices leading to faster time to accumulation.

 

If this is the reason then nobody would or should buy in Davoren Park or Trashmont... I cant see them ever gentifying. My sister has a IP in Mount Austin... just as bad as Trashmont... much too hard to sell. Hard to get decent tenants and too hard to sell when there's lots of other sellers too. (And there's a lot). Supply greatly outweighs demand there.

 

Even low socio areas increase in value, whilst cashflow positive from the start. Having a few of these I find helps add to the collection so I can live of the higher yielding rents, and sell off the high growth properties over the years with crap returns of 1-3%.

 

Faster way to get into the market due to lower entry price. Generally good yields. Can do well from a CG perspective if it's timed right including short term (entry and exit) and also long term in capital cities. Opportunity to hold multiple properties over different areas thus spreading risk. Cash flow can help buy and hold strategy and assist in expanding footprint.

 

Slum Definition - "a squalid and overcrowded urban street or district inhabited by very poor people."
Slumlord Definition - "a landlord of slum property, typically one who charges extortionate rents."

 

That's ok, most people from Sydney can't see any other states or areas gentrifying

 

It's easier to invest in Slum properties because there's less of a deposit required, they are generally higher yielding properties too. They also tend to be lower risk, if something were to go wrong with a cheaper property it would be much easier to deal with then if it were a more expensive property. It's much easier to build a portfolio of cheaper properties then of larger properties.
Robert Kiyosaki says you should start off with small investments (Slum properties) And build your way up to more expensive properties (gentrified areas).
From what I have gathered from Margaret Lomas, I would guess she is a Slumlord. She owns close to 40 properties (Maybe even more by now) and she always says that you should be looking at smaller towns outside of the CBDs and closer to regional areas.

 

And thats why you dont buy in Davoren Park.. it has very little driver for change. Other suburbs around it do. Unless all you are interested in is that amazing cashflow of $20 a week from owning in a no prospect suburb.

 

Also there is a big difference between owning in low socio areas and being a slumlord. Plenty of slumlords in the mid priced and even high value suburbs.

 

Yes ok.
My point is also
1. Why thr consistency in purchasing such properties, even after say 2-3 properties there (even in different states), and
2. why wouldnt you buy tthe best you can afford ? ..unless you think thr best you can afford is not tthe best investment.

 

I could buy a lot more expensive properties if I chose, except for

Ding

 

Sometimes it just makes sense. Especially if one does well in these areas to start. They find a working formula/strategy. They learn the areas well and just keep replicating it.

 

Then is it a fair call to make that people who consistently buy there think they are better investments than the higher quality areas? In the short term maybe...but not in the longer term.

 

The joy's of a Slum Lord