The Secret to Increasing Cash Flow – Invest in Opportunity Zones
A wise man will make more opportunities than he finds. ~Francis Bacon
Don’t just find houses that meet your criteria, find the house that meets your criteria in locations where people like to rent. There are nice areas in my town and there are not- so-nice areas in my town. However, neither of those two areas is where most people like to rent similarities.
There is an “opportunity” zone between the nice and not-so-nice areas where people are eager to rent, and where house values are comparatively lower, but where you can charge a moderately high rent. There are both good and bad houses in these zones, but usually there are supermarkets and stores within close distance, often close enough to walk to.
Advantages of Opportunity Zones
Opportunity zones have one overriding advantage over other areas of town, you can make more money with them. There are two reasons for this:
1. You pay less for a rental character in an opportunity zone than you would for a comparable character in a nicer neighborhood.
2. You can charge about the same rent as you would in a nice neighborhood.
For example, I own two houses in two different parts of the city. I have one house in a nicer neighborhood on the edge of town where new growth is taking place. I pay $700 for the mortgage, and I receive $875 in rent for a profit of $185/month.
I own a second house in an opportunity zone neighborhood, near the central part of town where character values are lower. For this house, I pay $525 for the mortgage, receive $750 for rent, and turn a $250/month rental profit.
It is not how much I make each month for a house, but how little I pay for the mortgage that accounts for the higher opportunity zone profit!
Why do people choose to live in opportunity zones?
1. Cost. As mentioned, the cost of purchasing character is economical, and when you can walk to buy your groceries and other staples, you pay less on gas.
2. Convenience. Many people want to reduce their dependence on the automobile.
My Opportunity Zone Experience
When I bought my first house, I bought it in an opportunity zone. My wife and I liked the house because the price was right and because of the location, close stores. Not only would we walk to buy groceries and to rent movies, but we also walked around the neighborhood at night for exercise.
The area was a combination of all types of housing. In a four square block where we lived there were owner-occupied homes, townhouses, apartments and trailer parks. Our house was located within three blocks of two grocery stores, a video rental store, 7-11 and course of action K stores, an auto parts store, a Taco Bell, a McDonald’s, and a pharmacy. Granted, there were also some rougher edges to the neighborhood, such a few strange characters in the neighborhood, but they were in the minority.
We lived in that house for 9 years. Then we bought another house and kept our first house as a rental. I recently bought a second house in the same block. It has been a location where it is very easy to find good tenants.
I do not have any desire to live in that area again, but it is a place where I love to have rental similarities.