The secret to increasing cash flow: investing in opportunity zones
A wise man will seize more opportunities than he finds. ~Francis Bacon
Introduction
Don’t just search for houses that meet your criteria, find the house that meets your criteria in places where people like to rent. There are nice areas in my city and there are not so nice areas in my city. However, neither of those two areas is where most people like to rent properties.
There is an “opportunity” zone between nice and not-so-nice areas where people are eager to rent and where home values are relatively lower, but moderately high rent can be charged. There are good and bad houses in these areas, but there are usually supermarkets and shops within walking distance, often close enough to walk.
Advantages of Opportunity Zones
Opportunity zones have a big advantage over other areas of the city, you can earn more money from them. There are two reasons for this:
1. You pay less for a rental property in an opportunity zone than you would for a comparable property in a nicer neighborhood.
2. You can charge about the same rent as you would in a good neighborhood.
For example, I have two houses in two different parts of the city. I have a house in a nicer neighborhood on the outskirts of town where new growth is taking place. I pay $700 for the mortgage and receive $875 in rent for a profit of $185/month.
I own a second home in an opportunity zone neighborhood, near the central part of the city where property values are lower. For this house, I pay $525 for the mortgage, receive $750 in rent, and make a profit of $250/month on rent.
It’s not how much I earn each month on a house, but how little I pay on the mortgage that represents the biggest profit in the opportunity zone!
Why do people choose to live in opportunity zones?
1. Cost. As mentioned, the cost of buying property is cheap, and when you can walk to buy your groceries and other staples, you pay less for gas.
2. Comfort. Many people want to reduce their dependency on the car.
My experience in the opportunity zone
When I bought my first home, I bought it in an opportunity zone. My wife and I liked the house because the price was right and the location, close to the shops. Not only did we walk to buy groceries and rent movies, but we also walked around the neighborhood at night for exercise.
The area was a mixture of all kinds of dwellings. In a four-square block where we lived there were owner-occupied houses, townhouses, apartments, and trailer parks. Our home was located three blocks from two grocery stores, a video rental store, 7-11 and Circle K stores, an auto parts store, a Taco Bell, a McDonald’s, and a pharmacy. Of course, there were also some grittiers in the neighborhood, some weird characters in the neighborhood, but they were in the minority.
We lived in that house for 9 years. We then bought another house and kept our first house for rent. I recently bought a second house on the same block. It has been a place where it is very easy to find good tenants.
I have no desire to live in that area again, but it is a place where I love having rental properties.
