Build a Junker Empire (Part 2)
by Bryan Wittenmyer
Why do so many people, especially professional investors, gravitate to junker
properties? There are several answers. But first, let's discuss the
term junker property. Junkers, as we jokingly call them, are simply lower grade,
typically physically distressed houses or apartments.
They don't have to be in lower income areas, although they often are. I have
seen smaller, rundown houses in modest areas, that I would still call junkers.
More typical though, they are located in the older, lower income sections of
town simply because these areas are more economically distressed, and there
aren't as many investment dollars flowing into these areas.
Due to a multiplicity of factors, lower income sections of towns and cities are
distressed. These locations are buyer's markets. People avoid these areas
because they are higher risk to both capital and persons. Higher risks means the
marketplace reduces the property values to compensate for the risk and potential
hassle factor of owning there.
Cheaper purchase prices means easier purchases for buyers. Many folks say price
is all relative; just add some zeros. True to a point. But, regardless of what
anyone says, lower priced houses are easier to buy. In some areas of the
country, you can buy junkers for about the same price of a new or used
automobile!
Being a buyers' market, astute buyers can demand better terms and prices. I know
several investors for example who simply won't pay interest on owner financing
if they are buying in the junker areas. There are just too many other good deals
our there to pay interest. It is - my way or the highway.
I think the most difficult thing for investors, especially new investors, is
determining what level or quality of location one should invest in. Over-
paying for scum property in dangerous areas is dumb. In my area, there are just
some areas I'm not comfortable with. Others may be, but I'm not.
An investor friend of mine recently showed me a $11,000 house he bought in a
fairly rough area, where 3 months ago the elderly homeowner was murdered. He was
okay with the area and the house.
Personally, I wasn't comfortable there. He's a professional landlord with 55
tenants (35 buildings). I can't argue with his personal strategy (it works for
him), but it is a bit dicey for me. For 15 years he worked for Arby's Restaurant
chain - now he does full-time, lower-income landlording. He's very sharp and
very hard working. He does NOT procrastinate, and he isn't afraid to jump right
in. The other day he showed me an 8 unit for which he paid $40,000. Again, not a
great location, but with his hands-on management, the building produces a VERY
healthy cash flow.
I think most new investors should learn in the better areas. New investors don't
know what good deals are. Overpaying for junker property is lethal.
PS. Most wholesalers buy and sell in junker or semi-junker areas. Vena Jones-Cox
says a large portion of her houses wholesaled are to section 8 type landlords.
There are very few books that focus on this market. If interested in exploring
this more, check out my book, Perpetual Income.
Part III coming soon...
Bio:
Bryan Wittenmyer has been investing in real estate for the past 15 years. He's
not the new kid on the block. In the past five years he has written extensively
in the real estate field. His articles have appeared in Creative Real Estate
Magazine and the Real Estate Entrepreneur. Bryan served on the board of
directors of the Real Estate Investment Association of Berk's County for 3
years.
Although Bryan hasn't attended formal university studies, he keeps himself
educated reading a plethora of books, newsletter, journals, and listening to
hundreds of audio tape lectures. He jokingly considers himself to be an
information junkie. You can also benefit from his years of practical business
experience, having managed several income stream businesses, ranging from
automobile debt instruments to appliance paper. He also has bought numerous real
estate debt instruments - he knows the income stream business.