Midwest Real Estate Goldmine: How to Profit from Distressed SFH Properties in 2024
Guest Blog by Amir Khan, Managing Partner at Dream Prime Homes, LLC
There are many medium- and small-sized real estate sub-markets in the Midwest that has been declining consistently. These declines go back decades in some cases. These declines are in both population and property values.
Let me give you specific examples:
Toledo, OH
Population change since 2000: -15.1%
St. Louis, MO
Population change since 2000: 17.7%
Decatur, IL
Population change since 2000: -15.6%
Cahokia, IL
Population change since 2000: 16.2%
| City Zip | Median Home Value: 2000 | Median Home Value: 2023 | Approximate Decline |
|---|---|---|---|
| Toledo, OH (43608) | $42,000 | $31,000 | -26% |
| St. Louis, MO ( 63113) | $48,000 | $39,000 | -18% |
| Decatur IL (62521) | $73,000 | $58,000 | -20% |
| Cahokia, IL ( 62206) | $60,000 | $44,000 | -27% |
What most real estate investors are taught is to never invest in declining markets. Never invest in markets where property values are declining, because appreciation is one of their key reasons for investment. Same goes to population trends. Real estate investors like to keep away from markets that show declining population trends.
While this is all true if your primary motivation as an investor is to cash in on property value appreciation. Therefore, many traditional real estate investors are not active in these specific sub-markets. I am going to show you instead why some of these markets are goldmines.
First, let’s see what happens to these markets when there is a steady decline in population and property values. Specifically, in some zip codes within these markets, the values have not appreciated for a long time. Therefore, due to stagnant prices, they fall below the threshold where banks would lend. Therefore, it becomes harder for people who want to buy a home and live in these areas to get traditional financing.
The second driving factor is that, due to a lack of property appreciation, the fix and flip professionals are not very interested in these areas. This is because there is just not enough spread for them to take up projects here.
The third and final factor is that while generally the rents are competitive in these sub-markets, the landlords are unable to sustain profitable assets due to the poor condition of the properties. They are unable to remain landlords due to the very high cost of constant repairs.
So why are these sub-markets a goldmine?
These markets are goldmines because there exists a very high inventory of homes that would be considered “distressed.” While distressed could mean a lot of things, I am going to discuss very specific types of distressed assets. I am talking about 2 bedrooms all the way up to 4 bedroom single-family homes. Homes that are not in “retail-ready” condition. Which means they are not eligible for traditional financing due to their condition. They are habitable but requires some repairs and updates.
These homes, while not being retail-ready, are available for cash purchases only at very deep discounts. I am talking about buying homes within a price range of $25,000 ~ $35,000. Trust me, they exist. Go to realtor.com or zillow.com now and search for price ceilings in the sub-markets I listed above.
Ok, so then what?
What our company does next is that after we buy these homes on cash, we turn around and “seller-finance” them on a land contract (also called an installment contract or agreement for deed). We create 30-year mortgages for our “tenant-buyers,” who usually put in a small down payment and pay mortgages that are usually comparable to market rents.
The deed stays in our name and only transfers over to the tenant-buyers after they’ve paid off their mortgage or sold the property over our sales price. The result is that we can create a stream of predictable cash flow that is comparable to market rents but without the liabilities of repairs or updates. This strategy works phenomenally well. However, it does require system infrastructure and manpower to manage the process. This is something that we specialize in and help our equity partners leverage this strategy.
I know you might be thinking, perhaps this is a temporary thing. There is a growing community of real estate investors who have been successfully using this strategy since 2011 with proven track record. Therefore, this Midwest goldmine strategy is working and will continue to work for the foreseeable future.
About the Amir Khan & Dream Primes Homes, LLC
Amir Khan has over 20-years’ experience as a real estate investor which includes rental portfolio building, wholesaling, property management, fix and flip and B.R.R.R.R. expertise. In addition, Amir has experience as a commercial real estate investor which includes ownership and operation of commercial apartment units. Within in real estate industry, Amir has also owned and operated a real estate data SaaS service.
Mr. Khan’s company Dream Prime Homes, LLC helps people with self-directed IRA (SDIRA) accounts become passive real estate investors as private lenders and build a portfolio of properties. This system allows his clients to more than double their account in 5 years.
Amir Khan is the managing partner at Dream Prime Homes, LLC and can be reached at 945-600-8588 or [email protected]. Get more information about the company and its programs at www.dreamprimehomes.com.
American IRA has been a leading Self-Directed IRA custodian with several decades of experience invested in alternative investments like real estate, private lending and more since 2004. For more information visit our website at AmericanIRA.com or call us at 1-866-7500-IRA(472)
