How does an Investor impact the County, City, and neighborhoods they work in?
When my wife and I started our Residential Redevelopment business, one of our goals was to make a positive impact on the area that we are investing in one property at a time. Since we have been in business for a while now and have some data, it is time to review just what impact we are making and others like us are making. We are making impact at many levels including at the state, county, city and neighborhood levels.
What is Our Business?
My wife and I explain our business as a Real Estate Solutions Provider. We work with homeowners to help solve issues they may have with their property. This can be a wide range of issues that range from a homeowner facing foreclosure to just wanting to sell the property. One of the ways we can help is by buying the property if it makes sense for the homeowner and our company to do so. One of our proudest achievements is helping a homeowner save their property from foreclosure. There was literally less than 10 days before it was scheduled to be sold at the courthouse.
Our company also buys properties to fix them up and sell them. This is where we make our money to support our business. When I explain this part of our business, the response is generally “Oh you are a house flipper”. I personally hate this description for it makes it sound that this is an easy thing to do. I refer to this part of our business as Residential Redevelopment. I want people to think about the efforts going into making the property and the neighborhood better. It is hard work! It is also a very gratifying part of our business. I have really come to appreciate the friendships you make in the neighborhood and with contractors.
Impact at the Neighborhood Level.
In our business, we are generally taking a house that would be considered to be the worst house in the neighborhood and making it one of the best houses in the neighborhood. Prior to our company buying the property, the neighbors are generally fed up with the condition of the property and the impact that it is having on the value of their property. Immediate next-door neighbors are having to deal with shared property line issues with visual property decay, trash, weeds etc. Our company comes in and fixes all these issues.
At first, the neighbors are a little leery of us working on the property but once they see the quality of work we are doing and the visual impacts we are making they become happy that we are there. We try to meet the neighbors and invite them in to see the property before, during, and after the redevelopment is done. We end up making friendships and we also gain people watching the property from a security point of view.
Bottom line impact….. Our company helps increase the overall property values in a neighborhood by turning a property that does not look good into one that does. When the property sells, it creates a value that can be used in comparable analysis in support when other properties will be sold. Since it has recently been updated, it generally sells for a price that provides positive support. In addition, a renovated property positively impacts the safety of the overall neighborhood and it’s longer term viability.
Impact at the County and City Level.
Our average repair cost are roughly $60,000 dollars. Buying, selling, and holding cost (Attorney, Realtor, finance, utilities, taxes and other fees) add approximately $15,000. This Repair cost money is used to buy materials and pay contractors. Roughly 60 percent is used to pay contractors and 40 percent to buy material. We use local material supply providers and we use local contractors. Therefore, the money we are spending stays in the city and county.
Renovating a property impacts the city and county in a couple of ways. First is in generating sales tax revenue when we purchase materials. In Peoria, the sales tax is 9 percent. When we pay $24,000 materials, this provides $2,100 in sales tax revenue.
The second way the city and county are impacted is in the property taxes generated. We add roughly $100,000 in the value of the property. The property tax assessment increases by roughly one third of this amount or $33,000. The property tax rate is roughly 8.7 percent. The net increase in property tax would be $33,000 times .087 or $2871 per year.
The third way the city and county are impacted is by the jobs that we provide to local contractors. We use on average 15 local contractors per property renovation. These include carpenters, electricians, plumbers, roofers etc. The work we provide and pay for, helps the contractors pay their employees who then use the money to spend in the community.
Bottom line impact…. Our company helps the city and county by generating roughly $2100 in sales tax revenue during the renovation process and then an additional annual property tax revenue of approximately $2800 per year while providing work to roughly 15 contractors per property renovation.
Impact at the State Level.
As mentioned earlier, on average we hire 15 different contractors to complete the various tasks that need to be done to renovate a property. These contractors are paid roughly $36,000 to cover their labor cost. This $36,000 in income will generates $1780 in state income tax, not to mention the tax at the National level.
Bottom line impact…. Our company helps the state by generating roughly $1780 in income tax revenue during the renovation process.
Summary
Our company is a Real Estate Solutions provider that helps home owners with issues they may be having with their property. If our company buys the property, we make a positive impact on the community by updating the property so it provides a positive impact on the neighborhood while generating roughly $2100 in sales tax revenue, roughly $2900 annual property tax revenue increase, and roughly $1800 dollars state income tax per property that we buy and renovate. In addition, we provide work to roughly 15 different contractors during the renovation process.