Investing In Class C- Area ($28K Average Income)

[William Simon]

Hi All,

I have located a property that presents a very strong CoC ROI of 19.46% using a 17% vacancy rate, and a very high CapEx amount. The property was built in 1950 and is a total of 5 units being rented out currently for $850/$850/$950/$950/$1000.

The neighborhood isn't the best with the average income being $22K-$28K depending on where you look. Local schools aren't great, crime isn't terrible but it isn't somewhere I would walk around at 2 am by myself, and about 60% of the population in this area rents. 

Several forum topics talk about the C/C- property renting nightmares, and one of my mentors who owned the building I rented in Philadelphia (average unit value of $400K) is trying to push me away from investing in a lower-end area. I on the other hand am attracted to the higher ROI even though I know it means more work.

This will be the first property I buy on my own, though for what it is worth (which could be nothing) I currently run a business with 60+ employees and deal with people all day long, so the prospect of managing tenants/contractors/money doesn't scare me. 

So the question....would you jump into a lower C class property for your first time if your goal is high cash-flowing growth? 

[Nathan Gesner]

Quote from @William Simon:

If you are local and think you can handle the work, give it a shot. The worst that could happen is a Tenant walks all over you, destroys the house, and then shoots you when you try to serve notice. Other than that, I don't see any downside. ;)

Seriously, lower-class properties require a lot of work and can run you ragged as a new investor. I don't recommend them until you have solid experience dealing with difficult people/situations.