Run-down neighborhoods?

Question

I've read some real estate books that talk about how you don't want to own the nicest house in a neighborhood. Obviously the comps in the area are going to bring its value down, right?

Does this mean you should avoid neighborhoods that may seem a little run down all together? What are some sure fire signs of neighborhoods you should avoid? (I've found one that has run-down homes next to well maintained ones, probably in a 50/50 ratio).

What role do parks and schools play in evaluating a neighborhood? I would think if it had either, that is a good sign...

What about religious organizations like churches nearby?

Thanks!

Joseph M. · Answer

The 'lower income areas' are definitely where you can get the best cash flow. While you probably don't want to intentionally focus on run down areas, this seems to be the only way to make money. You can't make money (cash flow) buying brand new homes and renting them out...at least not the same money. Even if you have to put a bit of money into fixing something you should still come out ahead.

Also everything is block by block, depending on who lives there. Some areas/neighborhoods have a reputation for being bad but it might be pretty decent in certain pockets.

Shane M · Answer

Neighborhood A:

Crime reports indicate in 2008 there have been 6-7 burglary in the neighborhood, 1 arson, 6-7 assault and battery (domestic).
No sexual assault, no armed robbery or car theft.

No murder so I guess that means no chalk outline lol.

Quite a lot of the houses have junk in the back yard (not many in the front). But many are in need of cosmetic repairs (a couple people got REALLY artistic with the bright colors, but apparently got distracted and never finished).

I didn't notice no trespassing signs, but I did notice a lot of beware of dog signs...

p.s. Why don't people throw away all their junk? The neighborhood would look 10x better if they did.

There are a couple of units for rent that are not maintained at all, I guess that makes them slum lords?

The neighborhood has potential but there is another neighborhood around the bend that is a step up from this one. There are less homes for sale there but they are going for much more. It is maintained better and has had less crime too. But as a starting investor the price difference may be too much.

Mark N.A · Answer

Neighborhoods are usually in transition -- either getting better or worse.  It's fine to invest in 'run down' neighborhoods that are turning around.

How do you find out?  Drive around at different times.  Check the crime stats.  Get out of your car and stroll around and ask the neighbors.  Are there lots of "No Trespassing" signs in yards?  Are the people friendly or sullen?

My first low-income investment was on a street where one side was entirely homeowners.  Great!  Not only do they keep their homes and yards neat, they don't want any monkey-business going on.  All the homeowners have my phone number.

Keep your rental looking good inside and out.  If I ever see trash in the yard I'll stop in and 'request' they clean it up immediately.

Now, my nice rental is across the street from some boarded-up and abandoned houses.  I call the cops when I see homeless people skulking around.  I call the city and complain.  The city called one owner and told him he could pay them to bulldoze the place or he could fix it up.  He fixed it up.  Looks nice now!

Nearby churches, schools, and parks are good.  So are bus stops and convenience stores.

Good deals can certainly be found in 'run down' neighborhoods and will often be passed over by less hands-on landlords.  If you buy, be proactive in turning the neighborhood around and you will have yourself a nice addition to your portfolio.

Michael Rossi · Answer

Avoid any neighborhood that has more than two chalkoutlines and or pools of blood per block!

Exactly!  In fact, buying only 3 or 4 houses on a particular street can change that entire street around.

When you don't maintain your properties and they become unsafe.  If you rent to lower class tenants, you will be called a slumlord (usually by filthy deadbeat tenants who are being evicted), regardless of the condition of your property - so get used to it!

Mike

Josh Green · Answer

hahahaha! 2 chalklines and pools of blood are ok. anything more is unacceptable. you are a riot mike!

Shane M · Answer

I may also want to add that if going rental rates in a neighborhood are high enough after calculating the max purchase price using the 50% rule, minus repairs, why the heck not? I would feel good buying a house for cheap, fixing it up (improving the neighborhood image) and renting it out with good cashflow (and selling eventually).

At what point do you become a slum lord though?