Flipping homes in not so great neighborhoods?

Question

I personally live in a nice middle class neighborhood.  This is all new to me so forgive me if I sound naive.

I see a lot of really cheap properties in neighborhoods that are not the greatest.  Does anyone work these types of areas or is it really a waste of time and too much of a potential health hazard to even bother with it?

I am starting out with a small chunk of money and a small window of opportunity.  It's important that my first actions are profitable and not a loss. I have to make this count.

I have other ideas, but want to stay on topic in my threads.

Jason Trepins · Answer

we've done a Ton in not so great neighborhoods BUT they've been rehabbed for renting. 
Really tough to sell a house to owner occupied buyer when all the other houses in the neighborhood are rentals.

Steve L. · Answer

It depends on the definition of not so good.  We have found the most profitable neighborhoods are the transitional ones.
AKA, 50% junkers, 1 or 2 being fixed and some nice ones.

To be successful early on in real estate your biggest focus needs to be based on buying right, if you learn how to buy properties enough under market, you have a lot more options.

Jason Simpson · Answer

Jessica,

I typically focus on the areas that are boarder line junky.  Not areas that are gang ridden or that I feel I need my gun with me, but areas just a little above that.

It all really depends on what your exit strategy is.  If you're buying to hold,and looking for a cash flow, those are great areas.  If you're trying to sell to an end buyer, those aren't so hot to get into.  For me, I could get a house in a nice area, and end up having a cash flow of about $200ish with a mortgage payment of $800-1000, or I could get a house in the area I buy in with the same cash flow, but my payment is only $200-300, so it's a lot less risk on my end for the same amount of cash flow.  It doesn't take a lot of $1000 vacancies to add up real quick.

And yes, sometimes they will get torn up, stuff will get stolen, etc, but if you BUY IT RIGHT to begin with, and count those factors in, then you're good to go!

Jessica Hood · Answer

That's good to hear.  i always thought it can't be that horrible to rent properties if so many people are doing it.  My parents have the mortgage on the home I am in now.  I pay it myself like I were renting.  I am planning on moving out of this house and didn't want my parents to have to sell in the current economy (there will be no profit).  I tried to convince them to rent it out to someone else instead, but they were just freaked out about it and gave me 50 million reasons why it would be a bad idea.  LOL!  They refuse to be landlords.  I guess that's partly where my caution comes from.

All of the houses around me are being purchased and turned into rentals now.  Ugh... there is nothing worse then bad landlords and irresponsible renters making your neighborhood look bad.  The house next to me has been a rental for about 4 years now and it's been one problem after another with them.  Yet another reason I am cautious.

BUT... you are right... I suppose if you prepare yourself for the worst in the beginning, then you will make it through whatever the renters might throw at you.

Jessica Hood · Answer

Thanks Jason.  Creating rental properties is something I am considering.  It's a little intimidating though dealing with renters.  I have heard a lot of horror stories about them destroying the property or stealing everything they can out of them.  How has your experience been in the not so great areas?

Jessica Hood · Answer

"not so good" - crime rates are higher then most other areas, a lot of houses are run down (some boarded up), and surrounding homes will devalue yours.  Maybe I should just say "crappy" instead.  Haha!

Columbus seems to be upping their efforts to revitalize Columbus.  We are starting to slowly see the new wave creeping out from the heart of down town.  So, cucaloco, you might say the areas between the newly upgraded and the really bad are potentially worth while?  I have been seeing ridiculously cheap homes in those areas.