Baltimore City Property

[Russell Trench]

I was hoping to buy a 3 bedroom place in Federal Hill/Fells Point/Canton. I would ideally rent out 2 rooms and live in the other one under a FHA loan. I would be willing to trade off a little bit of potential cash flow for having a home in an area I would enjoy living in, but I would still want it to be a somewhat decent investment with decent cash-flow if I choose to move and rent out the entire place.

From what I have seen it looks like the places in that area that cost 190k - 300k (my price range) rent out for 1400-2500 a month. 

My question is why are people consistently buying these rental properties and charging well under 1% of the house's value a month?  Is there something I am missing or is 1% of the home's value in rent just not realistic in this area?  I could understand the lower rent if people were using these as their primary residences and weren't planned investments, but it seems like (from my observations) that most of the homes are being rented out by younger people who do not own the homes.

Is it possible for me make a reasonable investment while living/renting in the Fed/Fells/Canton area?  If anyone has any experience with investments in those areas I would love to hear from you!!