Is it a good idea to invest in blue collar neighborhoods?

Question

I’m a new investor looking at buying properties for buy and hold in my area which is South Jersey/Philadelphia. I’ve been going back and forth on the area I want to invest to and I’m leaning towards a very blue collar town in South Jersey (Gloucester City), a 10 minute drive from my house. I’ve put a couple of offers already but they didn’t go through. The reason why I like Gloucester City is because properties cash flow, and are so reasonable that I can have reserves for emergencies. Also the town is a 10 min drive from my home, it has a rental market and there’s potential for appreciation: it’s right across the bridge from Philadelphia. An added reason, not the main one, is that there are plans to build a railroad that would connect This town indirectly to Philadelphia (If built it will be within the next 6 years ). Nonetheless, I’m questioning if investing in a blue collar neighborhood during pandemic and post-pandemic times is too risky. I’m afraid the recession is going to impact blue collar jobs and what that ultimately will mean for me is evictions.A pretty rough start for a new investor. But this is the only kind of neighborhood I can afford and, thus, my conflict. Could anyone offer advice?

Dennis Wayne · Answer

Your over thinking it and appear to be too risk adverse . You are basing your parameters on a 10 minute drive which is silly to me . Your afraid of buying in blue collar areas makes no sense . Who’s going to get laid off first the office guy calling in the orders from a desk or the fella who actually drives the truck to get the orders ? Who will get laid off first ? Just Get the right folks in during screening and you won’t have many of the eviction issues you are worried about .

Jonathan Greene · Answer

I think true blue-collar rental areas are some of the most solid around. When I think of blue-collar renters, I think of steady jobs that don't get lost in recessions or pandemics and long hours which equal less wear and tear in general. As with all rental areas, it's your choice of tenants that can make or break it, but in just the small spectrum of whether or not blue-collar areas are good for landlords, I am 100% yes. Bonus points when your tenants are contractors, plumbers, electricians because things get fixed asap.

Karl McGarvey · Answer

@Teresa Gimenez what recession?And how was the area affected during covid? Are other landlords getting rent checks on time? A lot of your questions can be answered by looking at the data for that area. If its good, then yes invest. Not all blue collar areas were hit hard during Covid. States like Texas have businesses that are continuing to boom.Analyze all of the data and use the numbers to make your decision.

Curt Smith · Answer

I only buy blue collar, upper blue collar houses with fenced back yards fir a dog. I focus on dual working famurs with dog(s).Please read my paper bullet proof rentals a file linked off my bp profile. I want permanent renters with kids in the local schools, even if the local schools aren't that good. Buying in top or even good schools is unaffordable today. See my paper fir buying rules and marketing focus. It's not the house btw...Best to all

Michael Anderson · Answer

I invest in Gloucester City. It's one of my favorite areas to invest in. You are accurate with everything you have said about the town. Keep in mind the houses are all extremely old, and many times not maintained well, so there will be extra repair costs associated with that. Additionally, the township building and code enforcement departments will also do thorough inspections and require certain repairs that you may not have planned for when it comes time to get a CO. As for the rent prices... while the home purchase prices have skyrocketed in the past year in Gloucester City. I haven't seen the same with rents yet. According to my property manager @Mike Bonadies, while other areas of South Jersey have continued to see strong rental demand, the Gloucester City tenant pool has many people in service industry based jobs, which has been most affected by the pandemic. Therefore, rental demand has not kept up with the skyrocketing home prices. So right now in Gloucester City, we have appreciating home values with rent prices lagging behind. I'm still very bullish on the rental demand. I'm hoping, and betting on, that over the next year things come back into balance.

Account Closed · Answer

@Teresa GimenezMany of my clients have invested in Gloucester. Some purchasing one or two properties some buying up blocks including mixed use commercial space. I def see a steady stream of demand for inventory as well as steady rentals which makes for a sustainable market.Best of luck.

Michael Orlando · Answer

I would definitely discuss with PMs and ask a few questions.. What's their occupancy been like (economical occupancy)? What types of jobs do their tenants tend to have? Are there hospitals in the area? Big name stores less likely to go out of business like Walmart, Target, grocery stores, etc..? Usually this helps insulate from economic issues tenants may face if the employment base is good. Also, if you buy right, you can hedge against a lot of economic issues. I would stress test your rents and make sure you feel comfortable about how the metrics are shaking out. I don't think a worry about a downturn should totally discourage you though!

Rich O'Neill · Answer

@Teresa Gimenez, A lot of good points above. If it just so happens that Gloucester City is 10 min from you then that is a great bonus, but I wouldn't limit yourself to that if I was you. I exclusively invest in blue collar areas for many of the reasons above. Low barrier to entry. Possibility for Section 8 rentals (looking more and more appealing every day). I wouldn't worry much about the recession or economy in general. If the trends look good in your market, then I would go for it. If not, then don't. Pretty simple. Best of luck!

Matthew Paul · Answer

Well "Blue Collar" spans all income ranges . I am " Blue Collar" and live in a neighborhood of $600,000 houses . If you want stable renters , possible rising real estate values and less headaches . Its a good idea to invest in neighborhoods where people WANT to live . Jobs are close , schools are good , stores are close , crime is lower . Your numbers have to work .plain and simple .Buying a property in a rough are just because its cheap , then fixing it up hoping it will rent isnt investing , its gambling .

Steve Shaffer · Answer

@Teresa Gimenez congrats on getting started!I strongly endorse working-class neighborhoods and it is the pocket of the population I most actively cater to. My personal strategy is to play the long game. If these are older houses in need of more extensive repair with an active municipal inspection body (as referenced by an above poster), your biggest asset is going to be a competent GC and some great subs. Learn how to do low cost material, high cost labor jobs yourself (paint and tile) and whenever there is a choice, slightly over improve the property. Getting roofs, windows, and furnaces out of the way prior to occupancy will keep future maintence and capex at bay. They biggest advantage to slightly over improving in these areas is that almost all of your competition will look exactly the same (I hope) and you will stand out head and shoulders above for the cost of only a few months of vacancy. This will allow you to avoid vacancy and, since you’re providing such a great place to live, turnover which are by far your two biggest expenses. Congratulations again! Keep us posted.