Investing in bad areas?

Question

Whats your take on buying in bad areas, what I mean by that is the areas where crackheads roam, no one takes care of the steets they live on let alone there properties?

Seems like the only multi-family homes I can find with positive numbers are those ones. I also find it hard to believe the rent in those areas are not what rental calculators say they are.

They seem to be the homes thatvare on the market for ever also

Michael Plante · Answer

Usually higher cash flow

Lower appreciation

Depends if it fits your short and long term goals

Jason Moomaw · Answer

@Emily Ford, thanks, my concern is getting better renters to wany to rent in that area. I can fix it up good but are reliable people who are going to take care of it want to move in to that area. Risky

Erik W. · Answer

It is not for the faint of heart.  What I mean by that is you have to realize at some point there will be bullet holes in your houses, and most likely you will need to learn the proper procedures for what to do when someone gets killed in one of your units.

I've never had someone definitively get murdered, but I did have someone who was carried out of a unit on a stretcher.  Apparently a homeless guy one of my tenants brought in, back in the days before I screened more carefully.  He may have died from an overdose.  Not sure.

You'll also have to realize these people have zero reputation or thought of the future.  Today's money pays for today's high or drink.  You have to have a system in place to get your money on the day rent is due, like automatic payments via ACH services that fire off at 3 am on the morning their pay check hits their bank.  Do not rely on them to pay you, or everyone else will get paid first.

Probably need to learn what the Rent-a-Center phone number is so they can come pick up their stuff after the midnight move-outs.

You can make some amazing cash flow serving this market, because no one else will and they often have little to no option other than the street.  I invest in solid class C, not deteriorating drug hoods.  but those hoods are close enough that I know how they work.  Forget about maintenance; you're asking to be a slum lord.

Ironically, I don't have a problem with that.  It's not my cup of tea, but let's face it: there are slum tenants who need slum lords or they will be homeless.  It's an odd symbiotic relationship that polite society doesn't want to acknowledge really exists.

Emily Ford · Answer

I don't invest in those areas unless I can see some type of regentrification; look at the planning and development websites to see if there are any plans for improvement in the area.  After that, it's about your risk and reward analysis. I'm investing in Tarrant County (Texas) and recently bought three rentals in a "not so great area". I'm the type of investor that fixes up properties to the level that I'd be comfortable living there - plus I don't want the headaches of tenants disturbing me that this or that is broken.  I'm a stickler for tenant screening.  The cash flow and returns on investment were worth it. Ex - I bought a property for $57k; put $46k rehab; renting it out for $1650/mth; appraised for $174k.

Jaron Walling · Answer

@Jason Moomaw It's all about RISK. The neighborhoods you described have big risk but equally big cash-flow. You have decide what level you're willing to handle. Property management can be more involved. Mainly its the tenant pool you'll be selecting from when you rent property in C-/D class neighborhoods. Want to experience it first hand? Become a handy man in the areas you described. You'll learn how to fix to stuff but it also teaches property management, tenant communication, and expectations from people living in the properties.

I still consider myself a newer investor so getting the first few deals right (a base-hit or homerun) is important. If any of my properties flopped I'd have no cash to continue investing. If a tenant stopped paying during the pandemic I would have been screwed. I'd rather cash-flow less, have less headaches, and manage properties for people that appreciate it.

Investing in bad areas?

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