High Crime rate area?

Question

Hello BP Community!

What are your thoughts on buying something in high crime areas?

There are some places around Newsburgh NY (one of the most dangerous cities) that can be have for very little. I don't want to leave there, but people there will need a place to live I assume, right?

I wanted to hear about what you think? is it worth it? section 8? don't even touch it?

Thanks!

Zach Davis · Answer

My properties would be considered B/B- but were easily D class when I first purchased them. We like to find the worst ones in decent lower middle income areas and reposition them. The last set I bought had a meth lab in one unit, convicted fellons in 2 units and 3 of them were getting subsidized housing. It takes time but they will turn around if you know how to deal with that type of person and know how to get the bad ones out as clean as possible. After that, there are good people in all socio-economic classes, it can be difficult to find them but they are there. I personally wouldn't want to take on a D class property in a D class neighborhood but thats mostly because I'm a part time investor and those types of properties would have to be babysat.

Bao Huynh · Answer

Awesome advice @Stephen Morris! I started my first investment in a high crime area but I also grew up in a high crime area. My parents rented most of their lives and only moved twice! We also grew up on section 8. They never missed a payment and always kept the house well maintained. The only problem with section is one inspection per year but if you kept up with the maintenance you're fine. I would say class "D" renter the good ones will stay on your property the longest and the bad ones won't be there longer than a year. My parents have lived in the same rental for more than 10years and are still on section 8. Good Luck on your investment search @Javier Perez-Karam

Stephen Morris · Answer

I'm a property manager in Detroit and I have several homes in high crime areas. The problem with the high crime areas is that the quality tenants tend not to live there they have choices. There are some instances that you pick up a good tenant that doesn't care about  the area but for the most part qualifying the tenant is a problem. I help investors buy properties that are on the fringe of the high crime areas that quality tenants don't mind renting in. The price of rent drives the tenant pool as well. The higher the rent the smaller the pool but most are more qualified. I try to find the price that will bring a 30% return after 2 years. The return really goes up after that but most of my investors bundle the properties and take a profit.

Joshua Maestas · Answer

Javier,

Generally most investors tend stay away from D class areas. Yes there is still a demand for housing and you will see that properties tend to be a lot cheaper but there is a reason for that. Most owners have a very difficult time selling their properties that are located in bad areas. Tenants are generally not the most upstanding people in these locations and the headaches involved are generally not worth it. I recommend staying away from bad areas and focusing on somewhere where your long term exit strategy will play out. Its not worth being stuck with a good property in a bad location.

-Joshua M.

Javier Gaillard · Answer

In websites like areavibe they use a score from A to F crime rate. Which crime rate is acceptable for a buy and hold property? Only A and B?

Michael Hunter · Answer

I know several people who I have worked with that make this strategy work! One of the people I know buys houses when they are unlivable usually for $1000-5000 and makes them just livable. Another person buys houses with some major issue to be fixed, but still in a condition that might be rentable to some person. He then fixes the problem, if it can be done for a reasonable price and increases rent. What I have observed about this type of investing is that you will have to orient your mindset to meet the tenants where they are. What I mean by this is that materials and finish quality is much lower than you might do it anywhere else. Also depending on your finishes you may end up with renters that have a criminal history. In addition there are choices that will have to be made as far as how you will maintain the property. For example, if the sewer system backs up are you going to tear out contaminated materials or will you want to try to clean them and "save money" (not recommended). I had a property out in a semi decent area outside DC for a while and the A/C condenser was stolen 2 times, I mention that because there can be large unexpected costs in these areas especially if they are known to be high crime! These properties can cashflow but they might become run down if you put off maintenance to keep your cashflow coming.

IF you go down this path you may want to find a property management company that specializes in working with these types of properties and renters. Talk to them and if they are willing find out some of the average costs that their clients are spending to manage low end properties. This might be some of the most helpful knowledge you can get because it will be about your specific area. The idea of being able to leverage them against the purchase of other properties sounds great as well, I don't know of anyone who does it locally though. In the end I would just make sure that where ever you invest you will be able to get tenants that will pay rent! Life is about choices, so know your neighborhood and go into the deal with your eyes open.

Jay Craig · Answer

great thread, I wouldn't be against buying in a high crime area. Michael brought a new prospective to the table I never thought of.

Sterling White · Answer

I avoid areas with high crime due to lower quality of tenants and increase in property break-ins. If you do decide to pursue these areas then your PM company has to be really efficient, but as stated there is a reason why the properties in these areas are cheap.

Try to avoid if possible @Javier Perez-Karam

High Crime rate area?

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