Cheap houses in blah neighborhoods

[David Sanford]

So, there are many houses within about 30 minutes of where I prefer to invest that are all $40k and under and generally move in ready or need around $5k to bring them up to par. Issue is that these houses are in rather "ehh" area with low income. Rent in the area would be approx $750 for a 3/1. Not a bad income but I would be very worried about the level of care taken to my house. Advice or opinions? Should I steer clear of this area due to the high level of risk?

[Malcolm Boston]

Every time I play monopoly, I always hope to land on Baltic and Mediterranean avenue while everyone else is gunning for Park Place and Boardwalk. Why? Because I can put hotels on both properties for the cost of one house on Boardwalk. And then because most people over-roll, I stand a good chance of collecting my $200 plus THEIR salaries every time they pass go. Nobody ever lands on Boardwalk and if they do their will likely never be a hotel there.

Translation to BiggerPockets: cheap property with low income tenants can cash flow just as well or sometimes better as expensive property. They are typically cheap to upgrade because they are in C or D neighborhoods especially if you are willing to apply sweat equity. It's not hard to make your property stand out in such a location. Poor people want to live in a nice place too. And you will make good money over the years because you'll have less turnover; especially with Section 8. People who can afford to rent in A and B neighborhoods are typically in a temporary holding pattern between mortgages. Turnover will be higher, vacancies may be longer, and upgrade costs to stay exceptional in an A class location may siphon away your cash flow. Section 8 folks have negative stereotypes but nobody is trashing a nice place with a nice landlord to risk potentially losing their voucher and having to deal with a Slum Lord.

Think about it.