Buy & hold in higher-crime neighborhoods

[Jordan Grimstad]

Does anyone here have experience with buy & hold rental properties in higher-crime neighborhoods with depressed property values? In particular, I'm curious to know if there's a particular set of circumstances or mitigation strategies that could make the increased risks (vacancy, credit, property crime/damage, etc.) worth it. 

Thinking about my local market, the local real estate & job markets are quite strong, crime rates are fairly low, but parts of the city (just like any other city) have higher crime and depressed property values. Assuming that property values in these parts of the city never hit $0 (i.e. it never becomes a Superfund site), what kind of cap rates would one need to see to consider investing in these areas?

[Watson Smith]

@Kyle Mccaw has covered it well.

All my properties are in C - D range neighborhoods.  If you're use to high class neighborhoods you won't make it long.  The first house I bought was in a D- neighborhood... It was rough.  I was all in at 38k after a near complete rehab...  its worth about 140k now and houses my best tenants who refer people they know and trust for all my other properties. 

The tenants are more needy.  It's not exactly "mail box" money.  I only take cash (most don't have bank accounts anyway) and I drive and pick it up.  The more they see and talk with you... the better.  You'll gain respect and actually get your rent.

When you rehab these houses don't spend a lot of money... its not needed an it'll look pretty bad in less than a year.   Make sure the plumbing, roof, electrical & HVAC are sound and you should be fine.  These type of renters just need the basics.

I currently have these renters who moved into a property of mine in the middle of a Georgia summer.  It was about 97 everyday... They moved in and the HVAC stopped working 2-3 days later.  I didn't know this till I showed up a few days after just to check on them.  It was 90 in the house and almost unbearable.  I asked why no one called me - They stated they didn't want to bother me.  I tried to put them in a hotel but they refused.  So, I bought them 2 cases of Colt 45 and a bunch of ice-cream for the kids till the A/C guy got there.  I've never seen a family so happy.  They've been with me 4 years now.

Point - They don't expect much - Just a landlord that treats them like a human and not a slum lord. I bring all my renters Honeybaked Ham for Christmas as well.  I've never had to advertise a home for rent... My phone rings almost daily from a referral.  If done right you can make money in low income areas... it's just more work and risk.