Lower income neighborhoods and investment properties

[Justin Pokrywka]

I wanted to see if anyone had had any experience with rentals in lower income neighborhoods. I've found 2, 2 bedroom, 1 bath duplexes going for 40k each in neighborhoods that would be considered lower income. I also found a 3 bedroom 1 bath for 14k, and there are a few other ones similar. I know these investments are a whole different beast but as a new investor it could be a good way for I me to potentially pay cash from a HELOC for one or two of them and avoid having to get a mortgage. Any advice or suggestions are welcome.

[Dan Schwartz]

@Justin Pokrywka my advice, from my experience in this demographic, is that it is a LOT of work. Don't underestimate that one bit.

Imagine that you are starting a business and it's head office will be at this property. You won't be there quite that often, but it might feel like it some months. Thinking this way will also engender some honesty about how you feel about the neighborhood and your comfort level there. "Am I willing to go to 'my office' at any hour of the day - or night - to work on my business?"

You will manage your physical plant (the property itself) and also the Human Resources (the tenants). Could you manage a department at a company whose workers were of this demographic? They'll throw a lot at you: excuses for non-payment, snitching on "#4" (yes, my tenants only referred to each other by apartment number, never by name), why they need this or that. I'm not part of the sect of BP that seems to believe tenants are subhumans who exist to poop out money for the landlord or else crawl off to rot and die elsewhere, but you will have to set rules and stick to them steadfastly. You're the manager; you get to set the rules.

I enjoyed managing our low-income, working-class apartments. We made a lot of money. We left a lot of money on the table in unpaid rent, but made out just fine. We evicted people. We pulled evictions when people shaped up. We called the cops on unwanted guests when the tenant was too intimidated to, and then stuck around so the creep would know there were people who had "her back." We learned who to turn away, even when we were desperate for tenants in the beginning. We supported the local homeless shelter and sought out as tenants people who had been through the shelter's "get on your feet"-type program. We helped people with their addictions to the small extent we could, because to some of them, we were the only human constant in their life.

It was an enormous investment of time and energy, and we sold when I simply couldn't make the time for it among the many other things in our lives. I personally found it to be humbling and rewarding, but there are many ways to achieve that in life that don't require managing such a property.