How close can you buy to a bad area and avoid many problems?

Question

Hi,

I know it depends on what you want to do but just wanted to get some opinions on how close you can be to the bad area and still attract high enough tenants that required little attention?   See pic below from Trulia as an example.  This house is on the edge of the troubled area.  Probably C range in my eyes property or maybe even C-

Basically I am very busy (like most) but with 5 young kids and a job I work pretty hard at but control my schedule I don't want high turnover and attention but also want enough income from the property for the cash flow to  be there.  Love to get 1.5 to 2% rule if I can with 15%++ cash on cash.  I know they are extremely hard to find these days.

Look forward to hearing some opinions here.

Jeremy

James Galla · Answer

So the Trulia crime heat maps are okay, but from my experience, they are often outdated. Despite being outdated, they are moderately helpful because they can show you the bigger picture, as in, which areas receive crime versus which ones don't. Crime has several correlates such as education, income levels, familial status, and others. So, basing an investment decision should be on each of these factors. I would probably start off with neighborhood-level data. One of the websites I enjoy using is City-Data. In addition to City-Data, there is a possibility that the government in that area publishes neighborhood data as well. This would give you the opportunity to review each dataset.

The big problem with all of this is that it relies on generalizations. In my area, for example, you'll have worse off neighborhoods separated by mere blocks from the well-off neighborhoods. Additionally, inside the neighborhood itself, a few blocks can separate poor developments from wealthier developments. Moreover, some neighborhoods and/or internal developments can further be distinguished by mere impoverishment versus impoverishment plus criminality. So, using a neighborhood-level datasheet would mesh those distinct localities within the neighborhood generalization. I think the answer in that scenario is boots on the ground.

For me, I spend plenty of time volunteering and providing services to lower-grade neighborhoods. I've also spent some time working in the jails. You can also start walking your dog in the neighborhood you're looking to invest in, or better yet, you can start knocking on doors and asking people that live there how it is. Door-knocking is great, in my opinion. I wouldn't approach people as an investor, though, but perhaps just someone interested in moving into the area. You can even double-up by volunteering for a local political campaign or charitable service. In the alternative, you could network with the local REIA or neighborhood watch organizations to get a feel for how it is. Be careful when relying on other's opinions, though, because they can also be based on broad generalizations that can cause you to miss out on investment opportunities.

Jeremy Karja · Answer

Hi James,

Thank you for your thoughtful response.  All of it makes sense and is very helpful!

I think I know the answer but how far do you consider the area to better and attract better tenants?  In my example 5 blocks over is really rough area (I know the area).  My thought are you have to a lot further than 5 blocks (maybe a mile at least without the dark blue section like in my picture) before you start to attract the higher quality.  Do you agree?