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

[Jeremy Karja]

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]

@Jeremy Karja, you can buy right in the bad areas and do just fine. You just need to screen tenants effectively. The problem is that when you are in a bad area, you have a lower likelihood to receive an application from a good tenant. So, in order for the property to not be vacant, you may compromise and give it to a tenant that you would otherwise not be interacting with in a better neighborhood. So, you may likely get a bad tenant and they may destroy your entire profit margin by causing you to evict them, and despite an eviction, they may be judgment proof. So, if you have a leveraged property with a tenant not paying rent, you are essentially going to be eating the PIMI. It's like a double-whammy. It comes down to screening and familiarity with lower class tenants. On top of that, the chance that the tenant destroys your place and kills your profit margin is increased. When dealing with bad neighborhoods, I prefer to look at smaller properties. Not only do smaller properties provide for less capital expenditures, but they provide less squarefootage that a tenant can obliterate. So, in short, you want to screen tenants effectively, inspect the property frequently, keep an open channel of communication with the tenant, have a good lease agreement, provide your tenant with access to different welfare programs that reduce their likelihood of defaulting on your lease (e.g. LIHEAP), buy a smaller property, and use durable features.