Potential Deal in Class D Neighborhood (New Investor)

[Mark Millich]

I potentially have the opportunity to buy a package deal of two properties in a very low-end area (Class D – potentially lower).

Here’s the information:

Purchase Price - $50,000

The properties are on two separate streets and have long term tenants. They’re also considered Section 8 housing and the owner is only responsible for water. The first property is currently being rented out for around $840 and the second for $565, with a total gross income of about $17,000 a year. The properties are free of any tax liens as well and are surprisingly clean on the inside – the current tenants clearly do well with taking care of them. The one currently has new updates on the roof, electrical and HVAC as well. The issue lies in the area, however. The are is very crime ridden, with vandalism and theft being some of the common crimes. The properties are also surrounded by abandoned buildings. Being a new investor and this potentially being my first investment, I’m obviously very hesitant. I’ve heard horror stories about people investing in areas like this. On the flip side, I’ve heard of people having great success as the cash flow in these areas can be very high. I obviously wouldn’t be looking at much appreciation. In addition, it would be an out of state investment, so I would utilize property management.

Several of my immediate and obvious concerns:

• Crime – vandalism/theft
• Current tenants are good, but finding quality tenants if they decide to leave may be extremely difficult
• Lack of appreciation

I’ve been exploring the idea of property investments for about a year now. I’m ready to just bite the bullet and buy a property at this point. This seems to be one of the better deals I’ve found it terms of cash flow.

Any feedback on investing in Class D (or lower) neighborhoods would great.

[Lee Haenschen]

Sounds like it will take a LONG time for the area to turn around and the property to have any additional value. Also sounds like if you buy for 50K it will only be worth 50K or LESS in lets say 10 years? How much headache are you willing to put up with ?