20% ROI in bad area - what should we do?

[Keegan Darby]

I am interested in a duplex in a bad area in Arizona - Eloy. Many of the residents are low-income. However, there is a monthly cash flow of $400. Each unit rents for $750 and the purchase price is $165k. What should we do? Has anyone had issues with low income areas? 

[Mitch Messer]

Hi @Keegan Darby and welcome to BiggerPockets!

The only reason your spreadsheet calculation shows 20% ROI is because you're not taking into account all the additional expenses you'll likely incur, such as:

• Higher turnover and vacancy
• Greater repair costs (both due to more repairs and also from being charged a premium for contractors to serve your property, if they do at all)
• Higher property insurance premiums

This is not to say you can't make money in the 'hood; you just can't apply the rules and assumptions of the suburbs there.