Buying Slums - Fixing them up?

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@Andrew Johnson antidotal story of a friend of mine who followed me to ATL to buy SFR court house steps in 2011 and 2012 we killed it... then it dried up when Blackstone and others came into the market.. he got the bright idea of going into low end multi.He found a 44 unit in Memphis for 8k a door 65% vacant... as you know I have extensive expeirnce in the mid west and lower end areas like this... I told him don't do it. your from Portland you know nothing of war zones or mid west or the demographics ... they go on to explain last landlord was a bozo they are going to rehab .. put in b ball hoops BBQs clean it all up and then sell at 15 cap and make 700k... I say don't do it never happenwell they closed dumped 600k plus in cash into rehab.. got it to 80%... management stealing.. few murders and other bad stuff BBall hoops gone in a few days BBQ's made it a week... Had to then fly out montly to try to collect rent.. finally sold and lost a cool 450k on the deal all in about 14 months.. These areas are just not for those that are not experts at it.. run them with iron fist.. full time security in house management ( even then you get ripped off).. its not the slumlord its the slum tenant.. end of that discussion.. simply will never change..

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Do you think it's just the landlord that makes these properties slums? I think you'll find the tenant base pretty slummy too. And if you increase requirements for the tenants, you might find you have more vacancy than expected because you might have a hard time finding tenants that meet those requirements. Even if you get decent tenants in place, just due to their situation there will be times where they simply can't pay and it is easier for them to skip paying you if they have temporary issues elsewhere in their life.Unless you know this total slum area is already in process of turning around, or you simply have a lot of experience dealing with these types of property and the demographics that come along with them, then I would be very careful considering chasing cash flow in these areas.

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@Jay Lalik I don't know if this will help you or not but you really have to think about if the "slum" in the area or if the "slum" is these particular 28-32 units. It makes a massive difference. I think every person on this site as driven by in-fill developments (homes, apartments, mixed-use, etc.) and thought to themselves that if they could bring it up to the level of the surroundings, they'd have struck gold! That might be true. It's an entirely different proposition to go into a warzone and find the *worst* group of units in the warzone and hope that by helping that property you'll help the area. Bottom line, you won't. You have no shot. And I come at this from the perspective of someone who spent a few years working for Long Beach doing revitalization programs. If you're going into a high-crime area with a ton of check-cashing places and no banks, helping 30 units won't make a dent. I've literally heard: "Oh, I love that the (revitalization) grant paid for this new brick fence, now did the police arrest anyone yet for the stabbing at the end of the block?" Not a word-for-word quote but "neighborhood beatification" and "stabbing" were both mentioned in the same sentence. The "tax breaks" that will help the property value have zero to do with the property itself. Maybe if you knew that a city was using federal pass-through funds, matching funds, was giving tax breaks to grocery store chains, major banks, etc. you could make the argument it's an okay time to invest. Still, you'd better have a 7-10 year timeline. But what do I know...

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@Jay Lalik, I pretty much agree with everyone here. Unless you know of some major change at the city, municipal level that you feel will revitalize the area it will be very difficult. Also make sure that you focus on projects and legislation that is already "passed or approved" at the city level not "planned or proposed" EXTREMELY different things. As someone mentioned above change properties not neighborhoods.

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That sucks. Can't have nice things.

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I agree it is risky.The only way something becomes a slum is by: tenants, property managers, owners, or a combo of the 3.I don't discount the tenant's responsibility at all.