Multifamily Rentals: Cash flow or "safety".

[Patrick Reagan]

Am finding the better cash flow is in the tougher neighborhoods and would appreciate thoughts on the matter.Stay away from the tougher areas?Am looking in the Newark,NJ Jersey City,Elizabeth areas.

[Don Konipol]

@Patrick Reagan

All investments are “high perceived risk, high return, low perceived risk, low return”. So as an investor to be successful you must be able to achieve one or more of the following ( either by knowledge, luck, or most likely some combination)

1. Be able to find a property where the market “perception” of the risk return is inaccurate

2. Have information either otherwise unavailable that leads to hefty value increases.

3. Have expertise that enables you to reposition the property after purchase in a way leading to increased income and or increased valuation

4. Be a long term buy and hold investor allowing inflation, neighborhood gentrification, amortization, low mortgage rates, and favorable tax benefits work for you.

5. Be correct in timing, buying when cap rates are higher, selling when they’re lower.

So, all things being equal, the higher return in less desirable areas is what people will accept to invest in these areas instead of better areas.

I owned a 12 unit apartment building in the worst area of Arlington, Texas. High tenant turnover, gun play, shootings, tenant property damage, domestic violence, high eviction rate, etc. I had a great PM. Other than having to listen to his weekly report, I had no active involvement in the day to day. Owned it two years, returned 14% net ROI each year ( no leverage, paid cash for it), and sold it for 25% net more than I invested. Please understand though that major repairs, as well as capital improvements are required for these type properties unless your end game is to extract as much current income out of the property while doing almost no maintenance, better know as being a slumlord.