So I see this on Craigslist - What would you do?

[Ricardo Meza]

So I'm browsing CL for my locale, trying to get a feel for what's in the RE section.  I see a bunch of homes I can't afford (now), some places I wouldn't mind living in, and a bunch of listings that seem out of place.  

One example caught my eye, a listing in New York.  It caught my eye because I've driven through this neighborhood, and for me, it's not someplace I would ever think of investing.  Perhaps I'm wrong for thinking this way.  

The ad sounds too good to be true, and it got me wondering what those more experienced would do, or not do, had you seen this ad?  What would due diligence look like for this listing?  

I ask as a noob trying to figure this stuff out.  Thanks for playing along.  All comments encouraged and appreciated!

Here's a snippet of the listing...

Niagara Falls, New York / 20% a year return on your money!!!

Strategically located in downtown Niagara Falls just a walking distance from the Niagara Water Fall, Seneca Casino and Canada. Also, located across the street from Niagara Memorial hospital and Heart Center.

You are only few minutes away from one of the seven wanders of the world, the Niagara Water Falls!!! This beautiful property is ALREADY REMODELED AND FULLY RENTED. Rented for $675/Month with tenant paying all utilities and takes care of the lawn. Collect $8,100 a year. Placing quality Tenants in my properties is my highest priority.

Your return on investment will be 20% a year! Best investment Property on the market. THEY LOVE THE HOUSE AND WOULD LIKE TO STAY FOR MANY YEARS. WE HAVE SOME 20+ YEARS TENANTS.

3br/1.5ba. This house was completely remodeled this year. Everything is brand new, all drywall, plumbing, water heater, furnace, all new electric, new pergo floors and carpet, paint, new replacement windows and much more.

THE PROPERTY IS IN EXCELLENT CONDITION! YOU GET YOUR MONEY ON THE 1ST OF EACH MONTH.

Downtown Niagara Falls. Across the street from the Niagara Memorial Hospital. $400 Million Seneca Casino, Niagara Water Falls, Canada and many new developments and attractions just short walk from the house. There is a few big development plans proposed for this neighborhood (condo and townhomes project proposed just 1 house away from this property). Similar homes on the Canadian side already sell for over $250,000.

PROPERTY TAX $720 A YEAR.
RENT: $8,100 A YEAR.
SELLING PRICE $37,500
RETURN ON INVESTMENT 20% A YEAR.

INVESTMENT PROPERTY WITH 20% A YEAR RETURN ON INVESTMENT! ONLY OR $37,500! ALREADY FULLY RENTED, REMODELED AND COMES WITH PROPERTY MANAGEMENT. YOUR RENT WILL BE DEPOSITED INTO YOUR BANK ACCOUNT ON 15TH OF EACH MONTH.
PLEASE FEEL FREE TO CONTACT ME WITH ANY QUESTIONS YOU MAY HAVE.

I have no idea if copy/paste from CL is allowed on the forums.  I'm sure I'll be reprimanded ASAP if it is, and my apologies in advance.   

[Dustin Heiner]

Hi @Ricardo Meza!

This really depends on your risk tolerance.  

I personally invest in an area where homes cost $15k and rent for $500.  There are many issues but the cash flow is very high for the $ invested.  The problems are all just the cost of doing business.

Some things you will need to consider when investing in lower end homes.

1. Turnover - Because of the lower quality homes, the tenant turnover is high. Figure about $1500 in costs like carrying costs, eviction, clean up, leasing etc.  There are ways to lower this turnover though.
2. Repairs - Because the home is less in quality, there will be a lot of differed maintenance and normal things break since it is an older home.
3. Screening Tenants - You can keep turnover low if you screen tenants right and run background checks.
4. Property Manager - Your PM is your best friend here unless you are managing it yourself. It is hard to find a good PM for these types of homes. Once you find one, keep em.
5. Crime - Lower class areas have crime. Many times thieves break in to steal copper plumbing/wiring etc. when the property is vacant.

There are many other things to consider.

Send me a PM if you would like to chat more.

Hope it goes well!

Dustin