Investing in War Zones

[Jimmy H.]

You hear alot about avoiding "war zones". Investing in low income is not some peoples cup of tea, but some people do focus their strategy in such areas. My issue is that even these low income investors, along with everyone else, generally always warn against and avoid "war zones".

I wanted to start a thread not just to discuss what constitutes a war zone, (the number of murders, violent crimes, drugs in one area may constitute a war zone to one investor but not another) but more specifically to see if anyone out there on BP thrives in this "niche" market.

Someone owns those house in war zones, and with as much as you see/hear/read about avoiding them there is potentially money to be made.

I'd like see if anyone is willing to defend such an investment strategy, and I understand the issues that come along with it. But if you can buy in such an area with a 40%+ CAP - who cares if the vacancy is 50% because you are still getting a 20% CAP at that (I know it's rudimentary math, just go with me here). But some of these areas (especially here in Lexington, KY there are crime ridden areas but not comparable to the ghetto of some larger cities) that provide enough margin to hire property managers, fix up, account for vacancies/property manager incompetence, and the like, and still make a good return without ever really setting foot in the area.

I would approach such a strategy very simply by choosing an area and city that isn't headed for total vacancy. But vacancy and turnover is to be expected and if your tenant sells drugs for a living - IMO who cares if he pays the rent and maintains the place. (Drugs will stay in demand, drugs will be sold, and drugdealers and criminals do need a place to live)

Opinions?

[Bill Gulley]

IMO, you're going down the wrong road trying to be a slumlord. I was the chair of a municipal rehabilitation and revitalization committee, and slumlords are dead in their sights to simply wipe these preditory paracites off the map...literally....off the map! Looking for new plans to revitalize poor and under-developed areas of a community, taking the property through immenent domain if necessary and bulldoze the war zone!

Behind the scenes in every city, that thinking is a foremost consideration and the public will not know until the forces to do so have been mustered.

As to having knowledge or facilitating drug activities in your properties....do you really want that point of view. Having one drug dealer in your properties is no big deal, having six of them might put you on the radar, there is money laundering, so you might want to prove where every dime you deposit comes from. I don't think I even want DEA looking at me, no thanks.

From a buisness standpoint, cash flow is important, but your wealth does not come from cash flow, since you probably live on that at what ever level you're at, the wealth ncomes from appreciation and either moving up with future trades or cashing out in some form.

To define a war zone I think is in the eye of the beholder, trash is trash, dumps are dumps and anyplace where residential units are located that any reasonable person would not want to live in probably qusalifies.

These areas too have many other problems. Allowing properties to decay will allow you to get to meet many people, fire marshals, police, judges, attorneys and all kinds of LEOs with various initials. They will start holding you responsible fo many actions if you allow sanctuary and means to facilitate criminal activity. Good luck, Bill