Where to invest -- Good areas/Bad areas

[John M.]

It seems like the worse the neighborhood, the more the rental profit.
For example, in a bad neighborhood, I can buy a $45,000 house that rents for ~$850/month.
In a good neighborhood, I can buy a $100,000 house that rents for $1,000.
If I hired a property management company to manage the property in the bad area, that takes the $850 down to maybe $750 which still means I'm making 40% more in bad areas.

Curious what peoples opinions are of investing in good areas with less return vs less nice areas with better return.

[James Park]

John M.,
This is a good question. The problem i have with the 2%, 50% rule is that not all properties are going to be equal. MF will generally have high cash flow than SFRs and properties located in D areas will generally cash flow better than A areas but with higher vacanies, maintainance and repair costs.

Let me share with you my first SFR investment mistake and the silver lining i have learned from this mistake and how i want to position myself investing forward. I purchased a new SFR in a private golf course subdvision in a "A" area with $200,000 down 6 years ago. I secured a corporate transfer from out-of-state as my tenant who hasn't been late once with his $3000/month rent for 6 years. I had to put no money to repair as my tenant has kept the home in such good condition and has paid from his own pocket for any updates and repairs needed. I plan to hold his home for another 10 years.

Everyone here has their niche. I like to concentrate my investments in buying and holding entry level B SFRs in A areas. What i mean by A areas is where the high end homes, path of progress, and best schools are located with median household income of $130,000. D areas are places you probably won't feel safe driving to at night.

I require a minimum of atleast 10% Cash on Cash return and I do expect a nice appreciation in the niche submarkets i invest in. Personally, I have no desire to buy in C and D areas where the cash flow may be higher at greater discounts, higher maintenance and repair costs and vacancies.

I would also like to reach my real estate financial goals with the least of amount of rental properties as possible. I much rather own 10 SFRs valued in A areas valued at $500k each, than to own 100 SFRs in D areas at $50k each.