Investing in Low Cost but Run Down Areas

[Cara Kennedy]

Hi BP,

Being new to REI, I plan to start small but I'm concerned about overlooking market/geographic indicators that guide whether purchasing a SFH or small MFH is a good investment. I'm in the Metro Detroit area, and Detroit as a whole is very "pocketed" with neighbourhoods of high reputation, those that are run down, and those that are up and coming. The appealing part of Detroit is that there are homes that are "deals" and relatively low cost to start out on, but I'm having a hard time figuring out if the neighbourhood is good enough to hold up an investment or will be more trouble for me than it's worth in the long run.

What are the things I should look out for when assessing a property in areas where the surrounding homes are only about $60k? I'm finding some deals that with largely cosmetic upgrades I can purchase for ~$30k, but I want to be cautious about investing in an area where my profits will just be eaten by high turnover or poor reputation of the area. Any advice would be appreciated. Thanks for your time!

@Jhory Miller may want to hear your thoughts too. 

[Robert Haney]

If there are bars on the windows in the neighborhood don't buy.  

If you feel the need to carry protection into the neighborhood don't buy.  

If you can't estimate repair costs comfortably within 10% don't buy.  

When rehab is done if you couldn't sale it for 10% NET profit don't buy (Yes, I assume it will be a rental, but EVERY RE deal should be profitable on day one).