How bad can it get...

[Davit Gharibyan]

Last year I bought a 17 unit deal in a rough part of town. I was in a 1031 exchange period and pulled the trigger bit fast, lets just say.

When you visit the area, it doesn't look bad. The streets are fine, although if you pay attention to parked cars you'll notice lots of beat up/broken down vehicles (1st sign). An uninitiated person might not notice this tale tale sign of a rough area. 

The other issue is that the area consists of many small multifamily buildings next to each other owned by different owners; there's an alley in the back and everyone's trash dumpsters are there. Since buildings are next to each other there is lots of dumping is going on, resulting in a messy back alley and high fees/fines from city and trash company.

The third and the most important issue is the area has a bad stigma. Shootings, gang activity, drug deals are a frequent occurrence there. Again, it's difficult to see these things when you first tour the area; things seem to be fine.

I knew that the area is not the best one, even my broker warned me about it, but I thought how bad can it get. Trust me it can get very bad, very fast.

During this year there has been 4 evictions, I am still dealing with one, criminal activity in the property, building back door repeatedly being broken for easy access, unauthorized occupants in units, pet poop all over the place (pets are not allowed any more).

Because the area has a bad stigma, attracting market rate tenants is impossible. The market rate ones ended up being evicted for rent delinquency. The only stabile rent source has been from Section 8 and other assistance programs.

Due to vacancies and evictions I lost several thousands in income. People say that rough areas produce high cash flow; it hasn't been the case so far. 

This deal has been nothing but a headache: tenants destroying units, criminal activity, legal fees, headaches and nerves...

Did I learn a lot? You bet. I was speaking to the owner of next door building, who had his property for 20 + years; he told me if you can run a deal in this neighborhood you can run it anywhere.

Would I do it again? Absolutely not.

I am, however, grateful for the experience and learning opportunity.

Just wanted to vent and share my 2 cents.