where do you draw the line on investing in "ghetto" property?

Question

There is a pretty nasty area that is a few blocks over from a condo complex I just bought a condo in. The condo complex and no vacancies, is kept up decent and does not seem to have many problems.

What worries me is the nasty area that is a few blocks away. Which consists of some burned out houses, people wandering around aimisly at all hours of the day/night. Surprisingly the crime in this area was much lower then expected when i looked up the stats.

Scott K. · Answer

Aw yes Shack town as they call it.  I know that area very well.  I would not invest in that area as I don't see it getting any better there.  There is no industry in the area to try to drive the prices up at all.

Also people that are not from here always say there is great opportunity in Detroit just does not understand how bad that city is.  There are only 4 sections of the city that is worth anything at all.  Downtown, Midtown, Palmer Park, and Indian Village.  Indian Village is getting worse not better.

You need to get to the northern section of that city.  I have many houses that I go to in that area.  The closer you can get to Livonia or Canton the better.  Anything close to Inkster is a for sure NO!!!!!!!!!!!!!!!!!!!!!!!!!.  That city is a dump and is never coming back. EVER!!!!!!!!!!!!!!!!!!!

Pete T. · Answer

It depends on your personal preference.  Typically, cheaper neighborhoods show better numbers, but normally have more losses due to damage, more repairs, more vacancies, and possibly a worse tenant pool and less appreciation.  But those things can change too.  Usually the reputation of the area is more important in the present than the reality (ie- the "war zone" neighborhood might not have the worst crime, but gets horrible rents bc everyone "knows" its horrible OR the area w/ the "best schools" that might not have the best stats, but everyone considers superior drawing a waiting list of tenants trying to get in).

Bill S. · Answer

Crime is low because no one reports it. No point in reporting, as cops never come unless there is a body.

Patrick L. · Answer

As @Al Williamson pointed out there are some good buying opportunities in the fringe properties.  What I wouldn't buy would be the "fabric" ones because if the surrounding area becomes worse (out of your control) it's going to substantially lower your value and you didn't pay "fringe" prices if it was in a nice area when you bought it.   I love to buy fringe properties.   Unless those condos were selling for the same price as ones in bad areas I wouldn't touch them if the surrounding area is that bad.

Jon K. · Answer

I wouldn't touch a neighborhood with burned out houses and vagrants everywhere that's only 2-3 blocks away from a property.

But, some people would. How is the immediate neighborhood? Has the area always been a dump? What are the numbers? How as the value of the property and neighboring properties changed over the years? And, how long do you want the place for-- if the area doesn't turn nice for 15-30 years, are you fine with that?

Engelo Rumora · Answer

Thanks @Al

@Al Williamson

Al Williamson · Answer

Hello @Mike Wallace

I want to add to what @Engelo Rumora touched on. Areas are typically separated by major streets and features. So spend a minute defining the fabric, the fringe, and the fray.

It's worthwhile to invest in the fringe IF there is a cluster of others making improvements. The "fabric" in more expensive and the "fray" is significantly less expensive.

Look for deals along the fringe and, as I like to advocate, make the area nicer. It's not difficult to turn the fringe into fabric, but it does take leadership.

Best to you!

Engelo Rumora · Answer

I know of a great family area in Kansas City where the average house is $350,000.

3 blocks over its the ghetto with $30,000 houses.

There is a a major street that is dividing the good to the bad area.

It guess it depends on how well you know the market and actually how close it is.

Thanks

Mike Wallace · Answer

yes south westland

Joshua McGinnis · Answer

Ah, I assumed from your profile that you were talking about the Los Angeles area. 
	
	Detroit is ripe with opportunity, but is poised to change dramatically over the next decade as the economy shifts into other industries. Perhaps someone more local could give you better advice.

where do you draw the line on investing in "ghetto" property?

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