How would you describe a neighborhood that you wouldn't consider investing in? I live in a small to medium size Canadian city with a few not so great areas, but have some great deals from disgruntled landlords and/or foreclosures that I would love to take advantage of, but everyone I talk to tells me to stay away from these areas, granted they aren't landlords and really have no idea about the rental business. I'm also guessing the majority of the rentals in these areas are rented to, what the US would call section 8 tenants.
My litmus test: Never buy an investment property in a neighborhood you wouldn't be willing to live in yourself.
I consider myself a decent middle-class person and want to rent to similar people. I don't care what the numbers say, if the neighborhood is a place I wouldn't let my family live in, then I'm not going to attract good quality tenants. Besides, you never know what turn of events may happen to you in the future resulting in your living in one of your rentals.
Of course, buying in a good area is no guarantee you'll always have great tenants, but buying in a bad neighborhood is a great way to discourage many good tenants from renting from you.
Any warzone area bar none.
Well let's put it this way. If you go into a neighborhood that has a bunch of bullet holes in homes,police tape throughout the area or a high rate of crime than you have walked into a war zone. There is more to a war zone than what I have described but you get the idea.
Stay away from neighborhoods where vehicles are parked on the grass (if there is grass); where yards are strewn with junk, where tall weeds grow where there should be grass, where large groups hang out on the streets, etc.
On the other hand, if you find a property that's strewn with junk, has weeds, vehicles in the yard and it stands out like a sore thumb in a NICE neighborhood, and it's for sale, jump on it. It's probably priced lower than the surrounding houses and merely needs a little TLC. Such a house sold in my neighborhood for $225k and after six months and a little TLC, resold for $410k. Another is in work.
Do some reading and due diligence before you move into unfamiliar territory.
Recommended reading: Robert Irwin - "How to Find Hidden Real Estate Bargains;" Terry Sprouse - "Fix Em Up Rent Em Out;" and if you are into pre-foreclosures, Thomas Lucier - The Pre-Foreclosure Property Investor's Kit. Each of these books is about $20 at Amazon.com and well worth the price. Also visit www.accessonescams.com for recommended reading and things (schemes and scams) to avoid in real estate investing training.
One more tip: Drive most of the streets in the neighborhood you think you might invest in. Drive them several times on different days and times and see what's happening. If the hair on the back of your neck stands up, well...you know what to do.
Dan,
The best rental income (positive cash flow) is often in lower and lower-income areas. Almost by definition, that means that these areas are more dangerous than nicer middle and upper income areas. There is always some danger in any rental business, so don't think that you can eliminate it by only buying in nicer neighborhoods. The real question is how much danger should you accept? Obviously, that is an individual decision.
My own personal standard is that I won't own rentals in an area where there is FREQUENT gunfire or SERIOUS gang activity. My lowest income rentals are in areas where there are occassional shootings, some drug activity, and other minor criminal activity. I have security camera systems on the buildings and we thoroughly screen all tenants. I AWAYS carry a handgun (probably not allowed in the People's Republic of Canada).
Dan, I don't know how well I could 'describe' such a neighborhood -- but I'd sure know it if I drove through it!
In addition to frequent shooting and obvious gang activity, I don't like to see idlers crowded onto porches drinking all day, big barking dogs chained in yards, wannabe tough guys walking their pit bulls, and someone on any corner waving me over to sell me crack.
Couple years ago I was driving through a prospective neighborhood when this teen thug saw me, pantomimed drawing a gun, racking the slide and shooting me....
Next!.......
Peruse the photos here:
http://www.skyscrapercity.com/showthread.php?t=300803
There is no cash flow worth risking my life. Having to carry a gun just to make money (unless you are a cop) does not make logical sense to me when it can be done in a safer way.
My litmus test: Never buy an investment property in a neighborhood you wouldn't be willing to live in yourself.
I consider myself a decent middle-class person and want to rent to similar people. I don't care what the numbers say, if the neighborhood is a place I wouldn't let my family live in, then I'm not going to attract good quality tenants. Besides, you never know what turn of events may happen to you in the future resulting in your living in one of your rentals.
Of course, buying in a good area is no guarantee you'll always have great tenants, but buying in a bad neighborhood is a great way to discourage many good tenants from renting from you.
I would say that the worst areas in my city have the following problems:
1) minor drug dealing
2) Welfare renters
3) break in and minor crimes
4) Very sparse violent crimes (ie. gunshots, stabbings, beatings, rapes, etc.)
But, I could definitely walk down the street in the worst areas at night and not really be worried.
Does this sound like something like an area you guys would consider?
Great thanks for the reply's!!!
Anyone care to help me out with this other question I have...http://www.biggerpockets.com/forums/49/topics/43046-what-are-my-options-
You never HAVE to carry a gun. In fact, in the People's Republic of Kalifornia, it is nearly impossible to get a permit to do so. In Kalifornia, you are at the mercy of the criminals - much different than in Ohio!
Please don't tell me that Kalifornia is safer than Ohio, as I was in San Diego just a couple of weeks ago. I stayed at a 5-star Hotel - the US Grant in the heart of San Diego. I can tell you for a fact, that there are more drug dealers and other scumbags in a 3 block area there than in any lower class neighborhood here!
Great book guys...I LOVE IT!
I've tried to shoot you a few emails Mike (we used to be in contact a little while ago...it's Dan from Windsor) but, haven't gotten a reply...are you still accepting emails?
Mike (NOT a victim)
In all fairness to the people in California - they are SLOWLY starting to wake up. (they're just a little slow). The female sheriff in Fresno is issuing a lot of concealed carry permits (from what I understand). Maybe someday the people on the left coast will be allowed to defend themselves just like we can in the rest of the nation (where we're still relatively free).
My definition is real simple. I don't buy crap. My definition of crap consists of only 2 questions.
1. Am I willing to go collect rent or serve papers at night?
2. Would I allow my wife of almost 40 years to drive through during the day by herself?
If the answer is no to either of these, I'll play it safe, and stay away. Rich
I certainly do not agree with the politics of my state, or that of the feds either, but this is not a political debate here so lets leave that garbage out of this conversation.
I do agree however (amazingly enough) that one should not confuse their home with their business. I too would not live in some of the midle class neighborhoods in which I own. That deos not mean they lack safetly, just that they are not suitable for my family.
I think this is the best test stated by Rich:
don't buy crap. My definition of crap consists of only 2 questions.
1. Am I willing to go collect rent or serve papers at night?
2. Would I allow my wife of almost 40 years to drive through during the day by herself?
If the answer is no to either of these, I'll play it safe, and stay away.
I would live in any of my rentals. In fact, I'm moving into one over the next 30 days (insurance issue).
There are no neighborhoods in my town, or county, where I would not walk down any street at midnight.
However, I think a good rule of thumb is not to buy anywhere that you would not walk after dark.
Different people have different tolerences for the safety of streets, so it has to be what you, yourself, are comfortable with.
Also, different people can walk through the exact same neighborhood, and one would be in danger, and a different one would be safe enough. The criminals (unless they are doped out of their skulls) will only attack the weak or uncertain. If you are uncomfortable in their neighborhood, they can smell it, like a dog can smell fear. So if you are uncomfortable, stay off their street.
EXACTLY! In addition, in some twisted way, most criminals and scumbags respect authority. While they treat their fellow low-life citizens like scum, they often will say 'yes sir' and 'no sir' to authority figures, including landlords. It's very strange, but a phenomenon that I have seen repeatedly. Also, it's amusing to me that they will rob and steal from each other instead of traveling a few miles to steal from a more affluent neighborhood, where they obviously could get a bigger payday. On the other hand, almost everyone in the suburbs and in the rural areas of Ohio has a gun, so the risks would be higher also.
Another consideration that I think is important in lower income areas is to blend in. Don't dress like a "suit' if you're going to be spending time in the hood. A person who is all dressed up looks like a target to criminals. When I work, I wear a pair of old jeans and a hoodie (during the winter) or a t-shirt with sleeveless covershirt during the summer. I also always drive my pickup truck to my rentals. In other words, dress like the indigenous population and leave the sports car at home!
good thread, I often think about the same thing. in the cincy market, you can go to a nice area of town but two streets over is bad news, its like that all over the city! you just have to spend time in the areas and learn the ins and outs, i think mike is spot on with "blending in". I have also found that if you are in a lower income area but go in and clean up a property and get reasonable tenants in, people tend to move on and stay away from the property, it can be hit or miss. I would not live in some of my rentals but that is because I simply prefer to live in a nicer property. I do feel safe going to do maintenance, collect rent, etc.... If i bought property where I would want to live as investment, I would lose my a$$
Where I live the thugs are mobile, so you could walk down the street of a great neighborhood and still be attacked, day or night. Or carjacked. That's on the rise.
And so are home invasions. So unless you are privileged enough to live in a gated community you are one door-kick away from becoming a crime statistic.
I hate guns. But I carry. I hate guns in my home. But I'm well-equipped to handle a home invasion.
Understand that when I grew up here no one locked their doors or windows and you could walk anywhere at any time.
That's changed for the worse. So I prepare for the worst.
But I'm glad to hear it's different in other places.
I invest in low income areas like Mike described. I suspect we have the same type of area. It's fine as long as you're not an idiot. It's the type of area where there isn't trouble unless you go looking for it.
I carry a gun as well and even though I carry it to church and through the nice neighborhoods, it is even smarter there to do it in an area where people aren't thinking through long term consequences of their actions.