Need advice on possible investment in rough area

[Adam Britt]

I would like some opinions about an upcoming possibility. I apologize for the wall of text but I want to provide accurate detail for best advice.

I’m one of the millions struggling hard against a massive student debt that currently requires 1/2 of everything I make. Money is scarce even working 2 jobs.

Real estate is the only way I will ever escape. The rat race, while I am paid semi-decently, can never get me out of 12-15% interest student loans of 100k.

Paying off my loans aren’t really an option. I would need to massively increase my salary to even pay the loan down with that interest rate. Let alone pay it off.

All that is to say ... I’m dying to get into real estate, but saving up to buy isn’t practical. It would take me 60 years to save that kind of cash. So I need to use the magic of OPM (other peoples money).

Now, I have great credit and can probably get some solid loans, including from family. But I want to be very cautious from overextending myself. As such, higher price properties are ... frightening to me.

An older relative has just moved out of a 3/1 in a very rough neighborhood. I would probably consider it C/D class. She built the house in the 60s and has lived there till recently. I believe I could get the house for probably 10-15k. She is only expecting pennies for it. My ideal would be to Section 8 the house.

However, I would love y’alls opinion.

What costs would you all warn me about? Will I need to redo electrical and such due to the age of the house to make it housing compliant? What would you budget for that?

Would a rough area stop you from considering a deal like this? I see dollar signs with a 700-800$ section 8 rent with nearly no overhead if I can get this thing with 10,000$, but I don’t know what dangers and problems to expect down the line.

Please illuminate me to what you would look for! I originally wrote the house off due to expected repair costs but ... a friend who flips for an investor insisted it may be worth it if I can cover those with private loans .... unless the area itself would make this a no-go.

This is near Birmingham AL in a higher crime area in case that helps.

[Michael Ealy]

Originally posted by @Adam Britt:

I would like some opinions about an upcoming possibility. I apologize for the wall of text but I want to provide accurate detail for best advice.

I’m one of the millions struggling hard against a massive student debt that currently requires 1/2 of everything I make. Money is scarce even working 2 jobs.

Real estate is the only way I will ever escape. The rat race, while I am paid semi-decently, can never get me out of 12-15% interest student loans of 100k.

Paying off my loans aren’t really an option. I would need to massively increase my salary to even pay the loan down with that interest rate. Let alone pay it off.

All that is to say ... I’m dying to get into real estate, but saving up to buy isn’t practical. It would take me 60 years to save that kind of cash. So I need to use the magic of OPM (other peoples money).

Now, I have great credit and can probably get some solid loans, including from family. But I want to be very cautious from overextending myself. As such, higher price properties are ... frightening to me.

An older relative has just moved out of a 3/1 in a very rough neighborhood. I would probably consider it C/D class. She built the house in the 60s and has lived there till recently. I believe I could get the house for probably 10-15k. She is only expecting pennies for it. My ideal would be to Section 8 the house.

However, I would love y’alls opinion.

What costs would you all warn me about? Will I need to redo electrical and such due to the age of the house to make it housing compliant? What would you budget for that?

Would a rough area stop you from considering a deal like this? I see dollar signs with a 700-800$ section 8 rent with nearly no overhead if I can get this thing with 10,000$, but I don’t know what dangers and problems to expect down the line.

Please illuminate me to what you would look for! I originally wrote the house off due to expected repair costs but ... a friend who flips for an investor insisted it may be worth it if I can cover those with private loans .... unless the area itself would make this a no-go.

This is near Birmingham AL in a higher crime area in case that helps.

Adam,

I've done bad areas. In fact, that's how I re-started (I went through bankruptcy). I became really good at managing properties in D and even F (war zones) areas.

Having said that, it's a LOT of work. It's a LOT of headaches. And literally, I could have been shot or stabbed and good that none of those happened to me. 

One time, an 8-unit property was practically given to me so I jumped on it.  The property took so much of my time that I didn't have time for anything else. To be honest, I regretted the decision because if I handled properties in better areas, I could have done MORE properties, with less headaches and actually make MORE money.

So my advice: DO NOT DO A WAR ZONE property as your first deal.

The property, its tenants, and the headaches will ROB of your time (which in turn robs of you of opportunities to do more deals), your sanity and your peace of mind. You're working 2 jobs as it is and a property in a bad area is ANOTHER JOB. Think of it this way: that $700/month, even if we assume that's all cashflow (which it is not) - is what you're going to get paid for 10 hours/week of work (because that's what it could take for a house in a bad area). So do the math:

$700 divide by (10 hours/week x 4 weeks) = $17.50/hour

Now the reality is - the real cashflow from this property will be around half of that number ($350/month) because something always go wrong. You can have a tenant who does not pay for the month or something bad (like a fine from the city for a broken window that the tenant did but does not want to pay for).

So really, you will end up making less than $9/hour.

There are better deals out there. Just wholesale the deal to a landlord who knows what they're doing (and get paid a quick $3,000 wholesale fee, working 10 hours total to find a buyer: now that is $300/hour which is way better).