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Updated over 5 years ago on . Most recent reply

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Josh Levinsky
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Rental Properties in struggling Neighborhoods

Josh Levinsky
Posted

Hey everyone,

So I'm relatively new to this expansive universe of flipping, and renting and foreclosures, and sheriff sales but after about 3 years of research and deliberation, I have decided I am finally going through and make an offer on a property in Philadelphia. 

This property would be for the sole purpose of renting (I plan on living at the house for a period of time at first). Aside from great deals I've found in growing neighborhoods, there are obviously cheaper properties in less trendy neighborhoods. 

Now, I've found over 50 properties -foreclosures and for sale by owners, agents, etc.- in Philadelphia that are huge, beautiful, in relatively good condition and very affordable. They mostly tend to be on struggling blocks.

I know Philly well and don't feel uncomfortable in most neighborhoods; however, I am well aware that many people who are either new to the city or not, do. 

So with everything that must be taken into consideration, I'm wondering, if I spend less for a home in better condition on a more distressed block (where home values are either stagnant or slowly increasing) and rent it out for relatively cheaper prices than more developed neighborhoods, would it be harder to rent? Is there less renters in that market? 

Ex: $80,000 - 6 bed, 4 bath at $1,700/month VS $250,000 - 3 bed, 1 bath at $2,100/month (not the actual numbers)

Without considering appreciation value, for my first go at this, for a rental property, does it make sense to go with the less expensive, more expedient property or a property twice or three times more expensive in a more developed neighborhood?

Like I said, I've been researching this for a while and I'm ready to make a move, and my move does not hinge on this exclusively of course, but I am very curious about this aspect of the rental property dynamic.  Any guidance would be appreciated so much!

Thanks everyone!

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Jim K.#3 Investor Mindset Contributor
  • Handyman
  • Pittsburgh, PA
13,766
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Jim K.#3 Investor Mindset Contributor
  • Handyman
  • Pittsburgh, PA
Replied

I've gotta go with @Stephen Akindona and @Jimmy O'Connor on this one. As Stephen puts it, I am one of those "rare cases" of a local investor with in-depth experience in this. As Jimmy puts it, "Your maintenance and time equity will be heavily imbalanced." There is nothing about what I'm doing in real estate acquiring, renovating, and running these rentals that is passive in nature. You have to target quality, lasting builds in the better sections of these neighborhoods, you have to renovate cheaply and well (in my case by doing it myself or running supervised crews), you have to have your money resources and reserves in lockstep order, and you have to learn how to vet and manage these tenants. You screw up any of these, your profits are going to seriously suffer.

I am blessed to have placed some extraordinary tenants who have been with me for years. I have also taken some lumps in the past to get to where I am now.

It isn't easy. There are a LOT of skills to master, not just real estate skills, but reasonably steady profits are only possible with lot of hands-on renovation skills. I would not start off in the kind of C/D borderline properties I am describing. I would target the B/C borderline or focus hard on solid C low-crime areas. Sure, the returns are smaller, but at least you have a chance with the learning curve.

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