Investing in low income areas

[Nick Eldridge]

I know local investors are investing in these areas for the cash flow and don't care about appreciation as much. I believe there is an opportunity here for investors with strong systems and the patience to deal with lower-class tenants. Some investors will tell you a certain location is a warzone when in reality the location is beginning to turn around and could be promising in the future. Where do investors go wrong investing in these areas? I am looking to start a discussion where investors can talk about their horror and success stories in these types of locations. 

Thank you for your time!

[Matthew Irish-Jones]

Originally posted by @Nick Eldridge:

I know local investors are investing in these areas for the cash flow and don't care about appreciation as much. I believe there is an opportunity here for investors with strong systems and the patience to deal with lower-class tenants. Some investors will tell you a certain location is a warzone when in reality the location is beginning to turn around and could be promising in the future. Where do investors go wrong investing in these areas? I am looking to start a discussion where investors can talk about their horror and success stories in these types of locations. 

Thank you for your time!

Usually the neighborhoods with the best return have the most risk.  Most investors go wrong by over estimating rent and under estimating repair costs and vacancies. 

What looks like a great investment changes quickly if your revenue goes to $0.  You have to actually collect the rent, you can't just project it.  If you can't collect and you have to evict you can find yourself out 2-4 months of revenue. 

If the tenant trashes the place, your repair costs go way up as well.  If that happens once or twice in a 5 year period you have gone from a 18-20% cash on cash return to a 10-12% cash on cash return.. Which you could have gotten in a B class neighborhood, and had a shot at appreciation.

The C class investments are all about execution.