Poor area investments

[Evan Parker]

I have a question for those of you who have experience investing in a poor area of town. 

I found what I feel to be an amazing deal on a multi family property that would give great returns, however, it's in a poorer area where there are abandoned buildings scattered around and very poor quality housing all throughout its immediate surroundings. 

Any experience in this kind of market in terms of success of your actual investment? Any suggestions? 

[Dorothy Butala]

Getting into a C or D class area, could be nice because the cost to purchase is usually more attractive, however there are some things you should keep in mind.  You will have to set what expectations you have of the applicants for this asset class, which isn't an issue, but you shouldn't expect to have highly qualified applicants for this area.  Also, showings are a bit more difficult since the area isn't very "welcoming" and as much as you try to make your building the best on the block, the general status of the neighborhood may be a turn off to applicants.  You will spend more time on this type of asset because it will probably need more work than a B class asset, however your cash flow will probably be a bit higher, so you have to ask yourself, do you want time or money?  

If the buildings are older, you may have more expenses due to the age of the asset, which could potentially knock out the cash flow even if it is a higher cash flow due to a lower purchase price.  

I bought a 6 unit in a not so great area, and have done as much as I could to increase the curb appeal and rents, and was pretty successful but it took about 2-3 years to really get it running well enough to increase the value of the property.  It wasn't until the neighbors started taking care of their properties as well, that the area started to improve and bring better tenants.  Had I known then what I know now, I may not have purchase the property, however, it has been a great teaching tool (paid a lot of tuition and been kicked a lot by the building and tenants).  I personally suggest that new investors find something a bit easier to manage and learn small lessons first then get into more challenging types of investments as time goes on.  But that is just based off my personal experience.  I wish you the best in your decision and future ventures.