Buying first property...in the hood?

[Philip Schultz]

I'm saving up some capital right now and hoping to purchase my first rental property in a couple months. I'm from Houston so as many know, the market is crazy and full of investors. I've been looking at starting in a part of town that is considered rough. 10 miles due south of downtown, just outside the 610 loop is crestmont park, sunny side and south acres. As I've done research, the selling market isn't hot in the area, but I know there are a lot of rentals. The houses that are for sale are pretty run down. However, there is a lot of new build about a mile away and from my opinion of the Houston market, this is the only direction that Houston can go with a lot of new growth this close to downtown and central to the metropolitan area. It's 5 miles from the Hobby Airport Right off of the 288 highway 8-10 mile north of Pearland that is just outside of the Beltway 8 loop (and booming - it's where I live - but haven't been able to find a deal with near this good of numbers) Numbers on a property.... I could probably get a house for 40-45k ($.35-.45/sf), do about 10-15k in rehab (I'm in the construction industry) and rent it for about $1000-1200 ($.70-.80/sf) for what seems to be $400-500/month NOI. The fixed up houses I've found on the market are around $80-90k so I figure I could refi in a year or less and do it all over again. I did the rental property calc on a listing I found: SF: 1400 Purchase: $42k Closing costs: $2.5k Estimated repairs: $12.5k ARV: $85k Monthly Income: $1100 Monthly Expenses: $572.10 Monthly Cashflow: $527.90 Pro Forma CAP: 14.10% NOI: $8.4k Cash on Cash ROI: 26.40% Purchase Cap Rate: 18.80% I hear all the time that you never want to buy in a bad neighborhood... But someone has to, right? And if it seems to have this much potential, is it worth the risk? Thoughts?