Investing in High Risk Areas

It takes a special type of investor – and a special property – to make this kind of investment a success, but it CAN be a profitable venture. Here’s what you need to know before turning away from, or closing on, a property in a not-so-great neighborhood.

Know What You’re Getting Into

Before you do ANYTHING, you need to know what you’re getting into. This part of town, typically refers to a lower-cost property that is located in an area with higher crime. Many investors won’t even consider a property with these attributes, but if you understand what it means to own and rent a home like this, you may not be so quick disregard it. In many cases, these homes have proven to be quite profitable for their owners, provided the investor makes wise decisions regarding the property. Understanding the unique position these homes occupy in the rental market, along with an acceptance of the property for what it is, can help pave the way to a successful investment.

A Note on Upfront Expenditures…

Many of these properties can be purchased for far less than what you might imagine. Think several thousand dollars, or maybe even less. This is what attracts investors in the first place, because even with repairs to make the home habitable, the initial cost is less than what you’d put into a B class property, for instance. Overall, providing central air, newer appliances, and updates that you or I would want, attracts great and appreciative tenants. Don’t think you can skimp on materials or work quality, because being a slumlord is definitely not cool. You don’t necessarily need to be pouring money into the home, but adding essential modern items to the home has helped improve the overall appeal of these areas.

Use a Property Management Company

Partnering with an experienced and reputable property management company is a must when you’re dealing with this type of investment. You want a group that is knowledgeable about these kind of properties, and bonus points if they have insight into your particular neighborhood. Responsiveness is also critical, as you want any issues to be dealt with immediately. Your management company should also be well-versed in working with low-income tenants, and should have strategies in place to screen tenants to find those that are most suitable for your unit.

Know How to Manage It

Your management style of the property will also play a role in its success. Even with a property management group at your side, there are still some items you’ll be dealing with as the owner. Here’s what you need to go for with this type of property: fair, but firm. When you’re in a low-income, high-crime area, people live by different rules. You need to adapt your management style so you’re playing by these same rules. You want to show that you’re confident, capable, and tough, but not uncompromising.
Owning property in this part of town isn’t necessarily a bad thing. Sure, it may be a bit riskier, and you’ll probably encounter things you wouldn’t with a better-located, nicer property. However, the revenue potential of these properties cannot be ignored, and many investors will find success with these homes. The key lies in learning the ins and outs of low-cost property ownership, having a good team on your side, and maintaining the resolve and patience necessary to transform the investment from a “risky” one into a successful piece of real estate.