A Good Deal BUT It's In a WAR ZONE

The other day a fellow investor came to me and said, "I have a good deal but, it's in a war zone."  I thought about that for a minute.  What makes it a good deal.  Well you see my friend had found a quad that was showing a cap rate of 13.5.  So was that really a good deal?  All the numbers where there on the APOD. We had the GROSS INCOME, VACANCY LOSS, PROPERTY MANAGEMENT, REPAIRS, INSURANCE, TAXES, UTILITIES, CAPITAL IMPROVEMENTS, ETC.  When it was all said and done it was a 13.5

So we started to dig a little deeper.  I am interested in great cash flow properties.  I invest on cash flow.  That is my business model so if I could get the right financing this might be a great deal to add to my portfolio.  Here is what I found.

1. This property had been self managed for years by the owner.  

2. The owner went around and collected rent with a 9 millimeter hand gun in his pocket on payday before 4:00 pm or the day that the social security checks hit the bank.  (He had also been mugged 2 times while collecting rent)  

3.  The tenants where constantly calling the landlord with maintenance issues.  

4. There was one unit with a long term tenant but turnover on the other units was about ever 3 to 4 months.

The units actually stayed vacant longer because there were few who wanted to live in the area and those that did usually did not have jobs or could they qualify.  Section 8 was an option but most people with a section 8 voucher chose not to live in that neighborhood also.  Although the units seemed as though they were on sale I quickly realized that it was probably more work than what I wanted to do for that kind of return.

The moral of this story is be cautious of "a good deal in a war zone".   They may be few and far between.  There is my 2 cents.