You can make money on such a deal, but you have to tailor your strategy to match the reality. I would only buy in an area like that if the cap rate were way above the interest rate on the loan. For example, if I can borrow money at 5% and buy property at an 8% cap rate, then I am making money on the bank's money. In a stagnant area, capital appreciation is not a given, as it is in many cities. Another way to make money is by building equity by improving the properties. On this, I advise that you be careful in your spending. It would be easy to spend more in renovations than what the additional rent would justify. I personally like a 5-year or less payback on investments on improvements. One of the best ways to do that is to put in some sweat equity.
