BiggerPockets

Hey Norm!

Glad you posted. You have the chance to avoid what I think would be a big mistake. I've bought numerous properties in the "ghetto" (not war zones). I rehabbed and resold some, flipped some, and held some as rentals. The ones I held as rentals are a huge pain in the butt.

Based on my own experience and the experience of several experienced investors I associate with, here's what's likely to happen with that house should you choose to buy it ...

1. You won't be able to re-sell it for the next 5+ years since the vast majority of buyers in low-income areas have been completely wiped out of the marketplace. They can no longer qualify for most loans. So the ARV is meaningless if you can't sell.

2. The repairs will be MUCH more than $3k. Potentially five times that amount over the next 3 to 5 years. This is due to the incredible amount of deferred maintenance that has likely accumulated over the house's' lifetime.

3. This tenant will be a huge pain ... they may pay on time since their Section 8 money depends upon it, but they'll request all sorts of frivolous repairs and complain about everything. Most tenants in low-income areas fit this mold.

4. Your tenant will leave in a year or two, and you'll have an extremely difficult time finding another good tenant. Potentially months of vacancy. There goes your ROI.

5. Once you find a tenant you think is good, they'll prove to be otherwise. They'll destroy your house and fail to pay rent. You'll end up evicting them.

Bottom line: Rental properties in the ghetto always look good on paper and almost always turn out to be a disaster in real life.

Wholesale all properties on the low end and move on. Hold rentals that are at or slightly below the median value for your area.

Hope that helps!
Doug

Great point MikeOH! Contrary to popular belief all low income renters wont kick in walls and trash the place.

Yes, Mike, I did already know the answer. Haven't dealt with Sec8 much, so I hoped someone (YOU) would chime in and fill me in on details I might have missed.

This will probably be wholsesaled. I have an end-buyer looking for SFH, and numbers-wise this looks like a great deal. Especially if I can get it for significantly less than asking price.

The heading should have been "If you were an investor, would you buy this"?

It's nice to hear a different point of view from Mike. We've obviously had vastly different experiences.

Norm, you asked about deferred maintenance. My opinion is that even though it passed inspection, most of the major systems could quite possibly be teetering on the brink of demise. You'll need to see how old the following items/systems are ... roof, AC (condensor, evaporator coil, and furnace), electrical box, and plumbing (esp. the sewer line). If many of them are near death, you could possibly face a scenario where you shell out $3k per year for several years to replace them.

Sounds like you have a good tenant on your other property, but my experience tells me that won't always be the case.

I've owned 10-12 rentals in the "ghetto" and have had dozens of tenants. My opinions are based on my experience with those properties and those tenants. I've had a very positive experience with rentals that are valued near the median.

Glad to hear you're likely to wholesale it! :-)

Doug

My original impression was that he was considering buying and holding. Norm, was this not the case? I now know that you're wholesaling it.

Yes wholesaling