How to Find Great Working Class Neighborhoods to Invest In Using The “Leveraged Analysis Technique”

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Today I would like to share with the BiggerPockets audience a systematic technique I use to vet low priced/high cash flowing neighborhoods:

The Leveraged Analysis Technique.

This process leverages the available resources so we can find safe Working Class Neighborhoods (WCNs), as well as cut our search time in half by not wading through duds.

The analysis is powerful because it uses the right metrics for analyzing properties, ignoring the metrics that just waste time. For working class neighborhoods, these Crucial Three Metrics to save time and money are: Crime, Photo-Counts, and Rents (C.P.R.). See the video below for exactly how I use this technique:

No, its not schools, and that’s the difference: For this demographic you need to know what the indicators of stability are, and knowing these nuances can help make your analysis more applicable and accurate to this market. This technique has worked very well for myself in this niche, and from feedback on BiggerPockets, it has been very helpful for others.

Now, unlike before, there are systematic ways for you to be an informed real estate investor when diversifying your portfolio by  going into low income neighborhoods, which will minimize your risks and make sure you’re only spending time on the properties that really matter. Now the real magic can happen!

In conclusion, when someone who is new at real estate investing is mentioning a house where the property prices are very low, the first response should now be,”What does the crime rates, photos, and average rents of that neighborhood say about the property?”

Photo Credit: Stuck in Customs

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About Author

Lisa Phillips is the first video blogger that exclusively advises everyday investors on how to cash in on working class neighborhoods for higher profits with sensible investing strategies. You can visit her hours of free videos and tips On Google + Here!

19 Comments

    • Jeff,
      Your an old bawldguy who cares about his mother.
      Low income investing is a young persons game, unless like me you can’t find a young person to buy me out.

      What the end game of low income has to be is either the luck of gentrification comes to your part of the hood, or one must run the place into the ground and deed it over to a tenant or abandon the place.

      The other method is create or find a good management company that sends you a check each month for eternity.

      When my places sell I’m going to buy a coin op car wash, or some other no employee business.

    • jeffrey gordon on

      My new test, would I put my 91 yo father in that neighborhood to live alone without his 12 gauge by the door. Right now I am more concerned that he have “internal” roads to run off of every 10 days—“I was not going to fast!”. My siblings get to take away his car keys when that day comes!

      j

      • Hi Jeff! There are usually a lot of retirees in these neighborhoods, well into thier 80s that live in these neighborhoods, because of the lower rents. And, if you vet the crime before hand (that takes about 10 seconds for most larger cities), you will find that answer soon enough!

  1. Hi Lisa – any tricks for determining rental rates in new markets aside from Craigslist? Do you use HUD or some other online source? Thanks!

    • Hi, Great question! For the Rents portion of C.P.R. I use Rentometer.com. Its a newer resource that has been really accurate for me in determining historical and current rents. Anything that is has collected in the past. I always look at the difference between historical/current, because as you know this can be cyclical. Good luck!

  2. Thank you for this. You are talking about the very neighborhoods where I grew up. As an investor I am naturally drawn to invest in the community where I grew up in. Of course I would like to have some homes/rentals in the “desirable” neighborhoods in my investment portfolio, but working class rentals do not scare me as much as they seem to scare so many other investors. I didn’t grow up in the most desirable neighborhoods, but I come from a family who wants to go to work, send their kids to school, and live in a nice apartment. Most people in these neighborhoods are this way.

    My problem is that my partner and I come from completely different areas and backgrounds, so we don’t quite see eye-to-eye on this aspect of REI. I think our partnership will work because (1) we are getting married, and (2) we do agree on the rehabbing aspects of our business. If he cant come around, I think we would just need to have two different divisions of our business.

    I have read quite a few of your articles and listened to your podcast with Josh and Brandon. Do you do long-distance investing?

    • Hi Shannon, what an appropriate question! Yes, I do long distance. I currently live in the DC area, but for these prices I travel anywhere from 35-90 miles away to get these good deals.

      As for not seeing eye to eye, that’s the story of my life! I too grew up in these areas, and your character really is determined by how hard you work. Every person I grew up with in this working class neighborhood has always been employed, through all the economic ups and downs, and we did go to school. Its different, but good culturally in these areas. My SO comes from an upbringing where he can’t see the potential that I always see so easily, so I have to keep hammering on him that the “economics and returns are a no brainer!” I usually have to show him that I not only beat the 2% rule, I am usually at 2.5%-3% per month on my acquisitions. That usually brings him around, if that helps! Thanks for your comments, many of us came from these neighborhoods, so it gives us an advantage of going in.

  3. Sara Cunningham on

    Lisa it’s great to see someone who really believes in low income investing. I used to feel a little embarrassed about where all our properties were located. Not now we get great cash flow and none of our tenants have ever had any problems with crime. Yes we got a broken window when a property was vacant for a couple of months but other than that we have had no problems. We use all the techniques you describe above. I also use Zillow.com to get information on tax, property value and average rents. We just bought our 12th property for $17,000 sight unseen as we currently live in Italy. We already have a tenant! Keep up the encouraging posts.

    • Amazing Sara. All of a sudden, real estate investing becomes A LOT more fun when you can act on this strategy, and make money a lot quicker. Thank you for your comments, Enjoy Italy, the food is fantastic!

  4. Lisa – I totally agree; “it’s not the school that’s going to determine whether you are a success; you are”. Understanding this puts you ahead of 99.9% of people.

    Also – totally agree with Jeff Brown :)

    Keep up the good work Lisa!

    • Hey Ben! Its a nuance that I find that explains what’s going on: They want their kids to succeed, but its not the school that’s going to determine that! Thank you for the comment!

  5. Thanks Lisa. Good job again.
    I just picked up my second property, a fourplex for $50,000. That’s $12,500. a door. My first was a duplex for $30,000. or $15,000. a door. Not that you can’t do the math :). Both will be paid off in ten years or less. The neighbor hoods are not the best but not the worst. Someone has to take the rent money, it may as well be me.

  6. Hi Kevin! We have to talk, I need some more duplexes in my life! I loved what you said, “Not the best, not the worst!” I’ll take that every day if it means consistent cash flow. Plunk a good property manager in the middle with good tenant screening, you got a combination that works and is relatively less headaches. Thank you for the comment.

  7. Great article, Lisa. I personally get excited when driving through working class neighborhoods because I like that, if I need to sell it quick, there’s plenty of like-minded investors that will do the math and buy the property. Being as I used to door-knock in questionable neighborhoods for pre-foreclosures (how threatening can I really be, really?), being able to look past “would I live here” vs “is this a solid blue-collar neighborhood” isn’t a problem. Last night went to a property just like this, with lots of neighbors hanging out outside, solid brick construction, needs a nice rehab. Good street good bones solid rental area…sign me up!

    • I do too Tracy! When you find one where you can comfortably put a nice family into, get a steady long term rent check and cash flow, its an amazing path to wealth, at such a low acquisition price.

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