I have started looking at properties for a long term rental investment recently. I am in Greenville NC a smaller city about an hour east of Raleigh. Since I have started looking I have come across some decent options. I have found a property that has good COC and a potential of 10% cap rate but is in a low income and higher crime area of the city. The property itself is in decent shape, the numbers line up. I think I'm going to put in an offer however I have some reservations about the street, the vacancy rate of the neighborhood and just the overall gut feeling I get when I am there. Is my concern about the neighborhood justified or is this a common rookie mistake? Any thoughts from more experienced investors? Pros and cons for investing in the lower income areas? Would appreciate any feedback! Thanks
You're making a veteran move, not a rookie mistake. We often overthink this - most of real estate boils down to answering the question "Do people with options want to live here?"
Those cheap cash flow properties don't actually cash flow on end of year actuals. It's a tough tenant class to manage, not enough gross rents to cover ongoing maintenance, repairs, and vacancy (they are always older properties).
The house is cheap and the vacancy is high because nobody wants to live there. The home value and rent appreciation will not come close to keeping pace with inflation.
I like to revert back to the Bezos quote - "When the data and the anecdote disagree, trust the anecdote."
There are many different ways but I’m a firm believer in buying the best location or on the fringe of the best location if an upcoming area. The poorest house on the richest block is where I started and have essentially remained. In my experience A & B neighborhoods with desirable schools get people who are in better shape financially because the prices are higher and that alleviates many of the problems landlords can face. Resale is also generally easier in more desirable neighborhoods and I am as concerned with the exit strategy as I am with the cash flow.
Thanks for the response. I have a target area which is a B neighborhood but the calculations on this property look good. I just have a bad feeling when I am at the property. As a first time investor I'm not sure if I am focused on the wrong thing. Everything you said makes sense. Thanks!
You're making a veteran move, not a rookie mistake. We often overthink this - most of real estate boils down to answering the question "Do people with options want to live here?"
Those cheap cash flow properties don't actually cash flow on end of year actuals. It's a tough tenant class to manage, not enough gross rents to cover ongoing maintenance, repairs, and vacancy (they are always older properties).
The house is cheap and the vacancy is high because nobody wants to live there. The home value and rent appreciation will not come close to keeping pace with inflation.
I like to revert back to the Bezos quote - "When the data and the anecdote disagree, trust the anecdote."
Anthony, as others have said, the rookie mistake is buying in a high crime area and thinking your tenant pool will not have higher maintenance, vacancy and evictions than buying in a better neighborhood.
Welcome to the BP community. Good for you for wanting to get going.
@Travis Timmons, makes a great point that many new investors don't think about. I have seen many times that a cheap property that shows cash flow on the inicial look does not always look so nice on the end of the year actuals.
I started this way for the first 5 years of my investing and made it work because i did all the maintenance and management. Now that I have much more experience, things look a little different in this situation.
It is good that you are getting that "gut feeling" you will learn to follow that, when needed, as you get more experience.
Your concern is valid; high cap rates in low‑income pockets often hide higher vacancy, turnover, and management load. Do a quick gut‑check with data: pull crime trends by block, verify vacancy with two PMs, confirm conservative rent comps, and stress‑test for longer lease‑ups and heavier CapEx. Also test your exits: can you sell to an owner‑occupant later, or only investors? If you're early, favor solid C to B streets with decent cash flow and flexible resale; if you do buy the rougher street, price in stronger reserves, tighter screening, and a PM who works that niche. If the numbers still hold after that, proceed; if not, pass and keep your powder dry.
Sometimes you need to trust your gut and if you get bad vibes going to the house then pass on it. You should definitely look into what you could sell the house for if you ever needed to. The cheapest in a B neighborhood will usually be a good ROI and do rule out C's as well.