Cashflow vs Location

6 Replies

So I am looking at purchasing my first rental and although the numbers look great compared to everything else I've been seeing, I'm a little concerned about the location.  My wife and I have been looking for a rental since January and have made offers, been through inspections and backed out ultimately due to our market just being too pricey.  We started looking into other markets and found properties about 45 min away that will meet the 50% rule. 

I went and looked at multiplexes last week and this was the only one that really appeals to me numbers wise.  

It's a four-plex with 3 of the units being 2/1's and one unit is an efficiency with a kitchen, living room and bathroom.  The first 3 units have been rented to the same tenants for 5ish years at $300/mo and they pay all utilities.  The efficiency isn't currently rented but could be for $150ish/mo.

My purchase price would be $30,000 with 20% down at 3.25% on a 30 year amortization.  

My main concern is the neighborhood.  The city itself has a very low crime rate, but this may be one of the rougher neighborhoods.  I am assuming this of course as the police department wouldn't give me any info.  I did meet the tenants and the current owner when I viewed the property and they all seemed like nice people.  Maybe I am just being too cautious.  Any thoughts?

If you are concerned about crime, get data. Look at crimereports.com and spot-crime.com. Crime reports allow you to go back 6-7 months. That should give you an idea if you can tolerate the area.

I say go with your gut. If it feels bad, it probably is.

I don't see anything near that area on either of those sites.  I am assuming they pull public records so I wouldn't find anything at the police department either right?

@Richelle T.  undefined

I may not be using them correctly.  I will have to look into those sites a little more.  Trulia's crime rating says lowest and has two drug related crimes reported near that area but that's it.   

@Brandon Hall  I'm not a big fan of buying into "cheap real estate"  You don't get rich by buying sh*t.  From my 8 years experience. I've always had better appreciation in buying in more desirable areas.  I know as investors we like to use formulas to help us evaluate but sometimes you just need to put everything down and look at the situation:  

Originally posted by @Brandon Hall:

It's a four-plex with 3 of the units being 2/1's and one unit is an efficiency with a kitchen, living room and bathroom. The first 3 units have been rented to the same tenants for 5ish years at $300/mo and they pay all utilities. The efficiency isn't currently rented but could be for $150ish/mo.

My purchase price would be $30,000 with 20% down at 3.25% on a 30 year amortization.  

With such low rents, you are really banking on this property coming up in value over the next 10 years.  Also 4 units has the potential of a lot of issues to come up and with 4 different tenants.  Any repairs that come up (and it will happen) will pretty much wipe out your profits per year.  So your main strategy will be to buy and hope this property goes up in value to make it appealing for someone to buy.  Just something to keep in mind

Money can be made in expensive real estate and money can be made in cheap real estate.  The key, as you will read elsewhere on BP, is to make your money going in.  In other words, you need to buy at the right price to ensure your investment performs.

Real estate makes money in 3 ways, cash flow, appreciation and mortgage pay down.  Multi's tend to be more slanted toward cash flow because appreciation isn't as big a factor (smaller pool of potential buyers).  Therefore, if you can buy in a way that ensures the cash flow side of things is performing well, it won't matter as much if it appreciates or not.

Good luck!

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That property doesn't collect enough rent to overcome your variable expenses or be worth your time and the headaches

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