Considering investing in the hood/ghetto
Chicago, IL · Member since 2015 · 8 posts · 2 votes
Considering investing in the hood/ghetto
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Real Estate Solutions Provider · Baltimore, MD · Member since 2014 · 571 posts · 452 votes
10y@Judi Smith Congratulations on deciding to make a move in the RE game!! Investing in the hood is definitely a specialty and not for everyone. Read this thread in it's entirety.
https://www.biggerpockets.com/forums/61/topics/115...
It's filled with nuggets from some successful hood investors. Feel free to reach out as I invest in these communities as well.
I wish you the best!
Sincerely,
E. Harris
33 Replies
- Real Estate Solutions Provider · Baltimore, MD · Member since 2014 · 571 posts · 452 votes10y
@Judi Smith Congratulations on deciding to make a move in the RE game!! Investing in the hood is definitely a specialty and not for everyone. Read this thread in it's entirety.
https://www.biggerpockets.com/forums/61/topics/115...
It's filled with nuggets from some successful hood investors. Feel free to reach out as I invest in these communities as well.
I wish you the best!
Sincerely,
E. Harris
- Contractor · Temple, TX · Member since 2014 · 379 posts · 164 votes10y
The AskBP Podcast #19 refers to this exact topic. You should listen to it to understand some of the ups and downs involved with those investments. Here is a link to that episode:
https://www.biggerpockets.com/renewsblog/2015/05/14/askbp-019investing-in-war-zone-real-estate/
- Investor · Corona, CA · Member since 2014 · 746 posts · 372 votes10y
That is a very specific niche and one that has to be done with precision and very calculated risks. Definitely read up on it as much as possible and if you can, find a mentor that could help guide you should that be the route you want to take.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Judi Smith you get what you pay for with almost all things in Life.
there Is a reason HOOD properties are cheap.
its simply the Risk over Reward component... the Risker the investment as a whole the cheaper it will be ( talking RE now)..
So what the MARKET is telling you is that the HOOD is very risky for a number of reasons that your probably aware of and so is pretty much every investor or laymen.
But you can have very cheap properties that are not in the Hood... IE middle America little farming towns and one job towns were that job closed up 10 years ago. Cheap properties not Hood but the risk reward and the market sets the price...
- Realtor · Schaumburg, IL · Member since 2011 · 289 posts · 118 votes10yJudi Smith nothing wrong with this as long as you think about who your prospective customer is on the tail end. If you know who your targeting and believe you can manage this person(s) then pull the trigger. If you have no experience managing property, are not hands on when it comes to managing or problem solving/repairs, I think this is a great way o lose money. Real estate investing is great, losing money on purpose isn't
- Judi Smith The most important thing to keep in mind: Nothing is worth your life or well being!!! There's varying levels of the ghetto and I would advise you to study the area before buying. The cash flow can potentially be great, but without a doubt the headaches will also be great. I grew up in the ghetto, so I was comfortable buying in the ghetto, however what I discovered was that the people I was dealing with were pulling me down. ....
I personally would not base my investment choices on properties that are the cheapest. There are so many other RE factors that come in to play including your own personality and goals. As @Jacqueline Carrington stated, investing in the hood is a special niche and requires precise execution. I look at it this way personally, the hood is an area that has proven it is performing at a very low level from a social and economic standpoint (otherwise it would not be the hood). To be clear, the hood/ghetto is not typical working class in my view, it is much further down the chain. If I were to base my RE investment choices solely on hood properties, I am essentially transferring a portion of my success probability on to the behavior of people in the hood. I know a little bit about hood sh*t, lol. People in the hood require a place to live like everyone else, so this does create opportunity similar to outside of the hood. Unfortunately, people in the hood make difference choices than people who do not have to live in the hood. A lot of the choices are usually bad (unfortunately a lot of it is generational too). I am convinced that people who live in the hood do so because of a lack of options, not because they all just love the hood so much. Again, it would not be the hood if everyone was making great choices and it was filled with the highly educated and high income earners. Do you want your success tied to perfectly managing the behaviors of a group prone to making bad choices, are more economically challenge, are educationally challenged, and opportunity challenged all in an area the economic development community has elected not to invest in either? This is the trade-off for the cheap prices.
- I didn't won't to be back in that atmosphere do I sold out. Do I regret it? no as it helped me get going, would I do it again? No. I would say start with the end in mind and definitely study ways to bulletproof your house, ex... Doorknob stoppers, pans under all the sinks, ect...
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes10y
If Yoda were here evaluating how strong the BS detection was with you, what would he say about it?
- Investor · Coplay, PA · Member since 2015 · 404 posts · 315 votes10y
I assume you are thinking about rentals.
Can you walk through the neighborhood you want to invest in and feel comfortable? If you are afraid to be there you should not think about investing there.
Do you have a vehicle that will not stand out. Check the neighborhood at night to see where the drug dealers are dealing and stay away.
Here is a book you should read. "See Poverty...Be The Difference" by Dr. Donna M. Beegle
This will help you understand the culture you are planning on investing in.
- Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes10y
Originally posted by @Chris Mason:
If Yoda were here evaluating how strong the BS detection was with you, what would he say about it?
Don't know who you were addressing, but, that seemed uncalled for...
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes10y
Originally posted by @Brent Coombs:
Originally posted by @Chris Mason:
If Yoda were here evaluating how strong the BS detection was with you, what would he say about it?
That seemed uncalled for...
Why? I didn't mean it in a snarky or negative way...
- Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes10y
Originally posted by @Chris Mason:
Originally posted by @Brent Coombs:
Originally posted by @Chris Mason:
If Yoda were here evaluating how strong the BS detection was with you, what would he say about it?
That seemed uncalled for...
Why? I didn't mean it in a snarky or negative way...
Given your original wording, that surprises me. But thanks for clearing that up.
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes10y
Originally posted by @Brent Coombs:
Originally posted by @Chris Mason:
Originally posted by @Brent Coombs:
Originally posted by @Chris Mason:
If Yoda were here evaluating how strong the BS detection was with you, what would he say about it?
That seemed uncalled for...
Why? I didn't mean it in a snarky or negative way...
Given your original wording, that surprises me. But thanks for clearing that up.
Nah, I just meant "can you spot a bullshiester well?" because that's going to make a difference.
- Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes10y
Originally posted by @Chris Mason:
Originally posted by @Brent Coombs:
Originally posted by @Chris Mason:
Originally posted by @Brent Coombs:
Originally posted by @Chris Mason:
If Yoda were here evaluating how strong the BS detection was with you, what would he say about it?
That seemed uncalled for...
Why? I didn't mean it in a snarky or negative way...
Given your original wording, that surprises me. But thanks for clearing that up.
Nah, I just meant "can you spot a bullshiester well?" because that's going to make a difference.
Oh. In that case, you were addressing ALL of us! We all need that! Cheers...
- Chicago, IL · Member since 2015 · 1 post · 1 vote10y
@Judi Smith Do you have specific concerns such as your personal safety, difficulty in collecting rent, or keeping the building in good shape? I'm a newbie investor in Chicago and I have a 3 flat on the West side. I grew up there, so I am comfortable going there at any time of day to conduct my business. Currently, I'm there several times a week as I have a number of repairs underway, but after that I wouldn't imagine I'd go over more than once or twice a month. I believe someone already mentioned that your comfort level is key. You could always look for a property manager if you'd like to avoid interacting with tenants or a particular neighborhood.
- Investor · SSF, CA · Member since 2015 · 127 posts · 24 votes10yBuddy of a buddy did this. He started two businesses -- laundry mat and also a cell phone shop. Both did well.
- Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes10y
I have been for the past 5-6 years. Didn't really want to be a landlord again, but then the market crashed and I had a triple lot in a low-income neighborhood and homes there were selling for 10K, because that had been ground zero for mortgage fraud in the whole U.S.
I was living in CA and was buying sight-unseen in this neighborhood in Atlanta. 1 house on one side of my lot, then a duplex on the other side of the triple lot. Had my carpenter look at them and tell me that they wouldn't need so much to put tenants in. So, I did that. Accumulated more properties.
Most investors stayed away from this neighborhood, because it really looked like a warzone, if you didn't know it, and there were lots of good pickings for 30-40K in some better neighborhoods. I was taking chances and picked up this, that had been mortgage frauds (I could see it on the pics on Realtor.com) and where I'd only needed to replace the stolen items.
Yes, it's been a rough ride at times and I've had to renovate some of them more than once. I also moved back to Atlanta for 1.5 years and lived in one of my houses during that time and walked all through the neighborhood, with my dog by my side. I've never been attacked or had something really bad happen to me. Sometimes people would spit on the street in front of me and then look to see, if I would react to that provocation. This is a 99% black neighborhood and I'm white and blond , with blue eyes, drive a little red convertible.
But my reasoning for buying there was that there's development happening right next to this neighborhood and I was counting on that pulling the values up, which it has and will continue.
Do I regret it? No! I bought with cash and have my money already back from the rents. The houses that I bought for 10K are now selling for 30-40K. Once the development's happening it'll shoot up further.
One thing that's important to keep in mind: It's very difficult to find a good property manager for those kinds of neighborhoods. Even at 10%, it's not worth it for them to rent a house that gets $ 400-$ 600/month. So, the few that work in those neighborhoods want a minimum per door per month. Maybe $ 100 or $ 120. So, if you maybe have some apartments that rent for $ 350/month, they'll take a big chunk of your rent.
And then you have those PM that want first month rent for putting in a tenant (which is quite common) and who have figured out that a bad tenant will move out much quicker and then they'll get another month rent from the next tenant. So, placing bad tenants makes them much better income than placing good tenants.
I've learned a ton and am grateful for the opportunities this has opened for me.
- Investor · Chicago, IL · Member since 2015 · 40 posts · 24 votes10y
Originally posted by @Judi Smith:
Wanted to hear from investors who have investment in the hood? I'm a newbie and really can't afford to invest in the high in or middle-class area and want to know is a smart decision to start investing in not so great neighborhoods where property is a lot cheaper? I've been looking at property in low class neighborhood and see that the property is more affordable my concern is if that is a an illusion due to the fact that there are more risk involved with investing in low class neighborhoods. Would like to know or hear from someone who invest in that community.
Happy New Year! One thing, I think we should first be respectful of all neighborhoods, referring to people as "low class" and their communities as "hoods" verges on disrespect and degradation. I'm sure that wasn't your intent, but as an educator, I'm always teaching. I live and work in places that are described by some using that language. I find it disrespectful to my students, their families, and to me. I have been fortunate enough to have to pay a lot of money in income taxes and property taxes (doesn't always feel fortunate). However, I choose to stay in the community where I grew up in, in poverty. Now, that I have acquired some sense and some cents, I buy in these communities and am doing quite well. I have invested in Englewood and the 60636 area code, in addition to Bronzeville, South Shore, Auburn Gresham, Chatham, and South Chicago. I work as an administrator in education in Woodlawn. These communities have tremendous potential. More importantly, it's an opportunity to strengthen the communities and provide a stronger tax base. I have bought most of my portfolio for amounts less than 40K and for one only had to show up to closing with just over 3K. Quite a few of the properties I have acquired fall in the 10-15K range. If nothing else, they pay for themselves in 1.5 years just from rental income. Go for it!
The risks: Hard to get funding, theft (if you're from the Chi, you know what I'm talking about), code violations, tenants(you must take your time and do screenings).
risks
The rewards: Great way to build a mega portfolio before moving on to bigger projects, very cheap, most others don't want them - easier to get.
Research. Read. Join a REI. Keep up with BP.
Good luck,
- Investor · Chicago, IL · Member since 2015 · 40 posts · 24 votes10y
Originally posted by @Daren H.:
I personally would not base my investment choices on properties that are the cheapest. There are so many other RE factors that come in to play including your own personality and goals. As @Jacqueline Carrington stated, investing in the hood is a special niche and requires precise execution. I look at it this way personally, the hood is an area that has proven it is performing at a very low level from a social and economic standpoint (otherwise it would not be the hood). To be clear, the hood/ghetto is not typical working class in my view, it is much further down the chain. If I were to base my RE investment choices solely on hood properties, I am essentially transferring a portion of my success probability on to the behavior of people in the hood. I know a little bit about hood sh*t, lol. People in the hood require a place to live like everyone else, so this does create opportunity similar to outside of the hood. Unfortunately, people in the hood make difference choices than people who do not have to live in the hood. A lot of the choices are usually bad (unfortunately a lot of it is generational too). I am convinced that people who live in the hood do so because of a lack of options, not because they all just love the hood so much. Again, it would not be the hood if everyone was making great choices and it was filled with the highly educated and high income earners. Do you want your success tied to perfectly managing the behaviors of a group prone to making bad choices, are more economically challenge, are educationally challenged, and opportunity challenged all in an area the economic development community has elected not to invest in either? This is the trade-off for the cheap prices.
Wow! Never thought of myself and family in that way, simply because I have chosen to continue to live in my community. Ironic, that I had my vehicle broken into twice and my bike stolen from campus while living in Okemos, MI while at MSU compared to zero times, living in this neighborhood of people that make "bad choices" and are "educationally challenged." I've always been treated with respect, even when I request the young men to pull their pants up and to watch their language in front of children. Maybe because I treat them with respect and don't judge them based off of their conditions based of societal issues that have plagued our communities for years.
Appreciate your input and experience. Just wanted to provide a different narrative than the one that's usually imposed on our people.
-From the "Hood" 39th Street, Madden Park Projects to be exact, turned investor, in and for the "Hood
@Assata Moore When I speak of the hood I am not speaking to any particular city or race. As for your experience at MSU, crime happens everywhere. I never said crime is limited to the hood. I never said you cannot be successful from the hood or from a low income environment. I am living proof. Success can come from anywhere. We could get into my personal beliefs on the circumstances that creates the hood but I would probably get kicked off this site, lol, and it is different from the point I was trying to make in regards to RE investing. I commend you for staying in your community. One way the hood can turnaround from being an economically depressed area is for the talent from the hood to return and reinvest in the community. People become successful by seeing and learning from other successful people.
- Rental Property Investor · brooklyn, NY · Member since 2015 · 70 posts · 16 votes10y
happy new years group
thanks for all the comments. i am thinking of buying properties out of my state . in new jersey. being that its close to new york. i'm from Brooklyn and not afraid of low end neighborhoods . getting started poses the question. little money less credit gives few options. My scheme is to buy low replete work myself up financially and credit worthy. so i can do more deals..
thank to bigger pockets i can learn from these forums.
- Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes10y
To answer your question, there is a huge amount of money to be made in some of those neighborhoods.
Most of that money is made by changing the neighborhood or riding the wave of change that others are causing. That is normally called gentrification.
Using the term "Ghetto" refers to the fact there is a high percentage of a certain minority in the area. Gentrification can often force low income (and disproportionately minority) people from the area. Many minority tenants get angry when the area starts to gentrify because rents increase.
A "lower class" ghetto tends not to be the best long term investment without at least some gentrification. This is because the low rents will not cover Capital Expenditures over the long term.
As an example... during Hurricane Katrina many residents were forced from the lower 9th Ward of New Orleans. Much of the housing in the area was completely destroyed. Many of the tenants in the area became irate when they learned they would no longer be able to rent a home in New Orleans for what they had previously been paying. Some rents for entire single family houses in the lower 9th Ward had been less than $250 a month without any government assistance. Considering what insurance would cost in the area, the Cap Ex budget would be $0! Therefore the area was trapped in a downward spiral of less money being spent keeping the homes up and the rents going lower and lower.
So in short... gentrification tends to be very good for local property owners. It is not necessarily such a good thing good for tenants at least in the short term.
- Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes10y
Chris, it is hard enough investing in out of state deals. To target low end neighborhoods out of state with no experience in my opinion is a receipt for disaster in my opinion.
Why not target decent neighborhoods in NJ?
Beat regards
Chris
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