Howdy Guys I am looking into getting my first property and am kind of stumped right now. The market is hot so there are not too many plex's for sale in great parts of town and the ones that are for sale are priced at 2-3 times the appraised value. I have seen some good deals numbers wise pop up but they are on the south and west side here in San Antonio which is mainly lower middle class Hispanic and can be pretty rough. My question is should I not care about the community/social class and look for a property that cash flows well regardless, or should I just be patient and wait till a property in a very desirable area pops up at a reasonable price? What has your experience been like and what would you suggest to look for or avoid?
@Michael Guzik there are exceptions to everything, however as a general rule of thumb the best numbers are going to be found on properties that are typically below the middle of the socioeconomic scale of your community. The nicer areas of town typically cost more money. An example could be buying a house for $100K that rents for $1,000 per month in a "nice" area vs buying two houses in a lower priced area of town for $100K that rent for $800 each. Which would your rather own?
No you definitely need to care about the area your properties are in and what type of tenant base it will attract. Lower class tenants require more time, can cost more and can give you more headaches. If you’re local you can still make this work, but you have to be aware of what you’re signing up for.
Another good thing you could do is call a couple local PMs and ask them if they manage in the areas you’re mentioning. If two or 3 of them say no, then it’s a rough area.
I recently bought a home for 35k. Now based on that alone, you’d think it’s a dump, but it turns out it’s just a solid C class area. C class can be okay, it’s the war zones you need to be careful of
@Michael Guzik I don't know if I'd use the phrase "social class" but I stay away from what I will term areas or properties "of last resort". If the average SFR rents for $700, I'd want to buy property that command $850 (just making up numbers). And I certainly would avoid anything (in my hypothetical) that rents for $500. The actual dollars aren't important but it's more around tenant quality, acceptable credit scores, etc. And those areas with low rents are usually rough(er), have schools that are less desirable, etc. It's rare that it's just one thing, it's usually a combination. You probably won't find a property at a great price in a "very desirable" area. Odds are your sweet spot potential is the "slightly above average" area with a property that's in "slightly better condition" that those around it. The huge challenge is actually discerning what those areas are and not talking yourself into a property that's in a "below average area" because the price looks right. Well, okay, unless that's your desired path.
@Anthony Dooley Thanks for the comment and I see your point! To be honest I'm not sure which one I would choose since I'm brand new..
@Caleb Heimsoth I completely agree that has been my experience with managing properties too is that lower class is usually very rough and trashes the property.
@Andrew Johnson The school it feeds into is definitely not desirable in my opinion. People are going there because that's where they can afford to live not because that's where they want to send their kids. I am certainly doing my best to try and find properties in that sweet spot thanks for the tip!
My properties aren't on either end of the spectrum but are under the median home price for sure. I do think that your numbers are only part of the picture. I haven't tried lower end homes so my perspective is only from my experiences. At ARVs below 140k, you can still attract great quality tenants. Our focus is on attracting great tenants which makes our job easier. I have been tempted to try out the lower end market at times. There are great people at all income levels so screening may be the biggest trick at any price point. Let us know how it goes when you jump in.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Join the Largest Real Estate Investing Community
Basic membership is free, forever.