First investment prop. But not 100% sure on the neighborhood

89 Replies

Hi guys! I put in an offer on my first cash flow prop. And it has been accepted!! How ever I am now second guessing if buying in that Particular neighborhood was a good choice. There is not a lot of diversity, doesn’t have the best appearance but investment properties there are selling like crazy. I had previously put in offers on 2 other properties in the same neighborhood that have gotten rejected due to cash offers. I did my numbers and I hope to get $200 in cash flow every month. My question is should I be worried about the neighborhood not looking like the best neighborhood in town?

Are you working with a realtor? If so just ask them to pull the community info for you. You can also call the community phone line for the police station and ask them about the crime rates in that area. All that being said how are the rents? If the deal is good and you’re not planning on living there then I wouldn’t be over concerned about how the area looks. If properties are selling like crazy the area will likely improve overtime but that’s also a good question for your agent. 

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What does it mean when you say there isn’t a lot of diversity ? Is it all minority’s in the area ? Sounds like you got yourself a solid c or d class neighborhood

For starters, check crime reports at www.crimereports.com or www.neighborhoodscout.com

and schools at www.greatschools.com

and jobs and employment at www.city-data.com

Check with realtor that knows the market and see what their opinion is and what the vacancy rates are. If you can, drive around the neighboorhood. It may be an area that is transforming rapidly from D+/C- to C+ or better and you may have a goldmine. Hopefully you can get out of deal if it doesn't check out. May also be worth researching if any companies (ex. starbucks) have opened businesses in the area recently or are planing on opening in the future as it may suggest the area is growing rapidly.

@Christian Rojmar thank you for the helpful websites! I did check the schools prior they are 4,4,6 which I don’t think is bad. I checked crime reports it had 34 reports (within this month) 2 violent and 27 quality of life. What number would you consider to be enough to stay away? I also checked neighborhoodscout.com 640 Vital statistics and 22 condition alerts found. Not sure how bad that is. From the looks of it I would probably say it’s a c+, c-. There is actually a military base within 15min. Walmart, Target, Starbucks within 15min also, It’s close to major roads and without traffic it is 45min. away from D.C. I’m just worried that there is not much diversity in that particular neighborhood and that I will be limited to certain tenants.

Find some "certain tenants" that will pay their rent every month and you're good to go.

@Yvette Valencia

Still trying to read between the lines here.

Does "Not much diversity in that particular neighborhood" really mean THIS IS A BLACK NEIGHBORHOOD? Does "I will be limited to certain tenants" really mean GANGSTAS PARADISE? Does "doesn’t have the best appearance" refer to multiple graffiti tags reading, "WHO SHOT BIGGIE?"



@Jonathan Bombaci Thank you for the helpful information. Rent in the area is 1,200- 1,400. Town house is 190,000 needs small cosmetic repairs. Other similar townhouses in the area are selling for around 220,000. My realtor refers me to MlS for info. On the neighborhood she says she is not allowed to talk about the make up of a neighborhood??

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@Yvette Valencia

Find a new realtor. There is a tenant for every kind of neighborhood/property. If you’re on the fence about the neighborhood then it’s not a total war zone. Screen your tenants and collect rent.

@Linda Lovely Because I choose not to :)

I never said the town house was worth more. If you read what I wrote again I said “ Similar Homes are selling for 220” I know why I’m getting it for 190.

Yeah there are fair housing laws that vary by state that realtors have to be careful not to violate but they can pull the community info for your neighborhoods and surrounding areas so you can compare the statistics. 

One thing I try to do when fair housing comes into question is talk to the neighbors in front of my client(s) and ask them about the neighborhood and surrounding area. I may not be able to give my opinion but the neighbors absolutely can.  I also suggest to clients walk around the neighborhood during the day and at night. If you feel safe or unsafe doing that then it tells you a lot about the neighborhood. 

@Yvette Valencia as long as you paid "right"  ( you make your money on the purchase )  and its not a complete " war zone" and you have PM in place protecting you, , all should be ok,,,,, Its ALL about price and the team around you

Good luck

@Yvette Valencia I think if you don't want to go there and collect rent that mit be a red flag.the 200 in cash flow mit turn in to 0 if there is alot of repairs. I thing all of us first timer's sometimes want a house so bad we buy things that mit be not what we thought they where. I did the same thing but once it's rented and my mistake are payed for will cash flow 1500 a month. Good luck with your new house

@Yvette Valencia the school ratings are ok. I personally prefer areas with 7. As for crimes, 34 reports during this month seems high for me (typically less over multiple months where I prioritize searches) but as long as violent crimes and drug crimes are 0, it may not be a huge problem. In the end, it is all about the type of areas you look at. My focus is to find C homes in B areas but may not be what you look for. Also for crimes, you may want to look at how crime rates have changed over last few years. Are they declining which would suggest the area is being "cleaned up" and is becoming safer. That may be a great sign.

Finally, I am also not sure what you mean with diversity. I would personally not worry much about whether the neighborhood is diverse or not but rather if it is safe, family friendly, and in a good location.

@Yvette Valencia is the cash flow $200 after ALL expenses (PITI, maintenance, vacancy, PM, etc) or is that just after you subtract PITI from rent? That makes a big difference.

I usually analyze deals/areas based on how much risk it is (aka more repairs, lower income area, more maintenance, etc). If the area usually is going to require more repairs and maintenance, then I want 20% CoC return. If the area isn't at risky, I'd do it for 12-14%.

@Jim K. Your analysis was dead on point. Lol. isht was hilarious.

@Yvette Valencia I would be very careful the way you describe an area. That could be a fake housing violation. Check crime stats. Drive the area at night and during the day. See how it goes.

For the rent you’re getting at that price is probably pass on this deal regardless

@Yvette Valencia I don't think this real estate "deal" is for you. Plain and simple. "How ever [sic] I am now second guessing if buying in that Particular neighborhood was a good choice." Your words, not mine. You already question the neighborhood. This is a bad way to go about investing. 

From your comments, I also question if real estate is a good investment vehicle for you. "On the neighborhood she says she is not allowed to talk about the make up of a neighborhood??" Your words, not mine. Yes, that's correct. The fact that you question her position means you don't know what these legal aspects of the real estate business are about. Learn the business, then invest, IMO. 

@Amy H. Are you finding CoC returns of 12-14% in today's market after considering all expenses including cap ex? I have now researched and gotten help in 3 different markets and are struggling finding anything above even 4% true CoC. I am already lowering my requirement from 10-12% to 8% ad will continue searching.....

@Yvette Valencia . What city are you investing in ? I bought some $10,000 homes in Illinois. I believe this was a gade F area. Things were good until my property manager quiet and the new property manager won't go into the neighborhood to collect rents without somebody with her. I wanted to buy affordable housing but I think went a far. I'm also looking for other areas to invest in.

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