Top rental markets are also the most dangerous cities?

48 Replies

Just came across this list of most dangerous cities in America: Forbes 10 Most Dangerous US Cities and to my surprise many of the top rental markets spoke of by the other members are on the list!  Detroit, St Louis, Memphis, Birmingham, Atlanta, Baltimore....is this why the saying higher risk=higher return?  I've been reading on investing in Memphis and now I'm not sure if that's a good idea....can investors from these areas please chip in?

I am from Cleveland & it came in at #9 on the list. There are absolutely horrible areas of the city just like with the others you mentioned. The key is to know the correct areas to invest in.

If your looking at a map of a city everything looks so small and close together but on the ground 20 blocks over may as well be a different world. There are areas of the city we will not operate in no matter how much money an investor offered us.

Every problem / challenge comes with opportunities!

Flavio

I'm in St Louis and the area is made up of many small towns surrounding the city that are not dangerous places to live. Would I invest in the city? Yep, because there are some areas undergoing gentrification and provide great upside as well as rents. The surrounding counties, St Louis, Jefferson and St Charles provide great rents!  It's not all Ferguson.

Memphis, like many cities, is extremely variable in its composition, especially regarding areas that are considered typically more 'dangerous' and areas that are not. There are certainly some areas with very inexpensive rental homes that are tpyically in what are considered war zones. Most investors will tell you that the costs of management, theft, vacancy, eviction, etc make the initial calculations of projected profit inaccurate. There are many other areas of Memphis that are excellent areas to invest in without the difficulties of high crime rates. You cannot generalize an entire city into a single characteristic. To learn the small variables of different areas you need local contacts of some sort through which to invest, whether that's a turnkey company or simply local investors. Much more research and connection with local investors will be required rather than a cursory view of the city.

Although not on the top 10 list (shocked surprise at that), NOLA is also a very dangerous city.  But like the other PPs have said about their towns, if you know the area or partner with someone trusted who does, there are also lots of great areas to own rental properties.  But neighborhoods can also change on a dime.  With one street being gorgeous, multi-millionaire dollar historic homes and two streets over are the slums.

I am in St. Louis, MO and I agree with Vince.  There will always be areas of any major metropolitan area that will be dangerous, but that does not mean you should discount the entire City. 

St. Louis is commonly ranked a top 10 city for crime because they typically only include the actual City of St. Louis, and not the entire metro area.  The St. Louis metropolitan area is made up of over 100 separate municipalities, not just the City of St. Louis.  Many of these municipalities are very safe, and if you add them to the calculation it drives the overall crime rate for the area way down.

I am a buy and hold investor, and there are certain areas that I would not touch with a 10' pole (north city), although I would say I am comfortable investing in about 90% of the areas around here.         

Originally posted by @Wayne Tam :

Just came across this list of most dangerous cities in America: Forbes 10 Most Dangerous US Cities and to my surprise many of the top rental markets spoke of by the other members are on the list!  Detroit, St Louis, Memphis, Birmingham, Atlanta, Baltimore....is this why the saying higher risk=higher return?  I've been reading on investing in Memphis and now I'm not sure if that's a good idea....can investors from these areas please chip in?

In Detroit the key is the Metro Area is no Detroit.  I just had a rental on the Market for all of 4 days.  Rented to a great couple with  great scores.  All these cities is in rough shape but I bet the metro areas of the inner suburbs is the place to get great cash flow.

Remember that there are good working class folks that are leaving the ghettos of the inner city.  These people want out and just want to live in peace. 

Memphis violence is very geographically specific. It is almost al black on black in rough parts of the city. I lived there for a year and walked around day and night looking at homes in c grade areas. Never felt unsafe ever.

I have also been told that some cities/states report crime differently which skews these figures.

For example if someone steals a car and robs a bank hitting a teller in the process and causes an accident in the street when they take off in some states that is basically reported as 1 crime, robbery.

In Tennessee they report the theft of the car the robbery, the violence and the accident as 4 crimes.

I definitely throw my opinion in and say that those are far from the most dangerous cities in the US. Any city will have it's dangerous areas, but those cities in general are far from bad. Detroit might be a little more rowdy than some, but I wouldn't even consider it a dangerous city. I'm from Atlanta and have invested there and that city wouldn't even rank on a dangerous scale to me. It's totally fine, as long as you stay out of the crazy areas...but every city has those.

I'd call this a major Forbes Fail.

Originally posted by @Ali Boone :

I definitely throw my opinion in and say that those are far from the most dangerous cities in the US. Any city will have it's dangerous areas, but those cities in general are far from bad. Detroit might be a little more rowdy than some, but I wouldn't even consider it a dangerous city. I'm from Atlanta and have invested there and that city wouldn't even rank on a dangerous scale to me. It's totally fine, as long as you stay out of the crazy areas...but every city has those.

I'd call this a major Forbes Fail.

HAHAHAHAHAHAHAHAHAHA oh sure Detroit is not dangerous.  You must have something tp benefit from saying Detroit is not dangerous. 

LOL rowdy Oh man thanks for the laugh.  Yeah people get shot everyday here in the city.

Those cities are hellholes.  How dare you lie to the people on this forum.  Well now I know not to pay attention to anything you post about in the future.  Thanks for saving me time in the future.

Let me guess you are a turnkey that deals in these cities. 

Don't people get shot every day in hundreds/thousands of US cities. That doesn't make it dangerous unless you are in the parts where everybody is shooting at each other?

Originally posted by @Vince Mayer :

@Scott K. 

@Ali Boone  

I think somebody had too much caffeine or an early start on happy hour. Chill Scott!

No I just don't tolerate lies.  Is Detroit better?  Yes.  Is Detroit dangerous?  Yes.  Is most of the crime in this area from Detroit or Detroiters?  Yes.  For her to say what she said was wrong and stupid.

She must be playing an angle here.  Detroit is always in the top 3 worst cities with crime for the last 20 yrs.  Yet she says its safe.  We have whole neighborhoods that are bombed out that even the criminals have left.  2013 was the leader in murder.  How does it make it safe.

People are shot every day in this city.  And don't tell me it happens everywhere.  That's another lie.  It doesn't happen 3 miles north or south or even west of the city 

Originally posted by @Dean Letfus :

Memphis violence is very geographically specific. It is almost al black on black in rough parts of the city. I lived there for a year and walked around day and night looking at homes in c grade areas. Never felt unsafe ever.

I have also been told that some cities/states report crime differently which skews these figures.

For example if someone steals a car and robs a bank hitting a teller in the process and causes an accident in the street when they take off in some states that is basically reported as 1 crime, robbery.

In Tennessee they report the theft of the car the robbery, the violence and the accident as 4 crimes.

 THAT is a very good point.  The PD big wigs in my city recently got called to the carpet for "mislabeling" crimes (assault instead of attempted murder, etc.) so their areas looked better.  They had to go back and adjust all kinds of crime numbers.

Like Mark Twain said, "Lies and Statistics!"

These crime stats are usually compiled by the FBI via local law enforcement agencies. This list looks like the regular suspects to me. The crazy part is in the real bad areas about half the crimes go unreported. It is even more insane in some parts in all of those cities listed than we can statistically know. If the FBI says it's bad well then it is worse. Take that to the bank...just leave your wallet at home.

@Matt R.  

  Agree with you not sure were Ali Boone is coming from on this but to characterize them as a little Rowdy well that is funny.... I guess us west coast folks that sit here and don't have to deal with it up close and personal we get the feeling and sense of security but those that have to live there drive through those areas or towns they know whats what. Even getting gas can be life threatening and its a tad more than rowdy.. Rowdy is to insinuate a frat party or highschool kids  these inner city areas are anything but that.

You get good cashflow in places where it is cheaper to buy than rent.  This means that anyone that has steady income and good credit will likely buy.  That means you will be stuck with a tenant pool that dose not have these attributes.  You can find good tenants, far and few between but it is not easy.

If you buy in place with lousy cashflow, then people with good income and credit may choose rent to save money.  In these areas it is much easier to find ideal tenants.  

IMO one of the best case scenario is to buy in areas that might not have decent cashflow on average for the retail buyer, but you create a deal with good cashflow by buying below market value, or fix and hold, etc.  

Regardless of potential cashflow I will never invest in a "warzone".  Its easy enough to find solid deals in safe areas to endanger yourself.  

@Gene Hacker  

  agreed the funny part is you really never do get this supposed cash flow in these areas its all just pro forma and blue sky... If they really cash flow CONSISTENTLY and with little to NO ISSUES then the prices would not be where they are at..

I grew up in Cupertino and Palo Alto..  you had THE 101 that ran up the bay to SF.. on the west side was Palo Alto on the East was East palo Alto East Menlo etc.  Well you could buy a home for 1/2 to 1/3 the price on the east side as the west.  and of course there is a reason. SAMe with were you live in LA...

Out in the mid west its a combination its either there is far more houses than people to live in them so prices plumment... or you have inner city issues with what called White flight and the areas turn into ghetto type slums.. its those areas were cheap homes are avalaible and investors who really don't know what they don't know get sucked into buying them thinking that rents will acutally come in on a consistant basis which just is not the reality ..

Originally posted by @Ali Boone :

I definitely throw my opinion in and say that those are far from the most dangerous cities in the US. Any city will have it's dangerous areas, but those cities in general are far from bad. Detroit might be a little more rowdy than some, but I wouldn't even consider it a dangerous city. I'm from Atlanta and have invested there and that city wouldn't even rank on a dangerous scale to me. It's totally fine, as long as you stay out of the crazy areas...but every city has those.

I'd call this a major Forbes Fail.

 Ali don't take this the wrong way but you may be looking at this with what I call "Out of State eyes" From a far nothing seems as bad as it really is. If you were to end up in these neighborhoods this thought process would get you killed.

Let me tell you a quick story.

I was approached by a bp member last year. He is in California. He purchased a duplex last year from a turnkey provider. It was on the wrong side of town. Paid $40,000 or so, all cash. Tenants left, PM quit then the house was totally stripped. Pipes, furnaces, water tanks, electrical, sinks etc.

He asked me If I could sell it to get him out of it. Sure, not a problem I explained to him that it was a total loss but I would be able to sell it. Here is the kicker. He needed a police report for his insurance company. To do this we needed photo's of the interior damage. I sent one of my guys over there to get the photo's. I get a text/pic message from him at 7:30AM (still kind of dark outside) "Sorry I can't go in there, I choose life". 

Fun fact about this particular employee that refused to go into this home. He did a 4 year tour in the middle east in the early 2,000's. Must be pretty rough if a war veteran won't go inside.

In San Antonio I look at properties with cap rates from 10% in good neighborhoods to 50% in terrible ones.  If you want the higher returns you need to look in the less competitive areas.  It comes down to something I learned in college, efficient market hypothesis.  You're going to get better returns in areas less desirable to other investors.

@James Wise  

 My first time in Detroit we rolled up to the PM office  surrounded in Razor wire.  front window broken  ( he said he fix's it only to get broken again) then a bank teller set up with bullit proof glass. tenants have to pass their rent through the sliding box.. Kind of like getting food in a prison.  LOL.

These areas in ALL cities across the US are just very very dangerous and transend Rowdy that's for sure.

I am from Chicago, which is usually on these lists.  I read a stat awhile ago that said something like "80% of our shootings occur in 3 neighborhoods which make up less than 10% of our city" so to me it is about knowing your neighborhoods and comfort level.  

Originally posted by @Jay Hinrichs :

@Matt Rosas 

  all one needs to do is watch the swat shows... Swat of KC Swat of Dallas Swat of Oakland.. etc etc...60 minutes had a big episode on Cleveland last night and how dangerous a city that is...   But also don't forget California has some pretty nasty spots Watts , Parts of Oakland and Richmond, Compton.. ETC ETC.

@Scott K.  

  Agree with you not sure were Ali Boone is coming from on this but to characterize them as a little Rowdy well that is funny.... I guess us west coast folks that sit here and don't have to deal with it up close and personal we get the feeling and sense of security but those that have to live there drive through those areas or towns they know whats what. Even getting gas can be life threatening and its a tad more than rowdy.. Rowdy is to insinuate a frat party or highschool kids  these inner city areas are anything but that.

 No doubt Jay. Parts of LA used to make this list. Compton was notorious for decades. A few things changed that. A massive youth reach out effort kept schools open til midnight to help keep kids off the street. Then two huge demographic shifts came into play. One is these areas transformed to 80%+ Hispanic. The high schools that were always football power houses (NFL farms) are now soccer powers. The other is the age shift. Older folks don't have the energy to commit crimes. This aging part will be sweeping the country soon. It is just LA is ground zero on that front. Lastly, there has been an ongoing exudus of sub 50k households to the point now 73% who leave LA make less than 50k and a good portion of the new people coming make 100k plus. The 30 year result - Compton fell off the top 10 FBI list. Crap shacks routinely sell for 250k+. A nice new duplex is 400k and rents $1600 a side...yikes...

I am from St Louis area and I have been investing in the area for last 4+ years. St Louis is no different from any other city, it has certain pockets that are not good for me but makes complete sense for other investors for the simple fact that the entry point is low and the cash flow is good. I think it all depends on what your investment philosophy is and how comfortable you are with C and D type of areas. If you rule out some of these areas I think St Louis has a lot more to offer in the other areas. The key thing for outside investors is to make sure you are buying in the right areas and you have at least 2nd and 3rd opinion about the property before buying it.

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