Investing in low income urban areas

12 Replies

I'm just starting in the real estate business, but I'm drawn to plexes and most of the ones I find that I can realistically buy are in dilapidated areas. I'm mostly looking in Birmingham, Alabama. My question is: to get started should I take a chance on cheaper multifamily in order to gain experience. I'm 29 with a full time job, wife 2 kids and about $10,000 to use for bank financing.

Welcome to BP this is a great place to find out almost any information you need. And loaded with great people. I am new to BP but I also have been studying multi units have not touch them yet but this is what I have learned from various people.

Here's the thing that I learned be careful who you tell you have money. People are always willing to take your money for you. With that being said study your current market find out what units are going to give you the best AROI and stay away from government housing.

Check out what bigger investors on here have said like @ben Leybovich have said on this.  

From my experience I would buy in a better area and a SFH so you are learning to manage one unit rather than several in an area with more headaches.

Welcome! @Steven Shotts  

                  The short answer is No. Consider that the type of property you run and the area it is in will attract a certain type of personality. Is this property and this area going to attract tenants with the personality that you would like to do business with. Only you can answer that question. Don't just take a deal to take it. Decide what type of deal you want and then go make that deal happen. If that takes you a little bit longer so be. Better you get YOUR deal then find out the deal you got........ well wasn't a deal. 

              You can repair a dilapidated house, not so much for a dilapidated area.  With a wife a family and a full time job I tend to lean towards properties that will almost run themselves after you get them up and running. Good solid properties in a solid market will attract solid tenants. Solid tenants will cause less problems. Or at least that is the philosophy.

             I do like the idea of buying a duplex of triplex. Some here will differ on this but I feel that starting this way will get you moving towards the larger 5+ units and that's where the magic can really happen. 

Ben Leybovich has been doing this much longer than I and has written some really good stuff on it. I have pulled some of them below. 

No go read :)

“It’s Not My Fault They Keep Trashing My Unit” – Actually It Is…

Newbies Take Note: Why You Shouldn’t Buy Houses for $30,000

Why I Don’t Buy Houses for $30,000 or Apartments in D-Class Areas

Newbies Take Note: You STILL Shouldn’t Buy Houses for $30,000

Hey Steven,

First,  get to know the areas you are interested in, whether that is Birmingham or a city outside of Birmingham. I suggest, you spend time driving the Birmingham area or any city you have an interest in buying rental property.  

Secondly, C areas and D+ areas I would personally consider. Yes, they will probably be a little more labor/time intensive, but, I believe, your return will be greater. Remember, you can get a bad tenant in any class of home.

I would be really careful buying duplexes, triplex or small apartment complexes in C and D+ areas, stick with single family homes. Now, understand, I know very little about multi-family properties.

If you ever have questions, do not hesitate in reaching out.

Bryan

thanks everyone. I'm used to using a property manager for my investments.  The one situation I had was a condo in GA.  Very good experience for me.  That was what I hoped to try so that I could have a middle man that handled tenants and collections and maintenance.  I'm not afraid to pick up a paintbrush or fix a toilet, but I was in AL and it was worth the 10%  I paid.

Originally posted by @Steven Shotts :

thanks everyone. I'm used to using a property manager for my investments.  The one situation I had was a condo in GA.  Very good experience for me.  That was what I hoped to try so that I could have a middle man that handled tenants and collections and maintenance.  I'm not afraid to pick up a paintbrush or fix a toilet, but I was in AL and it was worth the 10%  I paid.

Keep in mind if its too much for you it will be hard to get a good property manager in those areas.  They will likely eat you alive in cost if you do find one.

welcome! Like with everything, it depends! Sometimes investing in distressed assets is a great thing, other times it can cause you headaches. For us in our market, it's been great. We owner finance rather than rent out property, and our end buyers are blue collar hardworking people. They all have jobs. It largely comes down to the demographics and types of people in your area and that neighborhood. There are some areas in our city we would never buy in, even though the houses are 20k. You're much better off buying a 60k house where you can get a guy to pay you for 10 years with no problem. 

check out owner financing rather than renting, at least consider it. Tons of info on this site about it.

I like owner finance because I don't have to worry about a PM at all :). Been there done that, no thanks. Owner finance it after you carefully qualify the buyer as the SAFE Act requires. And leave the maintenance to them. But as I said earlier, you have to have good people in there, or the house won't get maintained. Ours always are kept up. 

All I buy is $30-60k houses. Works great. So I don't agree with those blog posts :). But I would agree it would not work in every city. It works well where I am. That is all I can say. 

@Steven Shotts   just so your research and find a good property manager! If you had a good thing going in GA why stop there? 

I dont like working in war zones but I would rather have units that are under leveraged than a business that doesnt make money....  Work where the numbers work not where you want to work.

I'm working in that niche, so you may want to check out my BP personal blog or podcast episode.  You will be investing considerably more time and emotional energy going that route, especially if you want to self manage.

I'd say that $10K is the buffer you need on hand to weather a bad eviction/move out or other catastrophe, so might be cutting it tight financially.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

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.

Lock We hate spam just as much as you

Get the Ultimate Beginner's Guide

Sign up today to receive the popular eBook for free!