Do you hold low income rentals? High crime rate rentals?

28 Replies

I'm looking into the Detroit market and surrounding areas. Pontiac seems to be low cost houses decent rent but high crime. What do you look at when investing in areas with home prices below $50k? Do you do it? Why or why not? Is cashflow the ultimate deciding factor or not? 

in Pontiac you want to be on the westside.  Closer to telegraph and south of 59.  Those are great houses.  You could also buy 3/1's in the inner burbs in very safe cities for under 50k.

Hi, Matt.  We do invest in low income areas, although on the wet coast that means under $100K rather than under $50K.  It is about cash flow, because appreciation will be minimal unless the area gentrifies.  Some things to consider - how bad is crime?  I am willing to be in the neighborhood alone for short amounts of time in the daylight, with my husband at night, but not alone at all at night.  Also, will you be self managing?  IT's hard to find good property managers since it is more work for less money.  If you manage, do you have the time and patience?  Expenses and turnover will be higher, but evictions are lower, we use cash for keys to retake possession.

I don't pursue those type of investments.  I like things to be quiet and uneventful.  Those properties can bring stress and drama in your life.  I barely here from my tenants and they always pay on time.  

I am with Bryan. It is not my business's model to deal with lower end properties. I was meeting with a few investors last month and hearing about the prevalence of the "situations" that they deal with.  This is not what I am looking for. I could not scale as easily with that management time suck.

They were discussing timelines for evictions and how to expedite them. These are problems that I haven't had to deal with yet, in ten years of rental management.

This is a choice on my part, I understand the returns, but I choose to invest at a level above that price point. It works for me, my mentality, my sanity and my long term plan.

I leave those properties to others.

I learned from @Wendell De Guzman not to invest in areas that require a bullet-proof vest to visit.

It can be a quick way to learn about being a landlord. 

I once evicted a brothel. 

The same building had several burglaries, a home invasion, and a murder across the street.

I try to avoid those neighborhoods now. I'm getting older and don't need so much excitement in my life seeing police cars in front of one of your proprties is never much fun.

Originally posted by @Michael Modesto :

I learned from @Wendell De Guzman not to invest in areas that require a bullet-proof vest to visit.

Thanks Michael for the mention.

 Yes - life is too short to die trying to collect rents. Listen to my podcast and learn: http://Biggerpockets.com/show65

Now you can invest in low income rentals with high crime - but you got to watch your properties like a hawk and visit each property once a week. You cannot manage a D or F area from out of state. You cannot trust your PMs too much and you got to keep a close eye on them. You got to do some repairs yourself or get a very low cost handyman (to keep costs low) and again, keep a close eye on him. Track everything down to the last cent. Trust no one. Not your tenants, not your PM, not your handyman.

Oh and do wear that bulletproof vest (I'm not kidding).

It can be done and if you do it right, it's very profitable - but low income rentals in high crime areas are not for everyone. It was definitely not for me.

Low income properties is a great part of diversifying your portfolio.  It also allows you the opportunity to buy low and increase your monthly cash flow.  One thing to consider is hiring a property mgt company to assist you in finding the right tenants and have them deal with collections and issues that may arise.  The good thing is finding renters is pretty easy and, for the most part, the rent collected surpasses the monthly costs.  

Low income properties is a great part of diversifying your portfolio.  It also allows you the opportunity to buy low and increase your monthly cash flow.  One thing to consider is hiring a property mgt company to assist you in finding the right tenants and have them deal with collections and issues that may arise.  The good thing is finding renters is pretty easy and, for the most part, the rent collected surpasses the monthly costs.  

I like the upper end of blue collar.

@Matt Cramer you've received some very good advice so far.

Hey, is there a redevelopment zone nearby? Search for properties along the sweeter section inside that zone IF you have the personality for it.

Matt ,you are looking based on price . look at buying based on how rentable the area is . You could get a smokin deal in an area even low income dont want to live . And you have an empty house . You wouldnt be the first landlord in that low income area , there is competition to find a good  tenant .  I dont buy in an area full of rentals , odds are you will get the tenant the last landlord wants gone. I look to buy in a cheaper area that is mostly homeowners , more stable , and people generally want to live there.

I personally invest in the opposite of those types of homes :) while my return are less my ability to manage from afar and self at that is worth it! My expenses and vacancy are low and as a young white chick I feel totally comfortable walking at night by myself!

Again everyone has their own goals and comfort zone! The one thing we all invest in is real estate and no one agrees to the "exactly" same degree as the other!

I like rentals where my tenants make between $29K-$44K a year.  Thats $700-$950/month.  You can score properties all day in SE Michigan in between $35K-$90K.  These people are working class or young people with a roomate/partner.  They just want a clean place, relatively safe, access to freeways, and mall/shopping center.

Also, I'm starting to notice because of how high Section 8 Vouchers are becoming, these people who are market rate are getting squeezed out of housing.  Lots of landlords are taking the easy money from the Govt, versus the risk of someone making $14/hr being able to make rent on the monthly basis.

I refuse to take Govt money, so when I get a property ready I have lots of prospects. Again if its in a decent area it works great.

In terms of your post, Pontiac has some options.  However, maybe look just east in Auburn Hills.  You will find maybe 10-15% higher prices, slightly higher rent, and a MUCH better renter pool. Also, if you can score Pontiac with an Avondale School District that will command higher rent, and much better tenants.

I would not play in Detroit unless you have $100K-$150K liquid.  You can do a lot of damage with that sort of money, score high quality tenants, Get really good rent, and anticipate your property appreciating greatly in 3-10 years.

I know some people make it work with a $25K Detroit House off Van Dyke or somewhere off Southfield Freeway but I can't. Plus I don't see how you make any money when you consider taxes and insurance.

Awesome info thanks so much!

You can't be too general - Ok, im investing in DETROIT. Now, you have to get specific. Its a big city, and some areas are much better than others. You have to get specific per neighborhood, and what are the stats for that particular street. Its doable, but not just anywhere. There is really only 15% that is doable for me in that city. Its all you need when you're one person, but it does matter.

I'm a newbie in the world of real estate but it sounds like generally, although it might be a lower in come and higher crime rate area, the cash flow will be higher if you're willing to deal with more of a headache. Is that the case? If so, I'd be willing to invest in areas like Detroit, I don't mind headaches and I'd hopefully have a good property management company

@Corwin Hernandez  I can't speak for Detroit, but around here a lot of PM companies will not accept sub $1000 properties. They're just too much trouble for what you make on them.

Originally posted by @Corwin Hernandez :

"and I'd hopefully have a good property management company"

It takes a lot more than a good management company in order to succeed in Detroit. (Even if you are lucky enough to find one)

     @Saul L. @Corwin Hernandez @Lisa Phillips @Matt Cramer @Christian Hutchinson @Elizabeth Colegrove @Al Williamson @Kerry Baird @Dan Oliver @George P. Account Closed

I've said it a 100 times "It takes more than a Property Manager to be successful in Detroit."

While I defend Detroit and think it is without a doubt the best place in the world to invest in Real Estate, I'll say it again:

"It takes more than a Property Manager to be successful in Detroit."

Where else can you get 300% first year return on your investment. That is the minimum standard I set going into any investment.

I stay out of the war zones do your pictures and videos from out of town allow you to do that? Are you sure?

I pick a house with 2 adjoining properties well maintained that agree to watch my house for me and I have their number and they have mine. Do you do that?

Does your Turn Key seller respond faster than the Police? I DO!

I have someone check any vacant house every other day in addition to the neighbors that are watching it for me.  Does your property manager do that?

I have gotten the property taxes cut to less than 1/10th of what they were on a permanent basis. (Raise can only be rate of inflation (This year 3/10th of 1%) Who is doing that on your behalf?

An investor from the UK bought the above house for $83,000.

I bought it from his foreclosure for about $2000. Do you think it was hard to figure out how to make more than 1000% on that one? (It wasn't hard!)

Who do you think can appeal the Property Taxes better? The guy that bought it for $83,000 and is trying to tell the city it's not worth the $55k they have as the Fair Market Value or someone that bought it for $2000?  

It takes more than a Property Manager to be successful in Detroit, but I could not have done what I have done in any other market.

Originally posted by @Richard Dunlop :

     @Saul L. @Corwin Hernandez @Lisa Phillips @Matt Cramer @Christian Hutchinson @Elizabeth Colegrove @Al Williamson @Kerry Baird @Dan Oliver @George P. @Wendell De Guzman@Toby Bergstrom @Michael Modesto @Ryan Arth

I've said it a 100 times "It takes more than a Property Manager to be successful in Detroit."

While I defend Detroit and think it is without a doubt the best place in the world to invest in Real Estate, I'll say it again:

"It takes more than a Property Manager to be successful in Detroit."

Where else can you get 300% first year return on your investment. That is the minimum standard I set going into any investment.

I stay out of the war zones do your pictures and videos from out of town allow you to do that? Are you sure?

I pick a house with 2 adjoining properties well maintained that agree to watch my house for me and I have their number and they have mine. Do you do that?

Does your Turn Key seller respond faster than the Police? I DO!

I have someone check any vacant house every other day in addition to the neighbors that are watching it for me.  Does your property manager do that?

I have gotten the property taxes cut to less than 1/10th of what they were on a permanent basis. (Raise can only be rate of inflation (This year 3/10th of 1%) Who is doing that on your behalf?

An investor from the UK bought the above house for $83,000.

I bought it from his foreclosure for about $2000. Do you think it was hard to figure out how to make more than 1000% on that one? (It wasn't hard!)

Who do you think can appeal the Property Taxes better? The guy that bought it for $83,000 and is trying to tell the city it's not worth the $55k they have as the Fair Market Value or someone that bought it for $2000?  

It takes more than a Property Manager to be successful in Detroit, but I could not have done what I have done in any other market.

 Awesome post. To my point exactly - in low income areas it is possible to make money but you got to watch it like a hawk.

@Richard Dunlop

Thanks for the incredible input. I am in the Detroit area and am trying to learn how to define my market to better help me analyze what a good deal is. This was very helpful. I'm just looking to learn and analyze what a good deal looks like before I start putting money into anything

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

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.