Buying rentals in the ghetto

9 Replies

hello I'm a new investor and I have been finding great deals but they all happen to be on the lower income side of town. I feel that it's a great area to invest in but it's kinda scary to think about investing in a house wheres there's more crime and break ins at. I'm kind of at a crossroads as to where to begin my real estate journey, I like the lower price of things with the houses on the lower income side but the neighborhood and people around it worries me. Any and all advice would be great thanks.

They are not terrible if you can manage to find a decent tenant.  Not always easy, it can take months or years or you could get lucky and find one right away who will live there forever. 

You are buying in this case for cash flow. Don't count on much appreciation anytime soon although many may have some instant equity after they are repaired.

I would recommend working with a property manager for the first few properties. Someone who has experience in that area and has dealt with the type of tenant before.

I own two rentals in lower income areas in Memphis. One has done quite well and the other I just got earlier this year and am still "training" the tenant. I have a PM in place, @Derrick Craig , which takes 90% of the headache out of managing lower income. But on the flipside, you need a property manager that specializes in low income or it just won't work.

@Justin Frye

I started out in "low income areas".  More accurately, I started out in "war zones". I bought in these areas frankly because they were the only areas I could afford to buy property.

A few insights based on my experience...

- you can buy multiple SF properties or multi-family properties for the cost on one sfr in middle class neighborhoods.

- Cash flow can be huge and your return on investment sky high when 100% occupied and tenants pay regularly.

- you will never have 100% occupancy or regular rent payments.

- get ready for a management headache... For you if you self manage, or difficulty finding a company interested in managing if you choose to hire someone.

- property is cheap for a good reason... No one wants to buy in these neighborhoods if they have the ability to buy elsewhere... So, you will ultimately have to sell at or below your purchase price.... Just like a war in Iraq, you should plan your exit strategy before you buy.

Ultimately, for me it was a good experience. I bought way below even "war zone" prices, so I was able to create profit at the time of purchase. When I sold, I took my profit and moved to better neighborhoods.

Find motivated sellers (there should be MANY) and cut your most insulting low ball offer in half.

 @Aaron Fowles is correct if brief.

@Justin Frye I have flipped houses in a number of lower income areas. My criteria is always "would I live here?" - meaning: would I feel safe to come and go at night? Are the neighbors respectful of my privacy and right to quiet enjoyment - or are they shooting at each other? Is the property truly habitable - as in: no creepie crawlies, leaking roof, broken plumbing, etc? Would you let your sister or mama live there? Would you let your kids play in the yard? If the answer is no - for safety & security reasons, not just because you are too snooty - then maybe the property isn't for you (or at least wouldn't be for me).

I specialize in low income properties, they have ups and downs.  You may want to listen to my podcast and read some of my posts on my member blog.  We do make money and have plenty of fun stories for party conversation!  In the past week had a homeless couple put a tent up in the backyard of one of our properties.  According to police, they are moving yard to yard...