Rockford, IL · Member since 2017 · 4 posts · 1 vote
hello everyone, I'm a newbie looking into my first investment. I currently have been centering my search in more middle class areas, but the prices are a bit high. my question is this. how is it going into low income areas? what is your experience with it? is it worth it? as in quality of tenants and fixing it up.
JESSE - I jumped into the "low end" world 13 yeas ago because I refused to borrow ANY money - and now I am a Private Money lender (ironic - eh?). Your observations are spot on. Middle class neighborhoods simply will NOT give you a solid ROI. As you slide into the ghetto (joke), you will find properties which will blow your mind as to how cheap they are.
As long as you are doing a realistic ARV (After Rehab Value) for a Flip and solid rent analysis (as your backup plan) in case you go over budget and have to rent it out, then you should be OK.
We rely on you to do that local market research and make sure it is accurate. If the neighborhood has too much crime and therefore NO purchase is really justified because you need 24/7 security on guard during the rehab and before the Flip sale (or before the rental starts with a Buy/Hold), then you might just need to move on to the Middle-lower class neighborhood. Bottom line, however, is that if you do a solid market analysis and can present that o a Lender, you can get into a property with ZERO down and low interest or a taste of the Flip. The money will follow a good deal. :-)
You know, I find people's perceptions really interesting. I lived in one of these neighborhoods for a few years while I was in grad school. My rent was cheap ($250) and it was fine. The neighborhood kids were a bit more raucous (I think there was a bottle rocket war going on from my porch at one time) and the neighborhood church ladies kept stopping by and trying to give me bags of household goods (we had a really nice church a few blocks away that did a lot of neighborhood outreach), but that's about it. A few sketchy things happened here and there but really, it was fine. Maybe that just throws my meter off because I've lived in one. Oh, and I worked in a prison for quite a while. Threats don't really bother me much, only people masturbating while you're trying to talk to them through the cell door, that one still gets me... :)
Hi, I have been a property owner in a very depressed area for over 15 years. While most of what I read is very informative especially from @Bill Gulley, I would like to offer my experience in a different area. I primarily deal with section 8 tenants and have had outstanding results. This was not always the case in the beginning, but with tighter standards from Housing authorities and incredible wait times on voucher lists renter results have changed. The key for me and other property owners I know has been due diligence right from the beginning. Ill sit down for interviews with prospective tenants with their case worker present so everyone is on same page. I use a strong lease which is added as an addendum to the HA standard ( weak) lease. There is much more to this but to answer YES investing in depressed areas can give great returns (cash flow not appreciation so much. You just have to be brutally honest and have thick skin.
Hey @John C. - I just bought The Section 8 Bible yesterday and am a chapter or two in. Are there any other resources you would recommend as far as how to best do the Section 8 thing?
I never read any books, just my towns tenant/rental laws. I would liken it to people on these forums saying every deal after the first one. You really just learn to manage better each tenant because you eventually experience everything. I will say this I personally don't believe you can be successful with section 8 if you are an absentee landlord (unless you do a PM). I stay in contact with each tenant by text once a week and see them another time every week to do lawn. Doing lawn and other yard work is an excuse to just be seen. Other than that I would recommend 2 things. First all your mechanicals be in solid shape. Everything else is an easy fix. In 15 plus years the only call I ever got in middle of night was for a lockout. Second learn to screen tenants. There's no use in a credit check for obvious reasons. I personally like to Drive by where they live to see how they keep their current residence is kept (I.e. "Thin slicing" by Gladwell). Also whenever possible I like to select a tenant who works and also collects section 8. Reason being if they work thats less time they'll be home to put wear and tear on unit. There are many other things, but ignoring if knew this from beginning the growing pains would have been limited.
@Rachel Fazio Something else I wanted mention. Much like buying your profit/equity up front in the purchase price of a property. My experience has been you buy your problems or lack of problems before a lease is signed. Have a strong lease, protect your self though LLC, screen your tenants as much as you can. In my experience after the lease is signed the majority of your leverage is gone.