Prospective property in lower end neighborhood for rookie investo

3 Replies

After some browsing on Redfin I discovered that it is true that properties in lower-end neighborhoods generate more cash flow.

I've looked at many properties located in Chicago's 2 worst crime ridden neighborhoods.

For example, take this one property:

3-unit, 3 story
12 bed, 4 bath
2 car garage, 2 car outdoor space
3,049 square feet lot
Price: $253,000
$3,671 rent income (actual income based on current tenants)

According to Redfin, my total monthly payment (not including any maintenance) on 4% down is $1,762.

Let's suppose that I hire a Property Manager for this property (because I don't want to risk my life going to this neighborhood), what would be the extra cost of the PM and maintenance?

Hence, what would be my total profit before rent income taxes? Is it realistic to expect a net $1000 dollar monthly cash flow on this property after considering everything including taxes?

Another rookie question, assuming that I hire a PM to to handle everything, does that mean that I never ever have to step foot in the building?

@Jun Zao

This has been discussed extensively on BP forums. I do have class A/B rentals and section 8 in C/D areas. 

Quality of tenants come with the class of neighbors. Your expenses typically increases in C/D areas. However, some investors do very well with C/D areas with the high cash flow you mentioned. 

The key thing is boots on the ground. You still have to stay on top of your management companies.

If you are looking to purchase as an investment, you are likely to have to do conventional financing which is 20% down.  C grade properties are higher risk and typically tenant occupied areas. The returns are better for sure. Your exit plan might be different than an A grade being you are likely to have to sell to another investor instead of the option to sell to a home owner. 

Originally posted by @Sean Tarpenning :

If you are looking to purchase as an investment, you are likely to have to do conventional financing which is 20% down.  C grade properties are higher risk and typically tenant occupied areas. The returns are better for sure. Your exit plan might be different than an A grade being you are likely to have to sell to another investor instead of the option to sell to a home owner. 

But it is a 3 unit building. Could I just claim that I'll be living there on the FHA application? How would they know if I won't?

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