Crime Rate - How high is too high?

39 Replies

I recently stumbled on a fully occupied 6 unit property that would bring in about 35% Cash on Cash and that does take into consideration 15% vacancy. The city itself has a higher than average crime rate according to neighborhood scout. To be exact it says "Safer than 15% of U.S. Cities". Most crimes constitute Theft, Burglary, and Assault. Only 1 murder reported in 2017. So I wish to ask everyone... At what point do you draw the line and say that a neighborhood is too shady and move on? What other factors do you consider outside of neighborhood scout?

@Jason Baldwin I think its case specific. How involved do you want to be in the day to day of this property? This will not be a "set it and forget it" type investment. It will require a lot of commitment on your part, even with a property manager. What city are we talking about? Maybe people more local can add to the conversation, and give specifics on the neighborhood?

@Jason Baldwin My personal experience with Neighborhood Scout is that it is completely misleading and it is useless for trying to gauge crime.  For example my own neighborhood where I live says "safer than 22% of US cities", which is ridiculous.  Newport Beach, CA also 22%, lol are you kidding me?  What a joke! I live in an upper income suburb where nothing ever happens.  I'll let my neighbors know that we're all hood rats and we just didn't realize it, lol.

Seriously I would check out the area yourself in person and see what kind of vibe it gives off.  If you wouldn't feel unsafe living there yourself, then that's pretty much my own personal barometer as to whether anyone else would either. 

I would use the crime maps on Trulia/Zillow, and contact local police, or look up FBI crime stats. But more than that, walk around and see how you feel. 

There are lots of C areas where you have some break in or assault here and there, but many good blocks to be found. But a D to F area, with gangs and real violence, stay far away. 

I know some people use the test of "would I live there", but that will limit you. I live in an A- areas, and I'd never do deals here, but I happily invest in B- and C areas. 

I grew up in inglewood and last week I joined a facebook group for Inglewood. Let's just say I was shocked that there has been a shooting every day for the past week. Only shocked because I thought Iwood(haha) had changed. The best bet to see what's really going on is to join a group like that for the area.

@John M. I’ve noticed this too with the trulia crime map. Hermosa beach showing higher than average. But I dug deeper and it’s mostly assaults and disturbing the peace. The high concentration of bars skews the numbers. Just drunk people getting into fights.

@Jason Baldwin A crime map only shows a glimpse of the whole picture . Thinking of the city I invest in , I can’t help but chuckle because the areas most people think of being “ bad” has little crime other than some petty thefts . The areas with shootings and rape are in what many consider the “ good” side of the city ! You could have a clean owner occupIed block of homes then go two blocks up and see open drug deals in the daylight everyone drunk and prostitution .a lot of cities are like that . Crime is relative and in pockets . Poverty areas are not always high crime areas but that is a stigma out of state investors won’t get . Because they don’t know the area . They are chasing ROI and can’t fathom the managing complications . I see many posts on here of west coast investors that think to buy up homes in the Midwest because they are cheap but they usually fail or are atleast frustrated because they never saw the whole picture due to ignorance
@Dennis M. That's a great point Dennis. The common thread I'm picking up here is you really cannot count on the numbers reported by these sites, rather, you'll need to know the neighborhood for yourself. I wont lie, I am interested in doing out of state investing, but it sounds like that will require quite a bit more research when it comes to getting a feel for the area you're buying in. Any specific advice you can provide specifically for long distance investing? Thanks.
@Jason Baldwin Beware statistics, consider what they represent. In this case, they don’t represent actual number of crimes committed. They represent crimes committed, then reported by victim, then documented by police officer. I can guarantee you that victims in some areas report less often and that police in some areas have less time to actually document the crimes. Somewhat related, I know someone who was beaten with a baseball bat in Chicago. Randomly attacked as part of a gang initiation. He was injured so bad that his brother and parents were told he wouldn’t live. He did live, which meant the police told him they wouldn’t be investigating because they were too busy with murder investigations. This despite the fact they knew which gang did it. So if I gave you a stat that said police in Chicago investigated fewer serious beatings than police do in other major cities, it may be true but misleading.

@Michael M. That is a good point as well. So in your case, stats should also be considered conservative. 

Has anyone else used city-data to do their neighborhood research? it seems to have good information if the number can be considered accurate.

@Jason Baldwin

I have exactly the same issues to report in my city. There are quite a few pocket opportunities for local investors in the "high-crime" areas that out-of-state investors never touch because they can't really come to a realistic understanding of the neighborhoods, street by street. I've had even locals who live on the other side of town and don't really know my target area tell me that I'm working and planning to live in a high-crime area, never having seen my properties, never having walked to the municipal building and the police station immediately across the street from my multifamily property in the area, never having met the many retired neighbors, never having talked to the kids who play up and down the side streets. No, no, no, the local stereotype of the general area holds, the comments on the Internet from 10-15 years back stick around, and the local retirees and their families keep their mouths clammed shut. They know they live in a misunderstood neighborhood and the minute perception more closely aligns with reality, county assessments and their property taxes will go way, way up.

If you're going to invest in low-C and D-class neighborhoods, you've got to walk the streets at different times of the day and keep notes. If you can't do that, you have to pay someone who's done it. As in all things in REI, freebies are few and far between and only the gubmint hands out the ones worth having.

Originally posted by @Jonathan Hulen :

John M. I’ve noticed this too with the trulia crime map. Hermosa beach showing higher than average. But I dug deeper and it’s mostly assaults and disturbing the peace. The high concentration of bars skews the numbers. Just drunk people getting into fights.

Yes that's why I think a person needs to physically check the area out, not just depend on crime heat maps.   I have seen the opposite affect also, you'll see an area that looks ok in a crime map but then you see the area in person and realize there's abandoned falling down properties and trash filled empty lots and maybe there's no crime reported because people are too afraid to go there, lol.

Originally posted by @Jim K. :

@Jason Baldwin

I have exactly the same issues to report in my city. There are quite a few pocket opportunities for local investors in the "high-crime" areas that out-of-state investors never touch because they can't really come to a realistic understanding of the neighborhoods, street by street. I've had even locals who live on the other side of town and don't really know my target area tell me that I'm working and planning to live in a high-crime area, never having seen my properties, never having walked to the municipal building and the police station immediately across the street from my multifamily property in the area, never having met the many retired neighbors, never having talked to the kids who play up and down the side streets. No, no, no, the local stereotype of the general area holds, the comments on the Internet from 10-15 years back stick around, and the local retirees and their families keep their mouths clammed shut. They know they live in a misunderstood neighborhood and the minute perception more closely aligns with reality, county assessments and their property taxes will go way, way up.

If you're going to invest in low-C and D-class neighborhoods, you've got to walk the streets at different times of the day and keep notes. If you can't do that, you have to pay someone who's done it. As in all things in REI, freebies are few and far between and only the gubmint hands out the ones worth having.

Great post.

I own a property in an urban area of Las Vegas that even local investors stay away from because they think it's the hood.  If you look on a crime heat map it looks like a war zone so that scares away out of state investors also.  But the reality the area is a gold mine.  The location is absolutely amazing and high demand for quality renters, and there are plans for future development that will drive up the demand even more.  But unless you study the market or and walk the area yourself you wouldn't know that.  I have spent time there myself and would live there full time without any problem.  

I guess the good thing for people like us that do their homework is that's how you find deals is looking where there's little competition.

Originally posted by @Jim K. :

@Jason Baldwin

I have exactly the same issues to report in my city. There are quite a few pocket opportunities for local investors in the "high-crime" areas that out-of-state investors never touch because they can't really come to a realistic understanding of the neighborhoods, street by street. I've had even locals who live on the other side of town and don't really know my target area tell me that I'm working and planning to live in a high-crime area, never having seen my properties, never having walked to the municipal building and the police station immediately across the street from my multifamily property in the area, never having met the many retired neighbors, never having talked to the kids who play up and down the side streets. No, no, no, the local stereotype of the general area holds, the comments on the Internet from 10-15 years back stick around, and the local retirees and their families keep their mouths clammed shut. They know they live in a misunderstood neighborhood and the minute perception more closely aligns with reality, county assessments and their property taxes will go way, way up.

If you're going to invest in low-C and D-class neighborhoods, you've got to walk the streets at different times of the day and keep notes. If you can't do that, you have to pay someone who's done it. As in all things in REI, freebies are few and far between and only the gubmint hands out the ones worth having.

 SAturday and sunday after church are a good time to check out areas..  mid week mid day is OK but crime while its important renters live in high crime areas.. that's a fact.. its up to the landlord to pick the right tenant.. 

No neighbourhood is too shady to make money. The only real deciding factor is th eability of the investor/landlord or their PM.

Greatest cash flow comes from slum properties and most, for obvious reasons, create those high crime numbers. It's the tenants that commit the crimes.

Slum landlords are operating temporary housing for those likley to end up as long term penitentiary tenants.

@Jason Baldwin


I myself worked in some rough areas. Local rough areas that folks would be amazed in little towns whats really happening. So for me a quick guideline. Can I send my wife and mother in law on Friday night to go collect rent if needed? If the answer is no then I don't invest there. A lot of folks really don't understand the lower end market and what comes along with it. Some good advice above from some smart folks. I like to speak to local police as well. Seen some one mention that above.

Alex




Originally posted by @Jason Baldwin:

I recently stumbled on a fully occupied 6 unit property that would bring in about 35% Cash on Cash and that does take into consideration 15% vacancy. The city itself has a higher than average crime rate according to neighborhood scout. To be exact it says "Safer than 15% of U.S. Cities". Most crimes constitute Theft, Burglary, and Assault. Only 1 murder reported in 2017. So I wish to ask everyone... At what point do you draw the line and say that a neighborhood is too shady and move on? What other factors do you consider outside of neighborhood scout?

Originally posted by @Dennis M. :
@Jason Baldwin

A crime map only shows a glimpse of the whole picture . Thinking of the city I invest in , I can't help but chuckle because the areas most people think of being " bad" has little crime other than some petty thefts . The areas with shootings and rape are in what many consider the " good" side of the city ! You could have a clean owner occupIed block of homes then go two blocks up and see open drug deals in the daylight everyone drunk and prostitution .a lot of cities are like that . Crime is relative and in pockets . Poverty areas are not always high crime areas but that is a stigma out of state investors won't get . Because they don't know the area . They are chasing ROI and can't fathom the managing complications . I see many posts on here of west coast investors that think to buy up homes in the Midwest because they are cheap but they usually fail or are atleast frustrated because they never saw the whole picture due to ignorance

I agree with you 100%.

This is one of the reasons for out of state investing that I think there's a huge value and a competitive edge to having personal first hand knowledge of the market, i.e. maybe you grew up there, or spent a summer there or visited there on vacation.  Just being there once in person to get a vibe of the area is an instinctive thing you just can't get online.

I personally would rather buy out of state in a market I know but maybe doesn't have a top return, versus going into a market I am totally unfamiliar with but has the 1% or 2% rule, or whatever rule people follow.  It's too risky for my taste.

@Jay Hinrichs when performing long distance real estate investing, is it just advised to remain out of C and D areas? As @John M. I appreciate what you said regarding hiring someone to walk the area as well. Google streets can only do so much. 

I've been in a very technical IT role for 12 years and I'm trying to blend technology with my RE portfolio/strategy. 

@John M.

The easy way is efficacious and speedy, the hard way arduous and long. But, as the clock ticks, the easy way becomes harder and the hard way becomes easier. And as the calendar records the years, it becomes increasingly evident that the easy way rests hazardously upon shifting sands, whereas the hard way builds solidly a foundation of confidence that cannot be swept away.

Harland David Sanders
Originally posted by @Jason Baldwin :

@Jay Hinrichs when performing long distance real estate investing, is it just advised to remain out of C and D areas? As @John M. mentioned I would also hate to lose out on potential opportunities, especially in a competitive market. 

@Jim K. I appreciate what you said regarding hiring someone to walk the area as well. Google streets can only do so much. 

I've been in a very technical IT role for 12 years and I'm trying to blend technology with my RE portfolio/strategy. 

my personal opinion  out of state investors have no business buying D class at any time.. and certain C s may or may not work.

Locals make it work because its their J O B they are there to watch them like a hawk they know exactly what they are doing and were to buy and not buy.. you simply cant do that from your arm chair.  why do that for a few basis points in return.. when if you choose wrong you get totally wiped out and get NO return and lose principal and end up selling it to a local who is just wringing their hands waiting for you to fail.. 

buy nicer stuff that you don't have to worry about.. returns for solid performing assets are 5 to 7% COC that's reality not puffed up blue sky performas or best case scenarios..

Originally posted by @Jason Baldwin :

@Jay Hinrichs when performing long distance real estate investing, is it just advised to remain out of C and D areas? As @John M. mentioned I would also hate to lose out on potential opportunities, especially in a competitive market. 

@Jim K. I appreciate what you said regarding hiring someone to walk the area as well. Google streets can only do so much. 

I've been in a very technical IT role for 12 years and I'm trying to blend technology with my RE portfolio/strategy. 

 Ok lets run the math.

you have a D class you buy for all in 40 or 50k.. if you can get a loan on it.. lets say you put 15k down and your going to make 10% coc or maybe 15%  so that 1500 to 2k a year positive cash flow..  now you make 7%  on a better asset  say a 100k home you put 25k down on .. that 1800 a year positive.. you going to risk a wipe out for 200.00 dollar a year and all the aggravation and stress that low end tenants bring you.. ????  its a locals game plain and simple they buy cheaper than you can they rehab cheaper than you can they self manage you cant.. etc etc.. 

Also not to mention your 100k home actually has a chance at real appreciation were D class only appreciate by the greater fool theory.. IE out of area people pay way to much.

Jason, you ultimately have to decide what you are comfortable with.  Yes you can make money in most areas, BUT what are you comfortable with?  Are you going to manage yourself or is there a professional property management company you plan to use that knows this area well?  

Is this a tired landlord or is the owner trying to pass ‘problem property?  Alot to consider.....