Investing in "D" areas

[John Warren]

Hi BP community,

I have a confession... I am considering investing in a 'D" area! The other day I was helping someone from my church who's mission group purchased an 8 plex in a "D" area of the Chicago suburbs. They are doing a gut rehab of the building, and while I was busy installing exterior doors I started wondering if it would be worth investing in this type of area!

I have always been passionate about investing in multi-family apartment buildings, and this year my wife and I bought our first 4 plex. It has been incredibly easy to manage (almost boring), I feel like we are ready for a bigger challenge, but in many Chicago suburbs it is hard to find anything larger that we have enough capital to afford! I have no idea why people will pay 500k for 5 unit that "might" cash flow, but I am not interested!

So, here are the positives I see in this "D" area.

1. The buildings are very inexpensive, but the rents are still high ($850-900 for a 2 bedroom).

2. The town seems interested in revitalizing the area, and the housing stock and apartment complexes are pretty great... just run down.

3. There is metra access to this town and easy access to major highways.

4. I have met the coordinator for the housing forward program (government agency) and I like the way it sounds like they are doing business. Several investors in my landlord association use them, and love the regular checks they get!

The cons...

1. It is a rough area...there is definitely gang activity and the clientele could be pretty seedy. There are worse neighborhoods in the city, and the population is more spread out in the burbs, but still.

2. Taxes are pretty high in all of the Chicago suburbs. This could be mitigated by buying buildings right and contesting, but still.

3. The school system stinks.

So, am I crazy to consider this? I don't want to be a slumlord, but it seems like investors can make some serious cash flow in these areas if they are smart/prepared/etc.

[Al Williamson]

@john warren,

I have disagreed with @joel owens on this topic for years. 

He is giving great advice - so don't get me wrong, but there is path to success. A path that needs to be better marked.

I've written a number of articles here on BP over the years which outline a way to invest in redevelopment zones. Please check them out also check out my BP podcast.

My 8-unit complex is now in an area that is an undisputed turnaround success. My rents have gone from $400 to >$910 per month. 

So say my efforts to tip the neighborhood forward have been charitable - but that discounts the business savvy. It also give an excuse to rental owners who should be exercising more civil leadership in the areas which they invest.

If you're called to better an inner city - then do so. BUT take a catalytic approach so you 1) don't burn out, 2) don't put yourself in danger, and 3) use your time and resources wisely.

Best to you. Follow your calling!