So I see this on Craigslist - What would you do?

Question

So I'm browsing CL for my locale, trying to get a feel for what's in the RE section.  I see a bunch of homes I can't afford (now), some places I wouldn't mind living in, and a bunch of listings that seem out of place.

One example caught my eye, a listing in New York.  It caught my eye because I've driven through this neighborhood, and for me, it's not someplace I would ever think of investing.  Perhaps I'm wrong for thinking this way.

The ad sounds too good to be true, and it got me wondering what those more experienced would do, or not do, had you seen this ad?  What would due diligence look like for this listing?

I ask as a noob trying to figure this stuff out.  Thanks for playing along.  All comments encouraged and appreciated!

Here's a snippet of the listing...

I have no idea if copy/paste from CL is allowed on the forums.  I'm sure I'll be reprimanded ASAP if it is, and my apologies in advance.

Dustin Heiner · Answer

Hi @Ricardo Meza!

This really depends on your risk tolerance.

I personally invest in an area where homes cost $15k and rent for $500.  There are many issues but the cash flow is very high for the $ invested.  The problems are all just the cost of doing business.

Some things you will need to consider when investing in lower end homes.

1. Turnover - Because of the lower quality homes, the tenant turnover is high. Figure about $1500 in costs like carrying costs, eviction, clean up, leasing etc. There are ways to lower this turnover though.
2. Repairs - Because the home is less in quality, there will be a lot of differed maintenance and normal things break since it is an older home.
3. Screening Tenants - You can keep turnover low if you screen tenants right and run background checks.
4. Property Manager - Your PM is your best friend here unless you are managing it yourself. It is hard to find a good PM for these types of homes. Once you find one, keep em.
5. Crime - Lower class areas have crime. Many times thieves break in to steal copper plumbing/wiring etc. when the property is vacant.

There are many other things to consider.

Send me a PM if you would like to chat more.

Hope it goes well!

Dustin

Ricardo Meza · Answer

Thanks @Shannon K.!  I drove through the neighborhood last December.  So I can see what you're talking about.  As a newbie investor, a property like this would not match my risk tolerance.  I too read the ad as more flowers than weeds.  This is what prompted by question(s).  You know, I'm new at this, how do I breakdown a lead I find on CL? - is more of where I'm coming from.  Thanks again for the input.

Shannon K. · Answer

I will chime in here with some of the due diligence about the area in case you're seriously thinking about this property. Maybe I am a bit biased because I am most comfortable in the suburbs and am not one for city-living, so take this with a grain of salt...

I am studying to be a physician and have trained at Niagara Memorial Hospital and I would get into this city and out as quickly as possible. I would never prefer to walk to my car alone at night after a shift. The neighborhood area surrounding the casino is littered with crime, trash, and violence.

The ad seems to be reaching a bit far with the "benefits" here. The casino makes money and is a hub of activity and entertainment, yes. "The falls" as an attraction are beautiful and that makes money and is entertaining, yes. But the city of Niagara Falls as a whole is extremely economically depressed and has many boarded up houses, broken windows, vehicle theft, gang violence in this area. D-class area for sure. I know many people don't mind investing in these sorts of areas, but I don't think its going to be such "a breeze" as the Craigslist ad makes it seem. I'm not sure when you most recently drove past, but have another look. Spring 2015 was the last time I saw the neighborhood over there and after 2 guns laying in the parking lot, I never went back.

"Similar homes on the Canadian side sell for over $250,000".... <---This part of the ad has no real relevance in my opinion. The Canadian side of the falls has always been the "prettier" side and the area surrounding Niagara Falls, Canada is more expensive. Its well-developed with businesses/homes, and  is not littered with violence and car jackings every Tuesday thru Saturday.

Dustin Heiner · Answer

@Ricardo Meza

Great questions and a lot to go over. Send me a PM.

Ricardo Meza · Answer

Thanks @Dustin Heiner!  I have some follow up questions to your comments for you and the forum...

Say I was considering this, and I'm thinking about an investment out of state like this...  What would I need to know about the property management included with the ad?  Would a property manager normally handle the turnover and screening?

I presume the property manager would handle any bids for maintenance or have a list of contractors available they like to use for repairs?  Would their contacts be something I need to vet before considering this investment, or would I need to find my own contractors in advance?  Is there a rule-of-thumb for factoring what the yearly repair costs my by?

The ad says the property comes with property management.  Is this normally a negotiable item?

I'm digging through the forums trying to find the answers to my own questions, however, I appreciate the input!

So I see this on Craigslist - What would you do?

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