Anyone own rentals in the ghetto?
Investor · Charlotte, NC · Member since 2014 · 131 posts · 46 votes
Anyone own rentals in the ghetto?
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Scottsdale, AZ · Member since 2014 · 659 posts · 536 votes
11yI will never buy in a bad location again. I did a couple of times but the issues were too severe.
My manager was hit over the head with a fire extinguisher after he served a notice to vacate. Same manager was attacked by a machete wielding person who broke through our large glass window to get at him. He was a vagrant that did not like being kicked out of the vacant apartment that he had broken into the night before. The maintenance person found a person dead on his living room floor. The police came in and took a chainsaw to our kitchen cabinets for some odd reason. They said they were looking for "stuff".
On another property I felt a need to drop to the floor when the red shirts started shooting at the blue shirts. My property was on the news for an ice cream truck driver that was shot to death in our parking lot. Turns out he was selling drugs.
It took me three months to evict a group that was selling drugs out of their window. The police told us they could not do anything without proof. We had lots of proof but no one would accept it coming from us.
That was early in my apartment career. I only buy in decent to excellent locations now.
76 Replies
I don't know about ghetto properties but a few weeks ago I had the weirdest dream.
In my dream I am the landlord of a class E multi-family property, the worst, the most drama, every tenant is on long term leases, every tenant is guaranteed to have a criminal record, and they don't pay rent and you can't charge them late fees...I was the warden in a prison.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Pat L.:
We only have 2...& they are gold mines!!!
A duplex I couldn't resist 13 years ago for $13,500 & sold it 'rent to own' $827/month & all maintenance is their resp. They just paid for the installation of new sewer lines & plan a new roof this spring. They have 2 years left & it's theirs.
The other was a mixed use commercial we 'stole' for $50k cash, It has 3-4 apts, offices, a warehouse, a paved lot for 8 trucks, 8ft fencing complete with barbwire. I bought it at the request of a contractor friend who moved in his workman & their families. He maintains the property @ his expense & pays $1800/mo plus taxes, ins, water, trash, etc etc. There are several pitbulls that roam the complex.
I would NEVER go there....
Pat: the two deals above are not rentals, correct? When you say "rent to own", are you referring to installment sales/land contracts. Or are do you have a lease agreement and are collecting rents and crediting part of it towards the purchase? In my experience, landlording is the ghetto is WAY different than collection on an installment sale contract. And different from "lease options".
- Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes11y
I know multiple people that have made out on low income properties. It can go either way if you understand the dynamics of the community and know what you are doing on the business end. Many people invest in the low income areas and in good conscious, you shouldn't assume they are all stupid or haven't figured out something you all have. I've met people on this very site that are making a killing with them.
- 11yDawn AnastasiPro MemberRental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
Originally posted by @Joel Owens:
I have been on here with others a long time.
I can remember a lot of posts talking about they just bought a property for 30k that rents for 700 a month.
The excitement is there and everyone hops on the post with enthusiasm.
What I almost NEVER, EVER see on here is 6 months, 1 to 2 years later etc. a post on here about it was the best decision they ever made and cash flow has been great and vacancy and repairs minimal. WHY is that??
If someone was doing well they would likely want to expand on their purchase and how it has progressed into something greater. I would venture to say not all but many of these purchases the turnover has been high, damage has been high, went through many PM's, area has gotten even worse with crime etc.
Here you go -- this was before I got on Bigger Pockets but I bought a house February 29th 2012 for $24,900. I put $12,000 into renovation (mostly foundation work) and had it rented out March 15th 2012. The same tenant is still there to this day paying $800 per month and takes care of the house very well. I have never regretted buying that house. In fact, that house helped me buy another house. I was able to do a cash out refinance (as I originally paid cash) and got a check for $45k and some change.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
no one
is arguing that locals can make this work, do make it work and enjoy the benefits. were this falls down is out of country or out of state and no partners watching the asset just PM's..
and many PM's just are not going to manage these types of low end houses.. not worth the risk and effort.... Or they do and will as long as a owner wants to continue to pay them to rehab and re rent all the time.
Always an exception to the rule of course.
- Baton Rouge, LA · Member since 2012 · 61 posts · 10 votes11y
I think everyone has their price. Although I do not own any, I would consider if I could get 25% return with a good PM. Maybe 30% without. What does everyone else think?
- Investor · Tampa, FL · Member since 2014 · 104 posts · 32 votes11y
I buy in the Ghetto, not purposely, but if the deal is worthwhile I do it. Going in I already know that someone might be late here or there with the rent. Or may not pay at all. But these deals are usually so directed in my favor that I don't have to depend on every monthly payment. Also I don't buy shacks, I buy the block tank looking ugly houses, ones that look like mini forts. I never buy wood or manufactured houses. A physically sound structure is very important to me. I tile out the floors. I don't add any extras like microwaves, ceiling fans, dishwashers, trash disposals, etc. And when I go to the property I walk up like I am not afraid of anything, even if there are suspicious folks out front. I look at them and in my mind I try to relay to them that "I am not a victim, nor prey". I am not sure how successful that tact is but it has worked so far. If you don't want to deal with it at all, just get a property management company. Someone is willing to do the work. I will say that if I see open market prostitution or drug operations then I probably wouldn't do the deal. I will feel bad renting to a family in a area that I know that there is open market activities such as those.
With that being said, I have a friend that rented his townhouse in Baltimore for a law student who turned out to be the worse tenant ever. Apparently she used her knowledge of the law to her advantage to tie up his place for months. Additional she attempted multiple unprofessional and incomplete renovations to the property that costed thousands to repair.
- Contractor · Franklinville, NJ · Member since 2013 · 183 posts · 86 votes11y
I agree with @Jaime Penix on all of his points. Make the units "bulletproof" so less things can be broken.
Also, my duplex is in a less than desirable area. As he said, don't walk around like you are scared or the people will see a victim. I always keep my head up and whenever someone passes me I make eye contact and say hello. They seem to respect that.
An issue that I can see arising from a cheap house in a bad area is that it is very easy to dump more cash into the property than it is worth just by fixing things. You buy a cheap house find out it needs a roof, heater craps out, etc and you are in it for more than its worth.
Originally posted by @Joel Owens:
I have been on here with others a long time.I can remember a lot of posts talking about they just bought a property for 30k that rents for 700 a month.
The excitement is there and everyone hops on the post with enthusiasm.
What I almost NEVER, EVER see on here is 6 months, 1 to 2 years later etc. a post on here about it was the best decision they ever made and cash flow has been great and vacancy and repairs minimal. WHY is that??
Check out this thread:
Lots of us like the $30K houes and make some cash. They're not in the ghetto either.
- Residential Real Estate Agent · Tampa, FL · Member since 2014 · 177 posts · 122 votes11y
I have two words for all of you and I'm shocked they haven't been mentioned yet.
SECTION 8
If you are in an area where your housing authority supports Section 8 this is the best opportunity to have success with investing in the ghetto. I own a property in an area that can best be described as "HOOD AS ****!!!!" It is in the WORST neighborhood in Tampa, known as Sulphur Springs. my property is 4 beds 2 bath all block construction as opposed to wood frame which is a big deal down here in florida. We paid 25k and spent 35k to renovate it and some thought that was crazy so we are all in for $60k. We have a brand new roof, brand new AC, brand new kitchen with real wood cabinets and GRANITE and STAINLESS appliances. Tile floors throughout, and brand new windows. I come from the fitness business and to supplement my income in my early years of fitness I worked as a bouncer in NYC. Without a doubt, places that have dress codes have fewer problems. When you give people something nice they will do a better job of taking care of it. But the other important thing about my renovation was to make the property durable. If I put carpets or laminate flooring in there, I could have saved a few bucks starting out but I would have been replacing it every time a tenant turned over. The new windows, roof, and AC help make sure that the tenants electric bills will be reasonable and make them more apt to want to stay long term. Last but not least, SECTION 8. Section 8 tenants are subject to annual inspections. Section 8 tenants aren't nearly as bad as regular market rate tenants in lower income areas. If you give them something nice, they know it will be taken away from them if they don't take care of it. If I would have gotten someone with a 4bd section 8 voucher, I could have gotten $1300 month rent. ultimately, I chose to accept someone with a 3bd voucher becaue I needed to get someone in the property as I was starting to have vandalism issues. Nevertheless, I still get $1100 month with the Housing Authority paying $865 and the tenant paying $235. tenant is responsible for ALL utilities as well and since I did a complete renovation of this property I will have VERY low maintenance expenses for the next several years. I will make my investment back in 5 years time and this property should be very rentable with minimal maintenance for the next 20 years. Now with all that said, one bad tenant definitely could do some serious damage to this plan but that can happen anywhere.
The numbers MUST work. Real estate investing is all about risk/reward so if you are going to invest in the hood with higher risks, you must be sure there is higher reward to be had as well. The house across the street from this one is a wood frame duplex that the owner bought for 12k in 2011. he spent about 8k making it liveable. He runs it like a "rooming house" renting out the individual rooms. He doesn't have a property manager just an employee who sometimes collects rents on his behalf. He takes whatever he can get from the tenants because he paid the thing off in under 2 years time! he's got 4 people living there across the 2 units and gets $350 per person. That is an insanely good deal. If tenants are light on the rent, he takes whatever they have and works with them. Yes this is more work involved for him but again, he recouped his investment in less than 2 years, this is all gravy for him now. these tenants can burn the damn house down at this point and it really wouldn't phase him
- Rental Property Investor · Indialantic, FL · Member since 2014 · 34 posts · 21 votes11y
@David DuCille I like the way you operate. We did the same. We bought a SFH for $25K in an "unsavory" part of town, where the majority of folks are on some type of assistance -- Housing or Section 8. We put about $5K in renovations and listed it on www.gosection8.com. The house looks great inside & out -- CBS, newer roof, newer a/c, etc. We had a TON of interest and weeded through many applicants -- the tenant we chose has been on the section 8 program for 10+ yrs. She was in her last apartment for 5 yrs alone! They know if they don't take care of the property they can lose their voucher and it isn't easy getting into the program these days. The trick here is really doing your due diligence and absolutely screen each applicant.
This is our first Section 8 income property -- wish us luck!
- Residential Real Estate Agent · Tampa, FL · Member since 2014 · 177 posts · 122 votes11y
Originally posted by @Account Closed:
@David DuCille I like the way you operate. We did the same. We bought a SFH for $25K in an "unsavory" part of town, where the majority of folks are on some type of assistance -- Housing or Section 8. We put about $5K in renovations and listed it on www.gosection8.com. The house looks great inside & out -- CBS, newer roof, newer a/c, etc. We had a TON of interest and weeded through many applicants -- the tenant we chose has been on the section 8 program for 10+ yrs. She was in her last apartment for 5 yrs alone! They know if they don't take care of the property they can lose their voucher and it isn't easy getting into the program these days. The trick here is really doing your due diligence and absolutely screen each applicant.
This is our first Section 8 income property -- wish us luck!
Sounds awesome Tina! Section 8 really is a no brainer. The challenge in the Tampa market is that Tampa Housing Authority runs Section 8 program for all of Hillsborough county now so realistically people can get really nice houses in very nice neighborhoods. Places like Riverview, brandon, and valrico where market rents are a little lower than Tampa proper are now able to participate in the Section 8 program. It used to be that section 8 was kept to mediocre neighborhoods but now you have nice neighborhoods where a landlord can get pretty much the same market rent via section 8 and have it guaranteed so it's a no brainer. we renovated our unit to the 9's but for that reason it was still tougher to rent because the neighborhood is that bad.
- Real Estate Investor · Milwaukee, WI · Member since 2014 · 2 posts · 1 vote11y
I think if you make sure to do your do "do diligence" before you let people live in your properties you should be ok. Make it very clear to potential tenants that you will not tolerate any B.S. The first sign of problems, there gone! it sucks to have to be like that, but thats life.. I mean this is your business, and must be ran as such. Its like going from being an employee to being manager of a company; people will run over you if you are too nice and you soon realize that you sometimes have to be a "Dick" to get them to work hard. You may loose some friends, but at the same time they are not thinking of your cash flow and ultimately, are not looking out for your interests. sad but true... p.s. dont be afraid of calling the cops on drug houses and large groups hanging out, often into mischief. They wont know its you and it WILL increase your property value; they don't pay your bills!
- Residential Real Estate Agent · Tampa, FL · Member since 2014 · 177 posts · 122 votes11y
one of the challenges in the hood here in Tampa is that landlords are offering ridiculously sweet deals to tenants i.e. "$99 moves you in" if you are a deep pocketed investor with tons of properties you can afford to fix your property if someone from the hood destroys it. But for small time individuals like myself, this is a challenge. IT was difficult finding a tenant wiling to pay a full months rent as security deposit. It's sad to say but many of these tenants feel "entitled". i got a kick out of how many of them immediately gave me a dirty look and dismissed me standing outside of the property when I told them what the asking price for rent was and they said "in this neighborhood???" once they saw the quality of the unit, most of them conceded that was fair and the $900 they were used to paying never rented them a unit anywhere as nice as mine.
So finding good tenants in bad neighborhoods is not easy and if there is too much "hood rat ****" going on then even the good tenants wont stay and you'll always be looking for new tenants. For me, getting to know the other neighbors, some of whom were good and some of whom were up to no good, goes a long way. I let them know my story, that I'm a guy that grew up dirt poor in a ****** house and while I do this to make money now, I also want to see the community improve. I don't want young kids to have to come home to a crappy house like I did. I want them to at least have a decent place to come home to where they can be safe and focus on their school work and have an ever so slightly better opportunity to make it out of the ghetto if they desire. It seems to resonate with them more than just being some "slumlord"
Here is esri's way of describing some of this tenant base.
Even though our families may be non-traditional, our religious faith and family values guide our lives. We are singles, single parents, or multigenerational families. Many of us are primary caregivers for our elderly relatives. Jobs are often hard to come by, so Social Security, public assistance, and Medicaid really help us to scrape by. Many of us are living below the poverty level. We don't use credit cards and prefer to pay our bills in person. Most are renting old single-family houses in urban areas. To get around, we may own an older vehicle or take public transportation. We play basketball, watch a lot of TV, and will buy products endorsed by celebrities. Radios are tuned to gospel and R&B stations.
- Lender · Lenexa, KS · Member since 2013 · 119 posts · 80 votes11y
Shaun -
There is a high correlation to the quality of the tenant and the quality of the area the property is located. Higher quality tenants are not looking to move in to low quality areas. Just think of your own personal housing criteria. With lower quality tenants, you get lower quality results. GENERALLY higher vacancy, non-pay, legal costs, property damage, tenant turnover, etc. And vacancy in a low-quality area for any length of time is SHEER DISASTER. Vandalizm, theft of the AC unit. They will cut the walls and pull all the copper wiring out of your house. I can keep going, but you get the picture.
This does not mean that a property in a low-quality area is a bad investment. There are plenty of investors that do quite well with them. But you need to go in with eyes wide open. Many investors are intoxicated by the apparent high cash flow on these properties. But my previous paragraph begins telling the real story.
My advice is if you do decide to invest in properties in low quality areas, don't dabble in it. Commit yourself to it. Become really good at it. Buy lots of them. Develop the reationships and connections that are going to help you keep it tenanted, keep your tenants in line.
Great property management in low quality areas is almost an oxymoron. The managers that are good tend to have their own investments in the same area, so when a great tenant applies, is the manager going to think of your property first, or their property first? I can tell you where I am betting my money.
Also think of your exit strategy. Disposition of these properties can be challenging, and often for less than you paid. I have plenty of investors who approach me and ask me to help them move these properties. Unless I know someone who specializes in those properties, I cannot help them. I do have plenty of investors that would purchase them if I recommended the properties to them, but my ethics prevent me from making such offers. The casual investor will likely get burned on properties in low-quality areas.
In summary, it's agreat investment category if you have the right mentality and commit yourself to it. Otherwise, I suggest you seek other opportunities.
Thanks, Dan
- Investor · Charlotte, NC · Member since 2014 · 131 posts · 46 votes11y
Great feedback certainly lots to consider if/when future opportunities to invest in ghetto areas. Well done everyone! As an update... Upon further investigation, the property that I was considering purchasing when I created this post is simply not a good deal. The numbers did not work.
As a PM for a couple of "D" properties I am curious how other PM's handle rent collections. I feel that if the LL doesn't take our advice about evicting certain bad tenants and we need to go back 4-6 times to get the rent from a tenant there should be some extra fee for doing that. What do you all think?
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes11y
Ken Bugna I think you do not consider taking such a property UNLESS you have a much higher negotiated PM rate.
In PM work it is mainly a money loser for a business especially on the residential side if you want to scale it large.
Those rougher properties and areas the PM's want 12 to 14% management fee because of the exact reasons you mentioned. Also increased bookkeeping costs, more court time for evictions, etc.
There are some PM companies that take a cheap rate in bad areas just to get business. That tends to be a very bad decision money wise. The PM's I know that manage at market rate or at a discount do so only for higher rent properties in cherry areas with little to no headaches.
- Investor · Cranford, NJ · Member since 2012 · 303 posts · 153 votes11y
All of my units are in low income areas that have all the problems associated with what one might call 'ghetto'. There are shootings in nearby neighborhoods, people will steal the copper if the place is vacant, finding good tenants is really tough, and most many of our tenants are section 8, or some other form of subsidized rent, and I roll up my windows and lock my doors when driving around. I would never wear a watch or drive a nice vehicle to my properties, I always watch my back, and I have become aware of the things to stay away from and blocks not to stop on.
This is a real business, and it is not easy. It takes a great team of property managment, local attorneys, maintenance, house sitters, and many more. This is not for newbies, or the faint of heart, dealing in these areas requires a very thick skin and is an acquired taste. If you are afraid to get out of your car you should not be there. If you don't have a competent LOCAL manager you shouldn't be there.
I am NOT A SLUMLORD, just because my properties are in tough areas does not mean I run them like a slumlord. We provide the best product for the same price as everyone else, and that gives us the choice of lots of potential tenants. Section 8 tenants have the golden ticket, because often they dont even pay, and section 8 inspects so if they destroy my place they run the risk of loosing their voucher.
This topic is very near to my heart, as there is money to be made in low income areas, and you provide a valuable service to the community if you operate correctly. In my areas there is a shortage of GOOD housing stock for tenants, many other landlords are slumlords, but if you do a good job, have the RIGHT MANAGEMENT TEAM in place there is money to be made (but its not easy, if it was easy everyone would be rich). There are plenty of people who are good people who lack the education, capacity, ect to earn enough income to move to nicer areas but that does not mean they are not decent human beings who will take care of the property to the best of their ability.
In my area of the country the yield on a/b properties would be negative, so only mom and pop type investors who want to buy a unit or 2 or 3 to help supplement retirement income or so they can make some money in 30 years when they pay off the property buy. Otherwise its completely speculative play based solely on potential appreciation
A question to all those naysayers who have posted against this- How many of you own any property? How many of you own 10 units or more? I would be willing to bet very few.
- Rental Property Investor · Indialantic, FL · Member since 2014 · 34 posts · 21 votes11y
That's exactly it. If you act like a slumlord then all you'll attract are slum tenants. And, as @Todd Rivera pointed out, set expectations with your tenants up front and loud and clear. We had one applicant, sweet little old lady, who just LOVED our house and could envision herself doing a bit of gardening out front. She asked for an application and verified the application fee ($25). We agreed to meet back up with her later on in the day to collect her application and fee. She showed up alright, with her completed application and NO application fee. Wanted us to just run it and she'd pay us the $25 later. Told her no can do. We're not playing this game of bend over backwards for sweet little old lady. What's next? Waive 1/2 month rent? She might be slick, but we're not stupid :^)
Originally posted by @Dawn Anastasi:
If you are thinking of investing in a "D" class area, make sure you check out PM companies BEFORE you buy, if you're not going to be self-managing. I understand that PMs for "D" class areas are hard to come by.
I endorse this message.
- Laguna Beach, CA · Member since 2014 · 263 posts · 140 votes11y
@Shaun Caldwell The best saying in real estate, "Location, Location, Location!" Choose the best location for your style of investing. If you are concerned about a particular area because of crime statistics etc., then it may not be the best place for you or any tenant.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Dan Brewer could not agree with your points more... obviously you have experince in the space.. its those that do not have experience in the space that have a very high mortality rate as investors.
Those that do well like some have posted live it and breath it.. its their JOB...not a passive investment from one's barcolounger in San Fernando valley :)
- Lender · Lenexa, KS · Member since 2013 · 119 posts · 80 votes11y
Amen.
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