Anyone own rentals in the ghetto?
Investor · Charlotte, NC · Member since 2014 · 131 posts · 46 votes
Anyone own rentals in the ghetto?
Most Popular Reply
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
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Steve Wilcox I owned over 350 of them.. they were not ghetto per se but some were in management intensive areas... its a JOB its not an investment. and in my mind is only appropriate for those that are in the business not at all appropriate for beginner's or out of state investors. Seen far to many of my borrower clients flame out buying these..
Ergo my personal opinion that these types of investments are good for those that want to create monster portfolios not buy 1 or 2 and when they go well buy one or two more over the course of a few years..
- Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes11y
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.
Dawn's advice is a good one. Also, listen to my podcast - Biggerpockets.com/show65. I used to own a 30+ unit building in the ghetto...but not anymore.
- Real Estate Investor · Fort Pierce, FL · Member since 2014 · 132 posts · 57 votes11y
I love the ghetto, and properties around it. I own a rental property that some might call the ghetto, however there is extremely quick police and ems response time, there have been three shootings recently in roughly the last month or so, but I love this property. The neighbors are great. I have the same tenants for about a yr, and the rent has always been paid. My tenants are great, and it is getting approx 30% returns ((total cost of approx 19 k, and rents out for 650.00 per month with a discount given if paid on time. I think there one needs to be creative when dealing with the tenants in the ghetto, and be willing to be generous and offer perks, rewards for good behavior.
- Residential Real Estate Agent · Tampa, FL · Member since 2014 · 177 posts · 122 votes11y
Originally posted by @Kendall T.:
I love the ghetto, and properties around it. I own a rental property that some might call the ghetto, however there is extremely quick police and ems response time, there have been three shootings recently in roughly the last month or so, but I love this property. The neighbors are great. I have the same tenants for about a yr, and the rent has always been paid. My tenants are great, and it is getting approx 30% returns ((total cost of approx 19 k, and rents out for 650.00 per month with a discount given if paid on time. I think there one needs to be creative when dealing with the tenants in the ghetto, and be willing to be generous and offer perks, rewards for good behavior.
I'm not a big believer in giving credit for people doing things that they're supposed to do such as pay their rent on time however in the ghetto sometimes you just got to do it!
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Ken Bugna what kind of Ghettos are in Newport beach... I assume our talking about NB CA. ?
- Investor · Cranford, NJ · Member since 2012 · 303 posts · 153 votes11y
Originally posted by @Jay Hinrichs:
@Steve Wilcox I owned over 350 of them.. they were not ghetto per se but some were in management intensive areas... its a JOB its not an investment. and in my mind is only appropriate for those that are in the business not at all appropriate for beginner's or out of state investors. Seen far to many of my borrower clients flame out buying these..
Ergo my personal opinion that these types of investments are good for those that want to create monster portfolios not buy 1 or 2 and when they go well buy one or two more over the course of a few years..
I could not agree with you more.
I apologize to the OP but my post was not directed really for you. I believe that low income housing is one of the most effective ways to build a large portfolio. I agree that it is not for beginners, and not for part timers. As you said in your previous post those who are successful are fully invested in this strategy, and it certainly is a job. When I look at investing in real estate I do not believe it is a passive asset class, even with PM. Some real estate investments may be more hands off like triple net (NNN), but any residential investment requires management and maintenance to make sure your asset is going to be in good shape for the future.
It is important for all investors to define their goals, and what they hope to achieve with their investments.
If you have a large sum of cash at your disposal, a great career that you already love, and are just looking to supplement your retirement income, or leave something to pass on to your children then low income housing is not for you and NNN is probably the ideal product.
If your goal is to build a large portfolio, you are going for this all the way, and real estate investing is or is going to be your career there are a lot of solid points to be made for investing in low income housing.
My passion on this topic comes from the large number of posts telling the OP that he should only invest in good areas or places he might want to live himself. There are tons of people making tons of money with low income housing, it is a job, it is difficult, but if anything worth while was easy everyone would be rich.
- Scottsdale, AZ · Member since 2014 · 659 posts · 536 votes11y
Originally posted by @Mark Cruse:
I've met people on this very site that are making a killing with them.
Define the amount of the killing. I have made much more money on the properties in good locations than in bad. Even so, I have made money on most of the poorly located ones and other observers may think it was a killing.
A killing to me is more than 100% per year on the money invested.
- Scottsdale, AZ · Member since 2014 · 659 posts · 536 votes11y
Originally posted by @Steve Wilcox:
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.
I am one of the naysayers. I recently had over 150 units but have been selling them recently.
I know where you are coming from. I have owned hundreds of units in tough locations and have made money on them. It is a tough way to go as you have explained.
I won't even look at properties in about half of my city. There is much more money to be made in the good locations from my experience. That does not mean that you just look at cap rates and try to buy for cashflow. You need a plan and process to add value.
- Investor · Cranford, NJ · Member since 2012 · 303 posts · 153 votes11y
Originally posted by @Steve Olafson:
I agree with this statement entirely. In my area there are many opportunities to add value by fixing units that are currently either slums or uninhabitable, and forcing appreciation. Also my local urban market has a lot of potential for upside given it is a major transportation hub with direct access to NYC in less then 20 min via train or path train, there are major universities in the downtown, NHL team, and is the main location for Prudential, who is actively investing in building more office towers in the 'hood'. I think that by stabilizing the areas in the long term there is a good chance that we could be the next Brooklyn, and if not I still get great cashflow. Also our city was once a very wealthy city home to businesses, and high income business owners, it was not always rough, and it may not always be rough.
Many areas in the country do not have the same advantages I listed above and low income housing is HIGHLY regional, in my area its literally block by block, and it takes a ton of area knowledge and operations knowledge to be successful. Investing in these areas is not for everyone, is not easy, and the yields are never quite as good as they look on paper, but there is money to be made.
- Scottsdale, AZ · Member since 2014 · 659 posts · 536 votes11y
One good thing about our life is that we have choices. All of us need to make them. We will all have different opinions as well.
Some of us have had good experiences from investing in tough locations and others have not. I personally don't like to have to experience fear for my employees. Plus, I have made more money off of the better locations. But, I am only one person. My experiences are different than others.
Clearly there is passion in this topic.
There is room for all of us to invest in the way that we desire.
- Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes11y
I'm not new to Real Estate, but new to BP & reading this thread I said Wow. "Ghetto". I'm from Chicago but have spent the last 6 years in Atlanta. We just moved back & commute between Chicago & Atlanta. My partner is from New York. Our motto: Yesterday's ghetto is today's trendy area.
We'll invest in low income safe area for cash flow & flipping of properties. But we also are constantly on the look out for what's the next area to be gentrified. There are areas in Chicago & New York that were war zones a few years ago, now everyone wants to live there. Chicago is on the verge of another change. You just have to know the signs (bicycle lanes) & know the people (investors) who are creating the change.
- Real Estate Investor · Chicago, IL · Member since 2014 · 229 posts · 171 votes11y
@Shaun Caldwell If your attitude is that you are making a "ghetto" investment then I would humbly suggest that it is not the right one for you. There are hard working people living in these "ghettos" that haven't had the best turns in life and many were born in these communities that they are very proud of.
Without any genuine concern and involvement in the community to which you rent other than turning a buck while holding your nose, you may be viewed as a "leech" trying to suck out money.
- Real Estate Investor · Atlanta, GA · Member since 2014 · 19 posts · 8 votes11y
@Dooreuhn Cee hit the nail on the head. That mindset won't make you a good landlord to those tenants. Numbers are one thing, landlording is another. @Dawn Anastasi found a way to make an inexpensive property work because of her mindset. She's thoughtful, gracious and I bet her tenants enjoy her as a landlord and that is why they stay.
I know I don't actually know Dawn personally but that is my impression from reading her comments and posts.
Good luck Shaun!
- Rental Property Investor · San Antonio, TX · Member since 2013 · 13 posts · 4 votes11y
Agree with many comments, my first investment property is not in a war zone but in a working class neighborhood yet had broken front windows and a stolen air conditioner. The new investor already has many challenges you don't need to add unnecessary risk if your not ready financially and emotionally to take those issues on. A lot of good advise posted trended a certain way...
- 11yDawn AnastasiPro MemberRental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
Originally posted by :
@Dawn Anastasi found a way to make an inexpensive property work because of her mindset. She's thoughtful, gracious and I bet her tenants enjoy her as a landlord and that is why they stay.
I know I don't actually know Dawn personally but that is my impression from reading her comments and posts.
I just noticed this comment. Thank you for your comments!
- Professional · Parsippany, NJ · Member since 2013 · 384 posts · 262 votes11y
I personally know investors that have purchased cheap multi family homes in True ghettos (street gangs, armed robbery, shootings,drug overdoses) fix them up. Refinance into a lower rate Equity line and rent to section 8 and TRA governments assistance which pays excellent. He is making awesome profits All while being managed by PM company.
There is tons of homes in the ghetto and somebody has got to own them. Section 8 is the key! Cash renters will destroy you and your profits
- Real Estate Agent · Pensacola, FL · Member since 2015 · 28 posts · 7 votes11y
@Shaun Caldwell. I would definitely say that what or where you're used to living makes a slight difference as well. I'm from the Southside of Chicago, IL and the "ghettos" or lower income areas there are MUCH MUCH different from different areas of the US. I now live in Pensacola, FL on the west side of THIS city in an area the locals here consider to be "Ghetto" or lower class. Honestly THIS FEELS LIKE BEVERLY HILLS TO ME. I plan on buying my 2nd, 3rd and 4th home all within a few miles radius of this so called "ghetto" here in Florida. To me if I haven't heard gunshots and its been 2 consecutive days, it's not a bad area and thats REALLY SAD but it's all relative to where you're from or what you're used to. Just my opinion. Good luck
- Wholesaler · Navarre, FL · Member since 2014 · 252 posts · 86 votes11y
I have 3 properties in the outskirts of the hood as we here in Pensacola like to call it "ALPHABET SOUP". I'm wholesaling them at a great price. Let me know if you are interested.
- Investor · Miami, FL · Member since 2015 · 31 posts · 18 votes11y
My first stand alone rental property was in the 'hood. I made a lot of mistakes on the white collar end of the deal. Nightmare mistakes, mainly with my partner.
The blue collar end was quite good, almost fantastic. This first tenants that we (almost) signed, were hands down the best tenants I've come across: they grew up in the neighborhood, wanted to be near their parents and siblings, and mostly wanted to be good role models for their nephews and nieces. Their parents were working class, and this young couple had good jobs well on their way to becoming solid middle class. If that couple had applied for my high end SFH rental, they would have been the clear favorites b/c they were so nice, professional, and had the income to be in a better neighborhood.
My partner was of the mindset OHMYGODIT'STHEGHETTOAAAAAAAAHHHHHHHHH. She insisted on handling the lease signing and freaked this couple out.
I had interviewed 12 different families, some section 8, others not. And these guys won out from the second they walked in the door. I ended up buying out my partner (more debt, ugh) and settling for a young family that took care of everything themselves and paid on time if not early. They don't want any problems, so they don't create problems. Three adults live there, and they have a total of 5 jobs. Good people.
So yeah, your attitude goes a long way in this game.
- Investor · Newnan, GA · Member since 2013 · 86 posts · 33 votes11y
I've got no desire to be a slum lord., but I take pride in providing High Quality (fully rehabbed: new roof, plumbing, electrical etc. ) rentals in lower income neighborhoods. 15% CAP rate.
PROPER SCREENING IS A MUST
- Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes11y
Ummm... Did you all see the post above by @Steve Olafson
who had someone get attacked by a guy with a machete...??? And dead people in his unit? and his cabinets being destroyed by a chainsaw? WHAT? That's insane
- Investor · Cincinnati, OH · Member since 2015 · 374 posts · 120 votes11y
I only invest in the ghetto. Some good points were made in this thread and I want to repeat them:
1. It's a job, not a passive investment.
2. Holding vacant properties is VERY risky.
I like to purchase half vacant apt buildings in the ghetto. The tenants help protect the building from vandals. Owning a vacant building (with copper) is like protecting a steak from hungry dogs with your bare hands. If you fix the place up and screen well, you can fill it up with decent people who may be poor but are responsible enough to pay rent every month.
- Full-Time Investor · Woodstock, GA · Member since 2015 · 105 posts · 47 votes11y
@David Begley
Here is the technical (i.e "long answer") to your question:
- "A" Class properties are newer properties built within the last 15 years with the most amenities, highest income earning tenants, lowest vacancies, and will typically demand the highest rents with no deferred maintenance. These buildings are usually owned by Institutional investors and demand the lowest Capitalization Rates (CAP Rates), highest per unit prices, and generally have the most appreciation potential, but lowest cash flow starting out.
- “B” Class properties consist of properties built in the last 15-30 years with some amenities; rents will be a bit lower than the A Class buildings with low deferred maintenance. These buildings demand rents slightly lower than Class A properties, with a mix of white collar workers and more skilled blue collar workers. Class B properties are typically owned by Institutional investors and private investment groups, or very high net worth individuals. They are valued at slightly higher cap rates than Class A properties and usually have appreciation potential with decent cash flow on acquisition.
- "C" Class properties are typically older properties, built 30+ years ago with much fewer amenities, if any; rents are lower than B Class buildings and usually have more deferred maintenance and a lower occupancy rate. Your tenant base will be mostly blue collar service employees, and could have a mix of government-subsidized tenants. These buildings are usually owned by private investors and private investment groups, and provide for higher cash flow and CAP rates, but will normally have much lower appreciation.
- "D" Class properties are older buildings in challenging neighborhoods and potentially dangerous areas. They are older, with no amenities, have high deferred maintenance, functional obsolescence, and the tenant base can be very challenging and very management intensive. These properties will usually have double digit CAP rates and will not have appreciation potential. D Class properties are the most challenging, and definitely are not recommended for most investors, especially new investors. While they might look like cash flow kings, the cash flow is often diminished greatly due to repairs and lack of payment by tenants.
When you look at areas, the classifications are very similar, with the same A, B, C, and D area class as follows:
A – newer growth areas
B – older, stable areas
C – older, declining, or stable areas
D – older, declining, potentially rapidly declining areas
My first investment property (3 fam) was in the "ghetto". Bought for $56.5K in Sept. 2014, GOI $2,500/month. PITI $398. Tenants pay ALL utilities. I pay $10-15/month for the common electric. In the process of a cash out refi for $160K. All of my deals that generate LARGE amounts of cashflow & ROI are in the "ghetto". The less investors in the "ghetto", the more deals for me, & that means better deals. "Nice" rentals do no fit within my appetite, and I wouldn't touch them unless I was owner occupying w/ minimal down payment, with short term plans to turn into rentals once I vacate & repeat onto the next.
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