“Bad” neighborhoods - buy rentals or not?

62 Replies

I’m looking at a great deal in a not great neighborhood. Not great as in lower income, higher crime, and from what I can tell driving through, mostly African American neighborhood. Should I avoid this area all together? I feel like there’s a good financial opportunity on a duplex but not sure if it’s wise. Any thoughts?

@Amanda H. Well You can make plenty of money in low income housing -IF - you know what you are doing . however .. I can tell by your response that you probably are NOT cut out for this type of investing and you better stay in middie class areas

There are bad neighborhoods and then there are BAD neighborhoods. A low income neighborhood does not necessarily mean high crime rate and high income does not mean low crime rate. You can usually find crime rate maps online for most cities but they usually dont do a good job of differentiating between some neighborhoods in my experience. My home town has the same crime rate over the entire town according to one map. Its best to look at the actual police logs to determine the crime rates.

That being said I believe you can actually make more money in the lower income areas but you have to pick the unit and the tenants carefully.

I have an apartment building in an area like you're referring to.
If you're easily stressed, highly strung or a worrier then it's probably not for you.
You will encounter drugs, crime, non payment, unauthorised move ins, etc.
If you can handle those things in your stride then there's good money to be made at relatively low entry points.
One of the best things I did was install security cameras.

Thanks for the input, Everyone! It’s difficult to explain the level of “bad” when referring to neighborhood because everyone’s city is different and “bad” in Chicago is not the same as “bad” in Des Moines, IA. 

This is basically the highest crime block (from what I know and have read) in Des Moines, which isn’t probably saying much to someone that knows South Chicago. That’s why I’m on the fence about it. 

I appreciate the tips to think about. Thanks!

@Amanda H. , the lower class the unit and neighborhood the better it will probably cash-flow on paper. So, you are probably correct that there is an opportunity where you are looking.

However, is a D class rental the kind of work you are interested in doing? Managing rentals of different classes and types present different challenges and require different approaches. I would only take something like that on if class D rentals was something I was interested in. Its a niche all its own and to be successful you will likely have to become immersed in that niche to learn it.

I personally do B/C+ class single family homes and that is where I'm comfortable. I've considered expanding into C class 2-4 family homes, but I know that there will be somewhat different challenges if I do.

@Kevin Sobilo , that’s an interesting perspective. I’ve considered the idea of professional management, as having the great cash flow seems to make sense financially to do that creating less headache. Interestingly enough, my current portfolio includes A/B/B- properties. 

The market is tough right now, and that’s probably why I am giving this location consideration when I previously would not have. 

If you don't understand the local culture of this neighborhood then no, it goes beyond what some numbers on paper say. This can work if you understand the lifestyle/mindset of the people you'd rent to, but it'll end in disaster if you don't. Plus, you're going to need experience in dealing w/ evictions and turnover... and the team to carry that out to reduce your costs. Then if you have all that, you're going to need enough to spread the costs... and reserves to smooth out cashflows. 

The fact that you made this thread, I'd pass and find something that better aligns with your experience....

Originally posted by @Amanda H. :

@Kevin Sobilo , that’s an interesting perspective. I’ve considered the idea of professional management, as having the great cash flow seems to make sense financially to do that creating less headache. Interestingly enough, my current portfolio includes A/B/B- properties. 

The market is tough right now, and that’s probably why I am giving this location consideration when I previously would not have. 

 one bad turnover will wipe out years of "cashflow"..... even worse if you don't have the volume to spread the risk/costs.

Have you checked out crimemapping.com? 

I believe Des Moines PD reports into this website. It could help you determine exactly how much crime there is, and what kind of crime, as opposed to just thinking there's a lot of crime. And, like several have said, a lot of times if you have to ask perhaps this isn't for you. I know it isn't for me, but I had to admit that to myself first. 

@Matt K. Matt is correct .. what most ( out of Towners) don’t realize is the property managers are often worse than the tenants in these neighborhoods! D and c minus class areas requier the rIght management team or it will be a source of frustration and financial loss for you . There will be evictions late payments leaks fires shootings drugs vandalism and tenant conflicts all the time . Wimps or timid folks need not apply

Its all relative and depends on your individual exposure... I am most likely familiar with the area that you're referring to and once told a friend who is from Baltimore that this was one of our worst neighborhoods - His reply was "I'd let my children play outside at night here" LOL 

@Amanda H.

I once took over management of an assortment of...well, trailers, motels SFR, etc, in what would be considered D or lower. Within the first month, I noticed police activity at one of the places, (lived on site). When I went to see what the issue was, one of the deputies demanded to know what I was doing there. When I told him I was the new manager, his jaw dropped. "Do you realize we had 9 murders here last year?"

Uh, no, the owner hadn't though that was worth mentioning, apparently.  

But I'm not a quitter, (and the money was good!) so I stuck it out.  I upgraded the units, screened tenants, treated the tenants with courtesy and respect, and we had NO murders during my time there, and much better occupancy and collection rates.

I'd say a LOT of it depends on your management style and  people skills.    

@Bob Rubenking , I love that story! It’s true. Des Moines is not a scary town. And, if you’re an investor here, you know I am referring to none other than the Drake neighborhood. 

@Terre B. , that is fantastic! Good for you! I’m with ya. I deal with all walks of people in my day job and certainly understand different people need to be treated differently in order to get on their level of communication and understanding. Everyone wants courtesy and respect, especially when they’re not used to not getting it. 

@Anthony Wick , thanks for the tip. I haven’t used crime mapping. 

@Matt K. , I find it incredibly interesting when someone suggests staying within their experience. As in, don’t try something knew. If I lived my life with that attitude, I’d own zero rental properties.  Don’t get me wrong, I  certainly appreciate your input on this subject. 

Thanks again!

Amanda, if you have the experience dealing with a wide variety of people, then you would be great.   I would only say, that self managing C-D property is three times the work. But I get you.  I'm actually looking at a  similar property now,.  I guess it's sorta my comfort zone.

Originally posted by @Amanda H. :

@Bob Rubenking , I love that story! It’s true. Des Moines is not a scary town. And, if you’re an investor here, you know I am referring to none other than the Drake neighborhood. 

@Terre B. , that is fantastic! Good for you! I’m with ya. I deal with all walks of people in my day job and certainly understand different people need to be treated differently in order to get on their level of communication and understanding. Everyone wants courtesy and respect, especially when they’re not used to not getting it. 

@Anthony Wick , thanks for the tip. I haven’t used crime mapping. 

@Matt K., I find it incredibly interesting when someone suggests staying within their experience. As in, don’t try something knew. If I lived my life with that attitude, I’d own zero rental properties.  Don’t get me wrong, I  certainly appreciate your input on this subject. 

Thanks again!

 I didn't tell you not to try something new, I told you to pick something that better aligns with your experience. If you have zero experience being a landlord this asset class is a bad idea period. If you've been a landlord, but either are familiar w/ the struggles in this class and have the team/networking to back you up or have the cash/liquidity to ride this out and scale up then go for it. 



@Amanda H. Lots of good suggestions here. I shared my investIng story in BP Podcast #8. There is a roadmap to doing what your trying. I’ve study this all over the country, there are some best practices to follow. If you use them then you will be successful. African American neighborhoods are filled with people. People respond positively when treated a certain way. Street cred is required no matter what neighborhood you work in. Upper class neighborhoods have their own drug and political issues. I suggest you learn and follow the best practices for the area you want to invest in and go make money.

@Amanda H. ,

When I came across  a "D" property, I asked my mentor.. who would want to live somewhere.. ...  he said "Ya know what, that house is perfect for someone! You just don't know them yet."   That's what I think now, when buying a house, it's going to be perfect for someone!

In general, I'd say bad areas are like a shark tank,  naive investors get eaten alive all the time, thinking they can just throw IMO stupid money and that's what makes a great tenant.   A great house/tenant is built off respect and professionalism.    You need to know the area, good street/bad streets, and be okay with whatever you chose.    It's a lot more upfront work IMO vs. a B area, but if you can, it's very rewarding!

@Amanda H. If your driving your new Range Rover through an area and become concerned over seeing some brown skinned people walkIng around... then you probably ought to stick with upper B class neighborhoods lol

Wow ..,,,, you really went “there” with the “mostly African American” comment in your thread.    SMH

Good luck in your continued life experiences.

As many of you may have noticed, I’m not only a “newish” investor but also brand new to Bigger Pockets. I’m trying to learn. I apologize if my post presented offensively.  

I sincerely appreciate everyone's perspective. It's tough having discussions about REI without sounding inexperienced when in fact I am. So, thank you all for your direction and input.