Need advice on possible investment in rough area

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Need advice on possible investment in rough area

Adam Britt
Bessemer, AL · Member since 2017 · 49 posts · 30 votes

I would like some opinions about an upcoming possibility. I apologize for the wall of text but I want to provide accurate detail for best advice.

I’m one of the millions struggling hard against a massive student debt that currently requires 1/2 of everything I make. Money is scarce even working 2 jobs.

Real estate is the only way I will ever escape. The rat race, while I am paid semi-decently, can never get me out of 12-15% interest student loans of 100k.

Paying off my loans aren’t really an option. I would need to massively increase my salary to even pay the loan down with that interest rate. Let alone pay it off.

All that is to say ... I’m dying to get into real estate, but saving up to buy isn’t practical. It would take me 60 years to save that kind of cash. So I need to use the magic of OPM (other peoples money).

Now, I have great credit and can probably get some solid loans, including from family. But I want to be very cautious from overextending myself. As such, higher price properties are ... frightening to me.

An older relative has just moved out of a 3/1 in a very rough neighborhood. I would probably consider it C/D class. She built the house in the 60s and has lived there till recently. I believe I could get the house for probably 10-15k. She is only expecting pennies for it. My ideal would be to Section 8 the house.

However, I would love y’alls opinion.

What costs would you all warn me about? Will I need to redo electrical and such due to the age of the house to make it housing compliant? What would you budget for that?

Would a rough area stop you from considering a deal like this? I see dollar signs with a 700-800$ section 8 rent with nearly no overhead if I can get this thing with 10,000$, but I don’t know what dangers and problems to expect down the line.

Please illuminate me to what you would look for! I originally wrote the house off due to expected repair costs but ... a friend who flips for an investor insisted it may be worth it if I can cover those with private loans .... unless the area itself would make this a no-go.

This is near Birmingham AL in a higher crime area in case that helps.

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Michael Ealy
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
7y
Originally posted by @Adam Britt:

I would like some opinions about an upcoming possibility. I apologize for the wall of text but I want to provide accurate detail for best advice.

I’m one of the millions struggling hard against a massive student debt that currently requires 1/2 of everything I make. Money is scarce even working 2 jobs.

Real estate is the only way I will ever escape. The rat race, while I am paid semi-decently, can never get me out of 12-15% interest student loans of 100k.

Paying off my loans aren’t really an option. I would need to massively increase my salary to even pay the loan down with that interest rate. Let alone pay it off.

All that is to say ... I’m dying to get into real estate, but saving up to buy isn’t practical. It would take me 60 years to save that kind of cash. So I need to use the magic of OPM (other peoples money).

Now, I have great credit and can probably get some solid loans, including from family. But I want to be very cautious from overextending myself. As such, higher price properties are ... frightening to me.

An older relative has just moved out of a 3/1 in a very rough neighborhood. I would probably consider it C/D class. She built the house in the 60s and has lived there till recently. I believe I could get the house for probably 10-15k. She is only expecting pennies for it. My ideal would be to Section 8 the house.

However, I would love y’alls opinion.

What costs would you all warn me about? Will I need to redo electrical and such due to the age of the house to make it housing compliant? What would you budget for that?

Would a rough area stop you from considering a deal like this? I see dollar signs with a 700-800$ section 8 rent with nearly no overhead if I can get this thing with 10,000$, but I don’t know what dangers and problems to expect down the line.

Please illuminate me to what you would look for! I originally wrote the house off due to expected repair costs but ... a friend who flips for an investor insisted it may be worth it if I can cover those with private loans .... unless the area itself would make this a no-go.

This is near Birmingham AL in a higher crime area in case that helps.

Adam,

I've done bad areas. In fact, that's how I re-started (I went through bankruptcy). I became really good at managing properties in D and even F (war zones) areas.

Having said that, it's a LOT of work. It's a LOT of headaches. And literally, I could have been shot or stabbed and good that none of those happened to me. 

One time, an 8-unit property was practically given to me so I jumped on it.  The property took so much of my time that I didn't have time for anything else. To be honest, I regretted the decision because if I handled properties in better areas, I could have done MORE properties, with less headaches and actually make MORE money.

So my advice: DO NOT DO A WAR ZONE property as your first deal.

The property, its tenants, and the headaches will ROB of your time (which in turn robs of you of opportunities to do more deals), your sanity and your peace of mind. You're working 2 jobs as it is and a property in a bad area is ANOTHER JOB. Think of it this way: that $700/month, even if we assume that's all cashflow (which it is not) - is what you're going to get paid for 10 hours/week of work (because that's what it could take for a house in a bad area). So do the math:

$700 divide by (10 hours/week x 4 weeks) = $17.50/hour

Now the reality is - the real cashflow from this property will be around half of that number ($350/month) because something always go wrong. You can have a tenant who does not pay for the month or something bad (like a fine from the city for a broken window that the tenant did but does not want to pay for).

So really, you will end up making less than $9/hour.

There are better deals out there. Just wholesale the deal to a landlord who knows what they're doing (and get paid a quick $3,000 wholesale fee, working 10 hours total to find a buyer: now that is $300/hour which is way better).

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  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    7y

    @Adam Britt I do not recommend getting into the rental real estate business without reserves. Especially in a low income area. It is setting yourself up for something bad to happen.

    Save more money and pay down your debt. Have you thought about starting a business that is real estate related?

    2Reply
  • Megan Pugh
    Member since 2018 · 8 posts · 1 vote
    7y

    @Adam Britt

    Check this website out Adam. I would highly recommend refinancing your loans. But this site can give you some things to consider when it comes to refinancing.

    The other piece of advice I would offer is to start looking for another job. Even if it’s across the country. Find a way to leverage yourself into a better paying salary so that you can start making headway. The other thing is to seriously look at your budget and get crazy about it. Sell the car. Move into a cheaper place to live. Etc.

    Where there is a will there is a way. You just have to think outside of the box.

    1Reply
  • Megan Pugh
    Member since 2018 · 8 posts · 1 vote
    7y

    Forgot the website

    https://www.studentloanplanner.com/

    0Reply
  • Cassandra Sifford
    Rental Property Investor · New Castle, DE · Member since 2016 · 376 posts · 158 votes
    7y

    I'd say that this doesnt sound like a good investment to take on at this point in time. Your relative is familiar with the area so she knows its goimg to he alot added onto your already full plate. In regards to your wife's student loans, thete has ti be a way to refinance and / or consolidate. Possibly taking out a personal loan in your name and the two of you can tackle paying it down at a lpwer interest rate since your credit is good. If you don't own a home, possibly househack a duplex or triplex and let your tenants pay the mortgage and use the rest of the funds to pay down debt. Not sure if the two of you have some untapped talent or skill that can help add to your financial situation?

    Well wishes in whatever you do!

    0Reply
  • Bret Hudson
    Real Estate Agent · Auburn, AL · Member since 2019 · 10 posts · 8 votes
    7y

    Do not buy a problem.

    Work on solving the one you have.

    The number one priority should be getting the interest rates lowered on the student loans. If the loans are through the fed they should be consolidated and then get on an income based repayment plan.  Borrowers who work in certain fields including state and local governments are eligible for loan forgiveness after ten years. 

    Call the lenders and negotiate. Sometimes this works.

    Cut ALL expenses down to maybe a prepaid phone and a cheap van to live in. 

    Get another job. 

    There are 168 hours in a week 336 for you and your wife and you only need 6 or 7 hours of sleep a night. 

    There are always ways to solve a problem. 

    Higher ed is broken and it shouldn’t have to be this way. 

    Sorry for preaching. 

    Good luck!

    1Reply
  • Trey Crusey
    Real Estate Agent · Birmingham, AL · Member since 2018 · 72 posts · 37 votes
    7y

    a fast nickel is better than a slow dime. wholesale it and let someone else worry about it that has more money

    1Reply
  • Tyler Bushey
    Investor · Biddeford, ME · Member since 2017 · 282 posts · 180 votes
    7y

    To echo a few others, I would say absolutely not for your first deal.  I think the lack of experience, financial backing, and the type of tenants you'd be dealing with are a recipe for disaster.  I  would recommend trying to wholesale, or find a partner with construction experience to flip it!  Keep your eagerness in check because not only can real estate set you up for a great future, it can severely screw you if you're not careful. 

    0Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    7y

    @Adam Britt you are not going to like this answer but getting into a real estate investment is the worst thing you can do. Borrowing more money is the worst thing you can do. Do both of you already have full time jobs? What you and your wife should do is hustle like crazy to increase income. Weekend jobs , Uber, pizza delivery whatever it takes. If you can generates extra 2 to

    3 k per month and hit those student loans hard you have a chance to get out. At 12% a year interest the loans will eat you alive. You have to find a way to get them paid off.

    1Reply
  • Jonathan R.
    Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes
    7y

    Once again @Dennis M. comes through with a great post that puts a smile on my face. He’s blunt, but accurate. @Adam Britt is this possible? Can you use the power of D class Section 8 rental properties to save you from your student loan debt and propel you to financial freedom? Yes, I think I’m proof that the concept can work. But... I don’t see a similarity in the way you are currently thinking (from the voice in your posts) to the way I was thinking when I got started, other than the type of real estate you are thinking about buying.

    I wanted it so badly. My veins were on fire. My heart beat out of my chest. I didn’t care what problems I faced. I’d rehab the property myself off YouTube videos if I had to (despite no mechanical or contractoral ability). I wanted to paint the walls. I wanted the feeling of pride as I held onto the porch railing. I didn’t care who told me I couldn’t do it. I was going to put it all on the line. Go big or go home. When your whole body aches for it, then and only then will you be ready. It’s kinda like that scene in Braveheart after the English commander kills Mel Gibson’s wife, when he’s on the horse coming down the hill with that look of calm on his face, but then you see his eyes, he has that look of sure fire determination, it was breathtaking. Yeah, it’s kinda like that.

    2Reply
  • Jerry Murphy
    Investor · Culver City, CA · Member since 2017 · 76 posts · 40 votes
    7y

    @Adam Britt

    Take 6 credits at a local community college two semesters a year and you will not have to make payments on your loans. Take easy classes that will require no effort and little attendance.

    1Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    Rough neighborhoods lack appreciation potential but have high cash flow.  The real question is what is your stomach made of.  Some people are made for it and others will get steam rolled.

    2Reply
  • Sunny Shakhawala
    Parsippany, NJ · Member since 2016 · 64 posts · 49 votes
    7y

    I'd pass on that opportunity. If you're looking to make a "quick buck" on this particular opportunity, maybe try to help your relative sell the house by wholesaling it. Put it under contract for the $10K and try to sell it to an investor in the area for $15K+.  

    For your first investment, I'd say get into a small multifamily (2-4 units) that needs work for 3.5% down with an FHA 203K loan. There's plenty of material on BP about househacking but you can read scott trench's set for life for a more focused approach.

    Gluck with everything. 

    0Reply
  • Adam Britt
    OP
    Bessemer, AL · Member since 2017 · 49 posts · 30 votes
    7y

    Oh wow everyone. I’ve been trying to respond to each message in the thread but ... wow you have all given me a great deal to think about. Some very solid suggestions I’ll pursue on possible options with student loans. Some of these seem plausable. I’ll still be in hard debt till I’m in my 50s, best case scenario. And I hate to lose 20 years of making my money work for me instead of wanting to die working for money but ... some situations just can’t be fixed otherwise. The major tenor here is pay off the loans. And now I definitely see some possible opportunities to accelerate the process. 

    0Reply
  • Adam Britt
    OP
    Bessemer, AL · Member since 2017 · 49 posts · 30 votes
    7y
    Originally posted by @Ian Walsh:

    Rough neighborhoods lack appreciation potential but have high cash flow.  The real question is what is your stomach made of.  Some people are made for it and others will get steam rolled.

     Ha you know, this one strikes me. Hard. I’m a very mellow, laid back guy. You may even call me a pushover. Which is the reason I will always anticipate going for a solid property management company to help shore up my “weakness” in that area. I’m great with people, but not great in getting my way. Your post made me think a lot more about exactly how my personality will impact my hopeful goals in real estate. 

    0Reply
  • Adam Britt
    OP
    Bessemer, AL · Member since 2017 · 49 posts · 30 votes
    7y
    Originally posted by @Jerry Murphy:

    @Adam Britt

    Take 6 credits at a local community college two semesters a year and you will not have to make payments on your loans. Take easy classes that will require no effort and little attendance.

    Great advice for future students! I try to encourage my students to make wise decisions with their education as well. I definitely tell them how impactful debt is, and how a degree does not mean what it once did. 

    As for me, it’s about 15 years too late to take that advice! 

    0Reply
  • Adam Britt
    OP
    Bessemer, AL · Member since 2017 · 49 posts · 30 votes
    7y
    Originally posted by @Jonathan R.:

    Once again @Dennis M. comes through with a great post that puts a smile on my face. He’s blunt, but accurate. @Adam Britt is this possible? Can you use the power of D class Section 8 rental properties to save you from your student loan debt and propel you to financial freedom? Yes, I think I’m proof that the concept can work. But... I don’t see a similarity in the way you are currently thinking (from the voice in your posts) to the way I was thinking when I got started, other than the type of real estate you are thinking about buying.

    I wanted it so badly. My veins were on fire. My heart beat out of my chest. I didn’t care what problems I faced. I’d rehab the property myself off YouTube videos if I had to (despite no mechanical or contractoral ability). I wanted to paint the walls. I wanted the feeling of pride as I held onto the porch railing. I didn’t care who told me I couldn’t do it. I was going to put it all on the line. Go big or go home. When your whole body aches for it, then and only then will you be ready. It’s kinda like that scene in Braveheart after the English commander kills Mel Gibson’s wife, when he’s on the horse coming down the hill with that look of calm on his face, but then you see his eyes, he has that look of sure fire determination, it was breathtaking. Yeah, it’s kinda like that.

    Oh excellent thought. I see your point. But surely, people with less passion than a man avenging his wife can still succeed? 

    Jokes aside I like the way you put it. That’s definitely a difference between us. I see it as opportunity. As theory. As a theoretical answer to impossible questions. Not as the burning desire for my lifes work. I couldn’t care less about real estate itself. What I care about are the numbers. I understand cash flow. I understand value and appreciation. Maybe I just need more time to stew on it and have that burning start, down in my bones! 

    1Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    7y
    If you are going to use a PM in a war zone, spend a lot of time seeing if they are a fit. You have to think about where you stand if the PM doesn't work out and you have to manage it yourself.  Always think about how you would handle the worst case scenario.  If you are ok with it, then everything else should be fine.

    Originally posted by @Adam Britt:
    Originally posted by @Ian Walsh:

    Rough neighborhoods lack appreciation potential but have high cash flow.  The real question is what is your stomach made of.  Some people are made for it and others will get steam rolled.

     Ha you know, this one strikes me. Hard. I’m a very mellow, laid back guy. You may even call me a pushover. Which is the reason I will always anticipate going for a solid property management company to help shore up my “weakness” in that area. I’m great with people, but not great in getting my way. Your post made me think a lot more about exactly how my personality will impact my hopeful goals in real estate. 

    0Reply
  • Adam Britt
    OP
    Bessemer, AL · Member since 2017 · 49 posts · 30 votes
    7y
    Originally posted by @Cassandra Sifford:

    I'd say that this doesnt sound like a good investment to take on at this point in time. Your relative is familiar with the area so she knows its goimg to he alot added onto your already full plate. In regards to your wife's student loans, thete has ti be a way to refinance and / or consolidate. Possibly taking out a personal loan in your name and the two of you can tackle paying it down at a lpwer interest rate since your credit is good. If you don't own a home, possibly househack a duplex or triplex and let your tenants pay the mortgage and use the rest of the funds to pay down debt. Not sure if the two of you have some untapped talent or skill that can help add to your financial situation?

    Well wishes in whatever you do!

     Beautiful ideas. I may seriously consider doing smaller personal loans to cut some interest. That seems practical... 

    I do own a home. The payment on that is less than half of my student loans! I wanted to house hack worst in the world (I own basically every book BP has our) but I’m afraid cost is the barrier to entry. Multifamily property in our area is either massively overpriced, or it is in the war zone. If you know of one that is actually worth while ... tell me. I’ll sell my house tomorrow and go in on it! 

    0Reply
  • Adam Britt
    OP
    Bessemer, AL · Member since 2017 · 49 posts · 30 votes
    7y
    Originally posted by @Michael Noto:

    @Adam Britt I do not recommend getting into the rental real estate business without reserves. Especially in a low income area. It is setting yourself up for something bad to happen.

    Save more money and pay down your debt. Have you thought about starting a business that is real estate related?

    I have! Considered being an agent to get started actually. Other agents talked me out of it. Apparently, not having a steady paycheck is much more dangerous when you owe the same amount in loans every month. I want to do that on the side still as an extra side hustle. I just haven’t gotten one of those “round tuits” yet from Mr Ziegler since I’ve been chasing credentialing in my primary profession, and working every weekend in my secondary profession.  

    0Reply
  • Jonathan R.
    Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes
    7y
    Originally posted by @Adam Britt:
    Originally posted by @Jonathan R.:

    Once again @Dennis M. comes through with a great post that puts a smile on my face. He’s blunt, but accurate. @Adam Britt is this possible? Can you use the power of D class Section 8 rental properties to save you from your student loan debt and propel you to financial freedom? Yes, I think I’m proof that the concept can work. But... I don’t see a similarity in the way you are currently thinking (from the voice in your posts) to the way I was thinking when I got started, other than the type of real estate you are thinking about buying.

    I wanted it so badly. My veins were on fire. My heart beat out of my chest. I didn’t care what problems I faced. I’d rehab the property myself off YouTube videos if I had to (despite no mechanical or contractoral ability). I wanted to paint the walls. I wanted the feeling of pride as I held onto the porch railing. I didn’t care who told me I couldn’t do it. I was going to put it all on the line. Go big or go home. When your whole body aches for it, then and only then will you be ready. It’s kinda like that scene in Braveheart after the English commander kills Mel Gibson’s wife, when he’s on the horse coming down the hill with that look of calm on his face, but then you see his eyes, he has that look of sure fire determination, it was breathtaking. Yeah, it’s kinda like that.

    Oh excellent thought. I see your point. But surely, people with less passion than a man avenging his wife can still succeed? 

    Jokes aside I like the way you put it. That’s definitely a difference between us. I see it as opportunity. As theory. As a theoretical answer to impossible questions. Not as the burning desire for my lifes work. I couldn’t care less about real estate itself. What I care about are the numbers. I understand cash flow. I understand value and appreciation. Maybe I just need more time to stew on it and have that burning start, down in my bones! 

     I’m not suggesting you do what I did. There are many ways to make money in real estate, or attack finances. I would like you to start thinking about your student loans from a position of strength rather than weakness. Adversity can be one of your biggest assets. As your asset column grows, the power of the student loan debt shrinks. Each purchase fueling more strength and minimizing the impact of the student loans. It’s addictive. Prior success paves the way for more success. Problems become smaller, but there are more of them, and “you have to be bigger than your problems” (T. Harv Eker-Secrets of the Millionaire Mind). 

    0Reply
  • Adam Britt
    OP
    Bessemer, AL · Member since 2017 · 49 posts · 30 votes
    7y
    Originally posted by @Mindy Jensen:

    @Adam Britt , I'm going to send you to two podcast episodes. Craig Curelop used House Hacking to pay his student loans and shares the story on Episode 35 of BiggerPockets Money. (www.biggerpockets.com/moneyshow35)

    And Rich Carey invests in Alabama long distance from Korea where he is serving in the Military. He tells his story of paying cash for houses in Episode 268 of the BiggerPockets Real Estate Investing Podcast (www.biggerpockets.com/show268)

    I didn't read what your profession is. We also interviewed Travis Hornsby from Student Loan Planner in an Episode titled How to pay off 6-figure debt while pursuing Financial Independence. Check out (www.biggerpockets.com/moneyshow22)

     Thanks Mindy!! I am pretty sure I have already enjoyed those first 2 podcasts. I may have to listen again ... and I’ll definitely check out the third link too!

    0Reply
  • Cassandra Sifford
    Rental Property Investor · New Castle, DE · Member since 2016 · 376 posts · 158 votes
    7y

    @Adam Britt ... Sorry for all the typos in my last message.  Responding on your cell after your bedtime never ends well LOL

    I got into REI using the equity in my primary home. Maybe check into a HELoC to see if it could help you get into real estate and/or help you consolidate that student loan debt. I know you want to help your wife so the two of you can thrive and I'm prayerful that it can happen much sooner than later!

    If you're apart of a credit union, maybe speak with their in house financial planner (my credit union offers this).  He helped me invest funds I got from a inheritance into something that pays out over 5 years while gaining interest along the way.  I wanted to take it all out, but would have been beat down by income taxes and bumping me up into the next bracket.  They have a better financial perspective and should be able to speak with you about what can help your financial situation.

    1Reply
  • Michael Robbins
    Property Manager · Henderson, NV · Member since 2018 · 501 posts · 317 votes
    7y

    I would suggest saving as much cash as possible and paying off as much debt as possible.  When the market turns then invest.  

    0Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    7y

    I would not invest in a rough area. Early in my working life I was a repo-man in a mining town-yes for real- and have seen my share. PM'ing in a rough area would top that.

    1Reply
  • Justin Larese
    Crane Missouri · Member since 2019 · 60 posts · 34 votes
    7y

    if you can get it for 10k, what would be the appraisal for the home? How much equity could you pull out? You could take an equity loan at a low interest rate say 5% and use it to pay  off some of her high interest student loans on top of having a rental. Or she could use the equity for her refinance as collateral which should provide her a lower rate. Something to consider, but if it's in your name only and she leaves you after, that's your monkey now. You need to tackle the student loans. You are trying to pail buckets of water out of a sinking boat full of holes, you will stay stuck until you can lower the amount of water coming in. In regards to high crime. Plex for plumbing replacement no one steals plastic pipes, may need to live in property to ensure no break ins until rented.

    0Reply
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