Do you invest in high crime areas?

General Landlording & Rental Properties

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Do you invest in high crime areas?

Thuy Pham-Satrappe

Rental Property Investor · San Clemente, CA · Member since 2019 · 160 posts · 34 votes

For those of you who actively choose to invest in high crime areas, what do you make sure to factor into your numbers?

-higher vacancy

-higher possibility of turnover

-hiring a property management company with skill and experience in that area

-more repairs/maintenance during and after

-tell me more [please and thank you!]

8 Reply

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Mareno Rathell

Rental Property Investor · Milwaukee, WI · Member since 2019 · 15 posts · 35 votes

I purchase in high crime areas. I usually get duplexes in decent condition for about $22k and put a couple of Grand into it with myself doing the work. I make $700 per unit per month.

I have all long term tenants who pay on time all the time and they take care of my places. I find most landlords in high crime areas just want the cash but don't duo their due diligence when screening tenants.

Ultimately if you screen properly, have a well taken care of property and you are a good landlord, you will get good tenants.

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Account Closed
Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
7y
Originally posted by @Thuy Pham-Satrappe:

For those of you who actively choose to invest in high crime areas, what do you make sure to factor into your numbers?
-higher vacancy
-higher possibility of turnover
-hiring a property management company with skill and experience in that area
-more repairs/maintenance during and after
-tell me more [please and thank you!]
I've bought a few drug houses in my day and just chasing away the steady stream of buyers takes a lot of time. Then there are the break ins. Then once you finally take care of all of that you get the tenants who rent in the area because that is their lifestyle. Appliances go missing. They get recycled for the metal. Sometimes the copper in the walls goes missing, it get recycled too. These people are model citizens when it come to recycling.
Why do you ask?

16 Reply
Thuy Pham-Satrappe
OP
Rental Property Investor · San Clemente, CA · Member since 2019 · 160 posts · 34 votes
7y
@Mike M. I've been considering purchasing properties in higher crime areas and want to understand the full picture. I know many of the downsides, but I also know there are plenty of investors who have successfully invested in these areas.
If I choose to invest this way, it's essential that I understand all of the risks as well as the rewards that come along with it
2 Reply
Matthew Irish-JonesBusiness Member
Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
7y
@Thuy Pham-Satrappe I think there is more risk than reward. You want to always consider debt pay down and appreciation when you are investing.
The high crime areas put cash flow above all else. You eliminate (generally speaking) your opportunity for debt pay down and appreciation. There is also a lot more risk that something can go wrong with your cash flow. Bad tenants, months with no tenants, damaged apartments, etc...
I know people that bought 35K homes and rented them out for $750/$800. They have great cash flow... until a roof is needed, or a tenant destroys the place or they want to sell. Now they have a liability stuck on their hands that is not in rentable shape without pouring money into it, with no signs of appreciation in the near future, and the very real possibility that someone will only purchase it at a highly discounted rate.
I am not sure when they add up their original purchase, cash flow, sale price, maintenance costs, etc.. they will have made any money, or at least not nearly as much as they thought.
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Thuy Pham-Satrappe
OP
Rental Property Investor · San Clemente, CA · Member since 2019 · 160 posts · 34 votes
7y
@Matthew Irish-Jones thanks for your feedback!
0 Reply
Dennis M.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
Well It’s higher hands on management and the tenants are more helpless but there’s also more profit with an easier entry cost . You can make excellent returns in these areas *IF you can stomach it . Most of people who say don’t do it - have never self managed in these areas so be careful who’s advise you follow .
16 Reply
Account Closed
Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
7y
Originally posted by @Thuy Pham-Satrappe:

@Matthew Irish-Jones thanks for your feedback!
You can buy it cheaply for a reason, it's the maintenance and hassles that make it problematic. If you can drive over in half an hour that may work, if you are out of state "forgetta 'bout it".
Why not reasonable working class neighborhoods that cash flow with many fewer problems? You might not find a city in California that is easy to do this but Las Vegas and Phoenix and Mesa are near by.
Average Cash Flow Per Door In Phoenix Metro Area
https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area
2 Reply
Doug McVinuaPro Member
Property Manager · Queen Creek, AZ · Member since 2016 · 608 posts · 426 votes
7y
@Thuy Pham-Satrappe I manage a few in higher crime areas and it requires more active Management that some other properties. It isn't always for the faint of heart either, you tend to see and hear some nasty things. Yesterday I was met at the door by a dude larger than I am with nunchucks in his hand as I handed the tenant an eviction notice.
With that said we are now attracting better quality tenants, cleaning up the properties and it's getting easier to manage as I attract higher quality tenants. All I have done is make the units slightly nicer than before, they are clean, everything works, the paint is decent, respond to tenants needs, etc. It's not rocket science, it just takes a little more effort.
The demand is high for decent affordable living and we are meeting the demand. Careful and thorough screening eliminates the trash and it's working!
[email protected]602-751-7577
17 Reply
Quincy Lockett
South Holland, IL · Member since 2017 · 374 posts · 432 votes
7y
@Thuy Pham-Satrappe
For many the lower barrier of entry to these lower C/D properties is a beginning. Sometimes it’s all an entry level investor can afford to start their investment journey.
Yes there’s more intense management but not much more than solid B/C properties. Tenants here don’t attack you physically (myth) and they understand you have the legal power to remove them from their home. I never argue with them, I just post PAPERWORK.
Use these properties to value add and then scale up to solid C & B level investments once you’ve improved the quality of the property and tenants. This is for many people the only way to get a foothold on real estate investing. Not everyone starts out with a $100K downpayment investment from their mommy.
15 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
you should really jump over to the Morris invest threads. while a big problem with his program is that rehab money was stolen.. but these are the same areas and homes that are continually recycled.. by failed landlorsds
you would be money ahead to forget about rentals if all you can afford or want to afford is high crime areas.. Save your Money and by some type of small franchise business you will do far better cash flow wise and not have nearly the risk.
Subways are very nice money makers.
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4 Reply
Michael Noto
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
7y
@Thuy Pham-Satrappe It is very difficult to get a good property manager to want to deal with the types of issues that come from managing in high crime areas. If they are good enough and established they have plenty of other options to manage properties that are not as day to day intensive.
The only way I've ever seen these types of properties work for an investor is if the owner is closely managing the day to day and the tenants feel your presence. The returns are good but it comes with the sacrafice of time.
You hit on the major pitfalls associated with these properties, the killer is the increased turnover costs espcially if they come on the heels of an eviction which costs you money as well. In a lot of cases that sucks up any cash flow you have made in the interim.
4 Reply
Matt M.
Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
7y
@Thuy Pham-Satrappe
If you have to get a permit to carry just to collect rent or go to the house to check something out, it’s not worth it.
4 Reply
Dennis M.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
What about carrying a machete on your side ? Does that count ? I would never rely on a property manager in these areas ( out of state investors need not apply) your going to have unique challenges that often require a personal touch .tenants lives in these areas are desperate and chaotic so you have to learn to make money in the mess . In my (limited )experience it seems Once you get the property stabilized and the tenants understand your expectations it’s really not too bad in fact I rarely have to go over to these places more than twice a month as long as there’s no water leaks or maintenance stuff . Some of the folks who buy higher end properties on here would have new guys believe your going to be going to the property everyday breaking up fights throwing people out of windows and getting stabbed when you collect rent lol . You pick the tenants and manage the building so in a great deal of the issues its really up to you and how you react . People in these areas have a lot of mental health issues that require understanding and patience or your going to fail or atleast lose a lot of money
12 Reply
Melissa Nash
Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
7y
@Thuy Pham-Satrappe I do!
Here is the info;
Paid cash $18k
$6k rehab quote
Rents for $625/mo
PM found a squatter, stole copper and needs new hvac.
New rehab cost $16k
Total in $34k
Pm placed section 8 tenant after 1 week
Cash flow =(No loan) $560/mo
Guaranteed rent check - section 8 is awesome for that. Pm deals with everything, I will never actually visit this property, high rental demand area, will never appreciate, and I sleep good at night.
Me= happy camper.
19 Reply
Lee Bell
Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes
7y
I figure if you grew up in the projects or just blue collar land you will do better than if you grew up in Beverly Hills or etc. Or maybe I am just stereotyping.
8 Reply
Mareno Rathell
Rental Property Investor · Milwaukee, WI · Member since 2019 · 15 posts · 35 votes
7y
I purchase in high crime areas. I usually get duplexes in decent condition for about $22k and put a couple of Grand into it with myself doing the work. I make $700 per unit per month.
I have all long term tenants who pay on time all the time and they take care of my places. I find most landlords in high crime areas just want the cash but don't duo their due diligence when screening tenants.
Ultimately if you screen properly, have a well taken care of property and you are a good landlord, you will get good tenants.
22 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Mareno Rathell:

I purchase in high crime areas. I usually get duplexes in decent condition for about $22k and put a couple of Grand into it with myself doing the work. I make $700 per unit per month.
I have all long term tenants who pay on time all the time and they take care of my places. I find most landlords in high crime areas just want the cash but don't duo their due diligence when screening tenants.
Ultimately if you screen properly, have a well taken care of property and you are a good landlord, you will get good tenants.
your the success story. frankly you can do it.. but i highly doubt others without your knowledge of the area an abilty to mange yourself could do anywhere near as good as you.. congrats..those are fab numbers.
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2 Reply
Thuy Pham-Satrappe
OP
Rental Property Investor · San Clemente, CA · Member since 2019 · 160 posts · 34 votes
7y
@Melissa Nash thank you for sharing! Love hearing success stories like these!
0 Reply
Junior Soares
Contractor · San Jose, CA · Member since 2018 · 262 posts · 407 votes
7y
@Thuy Pham-Satrappe Hi Thuy, If you can stomach alot of headaches, then who are we to tell you where and where not to invest? Check out @James Wise "Tenants From Hell" on YouTube. James tells everyone how it is and he is as honest as it gets! These areas have alot of cashflow yes but just not worth the headaches. I own one in my portfolio so I know how it is first hand. Lots of money every turnover which eats your profits. If I may make a recommendation, I recommend buying a low cost franchise such as Subway, FedEx, or a Mission tortilla. About 100k investment that will net you 40k ish yearly like clockwork. I own one so I can vouch for them. Then you increase your cashflow to buy better ABC rentals that will give you less headaches. Best of luck!
6 Reply
William W.
Rental Property Investor · south Alabama · Member since 2018 · 121 posts · 88 votes
7y
Another thing to consider how how difficult it’ll be to sell if you decide you’ve had enough. Will it sit on the market for two years, or longer?
3 Reply
James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
7y
Originally posted by @Junior Soares:
@Thuy Pham-Satrappe
Hi Thuy,
If you can stomach alot of headaches, then who are we to tell you where and where not to invest?
Check out @James Wise "Tenants From Hell" on YouTube. James tells everyone how it is and he is as honest as it gets!
These areas have alot of cashflow yes but just not worth the headaches. I own one in my portfolio so I know how it is first hand. Lots of money every turnover which eats your profits.
If I may make a recommendation, I recommend buying a low cost franchise such as Subway, FedEx, or a Mission tortilla. About 100k investment that will net you 40k ish yearly like clockwork. I own one so I can vouch for them. Then you increase your cashflow to buy better ABC rentals that will give you less headaches.
Best of luck!
Thanks for the shout Junior.
The franchise stuff you spoke about is pretty interesting. I've got a Farmers Insurance office that does well & have considered doing a few other franchise type investments. I've heard a lot of operators need to own at least 3 Subways before netting any profit as Subway sells so many of them you get a lot of cannibalization. Any 1st hand experience on that you can shed? Cool topic.
1 Reply
Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
7y
It's hard enough dealing with lower income tenants in good areas. Try it with bad areas and bad tenants.
What attracts some investors is the appeal of higher cash flow for big headaches and low cost of capital entry. If you have a great paying job or business and a healthy chunk of capital to invest there might be much better options out there.
I know some investor friends that are worth around 3 million now in their 60's in age and have battle scars from owning these types of properties over decades. It has really taken a toll on them but they have gotten used to it. I would not want to own any of those types of properties.
My personality is I enjoy being on the beach without a care in the world. Money tends to be infinite but individual time is not. I value family,faith,friends, and happy life experiences over trading a lot of that in time for big headaches with perceived higher cash flow that may or may not ever happen. There are a few that make those high crime areas work as investors but what I have seen over the years it is a very tiny percentage. Most that try it lose their shirt or eek by with returns until they can finally build enough capital to sell off and move into less intensive assets.
If you do try this you might want to start really small and something close by so your risk profile hopefully is somewhat reduced in comparison to your overall net worth.
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2 Reply
Kris L.
San Antonio, TX · Member since 2019 · 930 posts · 836 votes
7y
What kind of crime rate constitutes “high crime”? Are we looking only at violent crime, or property crimes as well?
0 Reply
Jason BottPro Member
Insurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
7y
Originally posted by @Thuy Pham-Satrappe:

For those of you who actively choose to invest in high crime areas, what do you make sure to factor into your numbers?
-higher vacancy
-higher possibility of turnover
-hiring a property management company with skill and experience in that area
-more repairs/maintenance during and after
-tell me more [please and thank you!]
Thuy, about 3 years ago the insurance companies started to underwrite strongly against high crime areas, so the insurance can be higher. Don't assume you will be able to get the seller's insurance rates. Get an approved quote while doing your due diligence.
3 Reply
Thuy Pham-Satrappe
OP
Rental Property Investor · San Clemente, CA · Member since 2019 · 160 posts · 34 votes
7y
@Mike M. I am also investing in the "better areas" just keep coming across properties in the higher crime areas so figured it was worth exploring
0 Reply
Thuy Pham-Satrappe
OP
Rental Property Investor · San Clemente, CA · Member since 2019 · 160 posts · 34 votes
7y
@Doug McVinua thank you for this perspective from someone who has been there done that. I know the property management plays a huge role in this and can certainly be a determining factor of success
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