Do you invest in high crime areas?
Rental Property Investor · San Clemente, CA · Member since 2019 · 160 posts · 34 votes
Do you invest in high crime areas?
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Rental Property Investor · Milwaukee, WI · Member since 2019 · 15 posts · 35 votes
7yI 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.
145 Replies
- Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes7y
Originally posted by @Mike D'Arrigo:
@Melissa Nash I agree that no class of property is immune from problems and it's best to have a portfolio of properties to offset the under performers. Even if you have no more repairs on cheap properties than you do on higher end ones, those repairs will cost the same, yet your rent is much lower. For instance, it will cost as much to repair that water line leak on the house renting for $600 as it does on one renting for $900 a month. Your maintenance and repairs will always be a much higher percent of your gross income with lower rent properties. That is compounded when you start having CAP Ex expenses down the road which is why you can't get an accurate measure of return until you've owned them for 5 years or so. On going maintenance and repairs, CAP Ex and high turn over costs can easily wipe out the lower cash flow that these properties produce because of their lower rents.
Yes, but you get the discount on the buy. If I have an all in property at 30k that rents for $600 a month and you have one that rents for $900 a month but it cost you say 60k, I actually get $1200 a month because I have two properties instead of just the one. Also, since I bought mine in a rough D area, I already addressed most all of my major issues during the rehab because I bought the house for 18k and spent 12k on hvac, electrical, plumbing, etc. Also, savvy D class investors get capex and maintenance done for very cheap, sure they would be just as cheap in a better area, but it makes your argument less valid. My contractor will turn an entire property to pex for $200 and he‘ll fix the water line leak you mentioned for $20 (because he‘s working on my next cheap property).
You may be giving up appreciation in these areas, but the cashflow returns the investment in less than 5 years (4 or less is ideal and very realistic).
- Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes7y
Originally posted by @Marcus Auerbach:
Originally posted by @Account Closed:
Just got back from mine. At the one, the tenant has her adult son living there, and straight-up lied to me about how he was not going to live there, just going to be her and her little toddler. So, a couple months in, and of course, the deadbeat son is there each and every time I come by hmm...looks able enough to get a job to me...at least able enough to pick up the stupid trash. So today, after getting cited from the city for trash, which I had 24 hours to clean up, where I got the notice 3 days later, and after I called and discussed it with the tenant they said they would clean it up, I go over there to see whats up. The blinds are pulled down with the hands, ruining them, as they peep out to see who's there. I go to the back and all of a sudden there's a different guy, the sons friend I presume, who confronts me and says, who are you? I look at him puzzled and say, "who the **** are you?" Are you the landlord? Yup. O. He walks away. Meanwhile, the son never bothers to confront me whatsoever. So, I clean up the trash that was not picked up, and proceed to clean up all the trash in the yard, down the alley, from the city property across the alley that has become the dumping ground, and a few houses either way on the front street - wondering if I am going to get a bill in the mail from a contractor who clearly never bothered to come by when they could have. Meanwhile I meet the neighbor I have become friends with, and we chat a bit, she is embarrassed I am picking up trash. I go inside to meet with the other tenant through the back door, the place reeks of dope, and I look down the stairs and see the two "kids" have set up shop on top of the other tenants washing machine. Lighter, smokes, cell phone, lawn chair - a regular rec room, with the other tenants property as their table. Sigh.
So I go upstairs and chat with the other tenant, collecting rent because he got in a car wreck and is housebound. His unit is perfect. Seriously nice guy, so far a great tenant and guess what? He's a felon. And yes, I knew that.
So I go to my other property to see if the new doors I put in the basement are still there. We have had an issue with the tenants failing to lock the common back door. I have made it clear this is not acceptable, multiple times. Sure enough, back common door is not locked. I was pleased to see the hallway was finally cleared of property after asking multiple times. My doors however, are still there. The basement also has a store room with a mattress in it, and the light is on, and it looks like someone might be using it. So, I pick up all the trash in that yard too, and go home.
The same tenant who can not seem to lock the door, is habitually late on rent. Lies about it and jerks me around too. She is however, caught up and takes good care of her unit. The unit is not horrible, but not so nice either, and needs some serious love. Her rent is late again this month. The tenant below her, is the model tenant, pays early, keeps up the place, and hates the other tenant. I rent each of these for $625, and I pay the water so, about $550 gross before all other expenses. I bought that one for $35k and it needs thousands more. I do not have a bunch of money in the bank for another rehab.
In the other property, I just got done fixing it really nice, have about $110k into it. I get $750 for each, and again pay the water, so about $675 gross before other expenses. Both tenants keep the units up nice, and both have paid well enough so far.
Both properties reek of dope every time I go there. In fact, the entire neighborhoods reek of dope so...
What to do? What would you do? How do you suppose a property management company would deal with any of this? Do you think my tenants are good or bad? Just curious.
I would like to give Merritt some serious credit here! It was an interesting experience for me helping him buy these properties - in parts of the town I don't get too often - and in terms of brick and mortar he got amazing deals - large and solid buildings. And now you have a guy who is not only manageing his properties well, but also deeply cares about the neighborhood, is picking up trash and having a positive influence on people.
Merritt knows what he's talking about first hand - unlike half of the people commenting on here, who got mezmarized by the cash flow numbers, but rearely have been seen around these neighborhoods. If you are thinking about investing in rougher parts of Milwaukee Merritt is a guy you should talk to. Ask him how much time and effort he is spending on his properties - he is definitley earning his money. This is active income. If you think you can just buy there as passive investments, or even do this from out of State, think again. Or talk to Merritt / read his posts!
Thanks Marcus, that was nice of you to say. You were quite the trooper too when we went around. I'll never forget one particular duplex we rolled up on, and you looked at me with a face of terror/concern before we even went inside and said "No. This one is a bad idea." - lol. And, you were right. The numbers on that property were actually quite good, the building was the sort that I would be very interested in, but the neighborhood was going down instead of up in terms of residents - I guess your nose for that stuff is pretty good too! The important part to point out on that one, is that from a quick glance the neighborhood looked better than soooo many others, and in many ways, looks better than the ones I ended up pulling the trigger on. It is not easy to see that stuff. I am, if I do say so myself, getting much better at telling the difference. Gotta dig in, drive around, and get a sense for the little clues.
I've been an appraiser for 14 years. Before that, I had a short stint as a cable guy in the hood, which is an eye-opener (nobody cleans up for the cable guy and everyone gets cable). I built houses before that. I have lived in and around Milwaukee most of my life. And still, understanding the neighborhood dynamics is not easy. Milwaukee is, for lack of a better term, spotty. I am toying with the idea of becoming an OOS liaison, but am not even close to that yet, still crunching the numbers and trying to get a view of what that might look like. That said, I've sort of done a 180 on my attitude towards out of state investment in our city - we could use it - steering people in the right direction and hopefully encouraging them to do the right thing is key. I still have a serious loathing for slumlords - we have plenty of home-grown ones already, and I'm not going to show them around so they can pillage.
Anywhoos...Yes Marcus, I have been spending WAY too much time on BP lately - lol.
And for the record, from a guy who doesn't have many nice things to say about realtors in general, Marcus is a good egg.
- Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes7y
Been doing this for some time. Can be nerve wrecking at times but I'm used to it.
- 7yRebecca KnoxBusiness MemberSpecialist · Milwaukee, WI · Member since 2014 · 1k+ posts · 1k+ votes
I had a feeling that was going to happen. They made an announcement that they were charging $500, no argument littering fine but how many people do they actually catch in the act of littering? They'll make their money off landlords especially in the City.
- Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes7y
Originally posted by @Robert Matelski:
Originally posted by @Tom Ott:
Originally posted by @Bob Prisco:
@Tom Ott yes but you cant make any money there. CH, MH GH, EUCLID, LEE HARVARD, west side, all high crime, I am very familiar with all the Cleveland markets.
Cleveland Heights and Euclid are high crimes? Have you been to East Cleveland?
You can plenty of money in Euclid, Bedford, Parma, Parma Heights, Cleveland Heights, Shaker Heights, South Euclid, Willowick, Eastlake, Wickliffe, Mentor, Warrensville Heights, ETC.
High crimes would be East Cleveland and some of the eastern and western parts of the city of Cleveland.
I agree totally with @Tom Ott on this one. There are a few pockets of high crime in some of those suburbs, but overall they are safe. Euclid off of Euclid Avenue, houses in the E 190s, and the condos in the E 270s are areas that might give you some trouble (though nothing nearly as bad as what you would get in most of East Cleveland).
Exactly! I don't even touch those pockets as well.
- Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes7y
Originally posted by @James Wise:
Originally posted by @Raju V.:
This is true, but it is still no walk in the park. These properties are still high maintenance and nerve racking, even if you have a good property manager and team. Some weird stuff just goes on that will not happen in normal neighborhood.
If you are over 50 I would probably stay away from these high crime areas. If you are younger and more adventurous and want to take a "stab" at them, probably ok. Also if you are female just keep in mind you may have to go to the property by yourself. I have a good team on the ground, but I still have to visit my properties.
Weird stuff.............Lol like this
Awesome. I wonder, how will a person see this from a credit report and background check???
- Investor · Mancelona, MI · Member since 2019 · 43 posts · 24 votes7y
Just tossing two cents in since I read all this. I have seen one really interesting investment into one of the worst neighborhoods possible. Literal war zone downtown Detroit. One person bought every single house in a certain neighborhood since he could get them for practically nothing due to asbestos, crime, and other hazardous reasons. Some places will pay you to take them. Well, he got all of them in an localized area, then bulldozed the entire section and rebuilt a gated community with extremely high end houses. That's one way to get a nice neighborhood. I was kind of impressed at the ingenuity.
- Professional · Parsippany, NJ · Member since 2013 · 384 posts · 262 votes7y
I am not sure where you are looking to invest but I love my city which is considered a "high crime" area and the dope capital of NJ. I NEVER buy single family homes due to economy of scale and my type of business plan. However, my city is predominately 2-4 units which is typical in high crime urbanized areas of NJ. I purchase low, rehab and rent out to section 8 tenants only. I basically did TONS of research on the city and discounted the complete worst of the worst blocks since vacancy and turnover is higher. I then kept an eye out for the better areas of town. As long as the city and or town population has been increasing you are much safer. I rehab with all cheap flooring, cabinets etc and rent to Section 8 tenants only in this area. Last, I have a local and experienced property manager oversee my portfolio. Make sure property manager is experienced and has a contract with you (I caught my last 1 stealing) with a cancellation policy. It is the same two tenants (out of 7) that always complain about non-sense that is irrelevant besides that its good. SECTION 8 is great and never late !!!
- Professional · Parsippany, NJ · Member since 2013 · 384 posts · 262 votes7y
Originally posted by @Melissa Nash:
@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.
SECTION IS SO GREAT SECTION 8 IS NEVER LATE
- Investor · Granger, IN · Member since 2015 · 195 posts · 129 votes7y
High crime area is a pretty nebulous term. I live outside of South Bend Indiana which has a pretty high crime rate but it is the largest city in the county. So most of our rentals are there. I buy houses in some neighborhoods that my friends won't and only work in working class neighborhoods anyways. For those people who say that it is harder in those neighborhoods I would say, that I doubt it. Do we buy the worse house on the worse block? No because there are so many houses/areas to pick from that you are still going to pick the nicer street and house out of the ones you are looking at. There are good people all over and my tenants are good people. I get sick of my friends joking around that I am a slum lord (I am certainly not) or asking if I am afraid of the neighborhoods I own houses in. The answer is no. We are selective with who we pick to rent to. We don't do month to month, we screen everyone well and generally have long term no hassle rentals. The upside is better ROI's than in pretty neighborhoods and because homes are inexpensive here we can own more which spreads our risk over a larger number of houses. I would rather own three $35K houses than one $105K house. My total rents collected are over twice as much with the three which covers the higher capital costs associated with owning three houses instead of one.
Good luck with whatever you do though - there are a million ways to skin this cat!
- 7yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
Originally posted by @Jonathan R.:
Originally posted by @Mike D'Arrigo:
@Melissa Nash I agree that no class of property is immune from problems and it's best to have a portfolio of properties to offset the under performers. Even if you have no more repairs on cheap properties than you do on higher end ones, those repairs will cost the same, yet your rent is much lower. For instance, it will cost as much to repair that water line leak on the house renting for $600 as it does on one renting for $900 a month. Your maintenance and repairs will always be a much higher percent of your gross income with lower rent properties. That is compounded when you start having CAP Ex expenses down the road which is why you can't get an accurate measure of return until you've owned them for 5 years or so. On going maintenance and repairs, CAP Ex and high turn over costs can easily wipe out the lower cash flow that these properties produce because of their lower rents.
Yes, but you get the discount on the buy. If I have an all in property at 30k that rents for $600 a month and you have one that rents for $900 a month but it cost you say 60k, I actually get $1200 a month because I have two properties instead of just the one. Also, since I bought mine in a rough D area, I already addressed most all of my major issues during the rehab because I bought the house for 18k and spent 12k on hvac, electrical, plumbing, etc. Also, savvy D class investors get capex and maintenance done for very cheap, sure they would be just as cheap in a better area, but it makes your argument less valid. My contractor will turn an entire property to pex for $200 and he‘ll fix the water line leak you mentioned for $20 (because he‘s working on my next cheap property).
You may be giving up appreciation in these areas, but the cashflow returns the investment in less than 5 years (4 or less is ideal and very real
Jonathan, that strategy may work for you since you are local, hands on and doing it on a larger scale. Our investors are out of state and more passive. If I tried to convince them that they can buy a bunch of cheap properties in high crime areas, I would be doing them a huge disservice which Is why I won't do it. Your strategy will not work for the passive, out of state investor looking for something turn key.
- Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes7y
@Mike D'Arrigo I agree.
- 7yJames Thomas NakashianPro MemberMassapequa, NY · Member since 2017 · 90 posts · 42 votes
@Thuy Pham-Satrappe The type of people you see in the target areas that you are searching in is typically the type of people you attract for your properties in said target area. Therefore, if you invest in high crime areas you will attract a sub-par clientele.
@Thuy Pham-Satrappe nope, I already have enough drama in my life 😉 but I do believe there are people who make it work however they are 100% actively managing (ie anything but passive).
- Bar Harbor, ME · Member since 2018 · 4 posts · 2 votes7y
Hey @Thuy Pham-Satrappe, I listened to the Bigger Pockets Real Estate Podcast episode #54 with Lisa Phillips. Lisa specializes in low income neighborhoods/ properties under $30k. The episode is amazing and full of details about her journey but the key points she made that marked me where:
- yes, you are a landlord in low income neighborhood, but that should not stop you from being selective with how much of the crime you can actually handle (theft might be less of a concern than robbery and break-ins)
- do drive buys. See how the community feels
- Look for communities with new development projects near by (one of her example was a property she acquired had a great school being built one or two blocks away)
Lisa Phillips had soooo much more to say soo you should just go listen to the podcast! Haha Good luck!
@Angelo Mart Is it true that the process to rent out to a Section 8 tenants is long and grueling? Because from what I hear (and partly researched) that's the case and that's been the main reason why I haven't researched further...but your comment is starting to make me rethink that...I am going to assume your property manager does the tenant vetting?
- Professional · Parsippany, NJ · Member since 2013 · 384 posts · 262 votes7yA friend of mine owned a management company at the time I rented my units out. His office specializes in Section 8 and has a relationship with most of the caseworkers and inspectors in my city. Even with that the inspector did fail some minor small things which is amazing because the house was a full gut renovation. Lead based paint is the biggest issues so make sure you have disclosures and or lead certificates. To make things more annoying I have my annual inspections coming up in May for my property. The annual inspection is ridiculous because the city Section 8 office does not even do it, they sub it out to some idiots that either never show up or don't know what to look for. If you are buying a dump of a property I would not suggest section 8 as the inspectors can fail you for pretty much being a slumlord (rightfully so) but if it is good condition, rehabbed of newer construction then Section 8 is the way. My home was fully rehabbed but I utilized all super Cheap Stuff. In the event the tenant breaks something, the cost to replace is minimal. Once you go through the process then you are on the "Payroll" as landlords call it. Starting at the end of 2017 all of my Section 8 is direct deposit on the 3rd of the month. The rent is at market rate and guaranteed. If the tenant does not pay their portion which happens often you must notify section 8. In some cases section 8 will pretty much make the tenant pay you as they could face eviction over Non-Payment. The tenants could be a little rough but I love it. For instance, one tenants (who pays a large portion actually) did not pay her portion for the month of January. When I called her she avoided me. Finally she answered the phone and said she has no money, has health issues and her baby father just got shot last week and she is depressed. She has an excuse every month. I no longer deal with her lies of ********. I called my lawyer and he files an eviction notice to Section 8 and her (which is required by law). She then magically paid and has been on time every month since lol. Besides her my other 4 tenants are awesome. Overall, I love section 8 and will keep doing it. Just have a Strong Landlord Tenant lawyer that understands Section 8 and can get issues resolved quickly if need be.
- Fairfield, CA · Member since 2015 · 80 posts · 26 votes4y
Guys.. brrrr the house, send xmas cards.. be nice.. you'd be surprised.. Nothing but cash flow here..
- Member since 2023 · 4 posts · 0 votes2y
Then is no upside period. You stated every reason why .
Quote from @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!]
- Attorney · Columbus, OH · Member since 2023 · 193 posts · 145 votes2y
I try to avoid the headache unless the deal really makes sense.
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