Convincing my wife on investing in low income area

[Eric Sosa]

My wife and I run our real estate business together. We own a couple of properties. We make good money as is. We are looking for our next property. She is very reserved and low risk. Therefore she is anti section 8 and anti low income areas. I, however, am a calculated risk taker and am willing to invest in low income neighborhoods because of the great returns that can be made. I'm talking 100% annual returns on our investment and down payment. She isnt having it at all, does not want anything to do with it. I want to be on the same page with her. How do I get her to not just focus on the area and possible problems and instead look at the potential profit margins?

[Jim K.]

Originally posted by @Eric Sosa:

Her why is the horror stories of section 8 she has heard about. We have a good amount of landlord friends and section 8 has a pretty bad wrap. The property is a 6 unit. 3- 4 beds, 3- 3 beds. The section 8 2020 rates are $1,869/mo for 4 beds and $1,561/mo for 3 beds. That's almost 10k/mo rent. Minus mortgage, water, taxes, and paying a property management company etc, we could make $5k/more profit. That's $60k a year profit and our downpayment would be $54k. That's a 100% yearly return. That's insanely good, and to me, worth the headaches that comes with that type of neighborhood and section 8 rentals.

Eric, you're really enthusiastic about the cash-on-cash returns, you mention nothing about the increased maintenance and how you plan to deal with it, and you very clearly think finding competent property management for this place is going to be easy-peasy-Japanesey. If I was your wife, I'd be hearing you accentuate the positive all day long and warning bells would be exploding in my head.

Just for starters, let's get clear about third-party Section 8 multifamily property management -- the guys who do it are in it to bleed you as much as possible. And it's easy to do in Section 8 buildings. I know plenty of people making money in Section 8 housing. I know no one who does it remotely with dependable third-party property management.

Now about maintenance. Good maintenance contractors, plumbers, HVAC guys, they don't like going into Section 8 hoods. They expect top dollar to do it. And they will shaft you EVERY SINGLE TIME. Once again, I know no one making money in Sec 8 who isn't handling much or all of their own maintenance, cleaning, renovations, and turns between tenants.

If you're willing to take over this management, then I have to ask you, how many trapped but thrashing rats have you beaten to death with a 2x4, how many alarm calls have you responded to with a gun? If you're willing to handle some of the maintenance, how many kicked-in doors have you replaced, how many smashed windows have you changed out, how many busted cabinets have you ripped out?

Is there money to be made? Certainly. But go into it knowing what's coming, and what's coming isn't B'class turnkey with reliable third-party mangement in place. This is not hands-off, worry-free alternative passive investing only slightly different from dropping your money into an index fund and watching the returns pile up. You're going to go into this, go in minus any Nature-Boy illusions or slumlord stars in your eyes. It's ugly, it smells, and you had better be prepared to deal directly with people who are damaged.