Real Estate Broker · Portage, MI · Member since 2015 · 50 posts · 12 votes
Hi all,
I currently own a class B/C duplex which I have been managing myself for about 4 years. I really want to amp up my investments and have found a couple 1-4 multifamily units in a neighboring city but they are on the the rough side of town. They both seem to cashflow well and are cheap enough to put the 20% down needed.
I would love opinions on investing in a rough part of town to get things going and receive some cashflow. I would plan to have these managed by a third party as to stay as hands-off a possible.
The key word here is "seem" they seem to cashflow well, they won't cashflow as well as you think they will, I'd look at total return, some places the rough part of town rises in price with the rest of the city, in others it declines in value because a shrinking population means more people can live in the nicer areas and leave the bad areas vacant.
The key word here is "seem" they seem to cashflow well, they won't cashflow as well as you think they will, I'd look at total return, some places the rough part of town rises in price with the rest of the city, in others it declines in value because a shrinking population means more people can live in the nicer areas and leave the bad areas vacant.
There's a saying about having a woman with expensive taste that can be applied to these marginal area paper deals: "If their out flow is more than your income, their upkeep will be your down fall!"
Said outflow will be in the form of more intense tenant management, turnover, collections, attorney fees. If it's marginal, I would consider Sec 8. Good luck.
@Loren Souers I'm also interested to hear what people tell you. We are looking in an area that is rough but the buy-in prices are irresistible. Hoping the neighborhood improves (we can help start it by improving the properties we buy there).
Be ready to be very hands on from a management perspective. Decide if the time you are spending doing that is worth it.
Also, profits on paper almost always look way better than the ones that actually end up in the bank account. Most forecasts seriously underestimate vacancy and repairs for that class of properties, because 5% might work on a house renting for $2500 a month, it won’t work in a house renting for $500.