seeking urgent advice for investment property

33 Replies

Hi all,

i am buying an investment property near downtown Orlando(zip 32805).

the house was built in 1966..no major issues with the rood or the property overall(1100 sq ft duplex) and it might also give me a positive cash flow.

there is news about a new development coming up in the area in the next few years. however i believe the crime rats are higher aaround the area and people who rent here wont come with a good credit history.

Im a very worried now about the challenges that i might have to face with such risky properties. should i still go ahead with buying or back out ??

any honest suggestions are welcome

This is an age-old conundrum. Do I develop the expertise and systems to cater to class C properties or class B or class A? Most find it difficult to cater to all but can be done. Regardless of which way you choose to go, screening and selecting tenants who are likely to pay on time, treat the place with respect and stay for long periods of time is critical to lowering your risk. The criteria for tenant screening for different classes of properties varies.

Define and follow your criteria...and remember, real estate is supposed to make life better, not worse.

appreciate all the feedback. 

was just looking to understand if the crime rates would be a problem for me in the future (depreciation, liabilities etc)

Are you able to drive through the general area and see for yourself what the area looks like?

If I were in your situation I would make sure the numbers(cash flow) make sense first and foremost, then do further research on the area and the chances that it improves if a new development actually does happen. 

Best of luck to you!

If I read you correctly, you are purchasing a duplex and you are worried about asset appreciation. The value of duplexes is based on comps, not really the NOI and cap rates. Because of that, the value of your asset will not depend on the way your duplex operates, but more on the value of properties around it. If the properties around it are appreciating in value, then your asset will also.

You also asked something about tenants and asset class. The quality of tenants you select will impact your cashflow. You need a property management company that is familiar with this area to help you manage this or if you plan to do it yourself, you need a plan on how to screen tenants properly.

Good Luck !!!

Without stats, cash flow, ROI it is difficult to give sound advice.

What are your plan B, or C?

@Sam Shueh   il be using this only as an investment rental.

so the numbers are 150k price. Cap rate of around 5%, CoC returns of around 10%

thats the math. however crime rates on trulia shows the property to be in top 5 crime areas in central FL and on the other side the city is planning redevelopment in the area. so im in a catch 22 situation.

Im trying to understand how risky it is to buy such a property in a high crime rate area ? are there things to be aware of in my scenario? or am i just overthinking?

@Sandeep Gangadhar   crime is important but be advised crime in many parts of the country simply is not Portlandia..

@Henri Meli I agree with your basic theory but over the years since I got into SFR turnkey type rentals there is no question that comps are now being made by investors.. and investors are paying based on return.. so in many areas were the SFR stock or duplex stock has turned to almost 100% tenants the values to me follow closer to income property than comps like your selling to homeowners ... are you seeing that ???

Some of the tenants do not mind. The professionals are pickier and stay away. It is really the rents and clients. Some do not mind so long rent is affordable.

@Sandeep Gangadhar - sounds like you’re not clear on WHY you want to invest...”might give me positive cash flow”.

Discover your WHY, your passion for wanting to invest and this will produce your goals. Once your goals are defined, it’s easier to establish your investing criteria. Your criteria act as a guide to evaluating properties. 

Spend some time discovering your WHY, it’lll make everything else easier. 

@Sandeep Gangadhar I see that you're in Portland and this deal in Orlando (nothing wrong with long distance investing-it works when done properly). 

However, I think you might want to put brakes on and try to figure what your investment personality is and match that personality with the asset(s) you want to go after. 

There should be no rush to jump into REI just for jumping into sake, you know. 

Hope this helps, Sandeep. Goodluck. Thanks! - Ola 

@Sandeep Gangadhar

Parramore is still a ways from being revitalized, if ever.

For me, a maybe for cash-flow and a maybe on appreciation is a no-go. 

Two things...

1.  Orlando is overheated.  I would google "Orlando overheated" and "can the average person afford the average house in Orlando?"  If a property is not profitable day one, I don't see why you would buy it.  There are always other alternatives.

2.  People make money in all aspects of the market A<B<C.  You just need to know where you are in vesting.

A- Higher rents, better properties, more demanding tenants. easy to self manage  Lowest profitability 

B.  Similar to A.  More profitable than B Easy to self manage 

C.  You must accept the what goes with this class along with the higher profitability.  Higher turn over, but low cost rentals do not stay vacant.  The maintenance can be higher.  However, these units should not have garbage disposals, Ice and water in the fridge door, etc.  I would not recommend self managing these types of properties    

I always say, if you are up at night worrying about the deal you need to back out.  Trust your gut and don't talk yourself into a bad deal

@Sandeep Gangadhar

A little bit off topic but curious, what debt are you accessing to go from a 5% cap rate to 10% cash on cash return?

@Sandeep Gangadhar

I live in the Central Florida area and the 32805 zip code has some possible potential down the road as they constructed the brand new Orlando City Soccer Stadium in that area, the Orlando Police Headquarters is also in that zip code and they have plans for revitalization in the nearby Holden Heights area as well.

But as @Shawn G. mentioned revitalization has a ways to go and that area houses homeless facilities and that facility can only hold so much.

I have one in Wayne County (Detroit). So far so good =)

If it doesn't cash flow from the outset, anything else is speculation.  Don't buy on speculation. 

On the one hand, section 8 tenants then to be good tenants and the county pays most of their rent.  On the other hand, good luck finding someone to go into a high crime area with their expensive tools to take care of any needed repairs and maintenance.  Likewise, good luck finding a decent property manager. 

From what you've shared, especially as a new investor, I'd walk away.  Find a better deal elsewhere. 

I wish you good success. 

Joe

Your own personal callous for how deep into bad neighborhoods you want to invest in aside, I can tell you that that whole area around 32805 legit terrifies me. There's a reason why even in a market as hot as Orlando that the Pine Hills areas are pretty much the only ones where you can still routinely find cash flowing properties.

Best advice would be to consult a few property managers and ask for their own personal takes on the area, its tenants, turnover times, evictions, etc. 

thank you all for the inputs. In reading through all the comments, i feel like the deal is more in the tenants and not the property itself. as long as they are decent(paying rents on time, less turnovers, no crimes) i should be ok. 

@Jason L. @Michael Spence @Shawn G. im not banking on an immediate appreciation like some of the better areas in Orlando. i hear a lot about redevelopment happening around that part of the city in the future, any insights on that ? or should i not expect any appreciation in the near future? 

Originally posted by @Sandeep Gangadhar :

Hi all,

i am buying an investment property near downtown Orlando(zip 32805).

the house was built in 1966..no major issues with the rood or the property overall(1100 sq ft duplex) and it might also give me a positive cash flow.

there is news about a new development coming up in the area in the next few years. however i believe the crime rats are higher aaround the area and people who rent here wont come with a good credit history.

Im a very worried now about the challenges that i might have to face with such risky properties. should i still go ahead with buying or back out ??

any honest suggestions are welcome

I do not know anything about this particular zip code but from how you describe it, i'd imagine we are talking about C-class & lower rental properties. When you buy properties like this you need to be aware of what you are walking into. They aren't the worst thing in the world but you will have some issues with the tenant base. It's not always sunshine & rainbows. Sometimes the tenants miss rent, cause damage or just do stupid stuff that will leave you scratching your head & opening up your checkbook. Just part of the biz.  For a look at what some of this stuff looks like I recommend checking out some of the tenants from hell threads. Always nice to get a sneak peak at what you are looking at.

 TENANTS FROM HELL #5 Sinks from hell. PICS INCLUDED 🤢🤢🤢🤮🤮🤮

TENANTS FROM HELL #3 Move outs from hell. PICS INCLUDED

TENANTS FROM HELL #1 Deplorable living conditions. PICS INCLUDED!

If after looking through that stuff you think you've got the stomach for this game then go for it. If not I suggest looking at high end stuff. The returns won't be as sexy but sometimes slow & steady wins the race. There isn't 1 specific way to grow a rental portfolio. It's all about how you see your business & what you are interested in dealing with. 

personally I would not look to buy a 150k for a duplex in a bad neighborhood with such a low return

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