So I've been looking into some stuff in Watts, as well. My prior investing experience is mainly in the South Bay (Gardena), but I've seen a couple of places that look like decent candidates for a little bit of work, and generating some good cash flow after (by LA standards anyways, 6 cap is possible with some of these after a little bit of work it seems). The area has improved a lot, I grew up in LA and I think it's a far cry from the 80's or early 90's. There are plenty of good folks there, and I think it is possible to find responsible tenants even in these economically challenged areas (a mentor of mine has invested quite a bit in challenged areas and done well, so I do have some help from him as far as screening tenants etc).
The biggest issue I have is, everyone tells me I'll have to do Section 8, which I'm not per se opposed to, but it does come with some unique challenges. Is Watts heavily Section 8, or is it realistic to think I could get a tenant outside of that? Also, unlike elsewhere in South LA (areas more to the north and West), it's hard for me to see how much Watts could improve in terms of property values and rents. I think these would be decent deals just off the rents and some steady appreciation, but I'm curious as to whether anyone else is familiar with or has thoughts regarding this market. Thanks for taking the time!
Watts was heavily stigmatized by riots that happened in the mid 1960s. I haven't been there in many years, but it was certainly lower income. Most of the housing on the side streets is lower density and decent, working class housing. It probably is a community that has very high percentage of renters. Don't fear section 8, but you'll have to learn the process. Watts will not improve, like a neighborhood like Echo Park, but it won't decline either. The cap rates should be higher for this neighborhood. Los Angeles has, perhaps, a permanent shortage of affordable housing, so you can't go wrong. If you are only going to invest on a small scale, my strong recommendation is to accept a lower cap rate and go into slightly better areas. One last thing, I am a fan of single family rental houses. Even in Watts, the tenants might end up staying a long time.
Brian, great feedback. Thank you. I too think that LA has a strong shortage of affordable housing, and Watts does indeed offer better cap rates, and if we were to get to the point that we had several properties in the area, that might make management etc easier as well. I definitely don't expect to see the sort of changes we did in Echo Park or East Hollywood, but I think if the neighborhood holds steady and generates decent income, it's not a bad play as far as LA goes. The police and community have worked together well to stabilize the area, which is great to see.
Gardena and other areas near there, not to mention Hawthorne and Inglewood, are improving and gentrifying, so those some more like appreciation plays, good for a cash out refi down the line. Lots of exciting things happening here - glad I moved back to LA to be a part of it. Thanks again Brian!