Investing in D/F neighborhoods

13 Replies

Hey everyone,

Does anyone have any experience investing in D/F neighborhoods? I mean the worst of the worst. In the Kansas City area or just in general.

I see a lot of investors that shy away from these areas. If you are willing to deal with the tenants, are not scared to manage and be in these dangerous neighborhoods, and the deal makes sense, what are the downsides?

I feel as a new investor you can get houses dirt cheap, fix them up, and make a nice profit if your numbers are right.

I don’t mind putting in the leg work and dealing with the hassle, headaches and troubles you may not experience in A/B neighborhoods.

I have lived in these bad neighborhoods most of my life and know the area pretty well. I feel there are certain areas that will soon be “gentrified” and will appreciate well. I won’t depend on this when calculating deals but it is something that I feel is very likely to happen.

What are your opinions on investing in these neighborhoods? In your experience or what you’ve heard.

Any input would be greatly appreciated,

Thanks!

Hey @Vann Calhoune , investing in the roughest areas of KC is not a joke.  Nonetheless, there are some interesting opportunities to be had...  IF the properties and entire process is handled a certain way then some investors may get by and profit but you'll have to dig deep and determine if it's really worth it at the end of the day?  What are you looking and how could we assist you?

Hey @Luther Wilson III I'm looking to get started in Real estate. Looking at investing in D/F areas. Do you have experience in these rough neighborhoods? What are the pros and cons? I'm thinking about Using the BRRR strategy in some of the rougher areas of Kansas City, have you tried this?

@Vann Calhoune the downside is having your property destroyed and costing you thousands of dollars to fix. Do you have any idea how much damage this class of tenant can do? Your profitability is directly tied to the quality of your tenant. You can't get good tenants to live in bad areas.

@Vann Calhoune the cash flow is highest there. I personally wouldn't recommend it but have it. Just ensure you give people a quality place to live, can be hard if your copper is getting ripped out but that isn't the fault of the tenants, probably. Best of luck to you!

@Vann Calhoune , so the trick as you may have guessed by now is to buy the properties for a song (or get them for FREE!) and rehab them to bullet proof standards.  Copper pipes?  No.  PEX?  Yes.  Ceiling fans?  No.  Bare light bulb fixtures?  Yes.  Carpet?  No.  VCT glued to 3/4 inch AdvanTec water proof subfloor?  Yes.  Garbage disposals?  No.  Easy to disassemble and clear PVC drains with lots of extra clean outs?  Yes!  Granite countertops?  No.  Solid wood wrapped stick tile vinyl?  Yes!

Then you screen, screen, SCREEN!  There are good tenants in all categories of income, but you will have to look hard and make sure they have some skin in the game.  No "can I pay my deposit in installments?"  No "can you work with me on the rent?"  Firm and fair, always.

Basically, you're working on the same premise as "buy here, pay here" car dealers.  The price you pay plus rehab must be fully recovered in 2.5 - 3 years.  Then as long as the house doesn't fall over you start making money in year 3 or so. 

So how do you do that?  Charge rent premiums.  Rent is +20% over nearby houses whose LLs won't rent to tenants with "issues".  Get the maximum deposit allowed in your state.  Make them pay weekly via auto debit the same day their check hits so you are first in line to get paid.  The day they are late, file to get them out, no exceptions.   Section 8 is another way, although that comes with it's own set of hoops.  Get the book "The Section 8 Bible, vol 1 and 2" and learn how to do it right.

You can make money, but it will not be a passive investment.  You'll run it more like a business.  Just be ready and go in with eyes wide open.  One guy I heard speak once (Al Williamson) bought beat up apartments and converted them to nice "C/B" class and "changed the neighborhood" by getting to know the people and scheduling block party events so residents got to know each other and would take pride in where they lived more.  That might work too, but again, a lot more work than "rent it and forget it" land lords will usually invest.  Or go in with a Monopoly mindset and buy up 5-10 houses in a row: then you can control the quality of the tenant to a certain degree and gradually improve the area.

@Vann Calhoune

I have seen hundreds of posts discouraging people from buying in rough areas, and for good reason. From what i have learned so far, most investors fail in these areas because they are not ready for the battle ahead and get sold a dream of cashflow. However, there are people that make a killing in these areas. These people tend to be LOCALS that know and understand the area and the population that resides within that area. You seem to fit the bill. Most failure stories i see when it comes to D/F areas go like this:

A California resident with a decent job decides to become an investor. Realizes that Cali is tough on cashflow and is overpriced. They see dirt cheap properties listed out of state and decide to do a long distance purchase without understanding what they are getting into. A few months they notice that its nothing like they saw on HGTV and give up.

I am not an experienced investor (1 property) nor have i ever invested out of state. What i am telling you is simply an aggregate of what i have learned on this site.

Seems like you fit the bill to be a success in this model. Good luck!

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