Buy N holding in low income/ high crime normal?

16 Replies

Hey everyone,

I am obviously new here with my whopping  3 post in these forums but was wondering if buying in high crime/low income areas is normal for rental properties. I live in NY and these areas seem to be the only places that make any sense to make a profit. I would love to buy in a nice area where i can possibly live in one day but the math doesn't make sense.  

What do you exactly mean by "make any sense to make a profit."? Keep in mind, rental properties in low income high crime areas often looks good on paper but often isn't the reality of investing in those areas when you have to deal with unpaid rents, damages, evictions, and etc.

I'm not necessarily saying it would be an bad investment but what I'm saying is it often does not turn out like it looks like it should on paper so be sure to know the neighborhood you are buying in. Also, I feel buying in those types of areas is only worthwhile with properties that can be acquired at a deep discount with as little money as possible down to minimize risk.

Good luck.

I wouldn't do it plain and simple. Theres a reason that those properties are what you are finding available. You don't want to deal with the break in's and other hazards of that type of area. So in my opinion DONT DO IT

Rod Desinord, Real Estate Agent in FL (#SL3255845)

@Nick Harrington thanks for the response. When i say "doesn't make sense" i mean that many place are listed at high prices and even higher taxes. The average rental income barely covers the mortgage. From what Ive read, I should also consider vacancy, repairs and property management. Many properties that I've seen have a negative cash flow if I were to include those expenses. 

In the same boat here. There are some properties around me that are starting off at 5k at a auction(aprox30-50k to get them goo to go).Yes, I understand it's an auction and it could go up. These properties are in neighborhoods that well, frankly, suck. The numbers look amazing though. But I keep remembering everyone on BP says, location, location, location. It's hard to resist sometimes though. What about section 8 on those properties? Hire a property manager that way you wont have to deal with it..as much? I've been curious how people feel about these deals as well...

@Rod Desinord Hey Rod, its hard to looked passed some of the places i seen. I saw a muti family house (4- 2 bed, 1 bath) for around 310k and is currently being rented for 1500 a unit, equalling 6k. Not very familiar with the formulas covered in other discussions and podcast but at a quick glance the numbers seem to have a positive cash flow. Since I have no real experience, I can't say for sure if this place would be a good investment or not.

Also how can I verify if each unit is really renting for 1500? In that particular area I would think that it is way too high and is close to what i would pay in my area. One time I saw a listing stating a rental income of "X" amount and when i saw the place, there were conflicting prices when speaking to the current tenant.  

@Maurice Ilao ,

It is definitely harder to find high cash flow deals in the A and B+ class neighborhoods.  Any deals that come up will go fast.  That being said, typically the vacancy rates, maintenance costs, and hassles are less in those neighborhoods so that helps a little.

Here is blog by Engelo Rumora that has a good description of classes.

There is money to be made in the rough areas but if you are not comfortable going there or dealing with the personalities that are there, you are much better off sticking with locations you would like to live.  Personally, if an investment is in a location that I would not want my wife to go check on, we do not buy it or manage it for others.

Craig Wilcox, Real Estate Agent in IL (#475.164058)
815-242-1132

If you're comfortable hanging out in the neighborhood and talking to the residents of the neighborhood, it can be a good idea to invest there.  If you wouldn't feel comfortable without a police escort and you dislike talking to the residents, it is not a good idea to invest in those neighborhoods.

I'm not addressing the crime rate or perceived safety of a neighborhood.  This is based solely on how an investor feels about a neighborhood.  If you feel it's a problem, then it is a problem for you and you should avoid the area.  Some people are comfortable walking the streets in C neighborhoods, and some people would rather walk on burning embers barefoot.  Investor, know thyself.

Truly, in this instance, it doesn't matter what other investors do, and make a profit doing.  It's about you.  Invest where you feel comfortable and where you can rent to the sort of tenants you feel comfortable in their presence.  

@Craig Wilcox Thanks for the link. Very helpful. I guess I'll consider a class"C" after I build a strong foundation. My search for my first property continues.

Those numbers look good but you need to ask yourself why the current owner is looking to sell at that price, and if it cash flows why are they selling at all?  There could be good reasons like the owner is retiring or it could be a sign to avoid the area.  I look for properties that hit those kinds of numbers but I makes sure it meets other criteria as well, such as will I feel safe visiting and managing this property, and will I feel comfortable with the tenant pool that will be renting the property.

@Randy E. I know some buddies in law enforcement that told me that town has a very high crime rate but depending on where its located, it can be very close to a very upscale neighborhood as well.  And I agree about the comfort level i would walk around in. Honestly I have walked around the toughest parts of Brooklyn and East Harlem and it never really bothered me. Maybe a little bit after dusk though. lol

@Maurice Ilao , that comfort zone can be different for every investor.  Some may never venture below B+ neighborhoods.  Some may thrive in D neighborhoods.  

Personally, I believe it's a lot like jobs and careers.  One person may love being a salesperson and be very successful at it, while someone else could hate having to talk to people all day and attending multiple meetings every week.  It doesn't matter how much money a top salesperson can earn if you prefer non-social environments. 

Similarly, it doesn't matter how much money can be made in a C- property if the landlord is afraid of the location and looks unfavorably on the residents of the neighborhood.

Originally posted by @Craig Wilcox :

@Maurice Ilao ,

It is definitely harder to find high cash flow deals in the A and B+ class neighborhoods.  Any deals that come up will go fast.  That being said, typically the vacancy rates, maintenance costs, and hassles are less in those neighborhoods so that helps a little.

Here is blog by Engelo Rumora that has a good description of classes.

There is money to be made in the rough areas but if you are not comfortable going there or dealing with the personalities that are there, you are much better off sticking with locations you would like to live.  Personally, if an investment is in a location that I would not want my wife to go check on, we do not buy it or manage it for others.

Thanks for the mention Craig

If you invest in low income/high crime neighborhoods you have to consider the value you are bringing yourself. Although, the numbers look great on paper there could be unrealized events, costs, maintenance. Let's say things do work great for a while but then a break in occurs, or tenets don't pay then you have to consider that. Consider your peace of mind, and remember it's an investment. As investors, yes we make money this way but you have to consider the value you bring them and yourself and not just strictly profits.

I would much rather try to find a valuable property in a decent neighborhood, although it may take time and a lot of searching, in the end you'll be much happier that you did. Imagine the time you will save from not having to fix those unnecessary maintenance that would otherwise not occur in decent neighborhoods.

My neighborhood shows a very high crime rate on the stats, but I feel very comfortable living here, so I'm not sure I'd put too much emphasis on the crime info.

You might want to check out Al Williamson on this site and my member blog: http://www.biggerpockets.com/blogs/4445-collecting..., since I am also renting in a C class low income area.

I'd also strongly recommend reading Buy and Hold Forever to see the other side of the coin.

There are ways to verify the rent coming in, but be sure to plan for 10% to go out in turnover costs, which you may be able to mitigate in a nicer neighborhood.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.