Thoughts on this War Zone deal?

Question

2 Family illegally being used as a 3 family.

1000/month

1200/month

1000/month

$105,000

I pay electric heat on 2nd and 3rd unit. The 1000 3rd unit is illegal.

Working on it now but I can probably get 600/month for it if I make it legal.  About $5000 in work to make it awesome. Very well taken care of building in a War Zone.

Jay Hinrichs · Answer

@Steve Candor

would say your chances of this being a enjoyable experience both mentally and financially are maybe 10 to 15%...   Greed kills in these deals.. the greedier we are about the numbers the higher the mortality rate of the investor.. Its like the Female who is going to change the man... when in fact nobody can really change anybody.. same with these situations no one can change them they are what they are the returns are what they are because they are bscially the highest risk deals you can do and to entice people to take the properties off their hands they need to be priced this way.  So be careful.. I think those that live this as their everyday job can make it work with a lot of effort out of state Not.

Justin Escajeda · Answer

If you want my opinion (someone who buys in war zones), the numbers typically do look attractive. There's more to it than the numbers for it to be profitable for you. Don't try to reinvent the wheel, put tenants in there that you feel are fully acclimated to the area already and find there story. I like renting to older people (who have been in the neighbor hood before it turned into a dump), or perhaps a couple with 1 (MAYBE 2) kids - but its usually just a mom and kid(s). Look for the long term people. Ask yourself do they fit in here in this neighborhood? Secondly, if your only paying electric, will they be capable of getting there other utilities turned on (and kept on). Ask their income (they more than likely have some kind of assistance (welfare, cash assistance, food stamps, LIHEAP - winter heating, SSI, disability, etc.). Is your rent more than 1/3 of it? Do they have a security deposit or need to give it to you next month because they need to move NOW? Id deny those people.

A lot of my places I don't go to at night, so you may want to take that into consideration. Are you comfortable with the junkies and criminals that frequently cross you path there? People will eventually start noticing you, and they'll know when you getting rent. You may want to have some kind of protection. I self manage, and a robbery was attempted on me, so protect yourself.

Im not saying this stuff to deter you from buying, because this is a neat little niche that can be very profitable for you if you play it right.

A lot of my places I don't go to at night, so you may want to take that into consideration.  Are you comfortable with the junkies and criminals that frequently cross you path there?  People will eventually start noticing you, and they'll know when you getting rent.  You may want to have some kind of protection.  I self manage, and a robbery was attempted on me, so protect yourself.

Im not saying this stuff to deter you from buying, because this is a neat little niche that can be very profitable for you if you play it right.

Justin Escajeda · Answer

Yea, you can do all the referencing and background checking you want, but there is never a guarantee.  Ive had a upper class psychologist 2 years ago bring in stray cats, and she was a hoarder (cat spray everywhere), then on the other end of the spectrum, 2 weeks ago, I had a tenant from one of my mobile homes (not to gross you out with details) leave me an steamy early Christmas present right on the carpet I laid in May.  So tenants can suck anywhere.

Aly W. · Answer

Absolutely @Justin Escajeda, the worst damage we ever had was from a "good" tenant of 3 years who lost his job. He and his family caused $7K in damage and the property is in a good area!

Justin Escajeda · Answer

I for sure agree with Aly and Joel, there are a lot of problems that come along with war zones.  I personally do not know how long I will continue to buy them, Im 32 now and it is becoming a bit more uncomfortable for me than it was in my 20's.

But, yeah, the cash flow can be super, and remember, a tenant can go bad and trash your place in ANY type of neighborhood.  I can attest to that, and Im sure others can on here too.

Aly W. · Answer

I agree with @Joel Owens , and we own 2 properties in those kinds of areas. They were our first investments.  We've have one great tenant and one decent one for almost 3 years now (out of 8 years), but the if/when the properties are vacant between tenants, the houses are targets. I do not worry about vacancies in our rental condos in FL, partly because condos are not as isolated as SFRs. But the tenant pool in Class C/D areas has indeed caused sleepless nights in the past, even though the cash flow is good.

That is, until they're vacant, usually due to evictions. Then there is the cost of renovating for the next tenant, which has always been much more than just paint and cleaning. These types of tenants are generally one flat tire away from financial disaster, as others have said. If you have a high tolerance level for drama and a naturally calm demeanor, this could work well for you. My husband and I, like Joel, prefer a peaceful life, and these properties cause more angst than all the others.

Joel Owens · Answer

You might just try to find a value add property in a great area to turn around. Create the value and rents you want with a rehab project and get some appreciation eventually instead of a dump in a war zone.

Worst property in the best area to turn around still rings true if you can find it.

I stay away from war zones. I don't care what the return is. I enjoy a peaceful life. Some people can deal with all of that for the return. Hope it works out for you like you envision.

Justin Escajeda · Answer

Ok, gotcha.  Yeah, its like what are you going to find behind the door...I'd probably just get 1-2 friends to come up there with me to knock on the door, get them to sign new lease if theyre decent.  However, if you try evicting, you know how that can drag out..  But that's awesome though man, best of luck.

Steve Candor · Answer

@Justin Escajeda I met the one group of tenants and they seem great. The two floors are 100 percent program.

Top floor is an illegal room house. I can either drop the number of tenants or try to convert.

I really like the cash flow here. Not too worried of the war zone. But I'm concerned because top floor isn't on program. Not sure if I want to be knocking on their door asking for rent. Who knows who is there.

I will be getting the tenants with the house. New leases.

Steve Candor · Answer

@Jay Hinrichs  The property is two states away. Not driveable. I'll have some people on the ground who work in the area. I have a super and might get management.

Thoughts on this War Zone deal?

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