Is there any fix for a bad location?

Question

Hello BP - will keep this brief but feel free to ask questions if you need clarification.

I live in Chicago and bought a duplex in St. Louis last year. That has been performing decently, and I wanted to move more funds out of my bank account and into real estate for all of the usual reason.

I landed on a 4 unit, and after surveying everyone I knew in the area, I felt I had my hands on a C, maybe C- property. My PM said there would be no problem renting the 4th and only vacant unit.

No kidding, within a week of closing, the PM complained to me that this was a very dangerous location. And it has proven difficult to manage over the last 7 months. We're now down to one unit rented and one being evicted.

I should have done more due diligence, without a doubt. Very expensive mistake. But I can't be the only investor who has purchased in a bad neighborhood.

For those of you who have, is there anything that worked for you, to encourage new renters?

Do you still own the property? If you do, why do you still own it? (Genuinely curious about the reasons)

If you don't, how did you end up off-loading it? Did you just cut the losses, or did you try to get it rented out by any means necessary, then sell? Looking for any genuine and helpful advice you can offer, appreciate it!

Crystal Smith · Answer

We've made mistakes purchasing in bad locations and have also purchased in locations that were transitioning from bad to good. (This included St. Louis about 10 years ago). While we could not do anything about the neighborhood we could control our property (or at least try and control it) Things we've done to make the property more attractive & safer- Privacy Fences; Security Cameras; Exterior Lighting.... Emphasized security, security, security. Once units were occupied we then sold it as turnkey.

Jonathan Klemm · Answer

Hey @Edward Pluchar - Congrats on your St. Louis duplex purchase. How come you bought there instead of Chicago, just curious.

That stinks, but the most important thing is the knowledge you are taking away from the situation. I think I'd start with finding a property manager that can handle your assets in the neighborhood that it's in....there is definitely someone who is working in that area and can help you out. I suggested finding a PM first because even if you wanted to sell and it's nearly vacant then you will definitely have to sell at a discount to an investor. The only reason I wouldn't try to fill the vacancies would be if the property needs to be renovated.

Regardless seems like the right move is to either get it stabilized with the right property manager or cut your losses and sell it to an investor.

Nathan Gesner · Answer

My recommendation: work hard to get it filled, then list it for sale and lose the problem.

John Warren · Answer

@Edward Pluchar you can definitely manage your way out of this one, BUT this management company won't be the solution. I have been in this situation, and your best bet is to immediately call 10-15 management companies to find someone who is comfortable and competent enough to manage this place for you.

I am also curious as to why you are purchasing out of state. St. Louis is probably a fine market, but couldn't you have found a cheap C- type property within 30-40 minutes of home? Then you would have a lot more options (self-manage). I went through this initially in my career when I invested out of state, and I have since refocused my energy here in the Chicago area where I can be most effective.

Matt Ference · Answer

What part of St. Louis as your property. Very similar to Chicago, St. Louis can be block by block

Gary Jenson · Answer

I bought some small multi-family properties in a C / D area. I bought 3-5 years ago, so my payment is far lower than what the last few years of craziness has pushed prices to. So, I've rehabbed as I've had vacancies, rather than all up front. I have only raised rents 5%/year max. that's way behind what market rate is, and it's left me with largely pretty devoted tenants. No one has wanted to leave through the covid times. One just stopped paying, and isn't communicating, so I'm trying to figure out what is going on there. I'll probably give a significant rent bump if it comes to a new tenant, but keep it 85% or lower of market rate, to keep long-term and tenants on my side, despite the undesirable neighborhood.

If you didn't buy cheap, you may not have that luxury and be able to still stay cash-flowing. I'm doing a lot better now without the turnover.

My hope is that the area will improve. We self manage (another lesson learned!) and spend a LOT OF TIME on screening. We talk with them a lot. I have no interest in 'automated' scripted/all online ads/applications/etc. We have tenants call us when we get a zillow 'tour request', so they have to reach out. We talk with them on the pre-screen using a modified brandonTurner-like form. Then we talk with them a lot on a tour if it comes to that. We're looking for folks we believe in, which don't necessarily have the strongest numbers. It seems most folks claim to want to do yard work, but then aren't so strong in that once they move in. But a few do that, and we are able to improve the looks of lots. We're out of town, and we farm out snow/lawn care to tenants. Finding true gardening tenants is hard. maybe if we spent the time to drive by where they live before we signed them on. So many folks are having a hard time paying for housing, that there should be some rent-paying and yard-friendly folks in the bunch.

So, we've bought several properties close together, and we're hoping to bring the area up. Check back in 10 years to see how it's gone...

Joe Martella · Answer

You aren't the only one who invests there. Generally, in neighborhoods, most of the properties are investor owned. PM strategies/tactics and experience needs change based on the neighborhoods.

In my opinion, I would meet with the local REIA group(s) in your area and find investors there. See what they do and how they manage those properties before you sell for a loss.

David P. · Answer

At least in my area, investors prefer an investment property that is near vacant and would pay more for them. Apprasals will give value based on market rents and also most landlords prefer to screen their own tenant and perhaps do some rehabs on the property if needed.

Jaron Walling · Answer

I agree with @Nathan G. to get filled, performing the best it can turn-key, and get it listed. There's investors looking for properties just like it and willing to take that challenge.

Is there any fix for a bad location?

Is there any fix for a bad location?

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