Dangerous Neighborhoods

11 Replies

Hey BPers,

I did some market research in my area (Miami) and found where all the houses are being foreclosed or have been bought with cash in the last 6 months. I knew they were in bad neighborhoods but I went out and out bandit signs out last night anyways. While out, there were a couple times I would pass by houses with 3 or 4 cop cars outside and the cops outside in the pouring rain.

Do investors buy in places like this? Also, if anybody else has had any experiences to share or advice to give, it would be appreciated. Thanks guys!

Hey, I'm also in miami and I can tell you that the data is right. 

Investors love lower income areas.

Its not because they want to fix and flip but rather to rent for positive cash flow.

The turnover rates are high, so inventory is always there and 15% ROI or better is common.

As you get into the lower rent areas you will find that your expenses and capital costs are higher.  You can calculate high cap rates but you can't achieve them.  I have found what I thought were good buys but couldn't find a property manager that would touch them.

Investors should make good money on them because they are taking greater risks.

Good Luck.

Bill

Starting investors with low capital are often attracted to these high crime areas because of cheap prices.

It's a way to get started for many.

Those with lots of money already avoid the headache for the perceived extra yield etc.

So it's likely to find buyers for any type of real estate asset bad area or not if the price is cheap enough.

The only property managers that generally touch these high crime areas live there and understand the dynamics of making it work.

They are specialists and will want a premium of say 13% or more to take it on. Some investors might balk at the percentage but when you factor these are low income areas and the rents are low the PM isn't making much for all the drama.

If you were a PM and could manage an asset in an upscale area instead for say 8% of 2,000 rent that is 160 a month.

13% of 600 rent is 78.00 a month and you are dealing with double bookkeeping, high frequency of damage and evictions, multiple trips and constant monitoring of the asset to keep it performing etc.

So it's easy to see why many PM companies will not even consider these places.

I agree with @Joel Owens  . Over time, I have figured out which properties I manage are the time suckers.  These happen to also be the ones I earn the least on.  Can you tell where I focus more of my marketing efforts now?  I'll give you a clue.  It's not the hood.

@Dawn Brenengen  

It depends. Raleigh has become so desirable that many parts of downtown are undergoing gentrification. I've had good results rehabbing/flipping houses in historically "bad" neighborhoods. They are quickly being transformed into "good" areas and prices are rising. It's fun to be a part of that!

Art Allen I totally agree, and I love downtown Raleigh and the up and coming surrounding areas.  I'm always looking out there, and the desirability is very street-by-street and block-by-block. I've been wanting to try my hand at flipping a home, and I have mostly narrowed my focus to that area too. ?  

If a client has a renovated home near downtown Raleigh, that demands a different tenant than an unrenovated home from the 1960s a block over.

Art Allen I bet I've seen your work if you're flipping in downtown!  I'd love to get a tour of your next project if you have the time. :)

@Dawn Brenengen  

A home I recently renovated in downtown sold in 4 days. It is definitely a hot area. It is street by street but it spreads quickly. I hope you find a good one to flip!

@Dawn Brenengen  

I posted some before/after pics in another thread on this site that you might enjoy looking at.  I'd be glad to let you about the next one too.