5 Tips for Owning Low-Income Rentals in Less-Than-Ideal Neighborhoods

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Low income properties may seem like the worst meal on the table, but that doesn’t have to be the case. If you know how to invest successfully in these types of properties, you can actually make a good profit out of it.

You may ask me how I can say this so confidently. I’d like to tell you my own experience with this. I picked up not one, but two of the cheapest houses in America. They weren’t in great locations, but I got an amazing can’t-be-missed deal for the both of them. And what’s that deal, you may ask? Well, you may have heard of properties that get sold for $1,000 or even as little as a $100. Here’s the thing: I spent even less on these properties.

I got these two houses for free from an out-of-state investor. Yes, I’m talking zero dollars for both of them. And so I “took” the properties and decided to invest the lowest amount on renovation possible. Thankfully, they weren’t in an extremely bad condition, and I did the bare minimum here to make the houses livable. My company would never sell such low-end properties, and I strongly recommend everyone reading to not get into such investments. So, I renovated it with minimal funds of $6,000 and then put it up for rent at $600 per month. This means that I’ll get be getting 100% ROI.

Let me share with you to what I did to make money — actually good money — off a low income property.

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But First, Here Are the Properties I’m Referring to

I’m referring to low-cost properties that are usually run down, are not well maintained, and are located in bad neighborhoods with higher crime rates. This means that the chances of vandalism are quite high compared to other neighborhoods. Understandably, the resale values of these homes are low as not many people are keen on buying these properties.

Related: “Low Income” vs. “Bad” Neighborhoods: Yes, There IS a Difference. Here’s What Separates Them.

Another defining factor of this type of neighborhood is that there are often lots of empty houses. The risk involved with such properties is quite high, and that’s one of the reasons many real estate investors look the other way. Also, don’t mistake these properties for “pig properties” that sell around $30K. These low income properties are way cheaper. That said, these properties aren’t a lucrative option for flipping, as you won’t have an end buyer in place except for an unsuspecting foreign or out-of-state investor. Please DON’T BE A SCAMMER and sell these properties to those folks.

Accept it for What it is

The only way to make such properties work for you is by first fully understanding what you are getting yourself into. This means that you should completely know the risks associated with them. You need to come to terms with the fact that some years might be very lucrative for you, while other years might not be. You must embrace the fact that resale values of low income properties will usually be abysmally low until some miracle comes your way. Miracle, right? Which usually involves the neighborhood going through a complete gentrification phase.

Understand the Cash Flow

Surprisingly, what many investors overlook is that the cash flow rates are usually very high when it comes to low income properties. This means that while the buying price is low, rental rates on them are high. You will need to understand that the acquisition cost isn’t the real cost with these properties.

Also, keep in mind that the renovation you put into the house doesn’t stress you out. You need to understand that because you are already making a purchase in a low-cost neighborhood, the property will not necessarily go up in value. It may, however, do so if the neighborhood is going to revamp in the next few years. Do the bare minimum, don’t overcapitalize on the rehab (no, I don’t mean slumlord it), and make sure everything is durable.

Work With a Responsive Property Management Company

The key to success in low income investments lies in having a very responsive property management team. A good team can help you to identify suitable tenants, improve rent collection, and ensure that you get your rent on time. The extensive knowledge that these teams have about the local neighborhood and markets can be an added advantage and can save you a lot of time, money, and resources.

Such teams will also act as a buffer between you and your tenants, allowing only for the least amount of interactions, which means that you won’t get unnecessary phone calls in the middle of the night from someone threatening to shoot you (yes, I got such calls). Finally, the marketing expertise and experience they have in the online and offline markets can work as a big advantage and help you get your property rented faster. All of these are important areas, and this is one special region where you are better off working with a good property management firm.

Be Fair But Firm

Being an alpha-type male or female is a must when you are dealing with low income properties. This is because you’re in a not-so-nice neighborhood where the nice rules are seldom going to work. If you don’t define yourself as an alpha person, then start acting like you are one, and you’ll get there. This means that you need to appear confident, tough, ambitious and should look like the kind of person who might compromise on a deal but would rather choose to lead it.

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Related: 6 Tips You Should Know Before Investing in a Low-Income Neighborhood

Finally, Give it Time

You need to be patient with real estate, and low income properties require much more from investors. So instead of being in a hurry to get these properties and then rent them out to the first tenant you see, spend some time researching the area. Keep in mind that every market goes through a recession phase and a good phase. So, if you really want risky properties to make you money, first be willing to take the risk and second understand that you will be investing much time and energy on them.

Low income properties aren’t a bad investment at all. In fact, they can really be the cash cows that throw gasoline on your portfolio if you know how to go about it. However, know that this is definitely a tricky area and venture into it only if you’re ready to take losses as well. Affordable homes are, after all, the need of the hour, and if you can find an ideal deal (like I did above) that gets you a low-cost property and good rental return, then there’s nothing to beat that wonderful combination.

Let me wrap up by recommending that if you’re planning to invest in low income areas, buy the really low-cost properties that come dirt-cheap, spend a minimal amount in renovation, and rent them out through an alpha-type property manager. Use the services of a good property management company, and while they do have fees to handle your property, remember that every dollar they earn is through sheer hard work — that’s how tough this market is. Also, understand wholeheartedly that its a hit or miss type of investment.

Investors: Would you put your money into lower income neighborhoods? Why or why not?

Weigh in with a comment!

About Author

Engelo Rumora

Engelo Rumora “The Real Estate Dingo" is a successful property investor, motivational speaker and serial entrepreneur that quit school at the age of 14 and played professional soccer at 18. He is also a soon to be published author along with becoming a TV personality in his very own real estate house flipping show. To find out more go to engelorumora.com . Engelo Rumora has been involved in over 400 real estate deals and founded five businesses in Ohio. The most successful is Ohio Cashflow, a company that specializes in providing turnkey properties in several Ohio markets. The newest venture is List’n Sell Realty, a real estate brokerage based in Toledo, Ohio and soon to be known as the #1 discount broker in the country.

25 Comments

    • If you are a newbie and choose to go this route, you may not be in this business long. I have been a landlord with multiple properties for 7 years, and I would not buy in these areas. Not when I was new, and not now even with the attitude and skill to deal with the issues you will encounter. If I would not be willing to live there with my wife and two kids, I won’t buy there. Take it slow and don’t make a big mistake on your first purchase.

      • Engelo Rumora

        Thanks Steve,

        It sure is tough in rough areas. Takes a whole different skill set and attitude to make it work. I would always say that its much more intense and you must be quick with everything you do.

        Tenants call, send PM to collect within 30min otherwise its gone.
        Tenants move out, send maintenance guy to border up the home otherwise a break in happens.

        Much success

        • I agree with your comments Engelo. My main point is that this is a dangerous way for a newbie to cut their teeth in the landlord business.

  1. Andrew Syrios

    Being fair but firm is key! You also shouldn’t accept unqualified or questionable tenants just because the area isn’t great. There are good tenants in rough areas, and while they may be harder to find, that’s not an excuse for accepting bad tenants. Even if it takes longer to get units rented, it’s worth the wait because bad tenants can simply wreck havoc on a building by either destroying the unit or causing problems with other tenants and often getting them to leave. Not to mention they often don’t pay their rent anyways.

    • Engelo Rumora

      Thanks for your comment Andrew,

      I worked the KC market (East of Troost and South of the creek) for 18months and it was fun plying my trade. I was only threatened to get shot once hehe

      I did like Ruskin and Rayton tho as good investment areas.

      Have a great day.

  2. Tim Conner

    I have been in the lower income markets of South Sacramento for nearly 10 years now. The key is understanding the tenants, no one with good credit is going to live in that neighborhood; but there good people out there who need a nice place to live.

    I’ll take people with bad credit and evictions – they have no place else to go and truly appreciate the second chance. If they have the income they pay their rent on time – they know they can’t go anywhere else. I meet with every tenant personally, they know I’m fair and reasonable but I’ll also evict them without hesitation.

    I get MUCH higher than typical rents and have very low turnover – take care of your tenants – they’ll take care of you.

  3. Sara Cunningham

    Love this article. Everything you have written is true. All of our properties have been bought for little money. They are what we call blue collar working class homes. We have an awesome Property Manager who makes sure rent is paid,maintenance issues are dealt with, and finds great tenants when needed. Most of our tenants have been with us for a long time 5+ years. You always have a couple that flake out but we’ve experienced this even with our own home when we moved overseas and rented it out . In fact we had more problems with that home with tenants breaking the lease and another one flooding the house by not reporting a leak. I think the only other thing you might find is that a lot of these homes are older so eventually you end up with roofs, A/C, sewer problems which all need replacing. However once they are replaced the cash flow still outweighs the investment in the long run.

    It does take a tough approach and realizing that these places can be a headache but nothing would change the strategy we have used for the last few years.

    • Engelo Rumora

      Thanks Sara,

      I consider blue collar working class a very solid investment. I actually live in blue collar and my tenants are my neighbors. Great people with decent jobs and not much crime.

      My blog was more angled toward lower lower end type stuff lol

      Like guns and drugs kind of areas.

      Those areas require quite a bit of work but can make best investments out of any asset class.

      Thanks again for commenting and have a great day.

  4. Charles Morgan

    I have a couple of properties in low income areas, those tenants have been with me the longest and have been the least troublesome. The low income properties can be a cheap way to get experience if you fail, and can be great cash cows if you win. My cheapest property is my best cash cow and the renter actually has done most of the maintenance because she appreciates the low rent.

  5. Good post. I bought a house for $1500 in the hood in Atlanta at the start of the year. I put in about 6k in renovations/making the house habitable for human beings and I get $1200 a month in rent. It is basically going to have 100% paid for itself by the end of the year. My one piece of advice (and this might violate FHA rules, I’m not a lawyer) is look for tenants who receive SS, SSDI, or some other form of long term government money. Then make sure you are there for the rent on the first. That way they will almost always have the money for rent and no excuse for not having it like “my hours were cut” or “I lost my job” etc.

    Also, being nice is helpful. Not a push over, but if you are better than 99% of the slumlords they have dealt with in the past the tenants will be more likely to act in ways that would convince you to let them stay. I.e paying their rent and not breaking stuff.

    • Deanna Opgenort

      My personal distinctions between “low income”, “poor”, “rough”, and “crime-ridden”.
      “Low income” – usually refers to the poor, but can also describe wealthy elderly who don’t have much $ coming in ($1.5 mil in assets, <$2k mos income. Why 3x rent isn't the whole story).
      "Poor" – those working for not much per hour, retirees living on SS, disabled living on SSI, young families starting out, college students (also rural — my rental). $25 rent increase is a big deal & can force them to move.
      "rough" – boarded up houses, gang presence. Empty houses might get stripped, & don't leave valuables visible in your car. Crimes of opportunity, not violence.
      "crime-ridden" Look online at the police report maps. Drug-dealing, prostitution, robbery. If you wouldn't feel safe walking down the nearest main street around dusk you are looking at "crime-ridden".

  6. Being alpha is important! I got my start with a MF ‘Crack house’! Had to evict 3 dealers, so I bought it at bargain rate, but with a 3-mo.lease first (I was afraid the dealers would burn it down. Seattle PD wouldn’the touch it or help me Until I might be assaulted . All tenants were posted the building to vacate in 3 weeks for ‘rehabbing’, all were delinquent in rent; we arrived on a Sunday 1 pm, with my rehab crew, (Bros and strong friends, six of us; we all carried hammers in our belts, and shovels), and took off all the doors and started painting with smelly oil paints. Shut the electric off too. They moved out in a day! 3 months later I closed it, and had new, good tenants. That was my start 25 years ago.

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