There’s a 4-plex (studio apts.) for sale for around 65K. Rents are right around $250 a month. Sounds good so far. However it’s in a neighborhood that is frequently in the news for crime. I also would think that there’s little chance that the property would increase in value. Would you consider purchasing or advise me to run?
I’d esp. be interested in comments from apt. owners in bad neighborhoods.
Wedowee,
I have several apartment buildings in relatively bad neighborhoods. These are areas with relatively high crime rates (especially drugs, theft, etc), but not frequent shootings. Obviously, in these low income neighborhoods, you will get the worst tenants (no decent person is going to live with this riff-raff). The return on investment can be quite high, but this is no free lunch. You can also expect higher than normal maintenance, more theft, more vandalism, more evictions, more dealings with your local police and local government, etc. In short, you better be getting a GREAT return, because the expenses will be much higer than normal.
My minimum return in these neighborhoods is to get 2% of the purchase price in monthly gross rents. So, in your case, I wouldn’t pay more than $50,000 for the property.
Good Luck,
Mike
Thanks Mike.
Reading about evictions, higher than normal maintenance, etc. gave me a reality check. However can’t you hire a property manager to do this? On one of these threads I thought I read that a property management co. would do the maintence, screen for tenants, and collect the rent for a 10% cut. From reading many of your other posts I’m thinking that this was something you did. Thanks again for your reply and I would appreciate any other insights you’d care to share.
Wedowee,
A property manager will typically manage the property for 10%, but that certainly does not include doing maintenance. They may arrange for maintenance, but YOU will pay for that. Also, many (most) property managers charge extra to place tenants in your apartment, take care of legal matters (arrange for them to be taken care of), etc, etc, etc.
I don’t know of a single successful (profitable) real estate investor that uses a management company. It is difficult enough to make a profit from rentals when you do everything yourself, let alone paying all your profit out to someone else.
Mike
you may want to consider section 8. there are section 8 voucher holders out there with 1 bedroom vouchers usually elderly persons.
as far as the property being in a not so good neighborhood you have to realize that people rent property not just for the property itself or the neighborhood but for convinience and they may have lived in that neighborhood for some time and it’s their way of life.
if you chose to go section 8 your rent being on time would not be an issue. the ROI is usuualy more with these kinds of properties. The property may not appreciate as well as a better off neighborhood but the cash flow is usually aswesome.
as for me I own properties in not so good areas, my advice is dont buy a property in a neighbood that you are uncomfortable visiting.
Would you happen to have any further reading on section 8 rentals?
thanks,
john
do a search. Section 8 has been discussed many times here.
I had a horrible experience with SEC8 itself, not the tenant. I think diffferent offices run it differently though.
I had a rental in Liberty CIty which is a VERY low income area in Miami. No biggie. I bought it to flip and could not sell it. So we rented it. The day the rent sign went up, I had 20 calls. People have grown up in these neighborhoods and are used to it so renting it shouldnt be a problem. I think if you look hard enough, you’ll find decent tenants. Also SEC8 tenants will probably treat your house better cause they dont want to loose that SEC8 voucher.
So its really up to you if you feel comfortable in the area. You can also find a local handyman to do any repairs so you wont be there as much.
Good luck