Buying rentals in not so good areas

There are a few “not so good” areas in my region of Indiana. The property prices are cheap and I’m sure the section 8 tenants are plentious.

As I was looking at 2-4 unit properties yesterday on the MLS, I found quite a few distressed properties for dirt cheap - like anywhere from $5k - $20k. The neighborhoods are pretty rough.

My goal is not necessarily to be a landlord, but a handful of good cash flowing properties can’t be a bad idea…especially if there is some equity in them.

Here is my thought, if I pick a 2 unit up for $15k, and then I need to put around $20k into it for rehab cost - then ad $2k for miscellaneous and holding costs, and I’m in at $37k total.

If I want to put rent these out in this area, I’m pretty sure section 8 is the best route. Then I would personally prefer to have a property management company handle it for me.

How much rent do I need to bring in to make this a profitable, cash flowing rental?

I think rent for a 2 bedroom is reasonably in the $500 range. Taxes and Insurance would be no more than $175 monthly.

I may be off on the rent amounts and taxes, but given the total costs into the property, how much rent would you need to be profitable?

i come up with $350 - $400 per unit, making lots of assumptions due to lack of information. the assumptions are probably close.

i’ll wait to see what others say to see if my assumptions and methods were in the ballpark.

i will say, you need to know quite a bit more about the area before you start making purchase assumptions (ie, you want your assumptions to be more upmtion and less ass.)


You will generally need to get about 2% of the acquisition cost (purchase price + rehab cost) each month in rent to make a rental worthwhile. So if the acquisition cost is $37,000, then you would need at least $740 rent per month.

However, you should realize that the rent is set by the market. It is also important to really understand the area before you buy. If this is a ghetto area, then the damage from the horrible tenants and vandals may not allow you to make money even with 2% of the purchase price in monthly gross rents.

Good Luck,


I post in another group with a lot of section 8 tenants. They have eviction story after eviction story and a lot of people lying on applicaitons and such. If I was to get into that kind of landlording, I’d have to think how much I wanted to deal with that before proceeding.

So if it is a ghetto area and I’m taking section 8…do you tend to shy away from that situation even if the rents are higher than the 2%?

Keep in mind if the market rents could be $1000/mo, the property is only $5000, and you can’t rent it the property is still negative cashflow. Some of these properties in the ghetto just won’t rent and if they do you just can’t get good tenants. If every tenant you put in needs to be evicted and the turnaround time on an eviction is 4 months and every tenant does some or a lot of damage you are going to be in a world of hurt even if you get the property for FREE. Pick your warzone wisely.

You have to figure out what the perfect zen for you is. High end properties have tenants with money and clean living habits but there is no cashflow. Extremely low end has cheap properties compared to the possible rents but the tenants are deplorable and issues with them will still cause you to lose money. You need to find your sweetspot between a mansion and a dumpster. Lower middle class blue collar people with steady jobs are probably going to be where you want to aim.


Section 8 tenants are not normally found in the Ghetto. The reasons is that Section 8 houses must pass the housing inspection. Slums will not pass the housing inspection.

I do not shy away from Section 8 rentals. They are exactly like other low income rentals. If you’re going to make money in the rental property business, then you’re going to be dealing primarily with lower income tenants. In the vast majority of places, people that are middle class own homes – they don’t rent. If you deal with low income tenants, you should expect to deal with all the problems of low income tenants. The key to being successful is to understand the business and learn to deal properly with tenants. In short, that entails being fair, but firm (like a rock). The tenant either obeys the lease (and especially pays the rent on-time) or they are evicted!


Wise words there, Mike and Rich.


Love that quote!!!

That was excellent, Rich!!

Thanks, I’m thinking about putting it in my signature. I might even trademark it and go out on tour as a guru charging $5k a class. Call my program “The Sweetspot.”

Where do I sign up Rich?


I’ll send you an invoice.