I am lookin for expert feedback. At Chicago suburbs there are some very good burbs and some really bad ones. I am looking at places like West Aurora where we can get Cheap Single Family homes between 20-40k. The same home will not be available for atleast 80k-120k in places like Naperville or Wheaton. Obvioulsy I am hearing that crime rate is very high at Aurora and the neighborhoods and school district are not good. But I am looking at this from purely investment perspective:
What is better option ? Buying in bad area and putting on rent. If i put the same house on rent at Wheaton or Naperville there is no way i can get double the rental income
Would be interested to know what the experts have to say.
Generally lower income areas will cash flow better because you can buy a house really cheap and the rent amount will still be decent. In a better area, that same type/size of house will cost more because it’s in a more desirable area. Market rent vs. purchase price in better areas will not be as good as in the lower income (or higher crime) areas. Chances of price appreciation are better in better areas.
It entirely depends on what you’re willing to put up with. No matter what, I wouldn’t buy anything in an area where you’re scared to go. We deal with a lower income area. There are certain areas of my town where I wouldn’t buy a house. Our houses cash flow very well. They won’t appreciate significantly, but the good cash flow will help to get them paid off quickly. We screen our tenants as best we can. Most of them are pretty clean people and take decent care of the houses.
Some people shoot for working class neighborhoods for investing. We’ve had good luck with our area. You should evaluate what your tolerance is for the Aurora area as well as if it is better for you financially to buy one house in a better area or 2 or 3 in a not so good area.
That’s good advice. I personally like low income areas too due to their cashflow, especially the ones that are improving (new businesses are opening up, new people are moving in, etc - e.g. in Dallas many hispanics are moving into certain lower income areas of the city and actually improving the areas & increasing property values). The low income areas that are continuing to go downhill should be avoided.
One thing to keep in mind is that you have to compare apples to apples. You said that you can buy a house for $20-40k in one area that will sell for $80-120k in another. You can’t do that. You have to compare what that exact same house will sell for in that same neighborhood. If all the rest of the houses sell for $20-$40k then retail on that house is $20-40k.
If you are buying cashflow then the thing to look at is what they rent for in that neighborhood and what can you get the PITI maintenance and overhead on that house for.
If that gives you a positive number of $200-$300 or more then you want to buy that house sales price notwithstanding.
In Chicagoland ( I am from here as well), there are areas where yes the crime is a tad higher, but you would be surprised the crime in areas like Naperville as well.
In the end, you have to just ask yourself this, do you feel safe driving to the property at night? If you don’t, DON’T BUY IT.
Also, network with others that are buying in those areas and ask them about the crime, etc.
There is a list of local REI Clubs available on this site on the left where it says Real Estate Clubs in the Investor Resources Section
There is also one option, when you don’t feel safe driving in such neighborhood at night - you can simply hire a property manager, who will do the maintenance for you. It will lower your cashflow, but can save you lots of time and stress with the tenants.