Author Topic: Rental housing in working class / downmarket neighborhoods  (Read 4071 times)

redsfaithful

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Rental housing in working class / downmarket neighborhoods
« on: March 14, 2012, 10:36:39 PM »
Beyond my personal residence, I've never owned any real estate.

I'm kicking around the idea of buying a cheap rental from a wholesaler, but I'm wondering if it's smart to start with housing in potentially more dangerous, lower income neighborhoods. I've read some opinions on various message boards, but I'm curious to see input from this crowd in particular. Here are the house details, although there are deals like this fairly often in my city, so think of it as representative of something I could pick up even if I decide not to buy this one specifically:

Quote
2 bedrooms
1 bath
768 sqft
Needs nothing
Tenant Occupied
Rented $425/mo - should be rented at $550 for area but tenant has been there since 1991 and previous owner didn't raise rent
Price: 19K

The area is rough, but in close proximity to nicer areas. I certainly wouldn't buy it hoping gentrification would be coming anytime soon, but I would be hopeful that it could keep the area from deteriorating further.

Is this, or something similar to this a bad idea as a learning experience? Would it generally be a better idea to try to use the money as a down payment on something more expensive, or no?

My personal residence is worth about $200k and I bought it with cash, so not going into debt on a rental is appealing, but I might be too phobic of debt. I thought if anyone would give it to me straight on the subject it would be this board. Thanks for any help.

arebelspy

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Re: Rental housing in working class / downmarket neighborhoods
« Reply #1 on: March 15, 2012, 07:42:06 AM »
It depends on how "rough" that area is.

Would you be comfortable walking there alone at night?

Would you be okay if your elderly grandmother to lived there?
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salmp01

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Re: Rental housing in working class / downmarket neighborhoods
« Reply #2 on: March 15, 2012, 09:08:27 AM »
Good questions by Arebelspy.  I own several rental properties and I wouldn't purchase unless I felt safe in the area at any time of day/night.

Also, what are all the other expenses?  Property taxes, water/sewer (any other utilities), etc.   Figure out what you overall gain will be each month assuming a 19k investment and determine if it makes sense.  Also, have a Realtor pull a report for all properties that have sold near this area in the last couple years and that are still for sale.  Make sure that what you're paying is "under" the market value.   


MountainMan

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Re: Rental housing in working class / downmarket neighborhoods
« Reply #3 on: March 15, 2012, 12:01:18 PM »
Personally, I would want to buy properties that I would be comfortable living in.  Mainly because I want to be proud of what I am offering to tenants.  "This is a wonderful home in a good neighborhood that even I would be proud to live in... it'll be a great home for you!"

I don't want to sell stuff, even tenancy, that I'm not proud of.

So, Arebelspy's questions are quite handy for figuring that out. :)

I'm not invested in rental real estate now, but I'm seriously thinking about it down the road.

madgeylou

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Re: Rental housing in working class / downmarket neighborhoods
« Reply #4 on: March 15, 2012, 12:34:51 PM »
i live in "the hood," and although it's not my favorite place i've ever lived, it's OK. my fiancee has lived there for 10 years and never had a problem. i don't take a lot of walks at night, but i did have to ride the bus home from my job last summer, oftentimes getting home at 11 pm or later, and never had a problem. but definitely visit the place after dark on the weekends -- especially on a night when the weather is nice -- and see what your spidey senses have to say.

the one problem we do have living in our neighborhood is that absolutely no one will buy our house from us. it needs some work, but the house itself is only worth about $30K, so we are loath to put much cash into it. we've made cosmetic improvements just to make ourselves more comfortable living there, but since it needs work, and since it's in the 'hood, absolutely no one will buy it. so, we are kind of stuck there ... not sure what we are going to do when we're ready to move, but we'll figure something out.

anyway, yeah. think about exit strategy. is this place likely to sell when and if you want to offload it?

one last thing: i see a lot of people moving at night in my neighborhood. this tells me they are skipping out on some sort of obligation... a more transient lifestyle seems to be more common the less money people make. you may have more trouble finding a good tenant than you would in a more upscale neighborhood. that's not set in stone, obviously -- i was a renter in my 'hood for years and always took care of things. but it's something to be aware of ...

MountainMan

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Re: Rental housing in working class / downmarket neighborhoods
« Reply #5 on: March 15, 2012, 02:59:14 PM »
I have friends who bought and lived in a house in a relatively safe 'hood' as well.  They had the same problem of no one wanting to buy it.  They ended up letting the bank foreclose on their loan, while they moved their family to an apartment in a different neighborhood.  I hope that won't be necessary in your case.

redsfaithful

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Re: Rental housing in working class / downmarket neighborhoods
« Reply #6 on: March 15, 2012, 04:08:08 PM »
Thanks everyone, some very good points to think about.

Gerard

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Re: Rental housing in working class / downmarket neighborhoods
« Reply #7 on: March 28, 2012, 05:06:47 PM »
Some of this may vary by city (or country). Problems with resale are due to perceptions of the quality/safety of a neighbourhood, largely from people who've never been there.
This has worked to my advantage, at least in Canada where a "bad" neighbourhood isn't all that bad. I bought my Toronto condo in November 2011, when city prices were averaging $300-plus a square foot (they're higher now). I paid $139 a square foot for my place, which is in a cluster of high-rises popular with recently arrived Bangladeshi immigrants. The average income in the neighbourhood is well below the city average, but the crime rate is low and the average education level of the residents is very high. The convenience store downstairs sells amazing spices and samosas, the subway is a five-minute walk, and the in-floor heating is a treat. The biggest danger I've ever faced coming home at 11 pm is almost being run over by squealing 6-year-olds on bikes.