I never understood the value in putting your hard-earned money into buying a risky asset, spending tens of thousands on renovations, carrying 80%+ LTV debt, and knowing that you will likely be dealing with evictions, maintenance issues, repairs, constant damage, and general abuse to the property. On top of all this risk, you’re also eliminating the number one wealth-building factor: appreciation.
Cash flow is great, but once you factor in vacancies and nonpayment of rent, that cash flow can quickly dwindle down to almost nothing—and after a few years, your property may have barely appreciated.
I have a client who sold five of his rental properties in riskier areas that he had rented out through Section 8. Even through the COVID boom, when values skyrocketed, he ended up netting only around $20K total after all expenses across all five properties. Had he kept them vacant the entire time to avoid the headaches of being a landlord, he would have made more money on them. And if he had taken the same capital and used it to purchase one or two homes in solid neighborhoods—his returns could have doubled.
You would be shocked at how quickly someone can destroy a property. Putting the wrong people into a home is the number-one recipe for deferred maintenance and poor property condition.
I’m currently purchasing a duplex where one unit hasn’t been renovated in over 20 years, yet is in almost pristine condition. Yes, some things are beginning to show signs of wear, but that is normal after two decades of use—and honestly, I’m surprised it’s held up this well. The upstairs unit, however, was fully renovated with high-quality finishes, and after only a couple years of occupancy, it is completely destroyed. It’s sad to see such nice work get abused and neglected.
So my recommendation is this: always buy in the best neighborhood possible, place the best tenants you can, don’t over-gouge the rents, and aim to own a passive investment rather than an active business. Most businesses fail, but safe investments usually work out long-term.
Where you buy determines who you rent to.
Best of luck!