Hey Ken. I think this is a valuable perspective and has some great advice. Having owned properties in neighborhoods exactly like the ones you describe for many years I can say that you are generalizing quite a bit though. I do think it is good to have a diverse portfolio of properties in varied areas, but new investors starting out may only be able to afford an inexpensive home (if paying cash), or even if they are getting a loan. I wouldn’t want you to scare newbies away from getting started. Just because a house is in a lower income area (e.g. lower middle class to working class) doesn’t mean you are going to be guaranteed to have huge expensive problems. Granted some tenants can be terrible, but that is true anywhere if you don’t screen them well. Does anyone remember the movie Pacific Heights? Section 8 tenants can be great. So can blue collar folks. You do have to do your due diligence and not gloss over issues you find in their work, rental or criminal history. Past negative behavior is indicative of what’s to come in my experience. Also, while these areas may not appreciate in the same way as an upper middle class B or A neighborhood, I don’t know why people talk badly about the cash flow from cheap homes. Here is how I am seeing it. You should be able to cash flow $200/mo (with financing in place – much more if you paid cash, obviously) on that $40,000 place you refer to, including putting some money aside for potential vacancy and maintenance (I put 20% aside myself). Assuming a 25% down payment of $10,000 you are still looking at a 24% annual cash on cash return ($200 x 12 months = $2400). You have a tenant paying off the loan for you and will have your entire investment back in just over 4 years. Granted it doesn’t ALWAYS work out without a bump in the road or two, but I have found that more often than not cheap homes (in good rental markets) can be a good investment and a great way to learn a lot about real estate investing while starting out with little money to invest.

use the "Other" category

Las Vegas real estate isn't going to be increasing in value anytime in the next 5-10 years. If you have the cash burning a hole in your pocket and you know that finding good tenants to rent to is going to be easy, and you don't need to see an increase in property values for a long time, then Las Vegas is great.

Real Estate can be a great investment, if you do it right. If you are going to be mortgaged up to your eyeballs without a property manager and don't know how to run the numbers correctly, it can be a complete nightmare.

Too many people forget to add in things like closing costs, mortgage interest, upkeep, utlities, HOA fees, property taxes, etc, and when they see a $10,000 return without counting all that, they get hooked. Then suddenly they don't understand why they aren't making their mortgage payments and dread that next property tax bill.

you can be an investor and a real estate agent. if you buy a property as investment and you are an agent, it's yours. Your company will not let you invest their money unless you work at some kind of investment company. Also, if you are poor, you do n't want to be investing your money in real estate, you will want to be investing OTHER PEOPLE's money in real estate.
Contact me if you want to find out more.

-Angela

http://www.ratraceclub.com