expert-q-a

Investors ask: High-crime areas

By Brendan Kelly

"I’ve found the suburb I want to buy in, but it has a high crime rate and I’m concerned about the risks associated with that. What precautions do I need to take to ensure my property is safe"

The answer really depends on the need of the buyer.

If you’re looking for a high growth, negatively geared property in a high crime area, you’re not going to get a lot of growth. Under those circumstances, don’t buy it.

If you’re looking for positive cash flow, it’s okay, but there is a risk.

Put aside the money to pay premiums for insurance and make claims if the need exists.

Remember, there will also be costs. It’s less attractive to your tenants, so they’ll expect a slightly lower rent. Negotiate really hard on the purchase price so it’s cheaper and increases in yield. Expect to pay higher premiums than usual on insurance, and don’t spend a lot of money on fantastic presentation.

Make it so you can walk in with a hose and wash it out and it’s ready for the next tenant. Any delicacy that you put in there is likely to be ripped off or damaged, so factor in cheaper repairs and be prepared for Band-Aid solutions.

Expect a lot of vacancies because that’s a risk – you’ve got a huge turnover. But if after all that – all the prepared costs – it still gives you the cash-flow positive you want, go for it.

The only other situation I would buy in is if the buyer has done their research and determined that there was growth in all of the surrounding suburbs. If everywhere else is going up and gentrification is happening, then it’s inevitable that this one will too.

Brendan Kelly, director, RESULTS Mentoring

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