I'd go option 2. That's similar to the scenario we are living in right now - we bought our first home in a slightly dodgy area, but it is a really nice house and was much cheaper. We've been here 3 years, and have made great friends who all live locally (awesome mum's group!), because more and more young families are buying here as its affordable. Apart from the bogan hoons doing donuts in the street at night on the odd weekend, we don't have any complaints...

What would your immediate neighbours be like?? Can you get a sense of that by just looking at their house/yard? Or could you just go and ask them what its like and see if you like them??! We have great neighbours on one side, and dodgy ones on the other, but its mostly ok...

GL!