Have Some Pride in Your Low Income Rentals!

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This is part 1 of the series, “I’m not going to live there so I’m not going to pay for ______”

As new investors, and especially in low income neighborhoods, there is a mindset that some people suffer from. It’s the “I’m not going to live here” mindset. There can be times when it comes to spending money on a renovation where this is a perfectly valid mindset, but many times it can lead new investors to giving a subpar renovation, thus attracting subpar tenants.

Part 1 of the series focuses on giving it your all, even if you’re not going to spend a lot on that lower end rental property, to get the results you want in tenant quality. My advice is regardless of what neighborhood, don’t let this mindset enter into your thoughts: instead, always think of tenant experience, and maintaining the longevity of your asset.

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About Author

Lisa Phillips is the first video blogger that exclusively advises everyday investors on how to cash in on working class neighborhoods for higher profits with sensible investing strategies. You can visit her hours of free videos and tips On Google + Here!

35 Comments

  1. Lisa, this was a great article and video! I can’t tell you how many times I have heard landlords speaking horribly about their tenants and when asked about why the tenants are complaining the landlord replies “Why do I care. I don’t live there.” I follow-up their statement and ask them where they do live and it (of course) is always in some posh, upscale neighborhood. Personally, I would be ashamed of myself if I ran my business this way. I saw an investment property two days ago and was appalled at the condition of the property, leaks, leaks and more leaks! However, the tenants invited us in and treated us (potential investors) kindly and with respect. I would not have given the owner $1.00 for the property. I would have really liked to have seen a photo of the owner and his wife, just to see what kind of people would collect rents in the range of $500 – $600 a month for a two bedroom apartment in that condition with NO appliances and think that not fixing leaking water from the ceiling was ‘okay’ because the people inside (including a two year old) were not worthy of a safe, dry and comfortable place to live. Where is the sense of pride of ownership? Disgusting!

    • Hi James. I am glad to know that these views are shared all over the place. I really don’t think it matters if its low income or a posh neighborhood: Be proud of the work you put into it, where you would be happy to show anyone, at anytime, the type of rentals you have. The money aspect of things are so prevalent, I think its a little easier to think, “I’m not going to live there,” but is that really setting yourself up for success?

      Landlords are just people: Some work really hard and put their stamp on everything they touch, and some do the minimum. I say for these neighborhoods, put a bit of work into just as much as a higher end rental – not necessarily spend more money, but live up to your standards: “safe, dry, and comfortable!” Thanks, I sincerely appreciate your comments!

      • Lisa, I think that I wasn’t clear. When landlords tell me that they don’t care about a property that they own because they don’t live there, I ask them (the landlord) where they live and it is always in a posh, upscale neighborhood. They have two sets of standards. However, there are landlords who take care of their properties…plenty of them, but it’s usually the landlords that make the comment, “Why do I care. I don’t live there.” that are the slumlords. They don’t have a reason to do anything any differently because they continue to get their cash flow.

  2. I only invest in low income areas of Los Angeles. If i dont have the best product at the best price, I dont even play. I want to enhance and help recover areas that are starting to get blighted, not be a slumdog. My prerequisite is if i wouldnt live in my property, then why should my hard working tenants? Prices are so ridiculous in LA for rents, it takes multiple heads of households per unit and more than 50pct of what they earn to be able to afford to live in a nice place. Some of my mommacitas break down in tears when they see what my team provides. Nothing high end, industrial in fact. But ultra, ultra usmc inspection ready clean. Most have never lived in a place like that.

    • Chuck, you are to be commended for your efforts! Nothing fancy, but a safe, dry and comfortable living space should be the norm in order for a landlord to accept someone’s rent. These people aren’t asking for ‘fancy’, but for goodness sake, landlords should keep in mind the element of ‘human dignity’. I think that $600/month should be reasonable to provide a safe, dry and comfortable space for tenants. Again, you should be commended for your efforts. The good that you do will come back to you.

      • Not in LA brotha. 600.00 per month wont even get a studio out here. More like 2k+ for 4 and 5 bedroom rentals. It takes a combination of section 8 and out of pocket cash for my peeps to even survive.

        • Chuck, I understand. LA is expensive, so your average rents are much higher. I was referring back to my original post where a landlord is charging $600 for a poorly maintained 2 bedroom apartment (maybe 600 sq. ft. total) with no appliances and no storage, not even kitchen cabinets with water leaking from the ceiling and walls! Where I live an average 2 bedroom apartment (800 sq. ft. total), with refrigerator and stove in a good part of the city will rent for $600, sometimes with heat included. Tenants on assistance or not, one still has an obligation to provide a safe, dry and comfortable space, if you’re going to accept their rent. But that’s just me.

        • “usmc inspection ready clean” This is it as well! Its the highest quality of your work, not necessarily highest priced! I honestly feel if we insist on this culture of high standards, regardless of the neighborhoods, things will change for the industry and the perceptions of landlords in these areas. It will be easier for other landlords to come in with trust, vs mistrust, because people are putting their best forward. Of course, this takes time, but don’t slack off just because its a neighborhood you aren’t living in. Who knows, you may have to live in your rental one day, and I hope that its as nice for you as you would have it for a tenant paying your rent on time each month.

  3. Sara Cunningham on

    Lisa, I just bought a triplex that had 3 tenants on it. By the time I closed one of them had moved out after 15 years. Since I invest long distance I wasn’t able to speak to the tenants till after closing. They went into my property managers office to pay rent and said we are the 4 th owners in the last 7 years. I had dozens of pictures taken by my PMs and these guys have been living in a slum literally. None of the former owners had done anything except collect rent. The vacant unit is a garage apartment. Since it is empty I have completed refurbished the whole unit, new sub floor, new carpets, tile flooring, lite fixtures, blinds, paint, drywall, and a brand new HVAC unit. This unit had previously even occupied by a Section 8 tenant, how it passed inspection I have no idea. Now that is almost finished I am moving onto the main house where the other two tenants are. This place hasn’t been touched in years and I can’t believe the occupants have stayed so long. It needs new everything. Like you said I can’t see my tenants living in those kind of conditions they deserve better than that. I refuse to be a slum lord! Looking forward to the next chapter in your blog.

    • Hi Sara! Thank you for the comment, and I have had the same impressions! Sometimes I meet the neighbors, and I get invited inside. The homes are clean, but the renovations the landlord done was so lackluster, I would be hard pressed to treat the place with any respect since, in my mind, they’re not treating it with respect.

      More of us, if we’re going into those neighborhoods, need to do it with a culture of high standards for ourselves and who ever is “lucky” enough to live there. I love that you went in there and did the job well the first time, and good luck with the triplex! I am planning on purchasing a duplex this year and living in one of the units myself!

  4. You should be telling low income tenants to take pride in their apartments. It is near impossible to make money in low-income areas, unless you run it like a slum lord, or have government help.

    I used to be a Section 8 Landlord, but there really are not any qualified Section 8 tenants that I would rent to, based upon my past experiences. Too much in terms of people being unable to live in society effectively.

    • Hi Eric! I get what you’re saying. In my earlier days I rented to people i wouldn’t let come near my low income rentals anymore. However, those mistakes were in my earlier days before I skilled myself up in 1) Finding the best of the low income neighborhoods (they’re not all the same) and 2) Not relenting on the high standards, and due diligence, of tenant screening and performing my own inspections. I say NO to applicants a lot more than I say yes.

      Would you say you NEVER had success, and is that all from the tenants you selected? Does that mean you chose one of the worst low income areas to invest in? There is a block by block difference, and there are some neighborhoods that I wouldn’t go into, and other neighborhoods where you can do just fine as a real estate investor. And, Im curious, when was the last time you invested in these areas, and how bad was the area you chose if you could get NO qualified renters? They’re not all equal. Some areas you’re asking for it if you purchase there, whereas a block away can give you solid results.

      • Actually, I was in C and B neighborhoods, and had quite a few Section 8 renters and low income. I really did not know much about tenant screening. I had issues with all sort of issues.

        Assuming you can get good tenants (not just good people) that pay, on time, every time, I suspect that you might me able to make money. The problem occurs when you rent to people that punch hole in walls and doors, bring in roached and bed bugs, and leave you with mattresses and furniture and unpaid rent when they leave.

        • Thanks for replying Eric! Truthfully, I have let some of those same tenants in my earlier days (One ripped the carpet out of the bedroom, as if that was okay, in addition to holes in the walls). Looking back, If I knew what knew now, they wouldnt have gotten that far on my watch, nor would I have let them in the door (That particular family wouldnt pass my income test, let alone any others).

          However, I KNOW that deadbeats exist, My goal is to focus on what can and does work, but you’re voice is valid that watching out for these sort of renters is a #1 priority, and I would say ESPECIALLY in these areas.

        • AND, I also advocate that people choose their low income housing wisely. You choose where the rents can cover your maintenance and turn over costs, as well as have a high quality of tenant (preferably working class). If you’re in an area where NO one has good credit, EVERYONE has a criminal record, then it points to that investor choosing an area that was completely unprofitable and shouldn’t have purchased in. I advocate the Leveraged Analysis Technique that I explain here on BiggerPockets, because it takes the 3 Key Metrics that are the most important for analyzing a low income rental before you step foot outside: Crime, Rents, and Photos (This is explained on the BP blog posts). If ANY of those are missing, its not the neighborhoods fault, its the investor who left it out of their analysis when buying. You can have a crime free area, and a good home, but if the rents aren’t profitable, you should not invest in that area since you’re more likely to go into the red. This is just the other half of the equation.

  5. I just want to add that the property I visited was described as “CASH FLOW = $1,000/month Guaranteed!” Ok, I understand the strategy of buying a house for $25,000 in a low-income neighborhood where cash flow can be greater than in other more expensive neighborhoods. But, why not take $300/month from the $1000 profit, maintain the property and keep it liveable?

    There is cash flow and then there is outright GREED! Not all Section 8 or people on assistance disrespect others’ property, especially if you are a MANAGER or have a manager to see that the property is taken care of and the rules are followed.

    One of the gentlemen in the group of investors looking at this property that I mentioned previously was a wholesaler looking for slum properties for some guy in Los Angeles. I asked him why and he said that there is no way to cash flow a rental in LA anymore…too expensive. So, people from out of state buy properties in distant communities and slumlord them. There should be laws against this and local people should be encouraged and helped to buy these properties. That way there would be pride of ownership. I now understand when landlords brag that they have 80 units. Chances are they are a slumlord. I wonder what their children would say if they could walk through the house that I did last Friday and see what their Dad does to make money. It’s not much better than the inhabitants who may be exploiting others, so that they can pay the slumlord.

    • I strongly disagree. Plenty of out of state landlords take great care of their units. Being local doesn’t make one spot of difference. I walked into a 5 plex last week that the owner lived in one unit and his son lived in another. I wouldn’t let my dog stay in those units. I passed on this property because even at his bargain basement price, I would not be able to bring the property up to my standards and still cashflow. I know plenty of landlords with 80+ units. They are far from slumlords. Their properties are the few bright spots in often trouble neighborhoods.

      I have many out of state properties. I take the best care I can afford for these. Many of my properties are the nicest in the neighborhood. I want my neighbors to be happy to have those houses there. I have a philosophy. There are good folks in all economic backgrounds, and I can provide them nice places to live. I take insult to being called a slumlord even in jest and every self respecting landlord should too.

      • Thanks for commenting Jason! I would never say just because you’re out of state, you’re “more likely” to be a slumlord. I don’t think Jason was referring to Landlords that have your high standards at all. Landlords are regular people, and I think you’re spot on: Some local landlords are terrible in how they conduct business, and others not. I am biased (all of my rentals are out of state :-) )

        The perception, however, for many of the worst slums, there tends to be references in the news article or evidence that its an out of state LLC and contact person,while there are subpar conditions and rampant crime on the premises. I would like for these articles to speak up for people like you and me who put their best forward in lower income dwellings to be vocal and proud of those unitss, so that it starts framing a culture for new real estate investors to subscribe to AND see success and results. Thanks for speaking up!

      • Thanks for commenting Jason! I would never say just because you’re out of state, you’re “more likely” to be a slumlord. I don’t think Jason was referring to Landlords that have your high standards at all. Landlords are regular people, and I think you’re spot on: Some local landlords are terrible in how they conduct business, and others not. I am biased (all of my rentals are out of state :-) )

        The perception, however, for many of the worst slums, there tends to be references in the news article or evidence that its an out of state LLC and contact person,while there are subpar conditions and rampant crime on the premises. I would like for these articles to speak up for people like you and me who put their best forward in lower income dwellings to be vocal and proud of those units, so that it starts framing a culture for new real estate investors to subscribe to AND see success and results. Thanks for speaking up!

    • James,
      I am not sure how to read your posts. On one hand you sound like a municipal employee who sees all landlords as greedy, dregs of society and responsible for a communities ills. I then read another post and you sound like a jealous landlord who can not make any money and tear down others who do make money with sweeping generalizations all referenced back to a very bad property you saw. Still again, you come across as tenant who sees all landlords as the cause of their personal woes. You make a general comment that if a landlord invests out of town they must be a slumlord. Again you claim that chances are a landlord who has 80 (many more units than you approve of), is a slumlord.
      Let me tell you that I have 65 SFH and manage another 16 for family and friends (81 in total). I have units in good areas and units in low income areas. I have been doing this for over 15 years and take offense at your generalizations. Do I make business decisions based on the class and quality of person likely to rent the unit, yes. If I did not, I would be out of business a long time ago. Do tenants always call when there is a problem? No, not always. If I could start over, I would avoid low income areas because of the increased drama, increased costs, increased hassles, increased evictions, increased damage, increased vacancies, and so on. Poor people have poor ways and those ways do not coincide with investor growth and cashflow.
      With all that said, I agree that a place needs to meet certain basic living standards. I agree a landlord needs to fix things that come to their attention and if the tenants are responsible either bill them or have them move on. Finally, you question how a landlords kids would feel if they knew how their parents got the money they have. I use my kids to do work around the rentals during the Summer (paint, yard work, cleaning, etc) and based on what they have seen, they want nothing to do with low income rentals as part of their long term goals.

      • Hi Tim! I know that there are people who would completely right these areas off, but then there are people like others (even the ones commenting on this post), that are doing VERY well in these neighborhoods. Would you have any lessons learned to share, for instance like making sure your neighborhood can support the rents needed to be profitable, or any other? Or, is your only lesson learned is that all low income neighborhoods are the same and aren’t worth it? I know many others that have not had such terrible experiences, with low turnover, timely rent, etc, so I wonder what went wrong?

        I like for people to learn from what works best from investors like myself and others, and to see if we can learn actionable steps from others who do not like investing in these areas, where we can grow or do things different. I guess I like to get to the problem solving by getting all the inputs in this debate.

  6. Lisa,

    I agree with your sentiments, its great to put a little bit more money into your units to attract quality tenants.

    I have 2 units in lower income areas, but my tenants take pride in there units, because of the units initial first impression and my professional demeanor when screening possible tenants. No matter the area I always use an attractive paint color that’s neutral, and when presenting the unit I make sure landscaping and deep cleaning are done.

    I always make sure that my units are in a condition that if worst came to worst that I would be able to move in the unit myself. Not that I would desire that but that it would be comfortable & safe enough that I could stay there.

    I love slumlords because quality tenants will bypass their units making it easier for me to find qualified tenants.

    Keep up the great video blogs. Thanks

    “Enjoying the Journey”

    • Thank you! Im glad you appreciate the content. I have to say i follow your methods 100%, and I have definitely been given back what I put in. People do bang on my doors to get inside when I see it, so I get a great selection to choose from, but it looks so dang cozy, I guess that’s my secret!

      And you’re right: Do it where you could live in your rental. Not that you want to, but I sure as heck can, and I would be quite comfortable – No dishwasher, not a lot of upgrades, but it works!

  7. Dawn Anastasi on

    I think one of the reasons why I’m so successful is that I rehab my places so that I would actually live there. There seems to be landlords in this city who are the slumlords — never fix anything, do the bare minimum, etc.

    I’m working on a rehab right now of a triplex where we had to practically fight the owner to keep the 3rd unit vacant so we could rehab it before renting it out. He wanted to rent it out as-is, with nasty stained cabinets, a fridge that smelled bad, floors that were coming up, carpeting that was patched in many places, a bathroom floor with a bad subfloor, electrical issues, plumbing issues, etc. It was just insane.

    And then I look up the landlord and find that he’s had $37,000 in judgements in the past 10 years. More than likely he gets anyone in, collects rent until he “can’t” and then just evicts … wash, rinse, repeat. I don’t know how anyone can run a business like that.

    I’m now fighting with getting everything done in an organized fashion and making sure I set the other tenants expectations of fixing things in their units — because there were things not taken care of there either. But everything can’t be done in one day; it’s a process. I think they’ve already seen that I’ve been way more responsive than the old owner. Sometimes its hard to change perceptions, because of what people have been “used to” by other landlords but I’m trying.

  8. Hi Dawn! Wonderful story to share with everyone. There seems to be 2 camps of people when it comes to low income housing- one side only gives the minimum because they’ve let horrible tenants come in, and the other side does a great job renovating in these areas, and has had nothing but success!! I think its obvious why its been successful for one side, and I hope the success stories can lead by example how to recreate successful working class rentals again and again: The tip – listen to people who have been able to succeed where others have failed :-) Thanks for the comments,

  9. Ok. Let me throw some gasoline on here for everyone. Hope i dont get banned. Im going to play the race card here. Its important to do that for me to make my point. Rentals are business to me, noy emotional. I budget for professional management from day one. If im in an all hispanic neighborhood, i want a hispanic property manager. If Im in a black neighborhood, i hire a black property manager. I tried managing properties in these areas myself, but fell flat on my face. My tenants did not respect me, so therfore they didnt respect my property. They saw some candy ass white “rich” guy with unlimted money supply. My opinion, is they felt i had enough money so they didnt need to pay thier rent. Once i figured that out, my life is so much easier. Like folk tend to deal with one another differenty. At that is a fact. Sorry to offend.

    • Hi Chuck! The way you articulated your points, no offense will be taken here! I honestly do see where that perception may come into play, maybe, depending on the area and what their past history is (who were the previous landlord in the low income/working class neighborhood, and how diverse it is). I think you said it as honestly and as truthful as I can. As a black female, I am not necessarily “one of them” because I come from a different background and neighborhood, but I do feel that since there are no other “models” before me, there isn’t any baggage or stereotypes, good or bad, that cloud the perception. So, I am in a position where what I do will definitely make an impression for any other African American females that come after me. Good thing I do good work! And, I make such an emphasis in my blog post to say have high standards, because then the idea of a “rich” real estate investor may be transformed to just a nice man who is trying to do right by the neighborhood.

      If this was an issue for you, and you noticed having a PM of the same ethnicity servicing it, I think that is just as valid as when there is a push for hiring more diverse teachers for majority Hispanic, Black, or even Asian schools and neighborhoods. Its not a requirement for those schools, but everyone can see where doing *may* make things easier. I say *may*, because it still depends on the quality of that PM or teacher, but I get ya! And, if I needed to do that in an all Asian or Hispanic community, please trust that I will do that same if I have to, and if it makes my business run more smoothly!

    • Dawn Anastasi on

      One story that sticks out in my mind is a property I was working on. The two guys cleaning out the property were sent by the bank. One of the guys asked if I had a lot of properties, and I said “a few” and then he asked if I lived in . I said no, I lived just X blocks away. No matter what anyone says there are still race stereotypes around.

  10. Yeah, for sure. A good PM is a good PM no matter what thier race. Ive been equally robed by everyone!!! Lol. Until I halfway figured out what I was doing. “Manage the managers” like a hawk. You can read all the guru books in the world, but you will never be prepared until you actually hit the streets. Its not glamorous. Its just another business. Albeit my hourly rate is pretty good.

  11. Good article Lisa. Another topic we seem to agree on. I will not rent a house in a condition that I woupdnt live in myself.

    This strategy anfmd belief has helped me find better and longer staying tenants not to mention higher rent compared to the dumpy properties.

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