Landlording & Rental Properties

Affordable Housing Is the Golden Goose of My Real Estate Portfolio—Here’s Why

8 Articles Written
bird's nest on a wooden plank surface with three golden eggs in next and two keys on a key ring hanging from nest

Affordable housing is becoming a crisis in this country and there is no solution in the near future. With home prices increasing at a faster rate than workers’ wages, things might not get better in our lifetime.

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As a real estate investor, this is why I am solely focused on C-class affordable housing to add to my portfolio. With rising rents and skyrocketing home prices, I look at affordable housing as my golden goose.

The Perks of Investing in Affordable Housing

1. Hedge against a recession

When the bubble pops (and you know it’s going to), people are going to start downsizing and looking for ways to save money. This is one reason I love affordable housing. It’s affordable!

With rents 15 to 45 percent below some of the A-class properties in my area, I know I’m going to have plenty of people wanting to move in. During these hard times, renters from the A-class properties tend to move to B- and C-class properties.

Although Class C properties' rents might not increase or even may go slightly down during a hard recession, you won't have to drop rents as far or offer concessions that some A-class properties' owners will.

Person looking for places to stay on digital tablet

Owning affordable housing is also a great way to secure financing. Most banks know that this is an effective hedge against the recession and prefer Class C and affordable properties. With the lower amount of vacancy and steady income stream, banks will be more likely to lend on this type of asset.

This is another reason you and the bank's underwriter need to stress test the property. I don't think it is possible to "overbuild" affordable housing in this country. That's why the banks are not as worried about a lack of people wanting to move into most Class C assets.

Related: Investors Can Both Do Well & Do Good in the World—Here’s How

2. Longer tenancies

With affordable C-class housing, I find that my tenants stay longer and are more receptive to rent increases. Moving can be costly and not too many people I know enjoy it. With a moving truck, storage unit, first month's rent, and the security deposit for a new place, the bill adds up quickly.

This is why most tenants stay put in C-class properties. I have acquired tenants in apartment buildings who have lived there for 30-plus years, because they hate moving. Turnover is a huge expense for landlords, so appealing to the masses with affordable housing only makes sense.

If some of your housing is being paid for by government subsidies, they will usually require the tenant to stay for 12 months, too. In fact, a lot of Section 8 tenants who I have rented to in the past have lived in the same rental unit for five years or more.

This is because it is affordable, and they are usually on a fixed income. They don’t want to pay the high costs of moving, so staying in a nice, clean, affordable rental property makes perfect sense.  

3. Sell fast

With C-class affordable housing being in such high demand, investors are always looking to get ahold of it. With supply so low and demand so high, this makes for a perfect asset to cash out of and sell when you are ready—or if you need to.

Most affordable housing lacks the large money pit amenities that some A-class properties have (such as a pool, elevator, gym, etc.). The less expenses and less capital expenditure reserves needed, the more net operating income can be increased.

Gym in apartment building with brown wall, mounted TV, weights, benches, fan, exercise machines.

Now, most of the properties with these amenities are getting higher rent. But they are also costing the owner more money.

Typically with the lower rung asset classes, investors know that their occupancy rate will be higher, as will their net profit. This can be a huge selling point when taking your property to market.

Related: Solving the Affordable Housing Crisis: Apple, Google, Amazon Can’t Help—THIS Can

4. Steady cash flow

Paying a premium for property has its perks. It also has its downfalls.

Yes, you will be getting something that will hopefully be trouble-free. Yes, you will be getting higher rents. But odds are your cash flow and return on investment will be lower, too.

This is my favorite part of affordable housing: the cash flow. With low vacancy, steady rents, and a smaller mortgage payment, affordable housing usually outperforms most—if not all—long-term rental classes. As long as the property is being managed well and taken care of, you should have no problem making steady income and double-digit returns.

Of course, things will happen. Tenants will move out. Evictions will happen. Things will break. But you should be well prepared for almost all problems that come your way. After all, you stress tested the property before you bought it.

Having a Class C property that is affordable doesn’t mean you need to skip on repairs or rent to just anybody. It wouldn’t take long for your nice, clean, Class C apartment building to drop down to the worst building in town, just because you wanted to save a couple bucks.

Affordable housing needs to be taken care of, as all nice properties need to be. By keeping your property in great shape and remaining affordable to the masses, you can assure yourself that your asset will not only provide you with a golden egg, but it will also help provide many people with great housing.

How do you feel about affordable housing? 

Share below in the comment section.

Matt DeBoth has been an active real estate investor since 2011. Matt served in the United States Marine Corps for eight years as a Force Recon Marine and has done multiple deployments to Iraq, Afghanistan, and the Middle East. Matt bought his first investment property while on a combat deployment to Afghanistan. Since getting out of the Marine Corps, Matt has flipped over 25 rental properties and currently owns over 140 units. He specializes in landlording, creative financing, and using the BRRRR method for mid- to large-sized apartment complexes.
    Account Closed Rental Property Investor from Scottsbluff, NE
    Replied about 1 year ago
    Matt, I agree with with all the points mentioned. Nice article, I hope to see more posts soon.
    Sarah R. from North Central Florida
    Replied about 1 year ago
    Mike McKinzie Investor from Westminster, CO
    Replied about 1 year ago
    In my 40 plus years of investing, Class C properties equal murder, rape, DEA raids, destroyed properties, unpaid rent, squatters when vacant, etc. my last C property vacancy cost me three years profit to make rent ready and it was free and clear. The property was professionally managed and inspected twice a year. I hope to be OUT of all my class C’s by the end of 2020.
    George Joy from Farmington, New Mexico
    Replied about 1 year ago
    I think it depends on tenant screening. I work in law enforcement and every cop or deputy in my area knows exactly which properties are the trouble spots. This is predominately due to a lack of due diligence on the part of the managers of the property because they didn't discriminate when renting. My area has more than its fair share of affordable housing because we don't have a huge number of very well paying jobs due to a downturn in the oil and gas industry. Many of these C class properties are filled with the 'little people'; the folks who bag your groceries, change your oil and clean your offices. Most are really good people but they will never be able to afford to buy a class B or A property but they need somewhere safe, clean and decent to live. I'm sorry your property managers let you down but not every inhabitant of class C properties is a dope dealer, a wife beater, murderer or scumbag. For sure, there are some bad people out there but good screening and effective policies should exclude them from your rentals.
    David Sharp Investor from Tucson, Arizona
    Replied about 1 year ago
    Mike - IMHO, what you are describing are not C class.
    Wenda Kennedy JD from Nikiski, Alaska
    Replied about 1 year ago
    I own a mobile home park and almost all the mobile homes located here. I have the only bank of affordable housing in my community. The senior center has 6 doors -- I have 41. It is a golden goose. It takes constant work and tending. But, I'm getting returns that I couldn't touch anywhere else. You're right. It is recession-proof. When we had a downturn, I just adjusted my rents a little bit and kept right on going along. My self-service Laundromat is the same way. It does get slow at times. But, my customers must do their laundry some time. Dealing in necessities is king.
    Bryan Drury Investor from Owensboro, Kentucky
    Replied about 1 year ago
    Our affordable housing is predominantly C class properties. We’ve not experienced the horror stories that were mentioned earlier, during the last 20 years. We’ve had great returns and the usual problems that go with C class housing. I’ll take some more, because in our area affordable housing works for us. Thanks
    Barry H. Investor from Scottsdale, AZ
    Replied about 1 year ago
    BRYAN Glad to hear it is working in KY. As long as you renovate homes completely, I find tenants are more likely to care for the property. Mine are in KC MO and definitely Class C and returns exceed 20% consistently.
    Omari Francis Developer from Chicago
    Replied about 1 year ago
    If you already have the stereotypical premonition that C Class properties are equivalent to murder, rape, DEA raids, destroyed properties, unpaid rent, and squatters then I’m certain that mind set will be projected onto your tenants. Regardless of the asset class property “MANAGEMENT” and proper screening is still required. These issues don’t exist to the magnitude that a lot of people think when the asset is truly “PROFESSIONALLY” managed. However, reducing an entire asset class to derelict without taking into consideration that it’s ROI usually outperforms everything else sounds like a mistake to me. My entire portfolio is made up of Commercial, Value Add, mostly Subsidizes Tenants and my lowest cap rate is currently at 19%. Furthermore, A Class assets also have rapists, murders, drug dealers, and nonpaying tenants they just happen to dress nicer...
    Sarah R. from North Central Florida
    Replied about 1 year ago
    Thank you for illuminating mindset. This is a great discussion! Surely no one size fits ALL the country, EVERY market & so on. Having a pretty poor upbringing, found myself single mother at 19 yrs deliberately lifting self onto higher path... for several years of that first decade forced to live in C Class in Tampa, FL. I was that "perfect tenant". Very much appreciate learning all the various views, esp from the experienced investors here who both integrate the possibilities with the realities. Surely much depends on your mindset & level of caring for the bigger picture via your REI. There will be those for whom it's ONLY about the $$$ for their sense of success, no problemo, while others will require knowing they're "giving back" ("contributing" in some form) for their sense of success. Thanks again @Matt DeBoth for sharing your insight.
    Andrew Jurinka Rental Property Investor from Portland, OR
    Replied about 1 year ago
    If your lowest cap rate is 19% then I guess you've got a lot on your hands. Even by Chicago standards.
    Michael Wolffs from New York City, New York
    Replied about 1 year ago
    While I agree with a lot of this, I think class B is a better place to be. You get a lot of the upside you say about class C, without a lot of the downside. The downside of class C is that you end up in sketchy areas with sketchy tenants. You also limit the upside to the appreciation of the property. What I'd prefer to do is get C properties in B areas with C tenants. Then as tenants leave upgrade the units to B, and get B tenants in them. By doing this, i've forced appreciation, increased rents, reliability of rent payments, and decreased damage risk to the units. Lower quality unit attract lower quality tenants.
    Patricia Mangham Investor from Hamden, CT
    Replied about 1 year ago
    How would I go about investing in affordable housing as a new investor?
    Barry H. Investor from Scottsdale, AZ
    Replied about 1 year ago
    PATRICIA You ask a great question and there are basically two ways to do this. (1) You can bird dog a good Class C property for a crazy low price ($10K to $30K), rehab it, then rent it out....OR....(2) Purchase an already remodeled turn key home, preferably with a tenant already in place, cash flowing at over 20% annually (after all costs, including loan costs). I do (1), then sell (2) to other investors and provide the financing. Doing (1) requires you have more cash available OR access to hard money. I am getting lots of Buyers who have $15K to $20K to put down to make $4K to $5K in profit annually by doing (2).
    Isaac Agbolosoo Rental Property Investor from Grosse ile, MI
    Replied about 1 year ago
    Never invest in affordable housing unless the community has a productive law enforcement.
    Sarah A. Investor from Murfreesboro, Tennessee
    Replied about 1 year ago
    Good point!
    Quincy Lockett from South Holland, Illinois
    Replied about 1 year ago
    I disagree at least for the Chicagoland market. I’ve been in the C market for 18 years and the customer has gradually changed. The average C renter would prefer to spend 50% of there income than live in the average C rental (picky as hell). The section 8 renters only want houses remodeled to HGTV standards (picky as hell!). What’s left is the poor worker who with bad credit and poor rental histories. Finding a suitable one to rent to is like finding a needle in a haystack. I’m getting out because if that’s what you have to depend on to fuel your profits, good luck. In conclusion, There is NO affordable housing crisis, just people on the coasts being out priced by the wealthy.....MOVE!
    Andrew Jurinka Rental Property Investor from Portland, OR
    Replied about 1 year ago
    Totally agree with your experience and I would echo it by saying that "price isn't everything"! People would rather spend more money on a better place to live than one that is appropriate for their budget and this even applies to people who don't have the money. An affordable Class C can have the issue that it is eventually made up of "second chance" renters. This is especially true in an urban setting. Those that own Class C in the suburbs or secondary/tertiary markets might not have this issue but on the fringes of a city where there's plenty of rentals certainly do.
    Barry H. Investor from Scottsdale, AZ
    Replied about 1 year ago
    QUINCY I agree the Class C tenant pool is more difficult to navigate these days than it may have been in the past. In KC MO, I have been successful getting blue/grey collar private market rents at 115% to 125% of market, but my remodels are actually HGTV quality (just my opinion of course). Providing the tenants with a true turn key product and having a tenant repair deductible tends to keep the property in decent shape and ROI stays solid. Sounds like Chicago might be tougher to navigate....AND....high taxes there....Arghhh. :-(
    Allan Sabo Real Estate Investor from Scottsdale, AZ
    Replied about 1 year ago
    I have had my eye on this space for some time now. IMO, the bigger problem is that there is a growing segment of single or non-related (room-mate) familial constructs that (here within most cities in Maricopa Cty - stretch the zoning laws) and the typical nuclear family design housing stock doesn't really work. My solution is to design and build housing (modular / pre-fab) designed to target this demographic - with HGTV styling, placed in B (or B+ areas) to wring out every possible dollar in ROI. I am looking to amass a solid group of 20 to 50 co-investors, as once we prove the model, I'd like to scale - and scale FAST.
    J. S. Jones
    Replied about 1 year ago
    Loving your mindset Matt, we need more win-win minded people in our world and investment communities. What you said really resonated with me, I have been thinking a lot about this demographic and how to offer them more for less. I feel like people with lower incomes shouldn't be treated like "lower-income" people. We need to demonstrate our benevolence in our business practices and be creative in our end results just like how we have to get creative in financing deals. Low capital investors may have a lot humanly in common with low-income renters. Just a thought. Thank you for your contributions.
    Sarah R. from North Central Florida
    Replied about 1 year ago
    Great points @J.S. Jones
    Jacob Compher Real Estate Broker from Asheville, NC
    Replied about 1 year ago
    Great article! I work in planning and zoning, and this is brought up continuously to provide more work-force housing. I completely agree that affordable housing is better for future investments because of the constant need that also benefits the community. You may get a few untrustworthy tenants, but there are still several hardworking people out there that just want a reliable, safe place to stay. I am interested in setting manufactured homes in my area. This seems to be the affordable market for my area as a buyer, but also for renters.
    Andrew Jurinka Rental Property Investor from Portland, OR
    Replied about 1 year ago
    I'd like to add a counter point to this. And that is that Class C properties will perform poorly in a downturn. Why? Well, as Mike McKinzie pointed out above, it's not a bed of roses to own, maintain and manage a Class C property. By definition they are older and require more maintenance. They are affordable, yes, but the first people that will be without a job in a downturn will be your Class C renters. Furthermore, when there is a vacancy from one of your longterm tenants that had to move/be evicted because they lost their job, you will have to upgrade the unit to be able to compete with the other apartments out there (yes, you will have to compete with Class B apartments in a downturn). Lastly, while you will have "affordable" rent, you will also have a vacancy which you will want to fill. Given a potential scenario where you are bleeding cash for maintenance and turnovers, you will be more likely to compromise on who you move into your place. Don't believe me? When your vacancy is double your modeling and you haven't had a showing in a week, you might be willing to cut corners with your application process in hopes that this applicant will work out. Now, all all of that said, I own only Class C properties and am well aware of what I just described. Not each Class C property is the same and a BIG part of this equation is the character of your town and the people that you have to chose from. We have all benefitted from the economy and Class C properties in so-so neighborhoods could be a real problem if you don't manage them like a hawk. Keep them clean, be sure that shady characters are removed and don't get established, and work with your good tenants to establish goodwill that will set your property apart from others that have incompetent and disinterested property management running them.
    Connor O'Brien from Chicago, Illinois
    Replied about 1 year ago
    While I agree that vacancy will be high for this market I disagree that the tenants discussed would necessarily be evicted due to a lost job . Section 8 voucher is based on income. I have tenants whose entire rent is covered
    Joe Harrell from Los Angeles
    Replied about 1 year ago
    Well said. Great article and forum discussion.
    Bernie Neyer Investor from Chanute, Kansas
    Replied about 1 year ago
    Thank you so much for your service to our country.
    Jason Hammond Wholesaler from Coeur d'Alene, ID
    Replied about 1 year ago
    Great article! As a newbie, I would love a follow up article breaking down the different classes of properties, and their pros and cons. This may help new investors to better define what they are looking at and for.
    Crystal Smith Real Estate Broker from Chicago, IL
    Replied about 1 year ago
    Great article. My only counterpoint is as with the stock market, we believe in having a balanced portfolio. Some of the portfolio has a high CAP with high cash flow given the higher risk, while other parts of the portfolio have a lower CAP, lower risk, more certainty regarding the cash flow & appreciation. The latter costs but it's the price we pay for the balance.
    Rose Walters
    Replied about 1 year ago
    @Matt thank you for an informative article. That is exactly what our company has done this year which was to invest in Class C properties. So far we have we have tenants and neighbors that have thanked us for our effort, in renovating and bringing in decent people who wanted clean, functioning , affordable housing. Great cash flow and appreciation for our investment. Crime is no respecter of community, it is everywhere. My suggestion, is to know the neighborhood before you invest. Talk to people that live in the area, they have nothing to hide, they are usually very honest. Good luck!
    Rob Cook from Powell, WY
    Replied about 1 year ago
    Lots of interesting and valid perspectives and points here. I own mostly what I understand to be C Class rentals. I do not talk about them in terms of being "Low income" but rather as Lower-cost housing. Depending where you are, there is a HUGE number of "working poor" people in the USA. As in many ventures, for every rule there are exceptions, so generalizing about a whole class of properties or people is not always productive. My "decision" to deal in C class is more by default than choice. Usually, C class are the ones I can get a workable price on, since they are not being sought out by homeowners. ALSO, few tenants in the C class rental price range, will become homeowners. When you get up in property and neighborhood quality, you start competing with homeowners for the acquisitions, and that means nonsensical housing prices (Homeowners are willing and able to pay a lot more for a property than a landlord will). And I also specialize in buying run down properties (which nobody else wants) and there just are not many of those in B and A class hoods. And the few you do find there, will be gobbled up for way too high a price by "competitors." I HATE competition! I like being in the driver's seat when acquiring a property, so this usually means BOTH motivated sellers and distressed properties. ALWAYS. I have over 50 C class units slowly collected over decades. I rarely sell any real estate. Anyway, one big thing I almost totally miss out on with C class as opposed to B or A class, is significant appreciation. I have netted over $1 Mill on a single house in 19 years, in an A neighborhood. It had structural damage due to marine clay soil, so sellers were panicking and buyers ran the other way, as did any lenders. I bought it way under market, made the seller finance it for 30 years, no money down! And after spending $40K on it, rented it for 19 years without a single day of vacancy (4 bedroom group rental for $3500 a month). I still own it, and moved into it as a second home a year ago (it is a block from the East coast Amazon HQ, which had nothing to do with the appreciation, rather, being a 5 minute commute to Washington DC in Arlington VA was the value. It has appreciated over $600K (4x) naturally in the 19 years, as have all homes in the neighborhood. I owned some D class properties a half mile from that one, which also wildly appreciated, but they were exceptions in my experience, where I pioneered as a landlord in a hood which literally had gun shots in it daily! No BS! So there was that "risk" assumption involved. All Section 8 rentals for $1200 a month ($35K price, plus $30K renovation each avg). Last one I sold, was rented to same S8 tenant for 6 years, and I sold it in one day for $325K! - thanks to the no-doc lending scams of pre-2008). Dozens of other C class properties I own, have barely increased 3% a year. But they are cash flowing golden geese for me as discussed in the article. I am a long-term player, and I want low vacancy and high demand for my places by tenants. So still figuring all of this out, after decades of playing the game, but I am gravitating towards fixing the properties up more, to upgrade the tenants and properties as a long term process. I believe it pays. Better property, better tenants, less hassles and damage, more stability, and on and on. The opposite of a viscous cycle. So do what you can, remember as landlords we are in the SERVICE business, and treat your tenants like CUSTOMERS, not scum and you will be rewarded. Although most of my properties are pro-managed by a third party, I STILL give all of my tenants my own personal cell phone #, and have not had that abused once, in 10 years. Lots to think about.