First DSCR deal (remote): turnkey C-class vs light-value-add B-class?

Question

Hi everyone,

I’m a first-time investor based abroad and planning my first U.S. purchase using DSCR financing. Since I don’t have U.S. income, I’m focused on cash-flowing markets and currently looking at Cleveland. I’ll be using professional property management.

I’m comparing two duplexes that both work on paper but have different risk profiles:

Option A – C-class area

Recently renovated / fairly turnkey

~$200–300/month cash flow with conservative underwriting

Minimal near-term CapEx

Main concern: tenant quality and neighborhood risk

Option B – B-class area

Better neighborhood

~$100–200/month cash flow

Units are livable but need some cosmetic updates over time

Main concern: managing maintenance and improvements remotely

As a first deal, fully remote, I’m trying to decide which risk is easier to manage early on:

tenant/neighborhood risk vs asset/maintenance risk.

For those investing out of state (especially with PMs or DSCR loans):

Which would you lean toward as a first buy, and why?

Thanks—appreciate any insights.

Michael Smythe · Answer

@Benjamin McBride

If you invest OOS, your biggest challenge won't be finding properties to meet your goals on paper, it’ll be successfully outsourcing all of the above.

The biggest mistake we see OOS investors making in our market, over and over again, is not fully understanding Neighborhood/Property/Tenant Classes and how they impact your probability of success!

They all run their ROI numbers assuming Class A results – when buying Class B, C & even D rentals.

Then they’re shocked when their performance expectations aren't met😞

If you choose to invest OOS, and have little to no landlord experience, we highly recommend targeting Class B Neighborhoods/Properties/Tenants. If you target Class C, you better be prepared emotionally & financially for plenty of challenges.

You can find Class B properties in the Midwest to BRRRR, but it will take more digging and YOU will need to understand how to analyze & identify them - because a lot of agents, wholesalers, PMCs, etc. will try to sell you Class C or D misrepresented as Class B:

• Many of them don't know/care what Class the properties are, so they're incompetent.
• Others know exactly what they are doing, so should be labeled as crooks! EITHER WAY YOU LOSE!

Here's some copy & paste advice you might find useful:

Why is Property Class so important for investors to understand and apply in their investing strategies?

Because the Property Class dictates the Class of the tenant pool that the property will attract.

The Tenant Class greatly impacts rental income stability and property maintenance/damage by tenants.

Both Property Class and Tenant Class will affect what type of contractors, handymen and property management companies you should target and be willing to deal with a property.

The Property Class will also impact the maintenance & renovations you do to, “Maintain to the Neighborhood”.

Why is that important?

Well, if you buy & renovate a property in Class D area to Class A standards, what Tenant Class will actually rent it?

Or, if you put several Class D tenants in a Class A four-plex, what do you think will happen to the property?

So, if you fail to apply the correct assumptions to a property, your expectations won’t be met, and it may even be a financial disaster.

We use the following to rank Property Classes, in order of importance:

• Property Tenant Pool: closely linked to location, but not always.
• Property Location: closely linked to tenant pool, but not always.
• Property Condition & Amenities: it’s important to, “Maintain to the Neighborhood.”

Key metrics for each Property Class:

Class A Properties: Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years. Tenant Default: 0-5% probability of eviction or early lease termination. Section 8: Class A rents are too high and won’t be approved. Vacancies: 5-10%, depending on market conditions. Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.

Class B Properties: Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years. Tenant Default: 5-10% probability of eviction or early lease termination. Vacancies: 10-15%, depending on market conditions. Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation. Section 8: Class B rents are usually too high for the Section 8 program.

Class C Properties: Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability. Tenant Default: 10-20% probability of eviction or early lease termination. Section 8: Class C rents usually meet program requirements, proper screening still recommended. Vacancies: 10-20%, depending on market conditions and tenant screening. Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation. Class D Properties: Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”. Tenant Default: 20-30% probability of eviction or early lease termination. Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection. Vacancies: 20%+, depending on market conditions and tenant screening. Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.

Where did we get our FICO credit score information from?

Check out this chart:

FICO Score

Pct of Population

Default Probability

800 or more

13.00%

1.00%

750-799

27.00%

1.00%

700-749

18.00%

4.40%

650-699

15.00%

8.90%

600-649

12.00%

15.80%

550-599

8.00%

22.50%

500-549

5.00%

28.40%

Less than 499

2.00%

41.00%

Source: Fair Isaac Company

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

Metro Detroit has 132 cities, the City of Detroit 183 Neighborhoods, which we’re analyzing and classifying. Check out the map on our website where we’ve made this all easy to follow.

We can also share numerous examples of properties & portfolios we’ve assisted investors with!

DM us if you’d like to discuss this logical approach in greater detail!

Horror Stories from those that did NOT Understand What they were Buying:

https://www.biggerpockets.com/forums/48/topics/1137397-baltimore-a-path-to-never-ending-pain

https://www.biggerpockets.com/forums/432/topics/1231840-sell-at-a-loss-or-rent-at-a-loss

https://www.biggerpockets.com/forums/311/topics/840134-memphis-turnkey-tenant-turnover-costs

https://www.biggerpockets.com/forums/963/topics/1195280-experience-of-oos-investing-in-cleveland-after-15-years

Alicia Sierra · Answer

You’re actually asking the right question - so kudos for that for starters.

When you strip this down, it’s not really about which one looks better on paper. It’s about which problem you want to deal with when you’re managing this from another country.

Between the two, I usually see people underestimate tenant and neighborhood risk more than they underestimate maintenance.

With the C-class option, yes, the numbers look better up front. But from experience, that extra $100–$150 a month can disappear pretty quickly if tenant quality isn’t rock solid. More turnover, more collection issues, more “hey, just looping you in…” emails from the property manager. And when you’re remote, those things take more mental energy than people expect.

C-class can work, but it really depends on the management company. If they’re not excellent at screening and staying on top of things, you end up managing the manager.

On the B-class side, the risk is different, but it’s a lot more predictable. Cosmetic updates, gradual improvements, normal wear and tear — that stuff can be planned, budgeted, and phased. You know it’s coming. You’re not reacting to it.

That predictability matters a lot when you’re not local. Note - DSCR does have condition standards so still have to take note of things like non working smoke detectors, any - even small - moisture issues in a basement - I've seen pre-close stipulations.

Anyway; The way I usually think about first remote deals is this: Which worst-case scenario would I rather deal with? I love c and d class deals - with the right manager in place.

On the B-class property, worst case is you spend more than you wanted on paint, flooring, or updates over time.

On the C-class property, worst case is you’re dealing with non-payment, turnover, or eviction timelines while trying to manage it all from abroad.

In Both cases you will have to deal with contractors and trusting them, so it's all in the VETTING. In other words - i would rather test the management waters on a B class and works my way up (or down depending on how you see it : )) - unless you have rock solid C class management in place based on super vetting. Hope this helps!

Arman Ahmed · Answer

@Benjamin McBride

Hey Benjamin, both options have pros and cons, but for a first remote DSCR deal, many investors lean toward the turnkey C-class duplex. It’s lower maintenance, less upfront work, and easier to manage remotely with a property manager. The B-class with light value-add can work well too, but managing renovations and updates from abroad adds complexity and risk early on. Focus on minimizing headaches and ensuring steady cash flow for your first deal, then you can get more hands-on with higher upside properties later.

Jenifer Baker · Answer

Hey Benjamin!

I'm with Evenest and we do property management in Cleveland. We offer full-service property management and can manage your renovation work. I would love to discuss areas that may be of interest to you. I'm happy to help with running rent reports as well. I do want to note that Cleveland has requirements that are not common in other areas. I've worked with quite a few out of state investors that have felt blindsided when it's time to place a tenant. It's a great market to invest in if you are prepared with the right expectation.

Alfath Ahmed · Answer

I have a neighborhood map that a couple of agents and I built specifically for Cleveland. You should be fine to invest in C/C+ locations as long as you have a very good PM company that puts in good tenants and does a good job managing.

Make sure you have an inspection done. You want to have relativley newer capex (roof, flooring, kitchen updates, bathroom updates, hvac, hot water). If it is within 5-7 years, then you are in a good spot.

Nicholas L. · Answer

@Benjamin McBride

hello! i'm going to give you my candid feedback, which you of course can take or leave, since I am just a random person on the internet. here goes...

unless you're going to go to Cleveland in person to build a team, source properties and really serve as the QB here, I wouldn't do this. i just don't think the return is worth the risk.

you likely will not get the cash flow you listed in the early years of owning. it will get consumed by all the expenses required to be fully remote and completely hands off.

hope this helps

First DSCR deal (remote): turnkey C-class vs light-value-add B-class?

First DSCR deal (remote): turnkey C-class vs light-value-add B-class?

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6 Replies

FICO Score	Pct of Population	Default Probability
800 or more	13.00%	1.00%
750-799	27.00%	1.00%
700-749	18.00%	4.40%
650-699	15.00%	8.90%
600-649	12.00%	15.80%
550-599	8.00%	22.50%
500-549	5.00%	28.40%
Less than 499	2.00%	41.00%