Classifications for property area types

14 Replies

I am trying to understand the A B C D classifications.  I have some properties and have personal criteria for choosing areas but because I have always bought local in good areas I am not sure how people break this down.  If someone could point me to a post or sticky that would be appreciated.

I have also noticed that in some areas with lower priced rental properties they don't include appliances in the kitchen.  In our area they are included.  Is this because the tenants will steal them when they move out or the rent is too low to include them?

The deposits were also lower.  Is the deposit lower when the appliances are not included?

Is this typical in most lower cost markets?

There were some properties that the deposits were in line with what I am used to which is about same deposit as rent but these were more expensive and didn't look like they were in the same types of neighborhoods.  They also included the appliances.

@Anna Shaver  

Are your questions based on what you are seeing on bigger pockets or other rentals in your area?

We operate in three different areas all over the US. I grew up and helped my parents operate their rental in a fourth. I can tell you that every area and even the different class/demographic extremely vary in security despots and appliance offerings. Some areas require washer/dryer, other don't even require a stove. The key is to see what your specific house competition is offering any why.

For example, in California a lot of houses do not offer Refrigerators. On the other hand, the houses that do not offer refrigerators tend to be much lower on the average market range. I found that offering refrigerators paid for themselves in one year. 

On the other hand, I do not offer washer/dryer in any market. I have found that they had no "value" and only cost me money in repair and upkeep.

@Dawn Anastasi    Thank you.  Greatly appreciated.  Do you include kitchen appliances in your market?

@Elizabeth C.   I looked at some of the rental property listings in Memphis and was trying to understand with the lower priced properties why they didn't have a refrigerator, built in microwave, and stove.  

There were higher priced rentals in the same market that offered them.

In Livermore and Pleasanton it is standard to include appliances and I assumed it was like that in most markets.

@Anna Shaver  I have seen a lot of lower income landlords on this website mentioned not offering appliances or renting them extra. I think it is probably the tenants mentality. Honestly I can offer no "real thoughts or experience" as I operate with class A property. They require appliances and honestly desire/demand stainless steel. Best of luck!

@Elizabeth C.   I guess I was just wondering if there was any correlation between the lower income areas that have higher turn over vs. lower income stable tenants and if that would give clues on which property would be the price point to buy and what they would rent for.

@Anna Shaver  

I don't buy in lower income housing so I really couldn't answer that questions. I know there are lots of people that are successful in that demographic. So hopefully they chime in.

@Anna Shaver   HI Anna great Giants game NO.. I am in the Berkeley this weekend... what you need to realize is that NOTHING that you would think is standard in Livermore ( IE SF BAY AREA) will be standard out in the mid west.. at least as it relates to 90% of what these folks talk about in the way of cash flow rentals.. its apples and oranges.. your in a triple A market not even A.. and when you read on BP about no appliances etc. those are C D some think B  but its not a California B most of the homes and the RENTERS would  be a CA F plane and simple.. no way for you to rationalize what you would have in Livermore and what is standard in the mid west... Only way would be to be buying homes in the mid west that were 125 to 200k each then you will get the same demographic and quality of renter in Livermore for your 400 to 700k rental homes.

PS  I grew up in Cupertino before 680 was built we took Niles canyon to reach Livermore and the 2 lane road went all the way to walnut creek LOL

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

@Jay Hinrichs   If I were looking for similar type markets with a lower entry point in cost, like the 125 to 200k you are referring to do you think they would have a little cash flow with 20% down and some appreciation potential?

Do you have any markets recommendations where this might work?

Yes, Livermore has grown a lot since then.  It used to be considered kinda off the beaten path.  I actually take Niles sometimes when traffic is bad to get home.. work in Fremont.  

for cash flow you may want to consider duplex and or 4 plex.. the same mortgage slot you use up for a SFR can buy you 2 to 4 doors.. In addition those types of properties will cash flow far better than a SFR. Along with in many case's when you buy one you can get history on rental performance.. remember when you buy TK SFR out of state 99% of the homes have just been rehabbed ( you hope) and to different standards some do great some not so great.. But you don't have any TRUE history of rental performance only PROJECTIONS.. which can be accurate or they can be in accurate depending on who is delivering the marketing message to you. I had a beer yesterday in Oakland with a very successful Oakland investor and he makes the 1% rule with his Bay Area 4 plex's it can be done.. and he live's 10 minutes from them.. Can self manage if he wish's to. So don't give up on your immediate area.. Of course SFR's are not cash flow investments in the bay area they are appreciation investments.. so that if you can just stay neutral you will make money over time with the rise in values.

If you do decide to go out of state and buy SFR just try to buy the best in the market don't buy cheap cheap will kill you in the long run.. make sure whatever you buy has a rent of well above 1200 a month and is MARKET renter not HUD... I am down to 11 rentals now all in Mississippi ( well I have a few in Oregon but they are so passive I forget I even own them LOL) my rents on the MS properties are all 1400 to 1600 top of the line A class they don't hit the 1% rule but they also have no problems collecting rent and very few repairs and are never vacant. Of course I bought them brand new so that mitigates repairs and of course the reason I bought them was for GO ZONE tax benefits.. I am now selling them all off and will be out of the rental game for good...

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Originally posted by @Jay Hinrichs:

for cash flow you may want to consider duplex and or 4 plex.. the same mortgage slot you use up for a SFR can buy you 2 to 4 doors.. In addition those types of properties will cash flow far better than a SFR. Along with in many case's when you buy one you can get history on rental performance.. remember when you buy TK SFR out of state 99% of the homes have just been rehabbed ( you hope) and to different standards some do great some not so great.. But you don't have any TRUE history of rental performance only PROJECTIONS.. which can be accurate or they can be in accurate depending on who is delivering the marketing message to you.  I had a beer yesterday in Oakland with a very successful Oakland investor and he makes the 1% rule with his Bay Area 4 plex's it can be done.. and he live's 10 minutes from them.. Can self manage if he wish's to. So don't give up on your immediate area.. Of course SFR's are not cash flow investments in the bay area they are appreciation investments.. so that if you can just stay neutral you will make money over time with the rise in values.  

If you do decide to go out of state and buy SFR just try to buy the best in the market don't buy cheap cheap will kill you in the long run.. make sure whatever you buy has a rent of well above 1200 a month and is MARKET renter not HUD... I am down to 11 rentals now all in Mississippi ( well I have a few in Oregon but they are so passive I forget I even own them LOL) my rents on the MS properties are all 1400 to 1600 top of the line A class they don't hit the 1% rule but they also have no problems collecting rent and very few repairs and are never vacant. Of course I bought them brand new so that mitigates repairs and of course the reason I bought them was for GO ZONE tax benefits.. I am now selling them all off and will be out of the rental game for good...

 Thanks Jay.

I'm in lower-income markets in my area in Oakland, but as Jay said, I think the demographic in these areas, demand, vacancy rates, etc are different in all different regions and markets. Everyone says there's no cash flow in my market, but I seem to find it. I just put in a little more effort.. But I don't think that will work everywhere.. You'll have to find a combination of what works for you, your area, experience, lifestyle, risk, etc..

Go with the top-end market if you want more certainty and less potential headaches, but know that it comes with less cash flow also.. Everything is a trade off..

Medium logoJ. Martin, SF Bay Summit | [email protected] | 510‑863‑1190 | http://www.sfbaysummit.com

Originally posted by @Anna Shaver:

I am trying to understand the A B C D classifications.  I have some properties and have personal criteria for choosing areas but because I have always bought local in good areas I am not sure how people break this down.  If someone could point me to a post or sticky that would be appreciated.

I have also noticed that in some areas with lower priced rental properties they don't include appliances in the kitchen.  In our area they are included.  Is this because the tenants will steal them when they move out or the rent is too low to include them?

The deposits were also lower.  Is the deposit lower when the appliances are not included?

Is this typical in most lower cost markets?

There were some properties that the deposits were in line with what I am used to which is about same deposit as rent but these were more expensive and didn't look like they were in the same types of neighborhoods.  They also included the appliances.

 Anna, I own or co-own, and property manage 12 units in the East Bay in Richmond and Oakland, which as you know, are lower-income neighborhoods. If you're diligent in the screening process, you can get good tenants, and I actually get higher deposits, typically between 1.5 to 2 months. And mostly good, hard-working people.

I include appliances in the kitchen. This is pretty typical in these areas in the Bay, but not all have them. Some SFH renters have their own refrigerator, but the stove is almost always included. For apartments, both are almost always included. I have a guy in E Oakland who buys/sells/fixes/cleans up appliances, so I get them there for cheap for these rentals. They look good, but are not new. @Sam McClellan  bought a washer/dryer from him too.

Because I have large deposits, and I can replace the appliances for $100-$200/unit, there is no worry about them stealing the appliances. They would be losing more than they could take.

Each market is different regarding the appliances. In some SFH markets, tenants provide their own.

Good luck, and come out to say hi at a meetup in Oakland or San Jose sometime!!

Medium logoJ. Martin, SF Bay Summit | [email protected] | 510‑863‑1190 | http://www.sfbaysummit.com

@J Martin   Thank you for your feedback.  It is much appreciated.  I am not familiar with the neighborhoods in Oakland and would need to get educated to feel comfortable in that market.  I have a cousin who bought badly in Richmond and got burned.  It was too rough of a neighborhood and didn't work out so well.  In any market I think it is also knowing the neighborhoods and even down to which streets are ok and where to stay far away from.

Having a larger deposit is a good way to go.  That is higher than what is typical where I have rentals.  It sounds like it offsets some of the risk.

I will have to make a point to come by one of the meetups.  

Originally posted by @Anna Shaver:

@J Martin   Thank you for your feedback.  It is much appreciated.  I am not familiar with the neighborhoods in Oakland and would need to get educated to feel comfortable in that market.  I have a cousin who bought badly in Richmond and got burned.  It was too rough of a neighborhood and didn't work out so well.  In any market I think it is also knowing the neighborhoods and even down to which streets are ok and where to stay far away from.

Having a larger deposit is a good way to go.  That is higher than what is typical where I have rentals.  It sounds like it offsets some of the risk.

I will have to make a point to come by one of the meetups.  

Sorry to hear about your cousin. You definitely need to know what's going on in the area in Richmond. I went and lived there. And you're spot on about not even the neighborhoods, but the streets, and even the blocks.. Doesn't mean you have to know every block before you get in contract. I do my research, then when I get in contract, I stop by at all different hours and walk around the neighborhood to see what is going on.

I stop and talk to everyone on the street and ask them what the neighborhood is like, if they and their family go out at night, feel comfortable, plan on staying on the street, if there's anywhere they avoid or people they don't like..  If it's getting better or worse? How long they have lived there? Talk to the guy at the corner store, local police, mailman, anyone and everyone you can get ahold of. You'd be surprised what people will share with you.

If you pay "market" for a place on a horrible block/street, you're overpaying and will have lots of headaches most likely. If you pay "market" for a "Diamond in the rough" on a quiet or good block, you can attract some good tenants, get good rents, not have the headaches, and be buying at a discount. (I also usually buy vacant foreclosures, so I buy at a different discount also..)

The larger deposit isn't just a financial risk mitigant. It's also an exit strategy. If they can't pay rent and won't be able to in the future, I can give them 1 month of their deposit back so they can go to another (smaller/cheaper) apartment, or have some money to go to a family member's house, weekly rental, etc.., without losing any money. If they're moving out of someone's place, I also get that person to co-sign the lease, even if they have a poor credit score or don't provide much support. Why? Because they're more likely to take that person back into their house if they're financially obligated or there is recourse to do so..

Hope to meet you sometime soon Anna!

Medium logoJ. Martin, SF Bay Summit | [email protected] | 510‑863‑1190 | http://www.sfbaysummit.com

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