My Case for C and D Properties!

111 Replies

I know not everyone is against C and D properties but I have a few cases for them as a viable asset to invest in.

1. Cheaper price point to get started in real estate (cheaper is not as worse)

2. It is less affected by down economies and recessions ( the lower middle class to lower class usually work in jobs that don't fail during hard times).

3. When these people feel comfortable where they are, they are less likely to want to move ( they do not like change as much as other classes).

4. People in these communities want the same things that people in other communities want safe, affordable, and nice living space. 

( If you can provide that slightly or a lot better than other people in the community than you can have an endless supply of tenants).

5. You can make a great change in particular areas of a city, state, or town and uplift the community for good while making money. (Double whammy)

What are your thoughts?

while those are generally good thoughts.. reality is far different in my experience owning hundreds of them.

Originally posted by @Jay Hinrichs :

while those are generally good thoughts.. reality is far different in my experience owning hundreds of them.

You have to have an appettite to not manage those areas but have someone that is relatable and can under what to look for in those particular tenants.

 

I invest in C areas in my hometown.  Note that I also feel there is a hard-line between C & D.

As @Jay Hinrichs mentioned, all those points are great general philosophies, but reality is higher maintenance, more prop manage involvement (cost and time), higher CapEx as a percentage to rent, disparity between actual economic rent actual rent...etc.

When you have lower rents (I keep everything about 1k/m to attract a certain tenant, but this is in Chicago where rents are skewed upwards) that 3k unexpected expense eats up a larger percentage of the rental income and can wipe out more months than a higher paying rent in a B class. 

That doesn't make it a bad investment, but it just means you need to know your streets inside and out and be able to account for all these variables as they will happen.  

The bigger issue that I feel is not talked about enough on the forums is the long-term IRR gain is heavily influenced by appreciation and the baseline value that is appreciating. To be clear, I invest for cashflow first and am not stating that one should speculate on appreciation.

However, take a 75k home appreciating at an average of 3% (use whatever number you want as long as it's equal for both examples) over 10yrs and compare to a 150k home appreciation at the same rate over the same time period.  This doesn't even account for the reality the 150k home will prob be in a better area and have a higher appreciate rate all else equal. 

Even if the 75k home offered double the cashflow compared to the 150k home, your networth increases much more dramatically with the 150k sample. 

Originally posted by @Quentin Mitchell :

I know not everyone is against C and D properties but I have a few cases for them as a viable asset to invest in.

1. Cheaper price point to get started in real estate (cheaper is not as worse)

2. It is less affected by down economies and recessions ( the lower middle class to lower class usually work in jobs that don't fail during hard times).

3. When these people feel comfortable where they are, they are less likely to want to move ( they do not like change as much as other classes).

4. People in these communities want the same things that people in other communities want safe, affordable, and nice living space. 

( If you can provide that slightly or a lot better than other people in the community than you can have an endless supply of tenants).

5. You can make a great change in particular areas of a city, state, or town and uplift the community for good while making money. (Double whammy)

What are your thoughts?

I suspect you'll want to get a jump on studying Portuguese.

 

Originally posted by @Jim K. :
Originally posted by @Quentin Mitchell:

I know not everyone is against C and D properties but I have a few cases for them as a viable asset to invest in.

1. Cheaper price point to get started in real estate (cheaper is not as worse)

2. It is less affected by down economies and recessions ( the lower middle class to lower class usually work in jobs that don't fail during hard times).

3. When these people feel comfortable where they are, they are less likely to want to move ( they do not like change as much as other classes).

4. People in these communities want the same things that people in other communities want safe, affordable, and nice living space. 

( If you can provide that slightly or a lot better than other people in the community than you can have an endless supply of tenants).

5. You can make a great change in particular areas of a city, state, or town and uplift the community for good while making money. (Double whammy)

What are your thoughts?

I suspect you'll want to get a jump on studying Portuguese.

Not sure what you mean by that.

 

 

Originally posted by @Tom Shallcross :

I invest in C areas in my hometown.  Note that I also feel there is a hard-line between C & D.

As @Jay Hinrichs mentioned, all those points are great general philosophies, but reality is higher maintenance, more prop manage involvement (cost and time), higher CapEx as a percentage to rent, disparity between actual economic rent actual rent...etc.

When you have lower rents (I keep everything about 1k/m to attract a certain tenant, but this is in Chicago where rents are skewed upwards) that 3k unexpected expense eats up a larger percentage of the rental income and can wipe out more months than a higher paying rent in a B class. 

That doesn't make it a bad investment, but it just means you need to know your streets inside and out and be able to account for all these variables as they will happen.  

The bigger issue that I feel is not talked about enough on the forums is the long-term IRR gain is heavily influenced by appreciation and the baseline value that is appreciating. To be clear, I invest for cashflow first and am not stating that one should speculate on appreciation.

However, take a 75k home appreciating at an average of 3% (use whatever number you want as long as it's equal for both examples) over 10yrs and compare to a 150k home appreciation at the same rate over the same time period.  This doesn't even account for the reality the 150k home will prob be in a better area and have a higher appreciate rate all else equal. 

Even if the 75k home offered double the cashflow compared to the 150k home, your networth increases much more dramatically with the 150k sample. 

There are negatives and positives in any investment so yes in an appreciation standpoint you get less bang for your buck, but as you stated cash flow wise it amounts to more, be personally I believe in doing the mechanical leg work in the beginning so that there are fewer maintenance issues and the last part is choosing a good tenant that will take care of the place.

Also, I am saying starting out and having these properties in the portfolio along with other vehicles of real estate. But you made very valid points.

 

Originally posted by @Jay Hinrichs :

while those are generally good thoughts.. reality is far different in my experience owning hundreds of them.

What has been your biggest issue?

 

Originally posted by @Mike Kirby :

@Quentin Mitchell

He means Clayton Morris. Google him.

Lol, that's very funny I am talking about people doing the leg work themselves not entrusting someone to do it for you.

 

Originally posted by @Jim K. :
Originally posted by @Quentin Mitchell:

I know not everyone is against C and D properties but I have a few cases for them as a viable asset to invest in.

1. Cheaper price point to get started in real estate (cheaper is not as worse)

2. It is less affected by down economies and recessions ( the lower middle class to lower class usually work in jobs that don't fail during hard times).

3. When these people feel comfortable where they are, they are less likely to want to move ( they do not like change as much as other classes).

4. People in these communities want the same things that people in other communities want safe, affordable, and nice living space. 

( If you can provide that slightly or a lot better than other people in the community than you can have an endless supply of tenants).

5. You can make a great change in particular areas of a city, state, or town and uplift the community for good while making money. (Double whammy)

What are your thoughts?

I suspect you'll want to get a jump on studying Portuguese.

No portuguese here my friend lol, I just think if done right C and D properties can bring in good cash flow, just like anything in real estate you got to do your due diligence.

 

 

Originally posted by @Quentin Mitchell :
Originally posted by @Mike Kirby:

@Quentin Mitchell

He means Clayton Morris. Google him.

Lol, that's very funny I am talking about people doing the leg work themselves not entrusting someone to do it for you.

Quentin, I'm a landlord with urban C-class SFR properties, some definitely shading into D-class territory but not quite there. If you're going to try to make a buck in this property class, it's best to forget larger-scale idealism and turning whole hoods around and focus on making small, incremental change, sometimes enthusiastically supported by the local government and police, sometimes not. That aspect of this business is a lot less like being a motivational speaker and a lot more like being a teacher in the trenches, doing your best to make a difference, usually failing.

I'm not sure what you mean by "doing the leg work." If it involves carrying out the hands-off buy-and-hold investing model largely espoused by this website, where you but a bunch of leveraged properites, hire a property manager to take your worries away, and slowly watch the returns accrue, well, that's the dream Clayton Morris sold and people with even minimal experience in C and D property classes understand it tends not to work so well down in the lower end of the rental spectrum.

If you're talking about being the kind of landlord I am, well, you're going to be fixing a lot of stuff yourself, waiting for a lot of people to show up who don't, dealing personally with tenants who have real problems, and most definitely not living any sort of aspirational life most people would want.

To just give you a taste of this life, right now, a local buddy of mine who is also in the business is in the hospital. I am managing his six properties. My friend is in there because they just chopped half his lung out. This is his second bout with lung cancer, and we're waiting on news whether it metastasized before they could cut it out.

Why'd he get this relapse? He smoked before his first operation twenty-five years ago, but he quit way back then. Maybe it had to do with all the environmental stress he's gone through over the years renovating, all the lead paint, asbestos, caustic dust, solvents, etc. He was never really good about PPE, he's a bit deaf, too, from running all his power tools in small enclosed areas. Maybe if I wear my respirator and protect my mucus membranes I won't end up like him.

I'm sure people are reading this with a little smug smile, certain that I'm exaggerating. It doesn't have to be all on the landlord, all the time..There are ways to minimize your involvement. I should be working more ON my business, not IN my business. All I would need a bit of creativity, a bit of openness to change. Then I'd really get things done and lead my best life.

If any of this is in your head now as you think about making it in this property classes, Quentin, no worries. The ghetto will beat your illusions out of you.

 

Originally posted by @Jim K. :
Originally posted by @Quentin Mitchell:
Originally posted by @Mike Kirby:

@Quentin Mitchell

He means Clayton Morris. Google him.

Lol, that's very funny I am talking about people doing the leg work themselves not entrusting someone to do it for you.

Quentin, I'm a landlord with urban C-class SFR properties, some definitely shading into D-class territory but not quite there. If you're going to try to make a buck in this property class, it's best to forget larger-scale idealism and turning whole hoods around and focus on making small, incremental change, sometimes enthusiastically supported by the local government and police, sometimes not. That aspect of this business is a lot less like being a motivational speaker and a lot more like being a teacher in the trenches, doing your best to make a difference, usually failing.

I'm not sure what you mean by "doing the leg work." If it involves carrying out the hands-off buy-and-hold investing model largely espoused by this website, where you but a bunch of leveraged properites, hire a property manager to take your worries away, and slowly watch the returns accrue, well, that's the dream Clayton Morris sold and people with even minimal experience in C and D property classes understand it tends not to work so well down in the lower end of the rental spectrum.

If you're talking about being the kind of landlord I am, well, you're going to be fixing a lot of stuff yourself, waiting for a lot of people to show up who don't, dealing personally with tenants who have real problems, and most definitely not living any sort of aspirational life most people would want.

To just give you a taste of this life, right now, a local buddy of mine who is also in the business is in the hospital. I am managing his six properties. My friend is in there because they just chopped half his lung out. This is his second bout with lung cancer, and we're waiting on news whether it metastasized before they could cut it out.

Why'd he get this relapse? He smoked before his first operation twenty-five years ago, but he quit way back then. Maybe it had to do with all the environmental stress he's gone through over the years renovating, all the lead paint, asbestos, caustic dust, solvents, etc. He was never really good about PPE, he's a bit deaf, too, from running all his power tools in small enclosed areas. Maybe if I wear my respirator and protect my mucus membranes I won't end up like him.

I'm sure people are reading this with a little smug smile, certain that I'm exaggerating. It doesn't have to be all on the landlord, all the time..There are ways to minimize your involvement. I should be working more ON my business, not IN my business. All I would need a bit of creativity, a bit of openness to change. Then I'd really get things done and lead my best life.

If any of this is in your head now as you think about making it in this property classes, Quentin, no worries. The ghetto will beat your illusions out of you.


By doing the leg work I mean you acquire the properties, find the tenants, and either DIY the project or oversee it and do the heavy mechanical items that could come back to bit you in the a** first to miniize expensive expenses. Most importantly screen the hell out of who you rent it to, there are good tenants in this class in terms of low drama and will take care of your property, only differnce between them and a higher class tenant is their income. There are good tenants in any class well (maybe not F) you just got to find them.

As far as the ghetto illusions, Jim I am already investing in this class of properties and so far I have not had any bad experiences have there been mistakes of course but the main things I do is screen people obsessively and look for good blocks in these areas. I have done more than 2 so not a lucky bounce twice lol. I do understand though that isn't for everyone but you can make a business out of it if you have the skills, gule, and attitude to deal with that asset class.

 

 

Originally posted by @Quentin Mitchell :
Originally posted by @Jim K.:
Originally posted by @Quentin Mitchell:
Originally posted by @Mike Kirby:

@Quentin Mitchell

He means Clayton Morris. Google him.

Lol, that's very funny I am talking about people doing the leg work themselves not entrusting someone to do it for you.

Quentin, I'm a landlord with urban C-class SFR properties, some definitely shading into D-class territory but not quite there. If you're going to try to make a buck in this property class, it's best to forget larger-scale idealism and turning whole hoods around and focus on making small, incremental change, sometimes enthusiastically supported by the local government and police, sometimes not. That aspect of this business is a lot less like being a motivational speaker and a lot more like being a teacher in the trenches, doing your best to make a difference, usually failing.

I'm not sure what you mean by "doing the leg work." If it involves carrying out the hands-off buy-and-hold investing model largely espoused by this website, where you but a bunch of leveraged properites, hire a property manager to take your worries away, and slowly watch the returns accrue, well, that's the dream Clayton Morris sold and people with even minimal experience in C and D property classes understand it tends not to work so well down in the lower end of the rental spectrum.

If you're talking about being the kind of landlord I am, well, you're going to be fixing a lot of stuff yourself, waiting for a lot of people to show up who don't, dealing personally with tenants who have real problems, and most definitely not living any sort of aspirational life most people would want.

To just give you a taste of this life, right now, a local buddy of mine who is also in the business is in the hospital. I am managing his six properties. My friend is in there because they just chopped half his lung out. This is his second bout with lung cancer, and we're waiting on news whether it metastasized before they could cut it out.

Why'd he get this relapse? He smoked before his first operation twenty-five years ago, but he quit way back then. Maybe it had to do with all the environmental stress he's gone through over the years renovating, all the lead paint, asbestos, caustic dust, solvents, etc. He was never really good about PPE, he's a bit deaf, too, from running all his power tools in small enclosed areas. Maybe if I wear my respirator and protect my mucus membranes I won't end up like him.

I'm sure people are reading this with a little smug smile, certain that I'm exaggerating. It doesn't have to be all on the landlord, all the time..There are ways to minimize your involvement. I should be working more ON my business, not IN my business. All I would need a bit of creativity, a bit of openness to change. Then I'd really get things done and lead my best life.

If any of this is in your head now as you think about making it in this property classes, Quentin, no worries. The ghetto will beat your illusions out of you.

By doing the leg work I mean you acquire the properties, find the tenants, and either DIY the project or oversee it and do the heavy mechanical items that could come back to bit you in the a** first to miniize expensive expenses. Most importantly screen the hell out of who you rent it to, there are good tenants in this class in terms of low drama and will take care of your property, only differnce between them and a higher class tenant is their income. There are good tenants in any class well (maybe not F) you just got to find them.

As far as the ghetto illusions, Jim I am already investing in this class of properties and so far I have not had any bad experiences have there been mistakes of course but the main things I do is screen people obsessively and look for good blocks in these areas. I have done more than 2 so not a lucky bounce twice lol. I do understand though that isn't for everyone but you can make a business out of it if you have the skills, gule, and attitude to deal with that asset class.

 

If you're willing to handle the maintenance and management, if you're willing to live nearby, if you're willing to see it as a business and not passive investment, if you are ready to get your hands dirty enough to personally develop the extensive skillset of a good handyman (and also make the investment in tools you'll need), and most importantly, if you have a good idea of the risks and you work to minimize them while accepting their inevitable presence, sure, there's money to be made. Big, scalable money? No.

For at least half the people who read along quietly in these forums, people with healthy, stable incomes working 80-hour weeks who are looking for an alternative place to park their savings and watch the money grow, reaching for financial independence in this property class will always be a mirage.

For almost all the rest, the idea of being a handyman as part of being a real estate investor is both repugnant and, to them, stupid. They want to get rich quick and they don't want to work with their hands while they do it. They don't want to deal with the problems of people in low-income rentals. They want a story about a soaring American dream and not a slog through a swamp of filth and blood and sweat to take a few steps up.

The big lie in this property class is always that it can scale, that you're going to find an endless supply of at least minimally competent people to handle your property problems and make you rich while you sit back and count your ever-growing pile of money because you're brighter than the folks down in the mud. It never works out.

 

I totally agree Quentin. I love C properties. I advise anyone who is half way intelligent with either some handyman experience or delegation skills this is the way to start with ones first 25K. Particularly if they can determine if a whole area is likely to drastically appreciate in the next 1-5 years. Why would one ever spend 100K for a home that will rent for 1K, when they can get a home for $10k that will rent for $500. Sure, the turnover rate will be higher, evictions somewhere more or less constant, properties will always need new carpet and a fresh coat of paint at least every other time a tenant moves out. C properties the way to go for the hands on person with personal skills. I respectfully disagree with the last comment that class C properties are not scaleable. But agree they are for the true investor rehaber. The ROI is tremendous.


6. You also could have a higher BP, Blood Pressure that is, if you are not cut out for it. The idea is to Cash Flow, not Higher Blood Flow! 

Ok, I think I'm having too much fun now...

Also, where is @Dennis M. when you need him!

NB: I'm referring to Class D properties. 

@Quentin Mitchell

When you said doing the mechanical is that like taking care of all of the things like roofs, windows, plumbing, electrical

Making the tenants purchase their own appliances like window a/c

Pretty much giving the tenants a clean , safe place to live .

I assume ?

I’m asking because this is a niche I would like to get into to create that cashflow but everyone I hear that get into always say they wish they would have just bought a B property

I manage small multi's in neighborhoods ranging from B- to D+. I have great tenants even in tough neighborhoods and I enjoy the work but @Jim K.has already outlined the difficulties of operating in these areas far better than I could. Moving forward, I'm trying to buy B properties in C+ - B neighborhoods.

Having said that, If the hood is your only option to get started and you can understand AND RESPECT your low-income tenants, go for it. It is rewarding to offer decent housing in a space where it is hard to find. If you are not authentic with your tenants, they will know and your life will be hard. It is hard work no matter what and friends and familly may think you have lost your mind. Next time, you'll have built some equity and can buy easier properties.

Originally posted by @Jill F. :

I manage small multi's in neighborhoods ranging from B- to D+. I have great tenants even in tough neighborhoods and I enjoy the work but @Jim K.has already outlined the difficulties of operating in these areas far better than I could. Moving forward, I'm trying to buy B properties in C+ - B neighborhoods.

Having said that, If the hood is your only option to get started and you can understand AND RESPECT your low-income tenants, go for it. It is rewarding to offer decent housing in a space where it is hard to find. If you are not authentic with your tenants, they will know and your life will be hard. It is hard work no matter what and friends and familly may think you have lost your mind. Next time, you'll have built some equity and can buy easier properties.

LOL...someday, someday, Jill, my time will come, too, when I can aim for B properties and find a place in the sun... 

Originally posted by @Robert Collins :

@Quentin Mitchell

When you said doing the mechanical is that like taking care of all of the things like roofs, windows, plumbing, electrical

Making the tenants purchase their own appliances like window a/c

Pretty much giving the tenants a clean , safe place to live .

Yes Robert the big items get them out of the way because those are your biggest expenses and will save you money in the end and increase your profits because it can lower your mechnial reserves as well as maintence bill.

Yes defintely make them purchase there own appliances one they will take better care of it because they purchased it and if it doesn't work or goes out it's on them to replace or fix it. If you do buy appliances go to a resale appliance place and get them from there, they provide warranties and have good appliances for half the cost.

Defintely provide  a clean and safe place but even adding an amenity or 2 to make it a little nicer than other units.

I understand people's fear of C and D you got to have the personality for it and be able to understand that demographic meaning knowing what to look for in a prespective tenant. It's defintely a skill set.

I assume ?

I’m asking because this is a niche I would like to get into to create that cashflow but everyone I hear that get into always say they wish they would have just bought a B property

 

You can make good money but your going to work for every penny of it . You will not be sipping pina coladas on the beach with Robert koyasaki ! You’ll be sipping toilet wine with bubba on the front porch ! If your used to the finer things in life it will push you waaaayyy out of your comfort zone and force you to do stuff really do NOT want to do if you self manage and not afraid to swing a hammer .

Most shocking is a humans ability to live in roach infested squalor surrounded in filth clothes dishes and junk everywhere ....and still be satisfied ! A whole new world awaits . One good thing I’m finding out is it’s easy to be a hero and shine as a landlord in d areas because most investors in these neighborhoods are total slumlords so it makes you and your property stick out in a positive way ! It’s easy to be great when everyone else is so bad lol

I keep up on a lot of positive motivational stuff and personal development videos daily . Positive affirmations are critical in this niche atleast for me because it can be depressing and defeating at times dealing with these people and the locals .

I have not done this long and I’m learning as I go . Bp has basically taught me everything thank God . I really fail a lot to be honest ,but I have small wins too . Some days I feel like I have no idea what the heck I’m doing lol usually when I screw up it’s expensive so managing these can get hard on the wallet if you don’t learn fast .

Things I’ve had to do and saw that Were not cool forever burned into my memory . Infestations of Roaches rats mice bed bugs . Things I’ve had to pick up with my hands that were new to me :crusty women’s panties that were as wide as a yard stick , moldy woman’s wigs ,lots of human feces , toilet paper with mysterious body fluids . Badly used condoms .drugs ,bongs . .crusty seaman ,bloody boogers and chewing gum stuck on the walls .

@Quentin Mitchell

Most of my properties are in class A/B area, a few of them are in Class C area, no property in class D or below Area.

Problem is, most tenants in Class C/D areas have bad credits, more eviction history, more criminal background history, more late rent payment, lower income, more house damages, and other problems etc..

I have just sold a few of my Class C properties, still have one more Class C property left, waiting for a buyer to give me an offer. Can’t wait to sell this last Class C property, and I will never buy any class C Area property or below again. Period.

Originally posted by @Dennis M. :

You can make good money but your going to work for every penny of it . You will not be sipping pina coladas on the beach with Robert koyasaki ! You’ll be sipping toilet wine with bubba on the front porch ! If your used to the finer things in life it will push you waaaayyy out of your comfort zone and force you to do stuff really do NOT want to do if you self manage and not afraid to swing a hammer .

Most shocking is a humans ability to live in roach infested squalor surrounded in filth clothes dishes and junk everywhere ....and still be satisfied ! A whole new world awaits . One good thing I’m finding out is it’s easy to be a hero and shine as a landlord in d areas because most investors in these neighborhoods are total slumlords so it makes you and your property stick out in a positive way ! It’s easy to be great when everyone else is so bad lol

I keep up on a lot of positive motivational stuff and personal development videos daily . Positive affirmations are critical in this niche atleast for me because it can be depressing and defeating at times dealing with these people and the locals .

I have not done this long and I’m learning as I go . Bp has basically taught me everything thank God . I really fail a lot to be honest ,but I have small wins too . Some days I feel like I have no idea what the heck I’m doing lol usually when I screw up it’s expensive so managing these can get hard on the wallet if you don’t learn fast .

Things I’ve had to do and saw that Were not cool forever burned into my memory . Infestations of Roaches rats mice bed bugs . Things I’ve had to pick up with my hands that were new to me :crusty women’s panties that were as wide as a yard stick , moldy woman’s wigs ,lots of human feces , toilet paper with mysterious body fluids . Badly used condoms .drugs ,bongs . .crusty seaman ,bloody boogers and chewing gum stuck on the walls .

I hear all the horror stories and like I stated before it isn't for everyone but those things you stated in the above post I have not dealt with it has a lot to do with screening tenants and setting the expectations from day 1. Also some mentioned in the thread that you got to be geniue and the tenants cannot think that you're just doing this for a quick buck. The more people you help the more successful you become I truly believe that. 

Also look into government programs and partner with them to provide housing for that population they have more incentive to comply and be on the straight and narrow so that they don't loose their assistence.

Every class of properties comes with it's challenges just pick the one that best aligns with your skill set.

 

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