Investor ¡ Chicago, IL ¡ Member since 2016 ¡ 197 posts ¡ 105 votes
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)
Rental Property Investor ¡ Greenville County SC / Atlanta, GA ¡ Member since 2017 ¡ 403 posts ¡ 120 votes
6y
@Dennis M.
đ are these things your seeing when you went to evict or purchase the property or this is like on going things in present time, like when your going in to do your quarterly inspections
đ are these things your seeing when you went to evict or purchase the property or this is like on going things in present time, like when your going in to do your quarterly inspections
All of the above . Yes I inspect fairly often when I do repairs
I hear you Jim, gentrification doesnât always fully take. And like weather, the further in advance the more inaccurate the prediction is. Local policy can change in a weekend, and when the money tap turns off for certain projects it can have a significant affect on transitional areas.
Rental Property Investor ¡ Miami/Jacksonville Fl ¡ Member since 2014 ¡ 75 posts ¡ 41 votes
6y
@Quentin Mitchell
I own several class C multi families in Ft Lauderdale Fl. Best investments I ever made. Sometimes hard to manage, but over the course of 5 years Iâve leaned to ignore lots of the tenant nonsense and get important things done.
On point #5. I went in thinking I could help make the neighborhood better by making my properties better and over the years Iâve become disillusioned. You can only help people who will help themselves. My tenants in class C arenât interested in caring for new improvements, theyâll most likely take something new and improved and destroy it. Iâve learned that my Class C units simply need to be livable, understanding this has made managing and maintaining them a lot easier and cheaper. Most of my tenants receive government assistance and would be happy to find a reason to sue me, even when they like me. I am diligent about repairs and respect my tenants and trust me they will work to find reasons to fault you, even make things up. Once you accept these facts, get yourself a few reliable handyman who are willing to work with your tenants and ignore the verbal abuse that youâll soon realize has nothing to do with you personally, youâll realize you have cash flowing properties that like every other class of properties have problems. I have class A properties that are less problematic but cash flow lots less. And as far as tenants go, well class A can come with its own interesting personalities. Personally I didnât get into rentals because I assumed they would be âpassive income,â I knew they would come with some work. It can get bad sometimes but itâs always better than working 9-5 for someone else. I couldnât afford to purchase a bunch of class A rentals when I got in, it didnât make sense. I think getting in at class C level made me tougher, thicken my skin a bit. Theyâve also appreciated a lot more than class AIf I could purchase more class C right now, I would. Housing organizations call me everyday to see if I have any available units. Fully booked and looking for new rentals, but unfortunately everything is priced too high.
Rental Property Investor ¡ Augusta, GA ¡ Member since 2016 ¡ 348 posts ¡ 171 votes
6y
@Quentin Mitchell the LARGE majority of investments I do and see people do are Class C properties. Would highly recommend them for a variety of reasons but mainly that you can make good money if you know what youâre doing.
However, if youâre having to worry about âan endless supply of tenantsâ you should evaluate your market against others.
Real Estate Consultant ¡ Summerlin, NV ¡ Member since 2014 ¡ 45k+ posts ¡ 66k+ votes
6y
Originally posted by @Account Closed:
@Quentin Mitchell
I mustâve missed the mainly C part in a previous post. A genuine D class property will not have the building itself appreciate. The land maybe (or maybe not as you have identified), but not the building. Youâre looking at a 50+ year old structure thatâs already had deadbeats living in it for a couple decades at minimum and will be at least another decade (likely more) before the area is anything above a D. The same way as termites destroy a structure, so do hood rats. D class does not transition to B or higher in a 5 year window. Now, if youâre talking an already transitioning area (not D), maybe. Again, maybe not as youâve identified. Further down the continuum you travel the more common tax depreciation techniques become accurate and eventually not even enough. Up here Iâm allowed 4%/ year on a declining basis. D class tenants often do way more damage than 4% of asset value in a year. 4% can be a regular paycheck Friday for them.
Generally speaking D and C class the land has zero to negative value the day you buy and the day you sell it.. cities are littered with worthless lots.. when you can buy exiting inventory for far less than it cost to replace then the land has no value or negative value.
Just basic economics.. other than Texas and GA were I see production builders ( and OKC) building for about 70 bucks a foot or so. replacement costs from ground up are about 100 a foot and up.. Plus demo if any. this is happening in areas that are regentrifying but those are very tight little specific niches of markets in each city.. and the money is made by flippers and new construction not buy and hold.
This argument has been going on ever since I got on BP.. The folks that pop on here and talk about doing well at it are universally local and self manage and for them they like it or tolerate it .. but its not investing its a J O B to be successful at it.. I mean we see it all the time I want to buy and hold for passive income.. there Is nothing passive about running these types of assets..
I mustâve missed the mainly C part in a previous post. A genuine D class property will not have the building itself appreciate. The land maybe (or maybe not as you have identified), but not the building. Youâre looking at a 50+ year old structure thatâs already had deadbeats living in it for a couple decades at minimum and will be at least another decade (likely more) before the area is anything above a D. The same way as termites destroy a structure, so do hood rats. D class does not transition to B or higher in a 5 year window. Now, if youâre talking an already transitioning area (not D), maybe. Again, maybe not as youâve identified. Further down the continuum you travel the more common tax depreciation techniques become accurate and eventually not even enough. Up here Iâm allowed 4%/ year on a declining basis. D class tenants often do way more damage than 4% of asset value in a year. 4% can be a regular paycheck Friday for them.
Generally speaking D and C class the land has zero to negative value the day you buy and the day you sell it.. cities are littered with worthless lots.. when you can buy exiting inventory for far less than it cost to replace then the land has no value or negative value.
Just basic economics.. other than Texas and GA were I see production builders ( and OKC) building for about 70 bucks a foot or so. replacement costs from ground up are about 100 a foot and up.. Plus demo if any. this is happening in areas that are regentrifying but those are very tight little specific niches of markets in each city.. and the money is made by flippers and new construction not buy and hold.
This argument has been going on ever since I got on BP.. The folks that pop on here and talk about doing well at it are universally local and self manage and for them they like it or tolerate it .. but its not investing its a J O B to be successful at it.. I mean we see it all the time I want to buy and hold for passive income.. there Is nothing passive about running these types of assets..
If you're pulling down a teacher's salary with lots of free time, as I was when I got into buying these properties, the choice to turn into a handyman landlord in these properties, switch jobs, isn't impossibly difficult. My income was simply not a wealth-creation powerhouse and I had extra time on my hands.
I think it's entirely a different decision to have a much larger income while working 80 or so hours a week, and yet try to buy these places to park your savings.
Milwaukee, WI ¡ Member since 2018 ¡ 31 posts ¡ 18 votes
6y
I have 9 doors in C/C- neighborhoods. Most are smaller 2 BR units. They cost less to purchase (2 BR) and repair (smaller sq. ft). There are generally 2 people living in them so there is less wear and tear. I update them when I buy and in between tenants and keep them in good repair when a tenant is in them. I am able to charge top dollar rents and require a 600+ fico score with no evictions in their past. I have little problem filling the units and average about an 11 - 14% return after all expenses (including Cap Ex and financing). I use a property Mgr so I can concentrating on Investing and my other job. It works for me. The bottom line - you can invest at any grade level with the proper procedures/safeguards in place.
Rental Property Investor ¡ Palm Desert ca ¡ Member since 2016 ¡ 101 posts ¡ 72 votes
6y
@Quentin Mitchell I have some properties in C neighborhoods and I just say I get a great satisfaction from improving these properties and creating better homes and rental options for the price point . I think a mix of B and C is good for diversity but so far I havenât had any problems in C areas and will continue to invest in these neighborhoods and do my part to provide clean safe housing for all budgets .
Developer ¡ Cincinnati, OH ¡ Member since 2018 ¡ 1k+ posts ¡ 3k+ votes
6y
Guys and gals,
I think we have to clarify what we mean by C & D areas. Also, people are forgetting there are "F" areas too.
I started investing in F areas.
Fs - are the war zones: it's where every other house is boarded up. Fs are where 90% of violent crimes in a city happen. Fs are hard to manage and there's constant headaches and problems. And yes, your life can be at stake as in these areas, you can get shot or stabbed. No newbie investor should start with Fs. I did because I didn't know any better. I made money with it by being hands on and as @Jay Hinrichs correctly pointed out, you need scale - which I did because I started owning a 28-unit building in an F area and luckily for me, the area gentrified and I sold it for a $200,000 profit.
Cs are great cashflow maker. My C tenants actually call before the due date and inform me they are going to be late with rent. Some of them are on section 8 and some aren't. Cs appreciate in value and lately, in Cincinnati, the rents in C areas have been increasing like crazy.
To prepare for the coming recession (or market correction), it's always good to have properties in C areas. Cs made me a lot of money specially during the Great Recession. Out of the 1,000 apartment units I own, I would say 70% of them are Cs and 50% of my tenants are on section 8.
To succeed with Ds, you need to have them on government or non profit housing program or subsidy to minimize rent collection problems . A wise investor once said that D stands for Drama and Depreciation. I agree 100%. Ds are a step above Fs and there is a boarded up house every other block so it's not as bad as Fs. Ds, generally don't appreciate.
To the OP who started this post: yes, you can make money with Cs and Ds. I literally made MILLIONS with them. But, you got to be hands on and you need scale. And knowing what I know now, don't even do Fs. Life is too short and there's more to life than money.
I think we have to clarify what we mean by C & D areas. Also, people are forgetting there are "F" areas too.
I started investing in F areas.
Fs - are the war zones: it's where every other house is boarded up. Fs are where 90% of violent crimes in a city happen. Fs are hard to manage and there's constant headaches and problems. And yes, your life can be at stake as in these areas, you can get shot or stabbed. No newbie investor should start with Fs. I did because I didn't know any better. I made money with it by being hands on and as @Jay Hinrichs correctly pointed out, you need scale - which I did because I started owning a 28-unit building in an F area and luckily for me, the area gentrified and I sold it for a $200,000 profit.
Cs are great cashflow maker. My C tenants actually call before the due date and inform me they are going to be late with rent. Some of them are on section 8 and some aren't. Cs appreciate in value and lately, in Cincinnati, the rents in C areas have been increasing like crazy.
To prepare for the coming recession (or market correction), it's always good to have properties in C areas. Cs made me a lot of money specially during the Great Recession. Out of the 1,000 apartment units I own, I would say 70% of them are Cs and 50% of my tenants are on section 8.
To succeed with Ds, you need to have them on government or non profit housing program or subsidy to minimize rent collection problems . A wise investor once said that D stands for Drama and Depreciation. I agree 100%. Ds are a step above Fs and there is a boarded up house every other block so it's not as bad as Fs. Ds, generally don't appreciate.
To the OP who started this post: yes, you can make money with Cs and Ds. I literally made MILLIONS with them. But, you got to be hands on and you need scale. And knowing what I know now, don't even do Fs. Life is too short and there's more to life than money.
Morning Mike, to be fair and balanced like Fox news.. we do need to separate SFR's or duplexs from True multi family.. MF just by nature allows you to scale when one transaction might be 20 to 100 doors.. trying to do this in the SFR space much different..
And you are sooo right. I would never call what I'lm doing right now passive. However, I do think (with well thought out business processes) that I will be able to eventually (in the next 5 years) hire a w-2 property manager and be able to travel more extensively.
What many people don't get about older assets is that @ $70/ft it would have cost 190k to build a 4 unit that I bought for 67 with 10k of diy renovation costs. No one (without subsidies) is going to do that on a low $0 value lot. And the thing is, these buildings are built WELL. They have oak hardwood floors, 6" mop boards with pretty base cap, mahogany doors, 11 windows in each one bedroom apartment most of which are still in decent shape-- that old wood is HARD-- if the windows haven't been painted, we pull the stops, re-rope the windows and then use screws to replace the stops and call it a day. The old moncreif gravity furnaces have no moving parts, they'll probably last another 75 years.
The funny thing is I bought for cash flow, not expecting any appreciation but they have apprreciated anyway (about 25% in the last 3 years). Someone is building a snazzy new building with apartments over retail down the street because we are in one of those opportunity zones and they got the city to force the shutdown of the homeless tent city so perhaps things will get better even in the hood.
I guess am one of the weirdos that likes managing these units. These tenants are NOT whiners.
Rental Property Investor ¡ New York City ¡ Member since 2019 ¡ 703 posts ¡ 538 votes
6y
Think about it. You buy a D/F and maybe even C/D borderline class prooerty for 55K and rent it for $550-$600/month. Why cant the tenant buy the place with 3K down and finance for 30 years for a couple hundred a month?? Well, for whatever reason they have crap credit, they probably owe everyone money, they have a poor work history, unskilled, low wage earner and behind on child support.
What makes you think paying you rent is their priority? They will buy the latest IPhone and the best sneakers before giving you a dime!
Also, the property is probably old and with that comes lots of expensive repairs not including the repairs needed due to abuse and neglect from the tenant.
South Holland, IL ¡ Member since 2017 ¡ 374 posts ¡ 432 votes
6y
@Quentin Mitchell
From my 18 years experience in managing C/D properties, I agree itâs a great/only place to start because of the lower barrier to entry. Most investors donât have the capital to start in the A/B space. But I wouldnât want to live there. Iâm at the point where Iâm liquidating all of my C/D assets to pour into B class assets.
Iâd much rather have the âlower returnsâ than deal with the socioeconomic traumas of C/D asset management.
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?
Much of what you said in your post is very idealistic. Our business plan for C&D properites is no different than A&B. We find a bad property on a good block. Run the numbers to determine if we can cashflow or sell for a profit after renovating. We focus on our numbers not idealism.
Think about it. You buy a D/F and maybe even C/D borderline class prooerty for 55K and rent it for $550-$600/month. Why cant the tenant buy the place with 3K down and finance for 30 years for a couple hundred a month?? Well, for whatever reason they have crap credit, they probably owe everyone money, they have a poor work history, unskilled, low wage earner and behind on child support.
What makes you think paying you rent is their priority? They will buy the latest IPhone and the best sneakers before giving you a dime!
Also, the property is probably old and with that comes lots of expensive repairs not including the repairs needed due to abuse and neglect from the tenant.
This is just not universally (or even mostly) true. Good character is not a function of income or credit score. There are plenty poor people of excellent character-- but they're more likely to be renting from me than you because they will know when they meet you that you do not respect them.
And you are sooo right. I would never call what I'lm doing right now passive. However, I do think (with well thought out business processes) that I will be able to eventually (in the next 5 years) hire a w-2 property manager and be able to travel more extensively.
What many people don't get about older assets is that @ $70/ft it would have cost 190k to build a 4 unit that I bought for 67 with 10k of diy renovation costs. No one (without subsidies) is going to do that on a low $0 value lot. And the thing is, these buildings are built WELL. They have oak hardwood floors, 6" mop boards with pretty base cap, mahogany doors, 11 windows in each one bedroom apartment most of which are still in decent shape-- that old wood is HARD-- if the windows haven't been painted, we pull the stops, re-rope the windows and then use screws to replace the stops and call it a day. The old moncreif gravity furnaces have no moving parts, they'll probably last another 75 years.
The funny thing is I bought for cash flow, not expecting any appreciation but they have apprreciated anyway (about 25% in the last 3 years). Someone is building a snazzy new building with apartments over retail down the street because we are in one of those opportunity zones and they got the city to force the shutdown of the homeless tent city so perhaps things will get better even in the hood.
I guess am one of the weirdos that likes managing these units. These tenants are NOT whiners.
Jill,
Also you know you just have to play the hand your dealt.. if this is what it is in your market that's what you do. Our summer home in Oregon is in Portland metro.. the hand we are dealt here is you basically cant buy anything for under 200k lots are 100k to 500k.. MF sells for 3 to 5 cap .. so with that all said we have a very robust infill building and rehab market. literally every area of town you CAN build something new and make a profit.. So that's the hand we are dealt.. In Vegas which has bounced back STRONG price points are about the same I fund a flipper there and you pretty much cant find anything under 120 to 150k.. and the starter stuff for OO is 200 to 225k and sell within 30 days.
Vegas was a great place to buy in 2010.. values have risen by double or more.. Not that I did any buying here then.. I just want to live there for other reasons.
âOf all the preposterous assumptions of humanity over humanity, nothing exceeds most of the criticisms made on the habits of the poor by the well-housed, well- warmed, and well-fed.â
Herman Melville
So much to unpack in your other comments as well, Jill, especially on build quality. In 1910, Akron was the fastest-growing city in America, with no end in sight. Pittsburgh was booming as well. So we tend to have quite a few buildings from that era that were built to stand the test of time. I don't think it's quite the same in other parts of the country, although I suspect the Rust Belt shares quite a few similarities -- shrinking populations, great builds that can be run effectively as rentals for years to come mixed in with garbage that should be torn down, and most importantly, the people. Ultimately, it's the people that keep us in Pittsburgh.
Think about it. You buy a D/F and maybe even C/D borderline class prooerty for 55K and rent it for $550-$600/month. Why cant the tenant buy the place with 3K down and finance for 30 years for a couple hundred a month?? Well, for whatever reason they have crap credit, they probably owe everyone money, they have a poor work history, unskilled, low wage earner and behind on child support.
What makes you think paying you rent is their priority? They will buy the latest IPhone and the best sneakers before giving you a dime!
Also, the property is probably old and with that comes lots of expensive repairs not including the repairs needed due to abuse and neglect from the tenant.
This is just not universally (or even mostly) true. Good character is not a function of income or credit score. There are plenty poor people of excellent character-- but they're more likely to be renting from me than you because they will know when they meet you that you do not respect them.
This has nothing to do with personal Respect at all. This is about issues much more likely to encounter in D/F neighborhoods. The D/F tenants are 100% more likely to rent from you because I'm not in your market. I've dealt with that market and I stay away, far away from it. If anything is about respect, I found out that my property wasn't respected. It's about Business.
Developer ¡ Cincinnati, OH ¡ Member since 2018 ¡ 1k+ posts ¡ 3k+ votes
6y
@Jill F.
I agree with you Jill. I have some very good tenants who have lower than average income who live in my buildings in C areas and conversely, not all of my tenants in A areas are good.
That's ok if some landlords would prefer to stay away from C areas and universally regard lower income tenants as deadbeats and problem tenants. More money for people like you and I đ
Real Estate Broker ¡ Crystal River, FL ¡ Member since 2017 ¡ 27 posts ¡ 11 votes
6y
@Quentin Mitchell
I agree. I have a multi family mobile home property consisting of 4 units. Always a line of people needing housing. If you can improve them even slightly your ahead of the pack. I try to improve curb appeal and they then have a good impression before they even view the unit.
I mustâve missed the mainly C part in a previous post. A genuine D class property will not have the building itself appreciate. The land maybe (or maybe not as you have identified), but not the building. Youâre looking at a 50+ year old structure thatâs already had deadbeats living in it for a couple decades at minimum and will be at least another decade (likely more) before the area is anything above a D. The same way as termites destroy a structure, so do hood rats. D class does not transition to B or higher in a 5 year window. Now, if youâre talking an already transitioning area (not D), maybe. Again, maybe not as youâve identified. Further down the continuum you travel the more common tax depreciation techniques become accurate and eventually not even enough. Up here Iâm allowed 4%/ year on a declining basis. D class tenants often do way more damage than 4% of asset value in a year. 4% can be a regular paycheck Friday for them.
Generally speaking D and C class the land has zero to negative value the day you buy and the day you sell it.. cities are littered with worthless lots.. when you can buy exiting inventory for far less than it cost to replace then the land has no value or negative value.
Just basic economics.. other than Texas and GA were I see production builders ( and OKC) building for about 70 bucks a foot or so. replacement costs from ground up are about 100 a foot and up.. Plus demo if any. this is happening in areas that are regentrifying but those are very tight little specific niches of markets in each city.. and the money is made by flippers and new construction not buy and hold.
This argument has been going on ever since I got on BP.. The folks that pop on here and talk about doing well at it are universally local and self manage and for them they like it or tolerate it .. but its not investing its a J O B to be successful at it.. I mean we see it all the time I want to buy and hold for passive income.. there Is nothing passive about running these types of assets..
Any class of real estate is about systems and developing your system it can be scale and any type of real state you need to work on nothing business is completely passive until it grows exponentially.
And you are sooo right. I would never call what I'lm doing right now passive. However, I do think (with well thought out business processes) that I will be able to eventually (in the next 5 years) hire a w-2 property manager and be able to travel more extensively.
What many people don't get about older assets is that @ $70/ft it would have cost 190k to build a 4 unit that I bought for 67 with 10k of diy renovation costs. No one (without subsidies) is going to do that on a low $0 value lot. And the thing is, these buildings are built WELL. They have oak hardwood floors, 6" mop boards with pretty base cap, mahogany doors, 11 windows in each one bedroom apartment most of which are still in decent shape-- that old wood is HARD-- if the windows haven't been painted, we pull the stops, re-rope the windows and then use screws to replace the stops and call it a day. The old moncreif gravity furnaces have no moving parts, they'll probably last another 75 years.
The funny thing is I bought for cash flow, not expecting any appreciation but they have apprreciated anyway (about 25% in the last 3 years). Someone is building a snazzy new building with apartments over retail down the street because we are in one of those opportunity zones and they got the city to force the shutdown of the homeless tent city so perhaps things will get better even in the hood.
I guess am one of the weirdos that likes managing these units. These tenants are NOT whiners.
Jill,
Also you know you just have to play the hand your dealt.. if this is what it is in your market that's what you do. Our summer home in Oregon is in Portland metro.. the hand we are dealt here is you basically cant buy anything for under 200k lots are 100k to 500k.. MF sells for 3 to 5 cap .. so with that all said we have a very robust infill building and rehab market. literally every area of town you CAN build something new and make a profit.. So that's the hand we are dealt.. In Vegas which has bounced back STRONG price points are about the same I fund a flipper there and you pretty much cant find anything under 120 to 150k.. and the starter stuff for OO is 200 to 225k and sell within 30 days.
Vegas was a great place to buy in 2010.. values have risen by double or more.. Not that I did any buying here then.. I just want to live there for other reasons.
The strategy definitely makes a difference depending on where you invest, it's not a dramatically lower price point it may not make sense because the cash wouldn't be enough to justify. The point was it's an option that people can look at not the only option.
