Triplex in Class C Neighborhood - NEED HELP QUICK

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Triplex in Class C Neighborhood - NEED HELP QUICK

Ryan Copeland
Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes

There is a triplex listed in a class C neighborhood, it's fully rented and 2 of 3 units have already been renovated.  It will cash flow $1500 per month.  Is it worth being in a Class C neighborhood?

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Denis Kalic
Rental Property Investor · Bronxville, NY · Member since 2020 · 3 posts · 15 votes
5y

@Ryan Copeland

I promise you this will be the most unbiased and best answer. I own from SFR all the way to apartment complexes from Class A to Class C neighborhoods.

Just speaking to Class C:

- Cash returns will always be better and appreciation usually worse

- Yes the average quality of tenants is worse. I have an apt building in Class C I literally have a tenant who doesn’t throw out trash and the PM has to babysit him (he pays on the first of every month always)

- Vacancy isn’t necessarily more and turnovers aren’t always higher

My strategy is I take a property in a Class C area and make it a Class A/B property. Labor is cheap in those areas you have to learn how to exploit cheaper cost of labor to renovate your property. I add new electrical, plumbing, kitchens, LVP flooring, tiled showers always. The reason I do this is because I take my sweet time to choose tenants. I like to have the best property in the neighborhood that way I can be a tenant chooser rather than a tenant taker. Have high standards and ask for (1st + Last + Security) those who are good people will pay up for it. This isn’t a magic bullet but I believe even in the worst places you can find the best people. I keep turnover and vacancy and legal costs low this way. To find a good PM, you need to find successful investors in the area and follow them that’s the only way. All PM’s are great when it comes to talking when you’re prospecting them. I don’t trust 95% of what they say. Let people criticize, but this is the way.

Btw, I don’t take section 8 in these properties. Let people say what they want, but I don’t want someone who is forever on Section 8 it should be transitory and not at my property.

Again, make your property the best, refi it to pull out all cash equity, and be a tenant chooser not a tenant taker. Best of luck bro.

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  • Tim DeFor
    Rental Property Investor · Norfolk, NE · Member since 2020 · 38 posts · 40 votes
    5y

    Every class neighborhood has its benefits and challenges. The cashflow looks good, but the turnover tends to be higher in C class than B or A. It often also takes more to get units rent ready again. They are often more hands on because of problems too. If the renters are solid and stable, then it may be worth it. If you have someone else who can manage it well, it could be worth it. Some C class are primarily working class and the working class are often some of the best renters. Best of luck.

    0Reply
  • Ryan Copeland
    OP
    Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes
    5y

    @Tim DeFor thanks for the feedback. This is a tough one. I'm anxious for my first deal, but don't want to buy a headache.

    0Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    5y

    @Ryan Copeland Where I live I’m getting $200 per door right now so a deal at $500 per unit would cause me to seriously consider jumping on it! Just my two cents worth. At that cash flow if you find the right team you can even get a property manager and still have a great return on your investment. Best of luck!

    0Reply
  • Ryan Copeland
    OP
    Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes
    5y

    @Alecia Loveless you make an excellent point. Man...I gotta make a decision. Seller is going to accept an offer in a few hours.

    0Reply
  • Jon KellyPro Member
    Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
    5y

    @Ryan Copeland Of course it's worth it, if the price is right. 

    Don't be afraid to overpay for property management. You don't want to go with the cheapest property management option in a class C neighborhood

    3Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    5y

    @Ryan Copeland can you share the calculations that yield $1500 per month?

    0Reply
  • Ryan Copeland
    OP
    Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes
    5y

    Thanks for the feedback everyone.  This would be an out of state investment for me.  After talking to the owner and having my "boots on the ground" drive by, I'm going to proceed with an offer.  Wish me luck!  I'll probably have to offer over asking, but we'll see.  

    0Reply
  • Ryan Copeland
    OP
    Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes
    5y

    @Nicholas L. I may share later.  That $1500 per month does not include vacancy, cap-ex, maintenance or property management.  Even if you factor those in, I still cash flow.  

    0Reply
  • Tim DeFor
    Rental Property Investor · Norfolk, NE · Member since 2020 · 38 posts · 40 votes
    5y

    Did you get the property?

    Share the DEETS!

    0Reply
  • Ryan Copeland
    OP
    Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes
    5y

    @Tim DeFor not yet. The owner said he will take best and final offer tomorrow. I'm going to follow up with him to see where he stands tomorrow to make sure it hasn't gotten out of my price range.

    0Reply
  • Dennis Wayne
    Member since 2020 · 339 posts · 356 votes
    5y

    I Suspect your 1500 cashflow is a fantasy . You may be sorry without having local team and systems in place setup right . C and d class can be a nightmare if managed wrong or the asset was not what you thought it was which happens everyday here

    1Reply
  • Polo VazquezPro Member
    Real Estate Agent · McAllen, TX · Member since 2017 · 382 posts · 281 votes
    5y

    Class C is the bread and butter of real estate! Best COC return while still not being so shary that you will get bad tenants all the time. Put down the numbers so we can help you more!

    1Reply
  • Ryan Copeland
    OP
    Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes
    5y
    Originally posted by @Dennis Wayne:

    I Suspect your 1500 cashflow is a fantasy . You may be sorry without having local team and systems in place setup right . C and d class can be a nightmare if managed wrong or the asset was not what you thought it was which happens everyday here

    Why do you suspect it's a fantasy :-) ?  The BP calculator said exactly what it was.  Even if I pay 10k over asking, the cash flow will be $1385.  I talked to the owner and he said that he would rate the neighborhood a low Class B.   Note that I haven't taken any expenses into calculator and I wouldn't be touching the money.  New roof, new AC units, new gutters, 2 of 3 units renovated.

    0Reply
  • Ryan Copeland
    OP
    Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes
    5y

    @Polo Vazquez, @Dennis Wayne, @Nicholas L. here is the report:  https://www.biggerpockets.com/...

    0Reply
  • Tim DeFor
    Rental Property Investor · Norfolk, NE · Member since 2020 · 38 posts · 40 votes
    5y

    Hi Ryan, for some reason BP isn't letting me see your BP report. That doesn't matter. Based on what you've said, I would strongly suggest that you include 8% vacancy, and at least 5% maintenance, 5% capex, and 10% management in your calculator. C neighborhoods tend to have higher vacancy. Everything, no matter how new will need maintenance, in a C neighborhood likely even more than in an A or B. Even with 2 of 3 remodeled, capital expenditures will be needed down the road. You will want to have the reserves built before you need them, so plan ahead and set them aside starting from day one. Being an out of area investor means you will definitely want to factor in management. Even if you get it at 8% of rents, most management companies also charge for placing tenants so 10% should be about right. I want you to win on your first deal. Don't fall in love with the property, follow the numbers. Resist the temptation to do eraser magic to make numbers work and you will save yourself a world of hurt. Warren Buffet's #1 Rule: Don't lose money. He recommends being optimistic when finding a deal and pessimistic when running the numbers. In my opinion, he's a pretty sharp guy when it comes to investing and worth listening to.

    3Reply
  • Ryan Copeland
    OP
    Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes
    5y

    @Tim DeFor I've attached 2 versions.  Even with the expenses, it still cash flows well.

    https://1drv.ms/b/s!AsZE7SE9oV...

    https://1drv.ms/b/s!AsZE7SE9oV...

    0Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    5y

    I remember when I bought such a property.  On paper it looked great.  In reality, once you have to evict people, it was a loser.  I am a better landlord now.  But such an investment is more risky, mostly because of the tenant base.   

    I would not recommend that property for a beginner.  (I don't know your experience level).  

    0Reply
  • Denis Kalic
    Rental Property Investor · Bronxville, NY · Member since 2020 · 3 posts · 15 votes
    5y

    @Ryan Copeland

    I promise you this will be the most unbiased and best answer. I own from SFR all the way to apartment complexes from Class A to Class C neighborhoods.

    Just speaking to Class C:

    - Cash returns will always be better and appreciation usually worse

    - Yes the average quality of tenants is worse. I have an apt building in Class C I literally have a tenant who doesn’t throw out trash and the PM has to babysit him (he pays on the first of every month always)

    - Vacancy isn’t necessarily more and turnovers aren’t always higher

    My strategy is I take a property in a Class C area and make it a Class A/B property. Labor is cheap in those areas you have to learn how to exploit cheaper cost of labor to renovate your property. I add new electrical, plumbing, kitchens, LVP flooring, tiled showers always. The reason I do this is because I take my sweet time to choose tenants. I like to have the best property in the neighborhood that way I can be a tenant chooser rather than a tenant taker. Have high standards and ask for (1st + Last + Security) those who are good people will pay up for it. This isn’t a magic bullet but I believe even in the worst places you can find the best people. I keep turnover and vacancy and legal costs low this way. To find a good PM, you need to find successful investors in the area and follow them that’s the only way. All PM’s are great when it comes to talking when you’re prospecting them. I don’t trust 95% of what they say. Let people criticize, but this is the way.

    Btw, I don’t take section 8 in these properties. Let people say what they want, but I don’t want someone who is forever on Section 8 it should be transitory and not at my property.

    Again, make your property the best, refi it to pull out all cash equity, and be a tenant chooser not a tenant taker. Best of luck bro.

    9Reply
  • Ariel K.
    TX · Member since 2018 · 154 posts · 92 votes
    5y

    @Ryan Copeland I own some properties like this and if you are willing to put in the work, you can make some decent money. I’m surprised you only have to put 20% down. For a Fannie may loan, they require 25% down. If you did that, your cash flow would improve. I don’t always find that turnover is a lot higher. Finding someone with boots on the ground can also help. You may want to talk to a PM before you buy to make sure you know what you are getting into. Good luck either way.

    0Reply
  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    @Ryan Copeland how many tenants are receiving rental assistance of some kind?

    That’s usually the determining factor of how well the investment will work out.

    Irish Jones Realty4.947 Reviews
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  • Ryan Copeland
    OP
    Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes
    5y

    @Matthew Irish-Jones none of them are section 8. One tenant has a 750 credit score.

    0Reply
  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    @Ryan Copeland well C class means something different to everyone.

    Our C class properties have been hit particularly hard by Covid, and mostly in the same geographic area. When the eviction moratorium was put in place we had a large number of C class tenants just stop paying.

    C class investing with rental assistance can be great cash flow properties. C class with no assistance can be big dollars in a spreadsheet and big headaches in reality. Covid has exacerbated the problem tenfold.

    Irish Jones Realty4.947 Reviews
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    0Reply
  • Ryan Copeland
    OP
    Rental Property Investor · Columbia, SC · Member since 2020 · 244 posts · 275 votes
    5y

    @Ariel K. you're probably right about the 25% down. I never told the lender its a MF property. I do know that with other lenders its either 25-30% down for MF.

    0Reply
  • Joshua Adlam
    Property Manager · Member since 2020 · 108 posts · 68 votes
    5y

    I am a property manager for over 500 c class property units, I think C class is the way to go. If you can find good residents this will extremely reduce the headaches. Random things will occur, but c class properties cash flow very well

    1Reply
  • Chris Herrera
    Real Estate Agent · Addison, IL · Member since 2015 · 185 posts · 88 votes
    5y

    @Ryan Copeland as much as I would love to say yes or no, since I don’t know the local area I can’t. All I can say is if you believe in yourself and feel like you have the knowledge of the local market/area and either have the processes in place or know you will have the process in place then pull the trigger. This of course is assuming you’ll be cash flowing enough where it makes you excited about the work you’ll be taking on

    0Reply
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