I've found a 4-plex that has a cash flow of about $400 (which is the highest I've found). This is assuming 80% of market rents in the area, however, it is in a C neighborhood (w/ respect to the A-D grading scale), and there are a couple of units surrounding that have been vacant for a couple months(going at market rent). I fear that I'd either get poor quality tenants, or that I'll be vacant for longer periods of time. The opportunity is there, but I'm not sure how to go about it. I know I can get a sweet deal because it's been on the market for a year, and it only has cosmetic issues, so far. 2 units are rented out, 2 are vacant. I'll also be house hacking.
Personally I'd live there, but not without caution, and more because I know that the cash flow and opportunity is there. But if I had a non-biased choice, I don't think I would, which causes the concern of the type of tenants I'd attract.
On the other side, there is a duplex that is in a B neighborhood, but the cashflow is at about $200, assuming I raise the rents to market. Personally I'd live there, free of choice. Not sure if I can house hack because we're unsure of the occupancy at the moment.
I know it will make more sense in the long run, but apart of me doesn't want to miss out the other deal, because I haven't found one that has the opportunity like the 4-plex. My only concern would be getting quality tenants without stay vacant for long periods, which I know I can get in a B neighborhood. Any advice is appreciated.
Please let me know if I need to clarify.
I currently operate my three rentals in C class neighborhoods.
I'm cash flowing between 350-450 per door. I do purchase cash and manage myself, so my only expenses are repairs, cap ex, and insurance. Tenants cover water and other utilities.
I've had one issue so far, where I had to get a tenant out due to non pay. We agreed she had two weeks to move and I wouldn't file eviction. She left, place was in solid shape. Had it occupied about 5-6 days later.
WHY I THINK IVE FOUND SUCCESS: I do not "over rehab" these properties. I simply use higher end finishings to attract the higher end customer base in the low end neighborhood. I source my "higher end finishings" typically from Habitat for Humanity ReStore it, where I get discounted material. There are definitely more bad tenants than there are good tenants in these neighborhoods, so I'm unsure how much I can scale this model, but its worked thus far.
C class s a tough market. My choice would be to make a offer on the B property. The reason it is only cash flowing $200 is because you are willing to over pay. You offer what works to reach the cash flow goals you actually want and need. If $200 is not enough, and rightly so, then it is over priced and you either get it for your price or you keep looking.
Bottom line is the greater the risk, the harder you work the greater the reward.
That is the game we play.
Did you analyze the duplex with it fully rented out or with you living in one side? If you can cash flow with you living in one side, Id say that is the deal to go with, cause it'll get even better cash flow once you move out of course. My mind set is bad tenants will cost you money in the long run. So even if the initial returns are a little less with good tenants, It'll pay off down the road since they'll cause less headaches later on.
Thanks for your input, it really helped with my decision making. I've decided to start off investing in the B areas, and trying to find some good tenants first. Then as I expand and grow my portfolio, start taking greater risks and investing in C areas.
@Job Hempy I really like your advice, and I'll keep that in mind when I do decide to invest in the C areas.