How To Identify Bad "D" Or "F" Class Areas

Buying & Selling Real Estate
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How To Identify Bad "D" Or "F" Class Areas

Michael Swan
Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes

Hi all,

Since I was featured on Podcast 238 about a year ago, I have talked to many BP Nation Members asking me if they should buy this deal or that deal.  Here is a simple way to determine if a deal a broker is sending you is a good deal or really in a "D" or God Forbid in even worst an "F" class area.  Both are not acceptable.  Google Earth all commercial in a one block, two block, three block, four block, five block, and six block radius.  Look down at the street level.  If you see ANY Grafiti, broken windows, boarded up windows, unsavory characters loitering around etc...  

If that is what you see, you are in a "D" class area.  Why would you want to invest in this kind of area?  Would you feel comfortable if your 16 year old niece was walking in that neighborhood on a Friday evening at 9 pm?  If the answer is no.  Again, why would you want to invest there.  Those unsavory characters will be stealing your copper when you have a vacancy or robbing your tenants.  Why would you invest in a "D" or as I said, God forbid war zone "D" or "F " class area.  Don't fall for the Path of Progress scam brokers claim time and time again.

Swanny

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Noel Challenger
Realtor · Paterson, NJ · Member since 2017 · 134 posts · 97 votes
8y

Take the state's or the county's (whichever is higher) median income and divide it by two. That should give you the median income for a C and lower class neighborhood. For example:

NJ Median Household Income, 2016 = $73,702

$73,702 / 2 = $36,851 which is the median income for a C and lower area

The median income in Paterson is $33,000 as well as Newark, NJ. That's how you know it is a lower class neighborhood.

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  • Michael Swan
    OP
    Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    8y

    Hi @Spencer Hilligoss

    Great suggestions!!  

    Swanny

    0Reply
  • Michael Swan
    OP
    Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    8y

    Hi @Jack B.

    Exactly my point.  You don't have to waste your time and if that broker is trying to tell you it is a C class neighborhood, never talk to them again.

    Swanny

    0Reply
  • Michael Swan
    OP
    Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    8y

    hi @DL 

    @DL Martin

    Another great point.

    Swanny

    0Reply
  • Michael Swan
    OP
    Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    8y

    Hi @Christian Hutchinson

    Very thorough analysis!!

    Swanny

    0Reply
  • Michael Swan
    OP
    Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    8y

    Lots of great replies here.  My reason for posting this is the recent Amount of BP members that have contacted me thinking they were getting a good hard working Blue Collar C class neighborhood deal and were really getting a D or F Class Deal and were duped by unscrupulous brokers etc... all newbies that don't know any better.  I think we have all been duped once or twice in our  lifetime.

    Swanny

    1Reply
  • Alberto Simpson
    Phoenix, AZ · Member since 2011 · 13 posts · 7 votes
    8y

    All you have to do is look at the condition of the houses in the area and look at the current price they are asking for them. 

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    8y
    I have a black 2011 avalanche ltz use for hauling stuff in . I consider this my daily driver plain Jane utility vehicle when I go to my property in the hood . Even though it’s one of my crappiest cars I own It is literally the nicest car on the entire block when I pull up to the curb lol I would never drive my corvette suburban or new camaro anywhere near that area . If the tenants see you driving cars like that you can bet they will consider you well able to fix or buy any little thing not too mention I don’t want my stuff messed with and those cars would stick out in a major way . My point is not to brag . but to say if you self manage these lower class areas ,you don’t show up in a 80,000$ suv or sports car ...You don’t wear khakis and a polo ... you don’t laugh joke or make small talk . You almost go in disguise to who you are . Newbies need to realize You must be as savage as the people there and slum it .it is not for everyone
    2Reply
  • Chaz Mathias
    Real Estate Agent · Santa Rosa, CA · Member since 2018 · 84 posts · 105 votes
    8y

    Hi @Michael Swan I recently moved from San Diego to Northern California, however wanted your thoughts on a general concept. When companies such as Qualcomm near you have layoffs like they recently did, is there a window of opportunity to buy low in an area? 

    0Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    8y

    My City - Chicago, definitely has the whole range.  The "F" areas, I call impoverished and you should avoid.    Some of the "D" areas are more working class, so you might have a chance.  Plus, you'll find distressed inventory in this area.

    "A" areas are expensive to buy rentals and generally they do not cashflow.  If you are an appreciation investor and you hit it out at the right time, you'll do ok.

    Most tenants are working class, so "C" areas see good for me.  Stable, semi-safe areas.

    You're from San Diego, so I assume you want to invest outside of your market.  I suggest get to know a city a bit and learn the areas.

    1Reply
  • Michael Swan
    OP
    Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    8y

    Hi @Chaz Mathias

    I am waiting for this entire thing to implode in California.  I live in Mira Mesa, right where Qualcomm is located.  That was abad is ascare here.  However, they are really easing the lending standard, some Zero down loan products and the new NON Prime loan products etc... that worries me more than possible Qualcomm layoffs.  We are approaching Euphoric perspectives like this party will never end.  Another constant issue that creates more demand is low inventory, artificially and temporarily raising prices too.  My little 3bed 1bath 1040 sf home, 5000 sf lot is now valued at $550,000-$575,000.  My wages are not going up as a parochial school PE teacher.  Soooo, for people in this area to buy my little house, lenders need to lower standards for buyers for prices to keep escalating to Euphoric unsustainable levels.

    Swanny

    1Reply
  • Michael Swan
    OP
    Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    8y

    Hi @Brian Ploszay,

    On BP podcast 238 I told my story how I 1031 exchanged all my San Diego rental properties for apartment complexes in NE Ohio.  I only have my personal residence left here in San Diego.

    Read this thread from the beginning too and it will make more sense to you.

    Take care,

    Swanny

    0Reply
  • Chaz Mathias
    Real Estate Agent · Santa Rosa, CA · Member since 2018 · 84 posts · 105 votes
    8y

    Thank you Michael for the response. I have felt the same way recently, don't want to get caught in the severe downswing we will see in California. Have seen too many friends and family members acting irrationally as they are too afraid of "missing out" as the prices continue to climb. I look forward to following your continued success!

    0Reply
  • Michael Swan
    OP
    Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    8y

    Thank you @Chaz Mathias,

    I still have $250,000-$300,000 equity stuck in my personal residence in San Diego.  My wife won't let me sell and I don't want to refi or take a home equity line of credit out.  I think $300,000 debt in this house is plenty of debt if we have another housing crash, I don't think the value will go under $300,000, which is my mortgage debt left on this money pit.  

    Remember, your house (personal residence)is a liability, taking money out of your pocket every month, it is not an asset.  That's why I call it a money pit.

    Swanny

    2Reply
  • Yannes Chiang
    Rental Property Investor · Pasadena, CA · Member since 2016 · 85 posts · 19 votes
    8y

    one more way to identify is to call the reputable Property Manger, ask them whether they are willing to take these

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    8y
    Originally posted by @Noel Challenger:

    One of the best ways to get a feel if a property is in a higher crime area is by looking at the types of stores around it. Some of these businesses include:

    • Lower-end supermarkets
    • Liquor stores
    • Chinese food stores
    • Bail bonds
    • Check cashing place
    • Credit repair
    • Dollar stores
    • Family Dollar
    • Prepaid cell phone provider stores (ex. Boost Mobile, MetroPCS, SimpleMobile, etc.)
    • Fried Chicken spots
    • Barbershops with bars in the window
    • Storefront Sports Bars
    • Storefront Churches
    • Any business with bulletproof glass between the cashier and the customers

    Some of these correlate, some do not. Chinese Food Store & Storefront Sports Bars are the biggest ones on the list that stand out to me as having no correlation. Bail Bonds, Prepaid Phones & Check Cashing are great examples though.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @James Wise:
    Originally posted by @Noel Challenger:

    One of the best ways to get a feel if a property is in a higher crime area is by looking at the types of stores around it. Some of these businesses include:

    • Lower-end supermarkets
    • Liquor stores
    • Chinese food stores
    • Bail bonds
    • Check cashing place
    • Credit repair
    • Dollar stores
    • Family Dollar
    • Prepaid cell phone provider stores (ex. Boost Mobile, MetroPCS, SimpleMobile, etc.)
    • Fried Chicken spots
    • Barbershops with bars in the window
    • Storefront Sports Bars
    • Storefront Churches
    • Any business with bulletproof glass between the cashier and the customers

    Some of these correlate, some do not. Chinese Food Store & Storefront Sports Bars are the biggest ones on the list that stand out to me as having no correlation. Bail Bonds, Prepaid Phones & Check Cashing are great examples though.

    in our area a Chinese grocery store or Asian grocery store would indicate the exact opposite.. HIGH value real estate..  there are no Asian ghettos or D or F class :)   Same with small sports bar I have one at the division of our neighborhood from resi to commercial and I own the land right across the st.. the lot which is 20k sq ft I have on the market for 600k... and some one will build a 1.2 to 1.5 mil home on it.. 

    so I don't think the sports bar fits either.

    but the rest certainly do.. also if the convenience store is bared and bullet proof glass and you can buy single cigarettes..  

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    8y

    @Jay Hinrichs

    Your post reminded me of when I lived in Greece. The municipality's weekly street market was held on our street six months of the year. You stepped out of your house, turned to walk toward the municipality center, and when you got to the corner every week there was a stall selling sheets and blankets at cut prices but really quietly shilling unstamped illegal counterfeit cigarettes right outside the convenience store there. A Ukrainian sat outside and mumbled "tsigara, tsigara..." (cigarettes) in atrocious Greek to every man that passed him on the sidewalk all day. Kept the product under a sheet. Dude could take your money, whip a carton out, and drop into a brown bag in two seconds flat. Fake Marlboros, Camels, and Greek brands.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Jim K.:

    @Jay Hinrichs

    Your post reminded me of when I lived in Greece. The municipality's weekly street market was held on our street six months of the year. You stepped out of your house, turned to walk toward the municipality center, and when you got to the corner every week there was a stall selling sheets and blankets at cut prices but really quietly shilling unstamped illegal counterfeit cigarettes right outside the convenience store there. A Ukrainian sat outside and mumbled "tsigara, tsigara..." (cigarettes) in atrocious Greek to every man that passed him on the sidewalk all day. Kept the product under a sheet. Dude could take your money, whip a carton out, and drop into a brown bag in two seconds flat. Fake Marlboros, Camels, and Greek brands.

     I have seen these street vendors there in Athens.. also in Rome.. I almost bought a fake hand bag from an under cover cop in Rome LOL

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • Stone Jin
    Rental Property Investor · Chandler AZ and Sylvania, OH · Member since 2009 · 708 posts · 561 votes
    8y

    I met an apartment wholesaler once that said when he vets a property he does his 10's and two's.  He sits in the parking lot at 10 AM, 2PM, 10PM and 2AM with his windows down for 30 minutes and just listens to the community.  If there are a lot of people just loitering at 10AM/2PM, he wonders why they aren't at work.  If there are a lot of people loitering at 10PM/2AM he wonders why they are outside instead of sleeping.  You can apply the same concept and drive the neighborhoods at those times for 30 minutes and see what types of people are around.  I think once you drive enough neighborhood it's pretty obvious what types of neighborhoods you will be comfortable investing in.

    1Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    8y

    I still think if you can find a legit path of progress and not some fantasy version of that as there might be something in transition happening that is worth investment in the area. In LA, we have had some of those areas and some ongoing perhaps. These areas usually will still have some pretty decent paying jobs relatively close by though. If you are local you will sort of know the areas, if you are using remote map sensing to find those spatial relationships from 1000 miles away, that is going to be pretty difficult to figure out I would think but better than being totally blind for sure. 

    1Reply
  • Alex Hamden
    Mesa, AZ · Member since 2016 · 16 posts · 5 votes
    8y
    These are my kind of areas it's easy rent money and there's not really too much to fix at those rent rates
    1Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    8y
    A good benefit in these lower income areas is the pool of tenants have low expectations in most cases . They get by with the basics because thats all they’ve known in life . As long as the lights turn on ,working windows to puff their 8$ a pack smokes out of , the fridge keeps their beer cold and there’s a place to hook up their 65” plasma tv they are content . Another nice perk that wasn’t mentioned is that bullet proof vests can be considered a tax write off !
    0Reply
  • Terre B.
    Aurora, CO · Member since 2018 · 180 posts · 166 votes
    8y

    Why would anyone invest in something sight unseen? I mean I totally get not wanting or being in a position to invest where you live. But not to physically look at what you are going to put your money and credit on the line for when all it costs is a plane ticket? 

    Google Earth is sometimes out of date. There is a 4plex for sale right now that doesn't look terrible and the speil about it would lead you to believe it's an up and coming area. A friend lives one street over with a back yard butted up to it. The last time she called the police for "shots fired" she was informed they don't respond to that. 

    I'm a travel agent. There is ALWAYS a cheap flight somewhere close to that potential purchase. Use skyscanner.com and go for the flexible date option. 

    I have access to the airlines GDS system and I frequently use that and find cheaper tickets.

    I would consider that part of your due diligence.

    0Reply
  • Jonathan R.
    Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes
    8y

    I'll take a nice D if it is 50% cheaper than a C any day of the week. In my area you can buy a D for about 20k and a C for 40k. The rents are basically the same. I'll have my money out of it twice as fast. 5 years or less. Besides just the financial benefit, it feels good to invest in an area where the city as a whole benefits substantially from my investment.

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y
    Originally posted by @Michael Swan:

    Hi all,

    Since I was featured on Podcast 238 about a year ago, I have talked to many BP Nation Members asking me if they should buy this deal or that deal.  Here is a simple way to determine if a deal a broker is sending you is a good deal or really in a "D" or God Forbid in even worst an "F" class area.  Both are not acceptable.  Google Earth all commercial in a one block, two block, three block, four block, five block, and six block radius.  Look down at the street level.  If you see ANY Grafiti, broken windows, boarded up windows, unsavory characters loitering around etc...  

    If that is what you see, you are in a "D" class area.  Why would you want to invest in this kind of area?  Would you feel comfortable if your 16 year old niece was walking in that neighborhood on a Friday evening at 9 pm?  If the answer is no.  Again, why would you want to invest there.  Those unsavory characters will be stealing your copper when you have a vacancy or robbing your tenants.  Why would you invest in a "D" or as I said, God forbid war zone "D" or "F " class area.  Don't fall for the Path of Progress scam brokers claim time and time again.

    Swanny

    I always say in a C area, I wouldn't let my wife or daughter walk around after dark and in a D area, I wouldn't walk around after dark. In an F area, I wouldn't drive through there in a locked car during the day.

    It takes a special skill set to invest in a D neighborhood, but I am thankful people are willing to do that. There is a portion of society that needs D class rentals, because that is all they can afford or qualify to rent. Not for me, but I respect people willing to provide housing to the lowest economic class of our society.

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