Investing in Multifamily "D" Properties
Developer · Atlanta, GA · Member since 2016 · 165 posts · 32 votes
Anybody invest in Class D Apartment buildings? When I talk to other investors most multifamily investors invest in B&C properties. Im curious to hear from someone who is in the D class niche. I was thinking of using the BRRRR strategy with the Class D apartments. Feedback welcome.
@Rashad Jones Jennings I own a 20 unit that is considered C-. It is not quite a D, but it is definitely border line. I can tell you that they are profitable, but the vacancy factor and more importantly, the economic vacancy, can be very high. They are also extremely hands on from a management perspective. You will definitely want a management company (in my opinion) because managing these types of tenants is like herding cats. No one has bank accounts, no one has cell phones, no one has emails, etc...
I do think these properties can be very, very profitable, but you have to balance the profitability against the amount of time you are spending on it. Most investors flock to B and C class for a reason. I personally am leaning more towards B class because if a property takes away too much of your most valuable resource (time) it may not be worth it in the end.
@Rashad Jones Jennings I own a 20 unit that is considered C-. It is not quite a D, but it is definitely border line. I can tell you that they are profitable, but the vacancy factor and more importantly, the economic vacancy, can be very high. They are also extremely hands on from a management perspective. You will definitely want a management company (in my opinion) because managing these types of tenants is like herding cats. No one has bank accounts, no one has cell phones, no one has emails, etc...
I do think these properties can be very, very profitable, but you have to balance the profitability against the amount of time you are spending on it. Most investors flock to B and C class for a reason. I personally am leaning more towards B class because if a property takes away too much of your most valuable resource (time) it may not be worth it in the end.
@Rashad Jones Jennings While I wouldn't say my properties have been as low as a D when acquired, if you are BRRRR focused find the D property in the C class or upper C class neighborhood. Getting a property to jump classes is very valuable and where a lot of money can be made. I love finding C class properties that I can transition to B class properties. These have come with healthy rental increases which means they turn into cash cows since I bought them at lower valuations. I would agree that hands on is the key to successfully doing this. Be it your own hands or a very attentive property manager.
Yup !! in D class you will definitely need to be hands on. You will find that most tenants in D class neighborhood live with bad to no credit or worse. A lot of section 8 tenenants are niether credit contious or care. You will also find section 8 tenants not to have overwhelming employment records or consistency.
You definitely need to be or become a real people person.
If your personality is that of an understanding drill sergeant then this might serve you well. It is a lot of work to make these properties pay off. It will help if you exercise a thorough background check and qualify your tenants well.
That said, if you can manage well you can make these properties cash flow very well.
I try to keep an open mind about class D properties and when I buy I will attempt to buy a block of these properties but also start a company to offer employment to my tenants if need be that way they depend on me for their pay check as I will depend on them to pay the rent but over all I am not big on being a buy and hold investor. I concentrate on getting in and out forcing appreciation when it make sense, then selling ASAP.
There is no investment holy grail to be found in class D properties. You can often find class D apartments for sale with an asking price of a song and a dance but still need to spend a small fortune on repairs and upgrades.
To me these properties are for investors with a construction background and repair/installation skills leaving the minimum to be done by hired contractors. At least this is how I have been able to make the few class D properties I own pay off. It is called. " sweat equity", but I know this is definitely not for everyone.
I have investor friends that only invest in D class multifams, they have good systems in place, but they have been doing it for a long time. I personally wouldn't invest in D properties if you are newer to REI investing. It's a easy way to get burned out quickly.
How do you determine the various classes of properties?
@Rashad Jones Jennings I own a 20 unit that is considered C-. It is not quite a D, but it is definitely border line. I can tell you that they are profitable, but the vacancy factor and more importantly, the economic vacancy, can be very high. They are also extremely hands on from a management perspective. You will definitely want a management company (in my opinion) because managing these types of tenants is like herding cats. No one has bank accounts, no one has cell phones, no one has emails, etc...
I do think these properties can be very, very profitable, but you have to balance the profitability against the amount of time you are spending on it. Most investors flock to B and C class for a reason. I personally am leaning more towards B class because if a property takes away too much of your most valuable resource (time) it may not be worth it in the end.
Thanks for the response. Just what I expected. D's will be more work and I do plan on hiring a property management company.
Thanks again for your response.
@Rashad Jones Jennings While I wouldn't say my properties have been as low as a D when acquired, if you are BRRRR focused find the D property in the C class or upper C class neighborhood. Getting a property to jump classes is very valuable and where a lot of money can be made. I love finding C class properties that I can transition to B class properties. These have come with healthy rental increases which means they turn into cash cows since I bought them at lower valuations. I would agree that hands on is the key to successfully doing this. Be it your own hands or a very attentive property manager.
Thanks for your response. The ones that I'm looking at are vacant and abandoned. My strategy would be to use a hard money loan for the construction, fill them with tenants and then refi out or sell depending on the way the market is going. I most definitely will hire a property management company because I want to run it like a business and not a mom and pop.
Yup !! in D class you will definitely need to be hands on. You will find that most tenants in D class neighborhood live with bad to no credit or worse. A lot of section 8 tenenants are niether credit contious or care. You will also find section 8 tenants not to have overwhelming employment records or consistency.
You definitely need to be or become a real people person.
If your personality is that of an understanding drill sergeant then this might serve you well. It is a lot of work to make these properties pay off. It will help if you exercise a thorough background check and qualify your tenants well.
That said, if you can manage well you can make these properties cash flow very well.
I try to keep an open mind about class D properties and when I buy I will attempt to buy a block of these properties but also start a company to offer employment to my tenants if need be that way they depend on me for their pay check as I will depend on them to pay the rent but over all I am not big on being a buy and hold investor. I concentrate on getting in and out forcing appreciation when it make sense, then selling ASAP.
There is no investment holy grail to be found in class D properties. You can often find class D apartments for sale with an asking price of a song and a dance but still need to spend a small fortune on repairs and upgrades.
To me these properties are for investors with a construction background and repair/installation skills leaving the minimum to be done by hired contractors. At least this is how I have been able to make the few class D properties I own pay off. It is called. " sweat equity", but I know this is definitely not for everyone.
Thanks for the response. Its always good to get advice from someone whose done the type of work I'm thinking about heading into. Definitely something to think about. My initial strategy was B & C properties but I've had a hard time finding them since Atlanta is a competitive market. So my second thought was to develop D properties and use hard money loans to fund the construction cost.
GREAT MANAGEMENT IS LITERALLY THE KEY TO SUCCESS WITH A D PROPERTY. JUST MY OPINION.
I agree.
I have investor friends that only invest in D class multifams, they have good systems in place, but they have been doing it for a long time. I personally wouldn't invest in D properties if you are newer to REI investing. It's a easy way to get burned out quickly.
Definitely don't want to get burned out but I see it as my way in. Its hard finding B&C properties in Atlanta. So I figured id go where no one else wanted to go. With good property management I think I could make it work. At least to get my foot in the door. Does your investor friend that invest in D properties have a podcast, youtube channel etc?.... I would love to learn how he's doing it with D properties. Theres so many of them laying around here that I see opportunity.
How do you determine the various classes of properties?
A few different factors: Age of the property, type of area as far as crime, developments, and the condition of the property. Among others.
Investing in D class properties is definitely a lot more work and will require you to be more involved. However, once the property is in better condition after renovations you can have a much greater cash flow. The biggest problem with D class properties is finding good tenants that will stick around for a while. Coming from a family who has invested in D class properties our biggest struggle has been finding tenants that will stick around, but once you have a good system it does become much less of a problem. There is more work you have to put into D class properties, but it's all case by case. From personal experiences, I would personally stick to C range if you don't want to be spending a lot of your time on the issues that come with many D class properties.
Good luck!
@Rashad Jones Jennings The best way to learn about D class apartment buildings is from someone that owns them, particularly since running assets like that can be very region specifc. You could find some C/D class apartments that look well run. My criteria would be not trashed on the outside, the PMs call you back within 24 hrs of inquiring about a unit, run some sort of online portal that is mobile friendly... Look up the owners records and see if you can take them out to coffee. If you do that with 10-15 buildings you will find someone who you click with and/or figure out which PM companies dominate the space. That will give you some contacts and who knows, maybe one of them wants to sell.
As it stands right now, I think you'll have an incredibly difficult time getting a HML to buy/rehab a D class property with no experience. The HMLs what to be in and out 24-36 months. If you are trying to rehab and deal with the normal D class churn, you open yourself up to fall behind schedule and not have the property repositioned in time to get traditional financing.
Just my .02, but buying a vacant/abandoned D class property with no Multi family or development experience is a recipe for disaster.
Anybody invest in Class D Apartment buildings? When I talk to other investors most multifamily investors invest in B&C properties. Im curious to hear from someone who is in the D class niche. I was thinking of using the BRRRR strategy with the Class D apartments. Feedback welcome.
Rashad,
Class D is very arbitrary. I'm ok with working class neighborhoods that have elevated crime rates, stagnant populations, and low property values in this current phase of the market because I prefer to avoid appreciation (and depreciation) plays during a cycle peak.
I do have certain requirements from rough neighborhoods, though: good landlord tenant laws, high rent to values, and one thing i've observed to be EXTREMELY important in these areas is HIGH TENANT DEMAND. This keeps your vacancy and turnover cost soooo much lower. I've tested this, too- tried it in markets where rental supply is high and the vacancy losses + hassle are so much more real.
Big take home- high rental demand in the neighborhood you're targeting... regardless of asset class.
I have 2 duplexes in Jackson, MS with long term tenants, Cashflowing $2,000 per month. 4 1bed/ 1 bath units. All electric (tenants responsible for utilites). All units rented for $500 monthly. Around 25-30 percent cap at $24,000 return a year.
Can you dm me the details.
https://www.coachcarson.com/where-to-buy-investment-property/
Check your DM. I responded.
Investing in D class properties is definitely a lot more work and will require you to be more involved. However, once the property is in better condition after renovations you can have a much greater cash flow. The biggest problem with D class properties is finding good tenants that will stick around for a while. Coming from a family who has invested in D class properties our biggest struggle has been finding tenants that will stick around, but once you have a good system it does become much less of a problem. There is more work you have to put into D class properties, but it's all case by case. From personal experiences, I would personally stick to C range if you don't want to be spending a lot of your time on the issues that come with many D class properties.
Good luck!
Thanks for the input Subbie. Great info and I definitely consider that.
Investing in D class properties is definitely a lot more work and will require you to be more involved. However, once the property is in better condition after renovations you can have a much greater cash flow. The biggest problem with D class properties is finding good tenants that will stick around for a while. Coming from a family who has invested in D class properties our biggest struggle has been finding tenants that will stick around, but once you have a good system it does become much less of a problem. There is more work you have to put into D class properties, but it's all case by case. From personal experiences, I would personally stick to C range if you don't want to be spending a lot of your time on the issues that come with many D class properties.
Good luck!
Hey Bill thanks for your input. I won't be going at this alone, I have a partner who invests in D properties that will be in the deal. D properties was the least favorable of multifamily so I wanted to see the different opinions and strategies you can use.
Anybody invest in Class D Apartment buildings? When I talk to other investors most multifamily investors invest in B&C properties. Im curious to hear from someone who is in the D class niche. I was thinking of using the BRRRR strategy with the Class D apartments. Feedback welcome.
Rashad,
Class D is very arbitrary. I'm ok with working class neighborhoods that have elevated crime rates, stagnant populations, and low property values in this current phase of the market because I prefer to avoid appreciation (and depreciation) plays during a cycle peak.
I do have certain requirements from rough neighborhoods, though: good landlord tenant laws, high rent to values, and one thing i've observed to be EXTREMELY important in these areas is HIGH TENANT DEMAND. This keeps your vacancy and turnover cost soooo much lower. I've tested this, too- tried it in markets where rental supply is high and the vacancy losses + hassle are so much more real.
Big take home- high rental demand in the neighborhood you're targeting... regardless of asset class.
Great info. Definitely learned something here.
@Rashad Jones Jennings just think long and hard about why properties are vacant in this current part of the market cycle. I don't know your sub market, but in most of the US multifamily is red hot. If something is sitting, the other local players may know something you don't know...
In my opinion, class D is a great asset if you have the cash to stomach a few punches to the gut so to speak. Be very careful of over leveraging these "cash cows".
@Rashad Jones Jennings just think long and hard about why properties are vacant in this current part of the market cycle. I don't know your sub market, but in most of the US multifamily is red hot. If something is sitting, the other local players may know something you don't know...
In my opinion, class D is a great asset if you have the cash to stomach a few punches to the gut so to speak. Be very careful of over leveraging these "cash cows".
Well said. I was just curious about what other investors thought about the D properties because as u said the market is red hot for B & C properties. Definitely something to think about.
D class is fine and a great money maker . However it’s very unique and not for everyone .if you all you have known in life is A and B class neighborhood life then you will be in for some fun times lol As others said it’s very hands on and will require you to be flexible on terms and conditions with the tenants . The tenants will be much harder on the building and they will do incredibly stupid stuff that will make you scratch your head .they will be like oversized children .if you understand the desperation and difficulty of thevarea and the people then you will succeed ,if you go in with a set strict criteria and try to be tommy toughnuts to the tenants then your going to have very high vacancy ( leaving in the middle of night) nd repair costs ( like pouring cement down the drains ) and you won’t see the good income everyone talks about .
I have investor friends that only invest in D class multifams, they have good systems in place, but they have been doing it for a long time. I personally wouldn't invest in D properties if you are newer to REI investing. It's a easy way to get burned out quickly.
Definitely don't want to get burned out but I see it as my way in. Its hard finding B&C properties in Atlanta. So I figured id go where no one else wanted to go. With good property management I think I could make it work. At least to get my foot in the door. Does your investor friend that invest in D properties have a podcast, youtube channel etc?.... I would love to learn how he's doing it with D properties. Theres so many of them laying around here that I see opportunity.
If you KNOW your area deeply then there is a great opportunity for you. Riding the gentrification train it will stop in one of these D areas. Knowing the drivers and amenities of what would make the next D community valuable in such an event is beneficial. There D communities right next to universities that can be plus, as an example.