Investor · Los Angeles, CA · Member since 2019 · 8 posts · 12 votes
Hi everybody!
I thought I’d turn to the forums because I saw an interesting deal, but there’s some red flags.
Since I’m relatively new to real estate, I’m hoping some more experienced people can guide me in the right direction.
I found a deal for a 4-plex out of state listed at $39,900. It’s been on the market since January 2019 so I feel like it could easily be bought it for around $25-$30,000 or even less. The property details list that each unit rents for $475/mo. It sounded too good to be true.
Here come the red flags. It’s in a class D neighborhood and supposedly one of the most dangerous areas in the state and the property is in “distressed condition.” I know that it’s highly advised against investing in class D neighborhoods.
If somebody could give me some advice on what to do I’d highly appreciate that! Thanks so much!!
Rental Property Investor · Charlotte, NC · Member since 2019 · 161 posts · 178 votes
7y
Here's what I get concerned about with this types of property. If you fix it up and sell it, who is going to buy it and for how much. If you fix it up and rent it, how much are you going to spend every year repairing stuff that your D class tenants broke.
Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
7y
$39,000 for a fourplex? That is not in a D neighborhood....that is in an F neighborhood. If it was anywhere remotely near what it's cracked up to be it would not still be listed in May if it hit the market in January. I'm going to guess you did not physically see the property....you simply looked at the numbers and got greedy. A natural mistake.
I thought I’d turn to the forums because I saw an interesting deal, but there’s some red flags.
Since I’m relatively new to real estate, I’m hoping some more experienced people can guide me in the right direction.
I found a deal for a 4-plex out of state listed at $39,900. It’s been on the market since January 2019 so I feel like it could easily be bought it for around $25-$30,000 or even less. The property details list that each unit rents for $475/mo. It sounded too good to be true.
Here come the red flags. It’s in a class D neighborhood and supposedly one of the most dangerous areas in the state and the property is in “distressed condition.” I know that it’s highly advised against investing in class D neighborhoods.
If somebody could give me some advice on what to do I’d highly appreciate that! Thanks so much!!
Hard pass. The vacancy rate, quality of tenants, and repairs/capex will eat your profits.
Rental Property Investor · Mesa, AZ · Member since 2015 · 143 posts · 187 votes
7y
@Benny Morfas Don’t you know that Bigger Pockets was born because josh dorkin bought some 4plexes in a crumby neighborhood a couple thousand miles away and lost lots of $$$? He decided to make this website so investors could share knowledge and not make the same mistakes he did, and aren’t we all better off for it!!
Rental Property Investor · Inglewood, CA · Member since 2015 · 24 posts · 12 votes
7y
@Benny Morfas
Too many risks that are not worth the reward. No experience, not local, and war zone is a triple threat and not worth your money. It's good that you want to jump in but fix at least one of those 3 items and then jump in.
The tenant base in war zones also don't guarantee you're even going to collect rent and/or potentially work with an eviction that can drain your resources.
Don't get too desperate or you will make mistakes... lord knows I have lol Good job teaching out on the forums before making that mistake.
Investor · San Diego, CA · Member since 2016 · 265 posts · 305 votes
7y
Benny Morfas
Don’t do it.
If you are going to invest out of state, you might want to target B-class properties in the Midwest or Southeast to gain some experience. The price point will be higher, but it should come with much less risk on your first rental property.
Also, don’t forget that the property manager will be your most important team member, and many of them will not taken on D-class properties.
I am sure that some may disagree with me, but as a newbie in real estate (like myself), I wouldn't invest out of state as one of my first deals. It takes time to build effective teams and get a working knowledge of REI. All of which will change in each area. I'd urge you to stick local for your first few deals.
That sounds like a good theory, but you're in South Dakota where you can probably do that and it make plenty of sense. For those of us in the insanely high-priced areas like LA or San Fran, we don't have that luxury. So your recommendation sounds good for anyone who can invest locally and it make sense, sure, but it can't be a blanket statement for everyone because for a lot of us, investing locally can get us in trouble.
You make a good point, but what I don't understand is why someone from California chases D class properties? I understand buying $1M fourplex in California is hard, but why go from that to $30K fourplex in a D area out of state? You could get a $200K fourplex in a B area out of state. It just seems like some middle ground and higher class property would reduce out of state investing risk.
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
7y
I expect there will be zero rental income. If you rent to Section 8 tenants, chances it does not meet the condition. Value lies with the land in a grade D neighborhood. Lawsuit, crimes, city violations, police..... You have a monumental task dealing with potential problems.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
ive bought a couple triplex houses for under 40k and they worked out good ,this ( low purchase price) is not IN Itself something to be scared of .. you can
Make plenty of money in a d area ..however I
Manage my self and not brand new to this asset class or investing . It will be much Much harder to do in your case .
Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
7y
@Benny Morfas
Why would you even consider this type of property? Especially as a newb and out of state. There are areas by me about 1.5 hours away.. can get a dozen houses at any time for $15-20k, rents anywhere from $475-650. But.. they all need rehab. Rehab costs are rehab costs, whether they are in an A or D area. An $8000 roof is an $8000 roof, B or D. To me it’s not worth investing $50-60k for $500 rent in a c-d area.
East Texas · Member since 2018 · 205 posts · 138 votes
7y
Only reason I would buy in a war zone is to get extra trigger time when a tenant decides they don't want to leave and starts shooting at the LEO that has come to remove them after eviction.
I found a property for a steal of a deal but is was in a low C class hood. Would I make money? Absolutely! Would I spend all my profit on repairs and fixes after they destroy the home? Yup! A lot of work for little to no gain. causing only frustration and liability.
Investor · Fairfax, VA · Member since 2017 · 57 posts · 22 votes
7y
While I agree with everyone that you shouldn't buy this, I want to say that a lot of people here are exaggerating what it's like to be a D class landlord. I personally know a D class landlord (he has properties himself and used to work for someone whose entire portfolio is D class), and it is rare for a tenant to completely trash/damage a place. Turnover is pretty quick and cheap (you don't even need to clean the place, just a quick sweep and maybe some painting sometimes).
The main hassle is rent collections because of late payments, and evictions are more frequent than in B class. Also, most of these properties tend to be older, so there is more maintenance because of that, not necessarily because the tenants treat the property worse.
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
7y
@Benny Morfas If this were a great deal it would likely be taken. I'm in line with @Aidan Mulligan that you'll likely have a tough time selling this. I'd buy any property as long as I new I could sell it for a good return. And I agree with @Dennis M. in that while this is a deal I might do if the numbers made sense, it doesn't sound like a deal YOU should do as a newbie--and besides, I doubt the numbers make sense.
While I agree with everyone that you shouldn't buy this, I want to say that a lot of people here are exaggerating what it's like to be a D class landlord. I personally know a D class landlord (he has properties himself and used to work for someone whose entire portfolio is D class), and it is rare for a tenant to completely trash/damage a place. Turnover is pretty quick and cheap (you don't even need to clean the place, just a quick sweep and maybe some painting sometimes).
The main hassle is rent collections because of late payments, and evictions are more frequent than in B class. Also, most of these properties tend to be older, so there is more maintenance because of that, not necessarily because the tenants treat the property worse.
As a slumlord I wholeheartedly agree with everything you wrote ! So true ! I know a fellow investor I have bought properties off of who is a multimillionaire by owning about 66 ( I'm told) properties like this in c class in a fairly small town . Most of his stuff was bought in the 80's for less than 10k . He's made an absolute killing over the years ...but you have to be a different kind of person to do this . It's not for the faint hearted or timid . Capex/ repairs is only for what's absolutely necessary and turnover is fast and costs are very minimal for him .sometimes only a few days time and not even Broom cleaned
While I agree with everyone that you shouldn't buy this, I want to say that a lot of people here are exaggerating what it's like to be a D class landlord. I personally know a D class landlord (he has properties himself and used to work for someone whose entire portfolio is D class), and it is rare for a tenant to completely trash/damage a place. Turnover is pretty quick and cheap (you don't even need to clean the place, just a quick sweep and maybe some painting sometimes).
The main hassle is rent collections because of late payments, and evictions are more frequent than in B class. Also, most of these properties tend to be older, so there is more maintenance because of that, not necessarily because the tenants treat the property worse.
As a slumlord I wholeheartedly agree with everything you wrote ! So true ! I know a fellow investor I have bought properties off of who is a multimillionaire by owning about 66 ( I'm told) properties like this in c class in a fairly small town . Most of his stuff was bought in the 80's for less than 10k . He's made an absolute killing over the years ...but you have to be a different kind of person to do this . It's not for the faint hearted or timid . Capex/ repairs is only for what's absolutely necessary and turnover is fast and costs are very minimal for him .sometimes only a few days time and not even Broom cleaned
Slumlords unite! There's money in D, and not the kind that's in the banana stand. But all the people I know not losing money in that borderline C/D range are remarkably similar. Personal experiences with poverty, local investors, even-keeled, high level of residential construction knowledge, high willingness to DIY, deeply embedded in the community, first-name basis with local officials, magistrates, police. If that's not you, it's an uphill battle.
Be careful! You need to see if there is a management company that will even work in that area. With you being out-of-state, you will need a good management company for the property.
While I agree with everyone that you shouldn't buy this, I want to say that a lot of people here are exaggerating what it's like to be a D class landlord. I personally know a D class landlord (he has properties himself and used to work for someone whose entire portfolio is D class), and it is rare for a tenant to completely trash/damage a place. Turnover is pretty quick and cheap (you don't even need to clean the place, just a quick sweep and maybe some painting sometimes).
The main hassle is rent collections because of late payments, and evictions are more frequent than in B class. Also, most of these properties tend to be older, so there is more maintenance because of that, not necessarily because the tenants treat the property worse.
As a slumlord I wholeheartedly agree with everything you wrote ! So true ! I know a fellow investor I have bought properties off of who is a multimillionaire by owning about 66 ( I'm told) properties like this in c class in a fairly small town . Most of his stuff was bought in the 80's for less than 10k . He's made an absolute killing over the years ...but you have to be a different kind of person to do this . It's not for the faint hearted or timid . Capex/ repairs is only for what's absolutely necessary and turnover is fast and costs are very minimal for him .sometimes only a few days time and not even Broom cleaned
Slumlords unite! There's money in D, and not the kind that's in the banana stand. But all the people I know not losing money in that borderline C/D range are remarkably similar. Personal experiences with poverty, local investors, even-keeled, high level of residential construction knowledge, high willingness to DIY, deeply embedded in the community, first-name basis with local officials, magistrates, police. If that's not you, it's an uphill battle.
Concerning DIY carpentry repair work I think I learned more in the first year of owning rentals than I have all of my life prior . The little skill I acquired to fix up old houses has became precious to me lately . I’m a newbie so I Gotta give credit to pro contractors like Jim K that can swing a hammer .
I am sure that some may disagree with me, but as a newbie in real estate (like myself), I wouldn't invest out of state as one of my first deals. It takes time to build effective teams and get a working knowledge of REI. All of which will change in each area. I'd urge you to stick local for your first few deals.
Sioux Falls, SD · Member since 2018 · 28 posts · 38 votes
7y
@Maurice Smith Thankfully I do not. But I also see a lot of people finding off market deals in California if they get creative. It may be difficult - not impossible.
That being said - I suppose there is legitimacy in being first time REI out of state. It may be a steeper learning curve, but definitely scalable if local deals are hard to come by. More power to ya.