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!!
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.
@Ali Boone THANK YOU. Many of is must start in areas where we can build a portfolio as some of us have capital, not enough for the locale where we reside, for what we're trying to accomplish at the present time.
@Benny Morfas for your first deal, I would absolutely stay away from this deal. However, I would take a trip to said city and meet as many people as you can, drive, drive, drive and drive around as much as you can.
Remember every detail you can. Take notes. Take photos. Get yourself as comfortable as possible in the area, so when you look at a map, you can instantly say no, yes or let me look again.
The only property I own near me I live in. I've never bought closer than 1300 miles from where I live. But where did i buy? In places i know and I'm comfortable with.
Build your knowledge base and pull the trigger when the time is right for you.
@Benny Morfas I would recommend @@Engelo Rumora & @James Wise as they work with properties in these kind of areas, yet they do A LOT of vetting beforehand and are boots on the ground from purchase tp sale to management. My recommendation is to tap into guys like this as they have a wealth of knowledge in doing what you're considering.
Noooooo! I cant speak for you but for your first investment I definitely wouldn't. Learning the trade has a learning curve in itself. Learning it while dealing with D class tenants would be a nightmare in my opinion.
I'd start with something simple where you can find good tenants, learn the business and roll the dice on something like this later if you want.
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!!
Profit or not can be another discussion... But First if its out of state, how you gonna manage? Would it be worth? Had your numbers?
@Benny Morfas Don't do it! I don't even have to look at the property, pro format, analysis or whatever. I know on paper it looks great but it is not worth it. If it is your first property buy a SFH in a C class area OOS.
This is the sort of property I might buy and fix it up myself, assuming a decent location and no major structural issues.
I would advise people who are out-priced in their own markets to pool with others in their own markets. Big apartment folks do it all the time so...why not little minnows too?
@Benny Morfas, Many of the responsives have much more experience than I, so know that advice come from limited REI deal making. We current have one rental out-of-state in a location that we lived in for roughly three years. If I buy another in that area, I have some understanding of the market and the neighborhoods, whatever thwor class may be. From a newbie to a newbie, my advise would be to stick to what you know and stay local first. My PM was also highly recommended and is now a trusted advisor...build a team!
@Benny Morfas I solely invest in Class D areas, but would never buy something that’s doing $475 a month in rent. Your expenses will be way too high relative to rent, especially for a Class D property. Just my two cents ✌🏻
@Frank Wong BP is literally here for asking questions. Seems a bit silly to crap on someone for asking for real estate investment advice on a board designed to get real estate investment advice.
I feel differently, but less strongly, than you on this. My advice to the OP would be, can you find a property manager in the area that you're confident could take this on? There is class D and then there is warzone. At 25k (hell, even 40k) with $1800 in rents coming in, with no additional information we should be asking follow on questions, not being jerks. What are the expenses (utilities, etc.) you'll pay? What sort of rehab costs will be needed out of the gate? Are there tenants in place? Any liens? What does "distressed" mean in this context? I get that OP is being broad with the language because it's a potential deal they don't want to lose to sometime else but let's help him ask the right questions. Not everyone can invest solely on A and B class properties, or at least, this game isn't so cut and dry that this is the best decision for everyone always.
@Frank Wong BP is literally here for asking questions. Seems a bit silly to crap on someone for asking for real estate investment advice on a board designed to get real estate investment advice.
I feel differently, but less strongly, than you on this. My advice to the OP would be, can you find a property manager in the area that you're confident could take this on? There is class D and then there is warzone. At 25k (hell, even 40k) with $1800 in rents coming in, with no additional information we should be asking follow on questions, not being jerks. What are the expenses (utilities, etc.) you'll pay? What sort of rehab costs will be needed out of the gate? Are there tenants in place? Any liens? What does "distressed" mean in this context? I get that OP is being broad with the language because it's a potential deal they don't want to lose to sometime else but let's help him ask the right questions. Not everyone can invest solely on A and B class properties, or at least, this game isn't so cut and dry that this is the best decision for everyone always.
Hi Nathan,
I am not here to crap on anyone. If you read through all my posts I care about the success of everyone here. I spend countless hours giving my best advice for all to share. I am straight forward to the point with no fluff. I am not here to be someone's cheerleader. I am here to give people the truth and yes the truth may be painful but we live in a world where we need to be straight forward and to the point. If my post here saves some BP members from making a terrible mistake and lose thousands then I am happy. That's the point of the post to help people.
I will rather be punched in the face with the truth than kissed with a lie. What would you want?
@Benny Morfas Way too many red flags. Just the fact that you know its a D neighborhood and is one of the most dangerous areas should tell you that is a no deal. Stay clear from this. Also, I see some BP members here advising you to stay local, but I'm not sure if they realize you're based in Los Angeles. It's very hard to find good cashflowing properties here. I know dozens of investors in our area who made oos investing work, so don't be discouraged.
I don't totally disagree with a lot of the comments but do believe that you should get your feet wet when your ready. I purchase C and D class properties and the key is to have a property manager that knows the area to worry about collecting your rents. My tenants are paying on time for the most part and most are older collecting retirement and in need of lower rents. So assess your risks based on the area your in and make a decision. If you can't afford a class A or B property, don't stand by and don't make a move! Grab something in your price range and work towards what you are looking to invest in, this is nothing more than a stepping stone to get you where you're trying to be. Trust me we all want class A properties!
My first house was 39k single family in a b/c class collecting $600.
First out of state investment. From NYC to Indiana.
I flew out there for the very first closing and met with the property manager I sourced.
The very first houses I was looking at were $25k single fam. In d areas and after flying in to Indiana and speaking with every local I encountered....they gave me enough info to pay a little more for a slightly smaller return. And a higher chance you can find a mgmt company that will give you good advice on rent rates and how easily it can rent. And they will be more than happy to work with you.
I would find someone that has boots on the ground and build a relationship with an established Contractor and Property management that has experience in that particular neighborhood.
Many people start in class D to work their way up and become very successful.
If you go in with a shaky and scared mindset then it’s probably not for you.
If you go in with a truly positive mindset on making it work you can make it happen.
If you plan on buying it, I would recommend not making it look like a class A rehab. Laminate floors, lowscale counters and I’d paint the rooms with a easy to wash paint. It’s all going to get destroyed by next year. Also, I’d hire a 24 hour handyman. You won’t catch me wasting my time fixing every stupid issue a class D tenant complains about.
I am assuming this is NOT separately metered? I personally do not buy anything that small that is not separately metered but if I did there would have to be some upside play whether its flipping it through forced appreciation or the area having some upside because its close to a good area. I doubt this is the scenario for this one so consider that these type of properties may be good for cashflow but you can't scale with these type of properties unless you plan to self manage the whole way. Managing the tenants with PM will be expensive.
@Benny Morfas there is a reason that property has been sitting on the market for so long. If it was a deal it would have been scooped up long ago by an investor.
My thoughts about renting in D neighborhoods are that 1) your tenants are not going to care for your house what so ever and might trash it/steal from it and 2) even if you get a high ROI, in a high crime area like that you may just be risking your life, especially if you stick out like a sore thumb.
You are not really mitigation any risk in this situation. You might be better off putting your $30k into high yield mutual funds or REITS (see Fundrise).
I would pass - patiences is the hardest part of investing for me, but stay strong. You will find a good deal if you keep at it!
I'm gonna throw this out there. Just something to think about.
Class d...... Sometimes there are efforts being made by City/county/state to bring these neighborhoods up to a C class. Cuz what city wants to have a class D??
That being said sometimes efforts are being made. Not saying this deal is a good one, but if you take time to analyze the whole situation MAYBE just maybe city hall has grants approved and plans in the near future to try to bring the area up a grade. tho have no experience in this subject I can speculate, there could be potential for investors if they know or think this area is gonna class up. Then those low number deals can really pay off. But you gotta have the balls (lady balls included) and money to stick it out.
Attend a REIA meeting in the city where the property is located and just ask everyone what they think of the address. Local wholesalers, lenders, and investors attend those events and can probably give you some great insights. Ask them if they think it really is a D class neighborhood (sometimes looks can be deceiving, if you're on the outside looking in). Ask if anyone has any investments nearby that property and ask how they are performing.
Being out of state, you’ll need a property manager for this type of property. As a property manager, I wouldn’t want to manage this unit.
If you were to do it, double your projected repairs and certainly don’t count on collecting 100% of the rent. Budget for higher vacancy time trying to find a qualified tenant.