Any one has rental in D class neighborhood.
Member since 2021 · 42 posts · 33 votes
Any one has rental in D class neighborhood.
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Leroy K. WilliamsPro Member
Property Manager · Southfield Mi · Member since 2018 · 192 posts · 177 votesQuote from @Elvin William:
Quote from @Linda S.:
I'm going to guess you haven't been in the house recently and seen how your tenants are taking care of it, because that's where most experienced landlords are coming from. No one ever complains of the rent coming in, but instead of the treatment/damages of the house. Sounds like you haven't seen the turnover yet, but when that happens, you will understand more.
Here is the thing, your rental property will likely perform not based solely on whether its a Class A, B, C, or D but more on whether your tenant is a Class A-D person. There are low-income people on Section 8 who are high class people however they tend to look outside of the Class D properties. Why? It's not because they are too classy to live in the interior neighborhoods or because it's too dangerous. Those aren't the primary factors. The biggest issue for them is that quite often Class D neighborhoods attract Class D investors, Low life investors who think that they can buy for pennies on the dollar, invest peanuts into the rehab and then collect free income from the government for years to come.
If more investors actually improved their property to the point that it becomes the best home on the block in the Class D community, they would attract a great tenant and will help uplift a community starving for reinvestment in the process.
43 Replies
- Flipper/Rehabber · Louisville · Member since 2023 · 12 posts · 5 votes2y
@Elvin William I agree with @Leroy K. Williams that it's not just the neighborhood, it's the quality of tenant. I'm learning as I go along; I feel if you keep your property good, chances are you will attract quality tenants who will want to take care of it too. I've met investors in D class who buy the property and don't bother to fix stuff, soon enough the property and the quality of tenants deteriorate.
I met this one investor was trying to sell his MF and the tenant complained that the house had no insulation and the utility bills were at $600+ and tenant didn't want to pay rent to such a landlord. In this scenario i guess the tenant is right.
Well overall i feel numbers make sense in D class neighborhoods along with the learning curve, I know someone who has a few properties and quite happy with the rent flow with no big issues. Even i only hear the negatives very often, i still see D class as opportunity zones, like where are you going to find properties under $40k and cash flow like you are right now. Plus the hoods do get gentrified eventually. I would think they should appreciate with time. Also in my city, I look at city development plans, new Mc Donalds, Taco Bell or Hospitals opening in the D neighborhoods. I see those are positive signs of neighborhood development.
- 2yLeroy K. WilliamsPro MemberProperty Manager · Southfield Mi · Member since 2018 · 192 posts · 177 votes
Quote from @Marcus Auerbach:
If you start with class D the most likely outcome is that you will learn a lot in a short time and then either trade into better neighborhoods or just get out of REI all together. Very few people make it long-term.
Tenant issues aside, renting in class D neighborhoods is financially not a very good concept. Over time capex exceeds cash flow. I have seen it many times. People don't realize the mounting capex liability, it is almost invisible until it's too late. Milwaukee D class is fools gold; most people are not cut out for it. You can't find a good PM and if you self-manage (which is probably the only way to make it work) it will burn you out.I had an old investor on our of our RPA lunch&learns who told us in the Q&A that he has been renting and self-managing a sizeable section 8 portfolio for over 30 years. The topic was "How to make a million with REI in 7-10 years" and he said he is nowhere near that. Working his but off for over 30 years, doing most of the work himself, he had to refi properties along the way to have money for roofs, plumbing, basement issues and driveways. He wants to retire, but he can't really sell the portfolio, does not have that much equity and he is holding it together with both arms, so he can't step back.
Hi Marcus,
Section 8 solves a lot of the issues for Class D rentals. As it relates to self-managing a large portfolio, I can assure anyone that if you have a great property from the beginning, no let's say you have 40 doors from Day 1 that are all properly renovated, you will not have more maintenance work in a year than one good full-time handyman can handle. Tenants don't break roofs, driveways or foundations. Those issues were likely pre-existent and lip stick was applied to get a tenant in.
For Section 8 tenants, getting a voucher is quite often a tedious process which takes time. Once tenants achieve having a voucher, they tend to understand that they are responsible for the general upkeep of the home (i.e., cleanliness, basic landscaping for SFHs, holes in the wall, doorknobs broken, etc.). Tenants understand that the owner or PM has the right to periodically inspect the dwelling and if it is found that the tenant is destroying the home the Section 8 office can be contacted and the benefits will be placed at risk along with possible eviction.
Class D is definitely not hands free however none of the classes of property are. - 2yDaniel HymanBusiness MemberCPA · Milwaukee, WI · Member since 2016 · 2k+ posts · 1k+ votes
I had a positive experience with a Section 8 rental in class C and it was ok, but I would not want to build a portfolio around class D.
Life's too short for the headaches.
My Online Accountant572 Reviews - Realtor · Cleveland, OH · Member since 2023 · 340 posts · 215 votes2y
Hi, Ohio has a great market for investing in real estate. There will be good and bad situations and people no matter where you invest in real estate. Everyone's experience will be different. I enjoy reading different viewpoints in BP. I may agree and disagree with different viewpoints but, overall, I respect all the different point of views. But I always tell people and I live by this do something for yourself because, you may or may not encounter the same experience as someone else. We all know real estate is hard work and a lot of money. But a lot of people in general are making great livings in real estate overall. The end game is awesome and rewarding. If you have any questions, please reach out to me. Thanks!
- Member since 2020 · 240 posts · 104 votes2y
@Elvin William I am in classes, B, C, D and I would rather not be in D, it came with a lot of headaches but I finally stabilized it . It's true what everyone says, they don't take care of the units and are the ones that pay late.
- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes2y
Quote from @Marcus Auerbach:
If you start with class D the most likely outcome is that you will learn a lot in a short time and then either trade into better neighborhoods or just get out of REI all together. Very few people make it long-term.
Tenant issues aside, renting in class D neighborhoods is financially not a very good concept. Over time capex exceeds cash flow. I have seen it many times. People don't realize the mounting capex liability, it is almost invisible until it's too late. Milwaukee D class is fools gold; most people are not cut out for it. You can't find a good PM and if you self-manage (which is probably the only way to make it work) it will burn you out.I had an old investor on our of our RPA lunch&learns who told us in the Q&A that he has been renting and self-managing a sizeable section 8 portfolio for over 30 years. The topic was "How to make a million with REI in 7-10 years" and he said he is nowhere near that. Working his but off for over 30 years, doing most of the work himself, he had to refi properties along the way to have money for roofs, plumbing, basement issues and driveways. He wants to retire, but he can't really sell the portfolio, does not have that much equity and he is holding it together with both arms, so he can't step back.
Sounds undercapitalized and may have too many properties to manage. Sec. 8 is fine if you are not in NYC, Newark, Jersey City, Weehawken, Irvington or The Oranges. Basically outside of Essex and Hudson Counties in NJ. It's fine most other places.
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes2y
Yeah, we have some. They're tough. I wouldn't recommend investing in them unless you're a specialist, especially if you're out of state.
Quote from @Elvin William:
Wow. You going to rent long term section 8?Quote from @Bob S.:
I just today got $900 for a 1 BR in the hood, (7-unit building, all in 34k per unit) this is why I like the lower end areas!!
Most of mine tenants are government programs. They pay more and like clockwork,
- Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes2y
I have done section 8 and various programs for years. This topic comes up often. There are a few on BP who have successfully operated in those spaces. If this is the route you wish to go it would be crucial to take advice from them. If you do go here its critical you understand the community, culture, environment and treat people with respect. If you have those attributes and know how to screen well, its a very rewarding and lucrative business model. A lot to consider though and can be high risk if you dont understand it. Some of my best tenants have been very low income or Section 8.
- 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Elvin William
I normally invest in the Dallas area in B and C class neighborhoods. However, I thought it would be fun to buy 8 crack shacks in the hood in Arkansas last year for fun. They cost 25k each on average and so far they’ve been easy to self manage out of state. And these tenants are great. I’m considering buying more in D class areas like this.
- Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes2y
@Elvin William
What makes you think they are a "great property manager who takes great care of the property"?
Not saying they aren't but not saying theyvare either. A 30k bill on turnover when you purchased is probably going to be typical every few years. I'm thinking you'll spend several thousand each turnover. That's the kicker with class D - looks good on paper, doesn't pan out that way in real life
- 2yJoshua JanusBusiness MemberRealtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
Quote from @Elvin William:
Hello, I want to know if anyone is investing in D class Midwest neighborhood. How are you guys doing with D class. I'm more into section 8. Is anyone having positive experience? Thanks. I have 2 sfh in D class. $37,500 and $30,000 another one. Rent is $950 and other is $900. They pay all the utilities. My monthly mortgage is $300 each with 20% down.
New investors often overlook this key point of section 8 investing - the tenant chooses where to live. They are not assigned a house. So if you are buying a house on a street where nobody lives and has been vacant for years it's going to be challenging to find someone who actually wants to live there. Cleveland has a lot of inventory and a large rental population along with it so there will be other options for the tenants.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
Quote from @Joshua Janus:
Quote from @Elvin William:
Hello, I want to know if anyone is investing in D class Midwest neighborhood. How are you guys doing with D class. I'm more into section 8. Is anyone having positive experience? Thanks. I have 2 sfh in D class. $37,500 and $30,000 another one. Rent is $950 and other is $900. They pay all the utilities. My monthly mortgage is $300 each with 20% down.
New investors often overlook this key point of section 8 investing - the tenant chooses where to live. They are not assigned a house. So if you are buying a house on a street where nobody lives and has been vacant for years it's going to be challenging to find someone who actually wants to live there. Cleveland has a lot of inventory and a large rental population along with it so there will be other options for the tenants.
Great point. I just had someone send me a DM asking for help. They bought a cheap duplex in Milwaukee, fixed it up nice and can't get a tenant even though we have a rental shortage. I looked at the pictures and the apartment was nice enough to justify the $1400 in rent they were asking - but the location was not and that killed it. People who live there do not make enough, or vice versa. So all the work, money and time and then vacant for months. If the deal looks to good to be true...
- 2yJoshua JanusBusiness MemberRealtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
Quote from @Marcus Auerbach:
Quote from @Joshua Janus:
Quote from @Elvin William:
Hello, I want to know if anyone is investing in D class Midwest neighborhood. How are you guys doing with D class. I'm more into section 8. Is anyone having positive experience? Thanks. I have 2 sfh in D class. $37,500 and $30,000 another one. Rent is $950 and other is $900. They pay all the utilities. My monthly mortgage is $300 each with 20% down.
New investors often overlook this key point of section 8 investing - the tenant chooses where to live. They are not assigned a house. So if you are buying a house on a street where nobody lives and has been vacant for years it's going to be challenging to find someone who actually wants to live there. Cleveland has a lot of inventory and a large rental population along with it so there will be other options for the tenants.
Great point. I just had someone send me a DM asking for help. They bought a cheap duplex in Milwaukee, fixed it up nice and can't get a tenant even though we have a rental shortage. I looked at the pictures and the apartment was nice enough to justify the $1400 in rent they were asking - but the location was not and that killed it. People who live there do not make enough, or vice versa. So all the work, money and time and then vacant for months. If the deal looks to good to be true...
That's rough. Yea location, location, location! It's key. At least they got the reno down. Now just do it in a better area.
- 2yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Quote from @Jeremy Horton:
@Elvin William
What makes you think they are a "great property manager who takes great care of the property"?
Not saying they aren't but not saying theyvare either. A 30k bill on turnover when you purchased is probably going to be typical every few years. I'm thinking you'll spend several thousand each turnover. That's the kicker with class D - looks good on paper, doesn't pan out that way in real life
True that.
Paper returns are always different to real life returns.
We also never calculate our time and risk as they aren't tangible estimates.
D class comes with a lot of time and risk associated with it.
And PM needs to be really rough in order to make it work. - Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
Established PM's don't like to go into D areas: it's a lot more work and emotionally harder on their staff for the same percentage - but of a lower rent.
Normally a PM should get paid more.
So the result is you get mostly PM's who struggle to survive and will pick up any business they can.
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