Low income rentals? Pro/Cons?

Question

Tyron McDaniel · Answer

The biggest drawback for most investors is dealing with the tenant's in the lower income bracket and for many this drives them out of real estate. The flip side, is you can understand that the lower income market is derived of people to and if handled accordingly can be profitable.

It's not for the faint of heart and you have to have a BULLETPROOF management system that ensures you get payment and your properties are taken care of! For instance, in certain areas rather than pay a property manager we have paid an off-duty cop to pick up rents for $30-50 month (depending on location) and have documentation signs which puts the FEAR of GOD in the tenants and even if they skip out on 1 months rent they NEVER trash the place because they are scared of the law!

This one strategy has been a game-changer for people that I have shared it with!

James DeRoest · Answer

Problem in my opinion is the condition of the properties. I know a few retirement age landlords and they own some very run down properties. You name it, they skimped on it. These people have portfolios that would only be good for firewood.

The key to being successful is tenant screening. Nothing else matters. Want the right tenants, then the properties have to be desirable. Want the wrong tenants, well, that's easy.

Knowing where they move to if they skip the rent - waste of time and will simply wind you up. If they don't pay you, they aren't going to pay you.

So before you do anything more - go look at the properties, and take a cold hard look at the condition of them. Do a drive during the day to see what they look like in daylight, and do a driveby at 8pm on a Friday night - because that's when the drug parties are in full flow.

Terry Alexander · Answer

Hey Nathan,

With my properties, the ones in lower income areas have more turn over and are more time consuming to manage then the higher income areas. But for me have been worth the effort for the addition cash flow.

-Terry

Eran Greenburg · Answer

"Our experience is that we don't file evictions, we offer keys for cash." How much? Can you detail a bit?  Obviously it might be cheaper to pay someone to move out than to evict.

Eran Greenburg · Answer

What are "documentation signs"?

Michele Fischer · Answer

Nathan, if you've listened to the podcasts, you may have heard mine.  I also update my user blog weekly.  Our experience is that we don't file evictions, we offer keys for cash.  Being the mail carrier and knowing the people is a huge advantage in my book.  BUt, knowing where they are doesn't help with collectibility any if they have no assets or credit to protect.  The biggest drawback to low income landlording is how time consuming it is, both collecting rent and more hand holding, and more involved move outs.  Last year we had 13 move outs, so far this year none, so this year it is looking much brighter!

Nathan Duncan · Answer

Thanks for the input everyone. The benefit of delivering the mail here is I know who most of the "floaters" as I like to call them are. Living in a small town it doesn't take long to figure out what individuals like to skip out and move around. I've helped my mentor track a few down. The majority of people are good folks. Unfortunately, the economy here is slow and people have been on hard times for a while. With the exception of a few bad apples the vast majority pay on time. I feel it's an interesting market since I know a large number of the people that possibly would be my future renters. Could that be a double edged sword if I have to file an eviction? Possibly? But so far I feel the pros outweigh the cons. The numbers certainly back that up.

Alan B. · Answer

*aggressive...auto correct on the phone

Alan B. · Answer

In my very limited experience the pros are that the profit margin can be very high & you can sometimes either pay for the home in cash or pay it off very quickly due to its lower value.

Cons, because of the lesser value & the neighborhood it may be harder to sell if you ever decide you want to unload it. But if your desire is to be in the buy & hold arena for the long hull then this won't be an issue.

Another con is the tenant pool. I know bad tenants aren't limited to just low income properties but you may encounter more. You may have to accept that with low income you need to be more hands on. More agrees I've with enforcing rules, more frequent property inspections.

Low income rentals? Pro/Cons?

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