Blog Post: Why I’d Discourage Newbies From Buying D-Class

11 Replies

I just finished reading "Why I’d STRONGLY Discourage Newbies From Buying D-Class Investment Properties" Click here to read it. (Don't worry, it's a short one.)

This is something that I was considering doing as I have been writing up my investment / business plan for my future in REI. I'm new and still learning, gaining some knowledge and guidance from people in this community, so I'm not 'set in my ways' or anything! I'm just here to learn.

Any locals to Jacksonville, Florida that can share some success stores or some warnings about investing in some D-class areas?

I'm looking forward to hearing back!

@Alex Sanfilippo   Very simple Alex... D areas are NOT investing.. its a small business that can turn into a big business over time.  but its an business. your dealing with the most challenging asset class in the rental realm in the US... plain and simple... its as much a people business as anything else..

I have helped 3 companies over the last few years scale up in the C class .. One I helped fund are at almost 200 SFR's in 28 months.. I funded them all ...

but this is what they do its their life ,, and will be their life for the long term.. just another business.

I have a friend who has a quadplex on Justina Rd. That has to be pretty close to a D area. He has another house in 32254 and one on Fouraker. All those areas are mandatory "cocked and locked" areas, and services them at night if necessary. 

All properties were obtained "on the cheap"

He likes to rent out for $500 per month. Seems to have pretty high vacancy. (20%)

Seems like it's cheap to get into, but I guess many people can manage them.

Alex, I have contemplated on purchasing those 15-30k sfh you see on the north side, but I'm still on the fence about it. The properties are cheap but a lot of them look like they are in rough shape. I also have no idea how difficult they will be to rent. However, it seems like it's the only place in Jax you can still find a deal.

They are in war-zones, unsafe area's. Your tenants will be a headache, most often you'll be chasing them up for rent, evicting them.

You buy cheap you pay for it in stress, lack of rent coming in, maybe high insurance costs. We all know your going to dump significant cash to re-rent it. "CHEAP" is not always the best option

The deals were 4 to 6 years ago nationwide in quality areas. A to B locations and properties that rent for 900 and you could buy for 55,000 cash including repairs to get rent ready.

These days the only cheap stuff is in trash areas I wouldn't touch at any price. Stuff is so over valued these days I am a non-buyer in the SFR cycle. It amazes me the pricing I see in GA now. I am sticking to value add commercial right now as it's in a better time in the cycle.

A class D property almost never appreciates and is a cash flow play only. You are buying yourself a J-O-B.

Thanks everyone for contributing; I appreciate all of the perspectives on this topic. I really do think this will be something that I stay away from after doing a bit more reading about it and hearing what everyone here is saying. I'm not looking for a job, I'm looking for an investment to build future wealth.

@Alex Sanfilippo  Please take comments from people as guidance not as a rule.  You've heard from some experts and their experience is something to take to heart.

You need to weigh the higher level of intensity of a D-Class property with higher income and but also heavily weigh the dynamics of your location.  In my area, had you purchased sub-$100k  "D" houses available in certain neighborhoods 10 yrs ago, your property value would be 3 - 4 times that amount today.  You would have dealt with a low-income tenant, older house, and increasing property taxes.  That would not suck.

You can also find examples in Atlanta where D properties a decade ago are still D properties today.  Figure out where and how fast things are changing.  Buy B - D houses on the edge of this.  

Jax is one of the fastest growing cities in the country.  Don't get fooled into thinking a D-property is stagnant.  

Build a portfolio (like stock portfolio strategy) that balances risk, growth, and income.  

I agree with @Rick Baggenstoss . In addition, what some would call a D may actually be a B to others.  some of my properties are in what  I consider C fast becoming B areas. A potential renter/buyer may come and say they would never live there. Another may come and say "wow, this area is really changing, I like the diversity in that area, wow there are some small really cool restaurants not far away, and this same house closer intown would rent/cost 25% more."   All about perspective.  I live work and play intown so I know and like these areas well. But I always say do what you are most comfortable and familiar with in the beginning. 

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