Calling all (successful) Low income (class C / D) investors

95 Replies

Please share your systems and tips for successfully running a low income investment strategy. Especially around rents, maintenance, evictions, tracking expenses etc. I recently purchased a few low income properties that of course looked great on paper. But Reality is hitting and realize I don’t have the right systems in place to deal with this class of properties. Rent is ALWAYS late. Utilities not paid (in this town the water bill must be in the owners name) Constantly something that needs to be fixed. Tenants not taking care of the unit and I’m responsible. Just had 2 section 8 re-inspections and there is a laundry list of items to fix. I KNOW I can be successful in this. My properties are actually on nice streets even though the overall areas isn’t great. It’s very block by block here.

Frankly people don't change.. this is what it is.. and will be a continual battle for you.. that's why the properties are so cheap to begin with.. you need them to be that cheap to make up for the bad debt  broken items and yearly hud inspections.

you want different results buy nicer properties.. that's the bottom line.. 


@Jim K.   Jim K is one of the low C D class experts on this site I would see if he will chime in.. He will tell it like it is. 

Check out @James Wise Tenants From Hell videos. That will scare a lot of people out of the C,D,F properties.

I had a few C,D rentals that went to hell. I now only buy A, B+ and actually make money now instead of losing money.

I have a handful of class C with Section 8. Has been nothing but cash cows. Rarely do I get phone calls. Of course, they will not keep your property pristine but that comes with the territory. Sure, you will fail an inspection here or there but really no big deal. Just have a good handyman. For my last two tenants, I used a real-estate agent who also deals with section 8. She has been screening excellent tenants so that has been a huge plus.

At least 50% of the game for us is being able to screen lots of applicants. I currently do this with my non-Section 8 properties by keeping my rents low. If you're running Section 8, on the other hand, you need to advertise a lot to get a lot of applicants to find the gold in the dross.

There's a lot to know, beyond that. One very large part of it is being able to get the work that needs to be done on the property done cheaply. My way of dealing with that is doing it myself. We are self-managing DIY landlords. If you can't do the work yourself, then you need access to a capable, hardworking, and cheap handyman, and in this economy, they are a very rare breed.

Lastly on my extremely abbreviated list, YOU HAVE TO LIVE THERE. You're not going to get it done with 3rd party property managers working hard to bleed you white across state lines. The loss opportunities are just multitudinous in C/D-class properties. These places are usually old, cheaply built, and were previously managed by incompetents. You have to be there to be on top of things yourself, or you'll be taking a very long ride on the broke train sooner rather than later.

Originally posted by @Jay Hinrichs :

Frankly people don't change.. this is what it is.. and will be a continual battle for you.. that's why the properties are so cheap to begin with.. you need them to be that cheap to make up for the bad debt  broken items and yearly hud inspections.

you want different results buy nicer properties.. that's the bottom line.. 


@Jim K.   Jim K is one of the low C D class experts on this site I would see if he will chime in.. He will tell it like it is. 

That’s part of my future strategy. I was able to acquire the properties with some equity so I will fix a bit, raise the rents and either sell or pull out the equity and purchase in the more desirable parts of town.

Originally posted by @Jim K. :

At least 50% of the game for us is being able to screen lots of applicants. I currently do this with my non-Section 8 properties by keeping my rents low. If you're running Section 8, on the other hand, you need to advertise a lot to get a lot of applicants to find the gold in the dross.

There's a lot to know, beyond that. One very large part of it is being able to get the work that needs to be done on the property done cheaply. My way of dealing with that is doing it myself. We are self-managing DIY landlords. If you can't do the work yourself, then you need access to a capable, hardworking, and cheap handyman, and in this economy, they are a very rare breed.

Lastly on my extremely abbreviated list, YOU HAVE TO LIVE THERE. You're not going to get it done with 3rd party property managers working hard to bleed you white across state lines. The loss opportunities are just multitudinous in C/D-class properties. These places are usually old, cheaply built, and were previously managed by incompetents. You have to be there to be on top of things yourself, or you'll be taking a very long ride on the broke train sooner rather than later.

That last paragraph pretty much summed it up precisely. 

And I am starting to see a good, cheap, and reliable handyman is the key to success. I will never make money if I have to pay market prices to repair a door, or patch a hole in the wall.

Paying market rate for repairs and maintenance will leave you broke. Not fixing or doing half a88ed job makes you a slumlord. 

I wanted to hand off to a property manager but I’m afraid of being nickeled and dimed with all the maintenance. Managing myself is bit overwhelming that I was looking for the right systems to streamline things. 

In many markets, the difference in management challenges between C and D class can be big...and lumping them together may lead to the wrong conclusions about C class in those markets.

You can make any type of property work it just depends on how much effort and time you want to put in. The odds are stacked agains't you for C/D areas. I would not invest in those areas not worth it to me.

@Latisha Douglas most my rentals are low income and C class. I would say it’s based on a couple things.

1. A great PM. The PM I use screens well, has been around 45 years and deals mostly with low income tenants.

2. Screen tenants that stay a while. I find a properly chosen tenant never leaves. I’ve got several that are there for 5 plus years and my longest is currently been there 23 years

3. As @Jim K said, you must do your own maintenance or do it cheaply. I do some of my own work or know people who can do most things for a reasonable price. Over time this will likely improve to as I build better systems

Originally posted by @Jim K. :

At least 50% of the game for us is being able to screen lots of applicants. I currently do this with my non-Section 8 properties by keeping my rents low. If you're running Section 8, on the other hand, you need to advertise a lot to get a lot of applicants to find the gold in the dross.

There's a lot to know, beyond that. One very large part of it is being able to get the work that needs to be done on the property done cheaply. My way of dealing with that is doing it myself. We are self-managing DIY landlords. If you can't do the work yourself, then you need access to a capable, hardworking, and cheap handyman, and in this economy, they are a very rare breed.

Lastly on my extremely abbreviated list, YOU HAVE TO LIVE THERE. You're not going to get it done with 3rd party property managers working hard to bleed you white across state lines. The loss opportunities are just multitudinous in C/D-class properties. These places are usually old, cheaply built, and were previously managed by incompetents. You have to be there to be on top of things yourself, or you'll be taking a very long ride on the broke train sooner rather than later.

Im doing the same, slightly lower rent to get a good selection of applicants. I dont charge for the initial application (only 40$ to mysmartmove if they actually pass muster) because I get so many that do not pass. They lie, dont read, dont complete the app fully, have unstable lives, or are (or shacked up with someone who is) bragging about dealing drugs on facebook.

What I struggle with is the inevitable fight/arguments when I decline them. I hear others here say "just dont decline them and just keep taking applications until one passes" but the alternative is just frustrated applicants and the total stress for us both is more than if I just said no when I knew it was going to be no.

Any advice on how to best handle when you have to decline? This is market rent, not section 8.

Regardless of the class property , 

A or D , the tenant must pay rent when it’s due. 

My C class property is not different from my A property in the way I manage them . 

Train your tenants - Adhere to the lease in terms of what’s their responsibility and what’s yours . 

In my lease , they know after 48 hours if rent is not paid I start eviction . Plain and simple. I’m in this to make money not friends. 

Originally posted by @Marci Stein :

Regardless of the class property , 

A or D , the tenant must pay rent when it’s due. 

My C class property is not different from my A property in the way I manage them . 

Train your tenants - Adhere to the lease in terms of what’s their responsibility and what’s yours . 

In my lease , they know after 48 hours if rent is not paid I start eviction . Plain and simple. I’m in this to make money not friends. 

Im struggling with this. Need to take my emotions out of it. I have two evictions I need to start for rent not yet paid this month. And it’s the 24th!

Originally posted by @Mike Dymski :

In many markets, the difference in management challenges between C and D class can be big...and lumping them together may lead to the wrong conclusions about C class in those markets.

Ok. I see what you mean. I would say mine are C. Even though there are plenty of Ds in the surrounding area. 

#1. Don't be a slumlord. Get to know your properties and get the properties in good repair before you rent them:
Make sure the windows are functional, safe, clean, and have window treatments. (Clean the window sills too) Old windows often need to be re-roped, make sure the locks are functional, make sure they open and close. Make sure you have screens and storms.
Paint or wash the walls if recently painted. If the trim needs to be painted, use joint compound to smooth out rough edges from multiple layers of paint. Choose modern colors.

Clean carpets (we are moving away from carpet all together). Replace worn flooring.
Make sure the appliances are clean and functional (and match!)
Make sure all built in cabinets, cupboards, and drawers are clean and empty
Make sure the bathroom fixtures are clean and functional (run the water and test every drain). Flush all the toilets.
Check all the outlets and make sure the plugs stay in and that the outlets are functional (note any switched outlets)
Test the smoke detectors
Replace batteries in digital thermostats
Make sure all light fixtures are working (we replace bulbs with leds).
Make sure there are thresholds and not rough flooring edges.
Make sure the HVAC system is functional.

At your move-in walk through: show your tenant where the breaker box is and how to reset a tripped breaker.
If you have old triple track or double track storms, show the tenants how to operate them.
Show tenants how to relight the stove pilot light.
Test the smoke detector in the tenants presence and show them how to replace battery if not a sealed unit.
Show the tenant how to operate the thermostat.
Remind the tenant to use the bath fan or to open the bath vent window.
Point out the clean stove and fridge (and snap a picture) and let tenants know want them back in the same condition.

If you do these things it will drastically cut down on your maintenance calls. It will be clear to tenants (just from having clean windows and appliances) that you care about and maintain your properties.

Extras:
If the cabinets are decent but tired-- refinish them and add new pulls. I trained a tenant to use the rustoleum cabinet transformation kit and it looks great and holds up well and makes a huge difference! and helps you rent FAST. For less than $100 you can transform a kitchen.

Your property may be in a C or D neighborhood and it might not have all the modern ammenities but if it is clean and well cared for it shows! Tenants appreciate good value at every price point-- and it's hard to find at the low end of the market. I own and manage properties in B- through D neighborhoods.



#2. Late rent. Unlike many here, I am okay with late rent under certain conditions:
I must be notified in adavance about how much can be paid on time and when the rest will be paid. I need to know that the problem preventing full payment is temporary (not a job loss, or major life altering event). I do not want my tenants that live paycheck to paycheck to worry that they will lose their apartment if they are a little late on the rent, have a major car problem, or illness that leaves them short on hours-- but I do need notice sot that I am able to plan. and I do require income that should normally be sufficient for my tenants to cover the rent.

In return for this consideration, my tenants understand if I need some time to find a "deal" on a repair guy. They stay with me for the long run. And in three years, every single tenant has paid off their late balance. I may eventually get screwed by one but the lack of turnover and 0 legal fees year after year, is still, I think the better bargain.

@Latisha Douglas you need to screen your tenants well, don’t just take anyone because you are guaranteed the rent by sec 8. Look for families with working parents and good credit, bank account and good employment history. Also run background checks and make sure they have never been evicted. You need to check court records as sometimes background checks don’t pick up evictions like they claim they do.

learning basic handyman maintenance and repairs yourself can save you many thousands a year Especially in the hood . If you just use a handyman be sure he’s fair and shows up when you need him . Keep the tenants happy fix things promptly and they will stay because most landlords in c and d really suck and wait a week to do anything so it’s easy to shine in these communities! Screening is huge you need the largest pool of potential tenants as possible . Good marketing and aggressive advertising work wonders . As far as late payers that is going to happen regardless of how hard you are or how many notices you lost on the door . If you start throwing people out over being late your going to further your loss even more and shoot yourself in the foot . Charge the late fee and keep on them till your paid . It goes with the territory . Even if your good at managing even if you live there even if you do your own work ... it is difficult frustrating and emotionally draining at times . The first year or so you will stumble from one failure to another failure without making much money if any . It can be very defeating but you will get better each day and eventually the properties stabilize and your systems improve enough to produce results

I am with Jay Hinrichs.

C,D,F located properties is like playing the lottery. Occasionally you might hit a big payoff buying scratchers but odds are you won't win anything but lose money. Big difference in buying a C quality building in an A location. There you tend to have a great tenant base and stronger rents and more chance for equity upside over time.

If the property location itself is a C,D,F location even if the property is in decent shape generally long term not much value there. Investors tend to buy because low prices and the hopes of high cash flow. When the high cash flow doesn't materialize the investor tends to not have the options for additional value increases that A to B areas do. The great A to B areas at the bottom 6 to 8 years ago were a deal. My friends were buying for cash 50k and put 10k in rehab and rent for 800. Now they rent for 1,350 a month and worth triple what they have into them. Today those A to B areas are at premium pricing levels so wholesalers and many turn key companies sell subpar areas and properties as the next greatest and UP and COMING investment! LOL

Typically it's trash areas, professional tenants, and old buildings falling apart with outdated mechanical components and systems.  

No matter how many times on this site over a decade of time investors mention the low end and higher crime areas tend to not project out for cash flow or increase in value people still buy this stuff. They come on here with these plans with optimism and then you never hear from them again. As for doing your own repairs to properties. YOU ARE BUYING YOURSELF A JOB. The goal of investing is to create as passive income as possible that is scalable. This is not low income properties in higher crime areas etc. You have to make sure you have a FULLY updated property before you buy on those old buildings. That cash flow of 200 a month an investor thinks they will get is easily wiped out for years with capital costs on an older property. They can be endless money pits.

Now I have heard of before A FEW investors that can thrive in low income properties but it is rare. Most outcomes do not turn out that way for investing in these types of properties. Plus the kicker is investors tend to take on debt with these properties. Now the investor is saddled with a subpar property and losing money at the same time. Many are now trapped from making other better investments that come along and can't dump off the property to get rid of it without a loss as the next investor wants it cheap to buy in those areas.

So smart investors I know tend to buy run down properties in A to B areas to turn the property back into a diamond. They do not buy marginal properties in marginal areas. Some do but seasoned investors call that SPECULATING and not investing. The investor in that case hopes an area turns around but it can also go down hill real fast after it appeared it was on the upswing.   

If investors have small amounts of capital to start it might seem investing in crowd funding type opportunities for unaccredited investors or buying tax liens etc. might allow buying into higher quality assets they could not afford on their own or taking smaller capital risk outlay with a tax lien for return. 

Originally posted by @Nick Kohilas :

@Latisha Douglas you need to screen your tenants well, don’t just take anyone because you are guaranteed the rent by sec 8. Look for families with working parents and good credit, bank account and good employment history. Also run background checks and make sure they have never been evicted. You need to check court records as sometimes background checks don’t pick up evictions like they claim they do.Im

Yes families. I get so many single women with multiple kids. I know I can’t discriminate.....

Originally posted by @Mike Dymski :

In many markets, the difference in management challenges between C and D class can be big...and lumping them together may lead to the wrong conclusions about C class in those markets.

That's a strong point, Mike, and one I need to take into account in the future when I describe myself as a C/D borderline investor. Southwestern Pennsylvania is an unusual market in this regard -- we experienced a huge quality building boom from 1899-1929. So you have an unusually high proportion of 90-year-old high-quality brick-veneer SFR builds in areas that are currently D-class but used to be A/B class way back when, places that have decades of life left in them as long as you renovate thoroughly and keep up the maintenance. Morever, real D-class war zones are really very rare in my little city. Even the worst places are overwhelmingly populated with people who really just want to live and let live in a safe neighborhood.

Originally posted by @Nicky Reader:
Originally posted by @Jim K.:

At least 50% of the game for us is being able to screen lots of applicants. I currently do this with my non-Section 8 properties by keeping my rents low. If you're running Section 8, on the other hand, you need to advertise a lot to get a lot of applicants to find the gold in the dross.

There's a lot to know, beyond that. One very large part of it is being able to get the work that needs to be done on the property done cheaply. My way of dealing with that is doing it myself. We are self-managing DIY landlords. If you can't do the work yourself, then you need access to a capable, hardworking, and cheap handyman, and in this economy, they are a very rare breed.

Lastly on my extremely abbreviated list, YOU HAVE TO LIVE THERE. You're not going to get it done with 3rd party property managers working hard to bleed you white across state lines. The loss opportunities are just multitudinous in C/D-class properties. These places are usually old, cheaply built, and were previously managed by incompetents. You have to be there to be on top of things yourself, or you'll be taking a very long ride on the broke train sooner rather than later.

Im doing the same, slightly lower rent to get a good selection of applicants. I dont charge for the initial application (only 40$ to mysmartmove if they actually pass muster) because I get so many that do not pass. They lie, dont read, dont complete the app fully, have unstable lives, or are (or shacked up with someone who is) bragging about dealing drugs on facebook.

What I struggle with is the inevitable fight/arguments when I decline them. I hear others here say "just dont decline them and just keep taking applications until one passes" but the alternative is just frustrated applicants and the total stress for us both is more than if I just said no when I knew it was going to be no.

Any advice on how to best handle when you have to decline? This is market rent, not section 8.

Oh, I have exactly the same problems when I advertise like mad. The only way I've managed to get around this is to have the tenant in hand well before I have the property done and ready to go. I am always running a renovation, and nine times out of ten, I have the tenant lined up before I have the renovation finished. So I don't exactly advertise the property as it comes online. I already have multiple candidates lined up and vetted who would like to live in one of my properties, and the property is usually spoken for well before it is finished.

Certain professions, I've found, produce MUCH more reliable tenants than others, and in my town, licensed practical nurses and facility-based nursing assistants who have been employed with the same near-monopoly health care provider in our area for five years or more are practically bulletproof. Most of my tenants are drawn from this segment of the population and related professions. This will also go a long way to explain why, while I think Section 8 is a great program in my area, I vastly prefer non Section 8 rentals -- I am leveraging an unusual local advantage.

Why rent to anyone else when the medical profession will do 3/4 of your vetting for you?

Originally posted by @Jill F. :
#2. Late rent. Unlike many here, I am okay with late rent under certain conditions:
I must be notified in adavance about how much can be paid on time and when the rest will be paid. I need to know that the problem preventing full payment is temporary (not a job loss, or major life altering event). I do not want my tenants that live paycheck to paycheck to worry that they will lose their apartment if they are a little late on the rent, have a major car problem, or illness that leaves them short on hours-- but I do need notice sot that I am able to plan. and I do require income that should normally be sufficient for my tenants to cover the rent.

In return for this consideration, my tenants understand if I need some time to find a "deal" on a repair guy. They stay with me for the long run. And in three years, every single tenant has paid off their late balance. I may eventually get screwed by one but the lack of turnover and 0 legal fees year after year, is still, I think the better bargain.

Well said, Jill. You got to be willing to deal, and you've got to "deal belly to belly" with these people, as @Steve Vaughan has always said. If you can't deal, you shouldn't be down here in these classes. These people have problems. If it's the end of the world and your magic spreadsheet falls apart if the rent shows up on the 10th one month of the year, you're not adequately financed for running rentals in these classes. I don't care how sweet the cap rates seem to be. I've got properties with on-paper cap rates this year of 16-18%. Next year they'll show a 3-4% cap rate after all expenses are calculated. The year after that they'll be 7-8%, or back up to 17%, or negative. That's how it works in these classes.

Another point to be mentioned: you have to end it when you're at capacity. THIS IS NOT A LONG-TERM SUSTAINABLE BUSINESS MODEL YOU CAN GROW TO INFINITY AND BEYOND. I will not go over 25 units these classes. No way. When I get to 25, the portfolio is getting sold off and the money's going into something else. Once your tenants understand that you're too important to take their phone calls directly and show up when they have a problem, you are already Mr. Moneybags Slumlord, getting stinking rich off the backs of the poor. Don't be that guy, and you won't have that guy's problems.

Originally posted by @Jill F. :
#2. Late rent. Unlike many here, I am okay with late rent under certain conditions:
I must be notified in adavance about how much can be paid on time and when the rest will be paid. I need to know that the problem preventing full payment is temporary (not a job loss, or major life altering event). I do not want my tenants that live paycheck to paycheck to worry that they will lose their apartment if they are a little late on the rent, have a major car problem, or illness that leaves them short on hours-- but I do need notice sot that I am able to plan. and I do require income that should normally be sufficient for my tenants to cover the rent.

In return for this consideration, my tenants understand if I need some time to find a "deal" on a repair guy. They stay with me for the long run. And in three years, every single tenant has paid off their late balance. I may eventually get screwed by one but the lack of turnover and 0 legal fees year after year, is still, I think the better bargain.

See that’s what I thought too. I don’t mind if they are a little late during the month. As long as they communicate with me and I eventually get it. But the saying “give them an inch they take a mile” come true. Each month they push it further and further. Now they are two months behind and refuse to communicate. 

Do you charge them late fees?

Originally posted by @Jim K. :
Originally posted by @Nicky Reader:
Originally posted by @Jim K.:

At least 50% of the game for us is being able to screen lots of applicants. I currently do this with my non-Section 8 properties by keeping my rents low. If you're running Section 8, on the other hand, you need to advertise a lot to get a lot of applicants to find the gold in the dross.

There's a lot to know, beyond that. One very large part of it is being able to get the work that needs to be done on the property done cheaply. My way of dealing with that is doing it myself. We are self-managing DIY landlords. If you can't do the work yourself, then you need access to a capable, hardworking, and cheap handyman, and in this economy, they are a very rare breed.

Lastly on my extremely abbreviated list, YOU HAVE TO LIVE THERE. You're not going to get it done with 3rd party property managers working hard to bleed you white across state lines. The loss opportunities are just multitudinous in C/D-class properties. These places are usually old, cheaply built, and were previously managed by incompetents. You have to be there to be on top of things yourself, or you'll be taking a very long ride on the broke train sooner rather than later.

Im doing the same, slightly lower rent to get a good selection of applicants. I dont charge for the initial application (only 40$ to mysmartmove if they actually pass muster) because I get so many that do not pass. They lie, dont read, dont complete the app fully, have unstable lives, or are (or shacked up with someone who is) bragging about dealing drugs on facebook.

What I struggle with is the inevitable fight/arguments when I decline them. I hear others here say "just dont decline them and just keep taking applications until one passes" but the alternative is just frustrated applicants and the total stress for us both is more than if I just said no when I knew it was going to be no.

Any advice on how to best handle when you have to decline? This is market rent, not section 8.

Oh, I have exactly the same problems when I advertise like mad. The only way I've managed to get around this is to have the tenant in hand well before I have the property done and ready to go. I am always running a renovation, and nine times out of ten, I have the tenant lined up before I have the renovation finished. So I don't exactly advertise the property as it comes online. I already have multiple candidates lined up and vetted who would like to live in one of my properties, and the property is usually spoken for well before it is finished.

Certain professions, I've found, produce MUCH more reliable tenants than others, and in my town, licensed practical nurses and facility-based nursing assistants who have been employed with the same near-monopoly health care provider in our area for five years or more are practically bulletproof. Most of my tenants are drawn from this segment of the population and related professions. This will also go a long way to explain why, while I think Section 8 is a great program in my area, I vastly prefer non Section 8 rentals -- I am leveraging an unusual local advantage.

Why rent to anyone else when the medical profession will do 3/4 of your vetting for you?

Are you showing the property before the renovations are complete? I thought that was a no no.  

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