Calling all (successful) Low income (class C / D) investors
New Haven, CT · Member since 2016 · 39 posts · 48 votes
Calling all (successful) Low income (class C / D) investors
Most Popular Reply
#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.
96 Replies
Originally posted by @Latisha Douglas:
There are a number of situations where I do show the property before the renovations are complete when I'm trying to match up the right apartment to the right tenant, say, to convince someone in June who's committed in their present lease until November that I'll be ready with the new place by then, for instance.
- Investor · Semmes, AL · Member since 2017 · 17 posts · 7 votes7y
I do my investing a little different here in Alabama. I typically purchase a property in a tax lien sale in C areas which is in the 3rd year and means a tax deed is available at the end of that year. Yes you have to wait out the next 3 years for redemption but that is ok. Purchase 3 properties hoping one will not redeem, and do it again & again. I usually purchase a one acre property that is in the county and might have an old house on it. After a clean title is acquired I donate the house to the fire department (tax credit!!!!) and it gets burned down (in lieu of have it torn down or moved). I am left with about 3-5 dump truck loads of material to dispose of or which I might and have buried. If sewer is available I can easily rent out this one acre lot for 2 mobile home (not campers). With 2 lots I can afford to purchase the rights to connect to the sewage main.
Now I have a clean property with three thousand or so invested into, I rent the property out for mobile homes at $250 month. I don't own the mobile home so there are no repairs. It will typically cost the mobile home owner about $3500 to move and set up at a minimum, usually more. This way they are finically tied into the lot. Yes there is a septic tank that is of concern, but generally if the field lines are not grown over they will be ok. I prefer sewage over septic. I do not purchase small lots that require the installation of a septic system or purchase the right to connect to a sewage main, expensive as I want all my expensed paid for in 18 months.
No, $250 a month is not going to make me rich but I now have 14 in my two LLC's. All of these properties I purchase off tax sales so there is little money invested by me, definitely some time in waiting for a clean title. I do require the cost as a deposit for the removal of the trailer should they just leave.
Doing a back ground check is almost a waste of time as most all will have issues. I really check on items like bad credit, defaults ect, most all mobile home owner will have issues of some type in their life time. You just have to make your mind up each time you have a new tenant.
Welcome to slum land lording, but it work for me and have been doing it over 35 years and most of my original tenants are still with me. I paid for two college educations at the University of Alabama this way.
If you are really down and dirty, you could turn this one acre lot in to a small travel trailer spots, 4 per acre and after paying for power and water, clear $800 - $1000 a month. But you also purchase and pay for a lot of head ache, I think you would qualify for class "F" (ha ha) on this one.
- Rental Property Investor · Pittsburgh, PA · Member since 2019 · 530 posts · 511 votes7y
Originally posted by @Jim K.:
Why rent to anyone else when the medical profession will do 3/4 of your vetting for you?
I have found the same in the education field where there are background checks and the like to get hired. Any profession that does screening for acceptance and employment in my book is a value add on a tenant application because there is a second set of eyes reviewing that person.
- Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes7y
I would convert all of those tenants to Section 8 tenants that aren’t already, that way the rent is paid on time. If it is their smaller portion that is late, I’d say that is fairly normal. About 50% of my Section 8 tenants pay their portion on time, for others it can be hair pulling, but not eviction worthy. One of my tenants only pays $35 a month, am I really going to evict for that? No, you just follow up every couple months and inform you won’t renew if they don’t get their portion caught up. It’s no big deal.
I like investing in D areas because you get the discount on the buy. The best part of buying in a bad area is that it’s already in a bad area! Good areas can become bad and bad areas can get better.
Is C and D class for everyone? No, but it’s been great for me. I wanted financial freedom about as bad as everyone else. So, I bought what I could afford to get started. If I hadn’t, I’d still be a lump on a log. I’m one of those fearless warriors that likes to do good, prove others wrong, dance in the rain, push themselves financially and mentally, leader type of people. A go getter and a risk taker.
I have to comment on a post above. I like C and D right now over A and B because the market is over priced. My properties don’t cashflow $200 a month as mentioned, they do $500 a month min. They are cheap, so I pay cash and they rent in the $700-$800 range, $600 if a one bedroom, so they cashflow around $500 a door. If you buy A or B, you’ll barely cashflow and I don’t see the appreciation right now. Just throwing that out there. The key is to do a thorough rehab so you get years of cashflow. If the house pays for itself in four years because of the $500 a month in cashflow, buy materials that last 15 years and you’re bound to turn out a winner. Buy more houses, increase your odds.
You’re going to fail many Section 8 inspections, get over it. Expect it, just get it fixed. Good luck. I like the get handy advice given above. I use a handyman. Cashflow is king when you are starting out. Never sell.
Originally posted by @Latisha Douglas:
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.
I have a very specific policy that limits the number of permitted late payments per year (4). I require very specific communication: Tenants have to "propose" a payment plan and in that plan state exactly how much will be paid and when. I require tenants to (for the most part) stay current on the "daily" rent. I turn down plans that don't work for me. Having said that, when I have a long term tenant that has a history of doing EXACTLY what they say, I will relax the daily rent requirment or go over the yearly limit. But as a rule, if the proposed plan won't keep the tenant current on the daily rent, I offer a counter plan. This is a negotiation and I decide what I can live with. I jump up and down about how important it is to follow through and pay EXACTLY as agreed; If a tenant doesn't do EXACTLY what they said I charge the late fee. If I have to call them, next time they ask, I hem and haw and say I dunno... last time I had to call you...
I do 3 day anyone that won't stay current on the daily and tell them it's just in case they don't follow through. It is important to explain that a 3-day isn't an eviction because among "non-professional" tenants there is wide spread confusion about the eviction process.
- Rental Property Investor · Houston, TX · Member since 2018 · 12 posts · 4 votes7y
@Latisha Douglas
I've learned from many mentors and through observation to never get into class D and really even class C tenants. It's a full time job and will just kill your ROI in the long run on your money and time. Other than the area gentrifying in the future I don't see a great investment play.
Why not just go with a different strategy all together, I.e. pooling money with others and buying a better asset?
I know it’s not the answer you wanted :/
Good luck!
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Jonathan R.:
I would convert all of those tenants to Section 8 tenants that aren’t already, that way the rent is paid on time. If it is their smaller portion that is late, I’d say that is fairly normal. About 50% of my Section 8 tenants pay their portion on time, for others it can be hair pulling, but not eviction worthy. One of my tenants only pays $35 a month, am I really going to evict for that? No, you just follow up every couple months and inform you won’t renew if they don’t get their portion caught up. It’s no big deal.
I like investing in D areas because you get the discount on the buy. The best part of buying in a bad area is that it’s already in a bad area! Good areas can become bad and bad areas can get better.
Is C and D class for everyone? No, but it’s been great for me. I wanted financial freedom about as bad as everyone else. So, I bought what I could afford to get started. If I hadn’t, I’d still be a lump on a log. I’m one of those fearless warriors that likes to do good, prove others wrong, dance in the rain, push themselves financially and mentally, leader type of people. A go getter and a risk taker.
I have to comment on a post above. I like C and D right now over A and B because the market is over priced. My properties don’t cashflow $200 a month as mentioned, they do $500 a month min. They are cheap, so I pay cash and they rent in the $700-$800 range, $600 if a one bedroom, so they cashflow around $500 a door. If you buy A or B, you’ll barely cashflow and I don’t see the appreciation right now. Just throwing that out there. The key is to do a thorough rehab so you get years of cashflow. If the house pays for itself in four years because of the $500 a month in cashflow, buy materials that last 15 years and you’re bound to turn out a winner. Buy more houses, increase your odds.
You’re going to fail many Section 8 inspections, get over it. Expect it, just get it fixed. Good luck. I like the get handy advice given above. I use a handyman. Cashflow is king when you are starting out. Never sell.
this is the exact model to make low end work.. Pay cash be local and hands on and realize what your dealing with and don't evict over co pay not paying.. too much debt right now going into non appreciating assets is what I see.. and that will really hurt investors when they decide heck this simply is not worth it.. its not financial freedom its financial ball and chain and they go to exit and its not pretty.. when you own in cash you can ride the waves sit out the thunderstorms and you have a variety of exits that are real and can be achieved without loss of capital.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Jill F.:
Originally posted by @Latisha Douglas:
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.
I have a very specific policy that limits the number of permitted late payments per year (4). I require very specific communication: Tenants have to "propose" a payment plan and in that plan state exactly how much will be paid and when. I require tenants to (for the most part) stay current on the "daily" rent. I turn down plans that don't work for me. Having said that, when I have a long term tenant that has a history of doing EXACTLY what they say, I will relax the daily rent requirment or go over the yearly limit. But as a rule, if the proposed plan won't keep the tenant current on the daily rent, I offer a counter plan. This is a negotiation and I decide what I can live with. I jump up and down about how important it is to follow through and pay EXACTLY as agreed; If a tenant doesn't do EXACTLY what they said I charge the late fee. If I have to call them, next time they ask, I hem and haw and say I dunno... last time I had to call you...
I do 3 day anyone that won't stay current on the daily and tell them it's just in case they don't follow through. It is important to explain that a 3-day isn't an eviction because among "non-professional" tenants there is wide spread confusion about the eviction process.
Any of your folks that have non section 8 gone to weekly rent payments ?? that works well in other countries its auto debited from their checking accounts.. of course we know many low end tenants don't have checking accounts and never will .. but for those that do have you considered it..
- Member since 2017 · 1 post · 0 votes7y
I have some questions that may also be pertinent to this topic. If you rent to section 8, how do you get a security deposit. As soon as I say there is a security deposit, it seems like people drop away.
Also, what is the deal with people who have jobs but don't have bank accounts. Are they drug dealers?
- Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes7y
Originally posted by @Lisa Intriligator:
I have some questions that may also be pertinent to this topic. If you rent to section 8, how do you get a security deposit. As soon as I say there is a security deposit, it seems like people drop away.
Also, what is the deal with people who have jobs but don't have bank accounts. Are they drug dealers?
I would see how much they can pay toward the security and tell them you’ll work them. Try to split it into two payments (half to move in). I’ve handed keys though on an iou, it worked out; it’s the government you want as the tenant, get to that point and money is going in your bank account monthly.
Question 2-The reason they don’t have bank accounts is they left a balance with a bank and can’t pay it. About all of mine are that way.
- Rental Property Investor · RI · Member since 2017 · 94 posts · 52 votes7y
I have two class C buildings. Regarding maintenance: When i bought the buildings i went through each apartment including new paint, flooring, fixtures, etc. I do make sure the big ticket items (furnace/water heaters/roof) were good before buying. Before a tenet moves in the place is newish, and not that much pops up after. If something breaks I fix it myself.
As for the tenets. i set rents $25 below market to save on turn over. This class of tenets seem to talk to other neighbors and compare rents. They don't mind moving to save a couple bucks each month. I also screen them heavily and go with my gut.
Late rent? Not a problem for me; as long as there current. The tenets are usually living pay check to pay check so theirs not much i can do. I not going to try to teach them how to responsible manage there money. AS LONG AS I GET PAID. I don't care if its late. I just require them to be current and let me know.
@Latisha Douglas I deal more with lower amounts and income level (as compared to traditional single-family homes) in the mobile home niche. Though, I work in better parks and areas than other investors. Guess you can say I'm near the top in the mobile home investing niche. I buy the homes using all cash and do not have a mortgage. The residents I choose are usually good for the most part as it helps that the mobile home parks do their own screenings as well. It's been quite profitable. Sure, there have been a few hiccups such as taking homes back and surviving a natural disaster (a flood!). But overall, investing in mobile homes has been a good investment. Hope that helps!
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes7y
Originally posted by @Jonathan R.:
Originally posted by @Lisa Intriligator:
Also, what is the deal with people who have jobs but don't have bank accounts. Are they drug dealers?
I would see how much they can pay toward the security and tell them you’ll work them. Try to split it into two payments (half to move in).
Yep, they either overspent and can't do 5th grade math so had too many bounced checks or they have judgements against them and money in the bank will be scarfed. I ask whether they have a checking account or not on my application. Bonus if they do, obviously.
Be careful spreading out security deposits. Point them in the direction of social service providers like community action for placement help. I provide a full list that has free furniture, food banks, etc. I don't want them going completely broke moving in and furnishing their place.
There's no such thing as a notice to pay the security deposit or quit. I'll work with rent but not deposits for that reason.
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes7y
I always push first time investors towards B or A- as the numbers turn out in real life vs just on paper. Plus these the client can be happy living in and get the high returns of 5% down owner occupants financing.
What rents do you all have for C class and below? One interesting thing about Chicago is our D and F class still has $1000+ per a unit. I can't imagine how awful these would be with cap ex costs if rents were only $5-600.
- New Haven, CT · Member since 2016 · 39 posts · 48 votes7y
Originally posted by @David Lee Hall, III:
Originally posted by @Jim K.:
Why rent to anyone else when the medical profession will do 3/4 of your vetting for you?
I have found the same in the education field where there are background checks and the like to get hired. Any profession that does screening for acceptance and employment in my book is a value add on a tenant application because there is a second set of eyes reviewing that person.
Love this advice from Dave and Jim K. One of my homes is actually on a street perpendicular to the major hospital in the area. The street starts off great but changes as you keep walking away from the hospital. Some small cosmetic updates and I can be in the running for nurses. Problem is the house on each side of me are abandoned (a whole other thread).
- New Haven, CT · Member since 2016 · 39 posts · 48 votes7y
Originally posted by @Mike Elaridi:
@Latisha Douglas
I've learned from many mentors and through observation to never get into class D and really even class C tenants. It's a full time job and will just kill your ROI in the long run on your money and time. Other than the area gentrifying in the future I don't see a great investment play.
Why not just go with a different strategy all together, I.e. pooling money with others and buying a better asset?
I know it’s not the answer you wanted :/
Good luck!
Where I am class A and B properties don’t cash flow. And the cost to enter is great. Would be looking at home prices of 300k plus. I like what a previous poster said about buying class c properties in class A or B areas. But finding those are hard. And they usually get bought all cash from experienced investors.
- New Haven, CT · Member since 2016 · 39 posts · 48 votes7y
Originally posted by @Henry Lazerow:
I always push first time investors towards B or A- as the numbers turn out in real life vs just on paper. Plus these the client can be happy living in and get the high returns of 5% down owner occupants financing.
What rents do you all have for C class and below? One interesting thing about Chicago is our D and F class still has $1000+ per a unit. I can't imagine how awful these would be with cap ex costs if rents were only $5-600.
Exactly, my class c is renting for 1100/mth for a 2 bedroom, 1300 for a 3 bedroom. Practically the same as a class A, B. Maybe can get an extra $100/month but it would cost me $100k more to purchase the house.
- New Haven, CT · Member since 2016 · 39 posts · 48 votes7y
Originally posted by @Lisa Intriligator:
I have some questions that may also be pertinent to this topic. If you rent to section 8, how do you get a security deposit. As soon as I say there is a security deposit, it seems like people drop away.
Also, what is the deal with people who have jobs but don't have bank accounts. Are they drug dealers?
I noticed the only time they have a full security deposit is during the first quarter of the year - tax season and their EIC credits.
- New Haven, CT · Member since 2016 · 39 posts · 48 votes7y
Originally posted by @Jonathan R.:
I would convert all of those tenants to Section 8 tenants that aren’t already, that way the rent is paid on time. If it is their smaller portion that is late, I’d say that is fairly normal. About 50% of my Section 8 tenants pay their portion on time, for others it can be hair pulling, but not eviction worthy. One of my tenants only pays $35 a month, am I really going to evict for that? No, you just follow up every couple months and inform you won’t renew if they don’t get their portion caught up. It’s no big deal.
I like investing in D areas because you get the discount on the buy. The best part of buying in a bad area is that it’s already in a bad area! Good areas can become bad and bad areas can get better.
Is C and D class for everyone? No, but it’s been great for me. I wanted financial freedom about as bad as everyone else. So, I bought what I could afford to get started. If I hadn’t, I’d still be a lump on a log. I’m one of those fearless warriors that likes to do good, prove others wrong, dance in the rain, push themselves financially and mentally, leader type of people. A go getter and a risk taker.
I have to comment on a post above. I like C and D right now over A and B because the market is over priced. My properties don’t cashflow $200 a month as mentioned, they do $500 a month min. They are cheap, so I pay cash and they rent in the $700-$800 range, $600 if a one bedroom, so they cashflow around $500 a door. If you buy A or B, you’ll barely cashflow and I don’t see the appreciation right now. Just throwing that out there. The key is to do a thorough rehab so you get years of cashflow. If the house pays for itself in four years because of the $500 a month in cashflow, buy materials that last 15 years and you’re bound to turn out a winner. Buy more houses, increase your odds.
You’re going to fail many Section 8 inspections, get over it. Expect it, just get it fixed. Good luck. I like the get handy advice given above. I use a handyman. Cashflow is king when you are starting out. Never sell.
My issue with my section 8 tenant isn’t with her $30/month portion. It’s the water bill (which legally has to be in my name) that is not being paid- at almost $200/mth!!! My next tenant Iay just raise the rent and include water. Having them pay is too much of a hassle. Just another bill that doesn’t get paid with no consequences bc it’s takes yearssssss for them to shut off the water on you
By the way, Latisha, I'm not sure I would call myself the "successful" C/D investor you asked to comment here. The jury's still out on that one, and will be for quite some time. There are plenty of days when I still wonder. I'll be sure to let you know when I really do know, which will be after I unload the last property in this asset class and get into something that looks less like a dirty job and more like all those infomercials with dudes on yachts or jets talking about how beautiful their lives are.
- Rental Property Investor · Simi Valley, CA · Member since 2019 · 53 posts · 42 votes7y
Originally posted by @Steve Vaughan:
Originally posted by @Jonathan R.:
Originally posted by @Lisa Intriligator:
Also, what is the deal with people who have jobs but don't have bank accounts. Are they drug dealers?
I would see how much they can pay toward the security and tell them you’ll work them. Try to split it into two payments (half to move in).
Yep, they either overspent and can't do 5th grade math so had too many bounced checks or they have judgements against them and money in the bank will be scarfed. I ask whether they have a checking account or not on my application. Bonus if they do, obviously.
Be careful spreading out security deposits. Point them in the direction of social service providers like community action for placement help. I provide a full list that has free furniture, food banks, etc. I don't want them going completely broke moving in and furnishing their place.
There's no such thing as a notice to pay the security deposit or quit. I'll work with rent but not deposits for that reason.
- Rental Property Investor · Simi Valley, CA · Member since 2019 · 53 posts · 42 votes7y
I agree on the "don't split up the security deposit". It adds another level of stress trying to collect that. I tried it once and it was painstaking. What I tried last time was collect at least half of the deposit up front and then the remainder once the inspection has been completed and you are ready to turn over the keys. It gives them a little time and they become very motivated to come up with the rest.
Originally posted by @Latisha Douglas:
I KNOW I can be successful in this.Yes, you can be successful in C/D properties, but investing in A/B is so much easier. Yes, you pay more for A/B, but over the long run those tend to have a better total rate of return. I personally have A/B/C/D properties to spread out my risk.
- 7yBryan MitchellPro MemberRental Property Investor · Columbus, GA · Member since 2016 · 634 posts · 337 votes
@Latisha Douglas, I have a section 8 class C- in college park Georgia. I’ve found that if your property manager is good and has experience with these, you’re okay. I would not personally manage section 8 as you and others have mentioned, they are time consuming. All said, lower socioeconomic tenants need a safe place to live and I’m pleased and take pride in offering this. If you screen them well enough like any other tenants and your property management can handle the additional government requirements, I have no issues.
- 7yBryan MitchellPro MemberRental Property Investor · Columbus, GA · Member since 2016 · 634 posts · 337 votes
@Caleb Heimsoth, my PM is awesome at making economical repairs. We don’t need granite countertops or jacuzzi tubs and they’re always in demand. Fix to make it livable not lavishly.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.