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
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#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
- Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes7y
@Latisha Douglas So many great points here.
It is critical to figure out what success looks like for you in these neighbourhoods so that you are able to determine when enough is enough (as @Jim K. mentioned that he won't go over 25 units in those areas - that is very specific).
You want to be specific about your goals in the near term. As with anything in life, preplanning can make or break you. I really wished you rode around in a car with a property manager who manages these kinds of properties for about a month to get a feel of what you may be getting into.
One has to have a certain kind of temperament to own and manage these properties...
- Lender · Farmington, CT · Member since 2015 · 542 posts · 321 votes7y
@Latisha Douglas i have a handful of properties in new britain. i know exactly what you’re going through. it’s all about systems and building a trusted team. i am also renting by the room. if i can manage it from 1500 miles away, you can too!! happy to help. send a message if you’d like!
- Rental Property Investor · Milwaukee, WI · Member since 2019 · 88 posts · 49 votes7y
@Jill F., I appreciate your voice among those claiming that instant evictions are the way to go.
Tenants are people that run into issues every now and then. Treat them like people and don’t stress them out unduly, and they will respond in kind.
Not to take it too far and be taken advantage of, but if the 1st of the month falls on a Sunday, we do not mind waiting till Friday to get rent, and none of our tenants are behind on their rent, except one, but they have bigger problems than rent.
- Rental Property Investor · Milwaukee, WI · Member since 2019 · 88 posts · 49 votes7y
@Latisha Douglas, first of all, best of luck!
Despite what some are saying here, C/D properties are a good investment, provided the following:
1) you make your properties into something people would want to say in long-term, so they feel like a home (which is an initial investment),
2) screen applicants well (despite popular belief, plenty of normal, hardworking, honest people do love in C/D areas, all you need to do is wait for the right tenant when you are screening),
3) figure out a way to do cheap maintenance (Craigslist handymen are a hit and a miss, but it never hurts to try).
As to single mothers with kids, they comprise the majority of our tenants, and they are excellent tenants! We don’t discriminate either way, but they are a category we enjoy!
- Rental Property Investor · Milwaukee, WI · Member since 2019 · 88 posts · 49 votes7y
@Latisha Douglas, any way you can reach out to the abandoned house owners and buy them?
It sounds like you bought a house with a lot of deferred maintenance, as most C/D houses have it-- that's why they are cheap. I would focus on fixing everything now, the house was likely cheap-- get everything back to solid working order and move on. If you focus on being cheap, IMO you'll be paying in your own stress and your tenants comfort. Focus on long term fixes, not bandaids-- bandaids are what give you stress IMO, I'd much rather pay more now and not worry about it later. Once it's all correctly fixed and in working order, your stress/calls will go down. Low income tenants aren't trying to be annoying, they just want stuff fixed that has likely been ignored for years!
Also, with lower income, sometimes people are paycheck to paycheck, and life happens, tenants have breakdowns, surgeries, job switches, lay offs, stuff happens remember-- these are real people you're dealing with. I would recommend having a shorter grace period, and a heavy late fee up to your state law. If your state allows it, make it X if paid between 5-10, and + X if paid between 10-15, etc.. Be VERY transparent and show them-- it's their choice to prioritize you over say a cell phone bill.
You gotta be mentally okay with this, people struggle-- find people you can trust, I'd say about 20% of ours pay late (with fees), but we know it's coming with the next pay check! Go talk to your tenants, figure out what's going on-- so many landlords just focus on the numbers, and forget that it's real people you're dealing with!
- Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes7y
Originally posted by @Latisha Douglas:
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.Hello Latisha. Way too much to say on the topic. I read the first page of replies, and there are some great ones there. I didn't read past that.
My two cents are...
Rents. Collect them. No pay no stay. Due on the 1st. Informal 5-day grace. Pay or quits served on the 6th, or on the 2nd for problem tenants.
Maintenance. Never ending. Account for it and get it done.
Evictions. The worst. Try hard to avoid them, get it over with and move forward when you have to.
Tracking expenses. Do it. Keep every receipt. Paper is best. Monthly is best (I need to remind myself of that one).
Property looking good on paper and then not turning out that way is a fail on your part. We all (most of us) have done it too; do it too much and you will not survive doing this. Stop doing it and you might succeed.
The systems you need in place are the same no matter what you buy or where, "class" has nothing to do with it.
Yup. Rent is always late. Draw the line that makes sense for you.
Unpaid utilities in your name are unpaid by you. Better to include them in rent.
Yup. Property is constantly physically deteriorating. Account for and deal with it. DIY is best, contractors are not cheap or easy. This might be the hardest part of the business.
Tenants not taking care of the unit should not be allowed to stay. Yup, they usually don't pay for it either. Month to month solves this, or at least serves as damage control. Higher security deposits can help too.
Avoid Sec 8 inspections by avoiding Sec 8. Believe it or not, plenty of people can afford to pay their own way. Some even insist on it out of pride. Wouldn't it be great to rent to someone that had huge pride in themselves? How about people that can budget and make life decisions based on their budget?
Glad to hear you "know" you can be successful. Confidence killed the cat.
My city is block by block too. Aint no thing. Unless your play is for appreciation instead of cash flow, then that's an issue.
What you are finding out my friend is that housing is never cheap. You are also finding out this is a people business, and people are messy.
A dwelling unit is very much like a car. You can spend more or less, and get more or less, yet no matter what you buy, it still costs a lot of money one way or the other. Buy a new car and you won't have the repairs, but you paid for that up front. Buy a beater for less up front and it will cost you along the way. You appear to have failed to account for that. Successful landlords account for that, no matter what they buy.
People are messy, and I am not talking about how they keep their unit. You have been trying to account for that by allowing some untimely payments and participating in Sec 8. Maybe time to reassess those strategies and the "realities" of people.
Best advice ever (IMO)? Month to month leases. This solves, makes better or serves as damage control, for most of everything.
Good luck!
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.
I agree that lumping C with D is an issue. Most of our units are in C/C+ area. We virtually never have late or missed payments from any of our tenants. In addition, we have found some fine tenants in the C area but it is harder to get the tenants that take good care of the property. Even the best screening will result in some tenants that treat the property like s***. Fortunately with good screening it is a fairly small percent of the tenants that do not take great care of the place (but way more than we get in our B properties). I think it is the D areas (at least it is not a problem in my market C area) were missed/late payments are a big issue and getting tenants to care for the property is a long shot. Good luck- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes7y
You can tell by reading this forum thread that C to F quality properties tend to have lots of drama and work associated with them.
Nothing passive about those types of investments.
I like getting returns and relaxing without much of a care in the world. I like the money and returns with less headaches. I am glad some investors are okay working with owning these C to F properties as tenants need a place to stay. One of my business friend owners has been in residential land lording about 30 years. He has had 3 heart operations so far and in his 60's in age. That kind of asset class can takes it's toll and your health and family and friends relationships. He is worth about 3 million but for all that lower class property tenant stress over 30 years it's not worth it at least to me.
- Property Manager · Huntsville, AL · Member since 2017 · 302 posts · 246 votes7y
Solid property management is key with low income housing. The tenant screenings must be thorough. Discuss your eviction plan with your property manager so there is no confusion if you want to evict after 30 day, 60 days, etc. You may also wish to not accept partial payments. I have done that with my tenants to avoid any conflict with eviction. Rent must be paid in full; otherwise, a 7 day notice is posted.
- New Haven, CT · Member since 2016 · 39 posts · 48 votes7y
Originally posted by @Kat Rathell:
@Latisha Douglas, any way you can reach out to the abandoned house owners and buy them?
I am trying. I have the bank and owner info for one. The bank won’t speak to me. I have spoken to the owner but they want nothing to do with it. from the title records they probably have a 200k mtg balance and it’s not worth more than 30/40k In it’s current condition. It would be a full gut rehab. Not sure what to do next. The bank has not started foreclosure even though it’s been yearssss.
- Rental Property Investor · Raleigh, NC · Member since 2015 · 51 posts · 15 votes7y
@Caleb Heimsoth. I’m a buy and hold investor in Durham as well. Currently managing 15 units myself - would you mind sharing the name/number of your property manager? I’m interested in starting to use one for some of my properties to allow me to scale.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes7y
Originally posted by @Michael Giuffre:
@Caleb Heimsoth. I’m a buy and hold investor in Durham as well. Currently managing 15 units myself - would you mind sharing the name/number of your property manager? I’m interested in starting to use one for some of my properties to allow me to scale.
They don’t manage in Durham. I live in Durham but invest in a different city
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.
2 BR in my C class area have market rent (eliminating new supply which is higher) of $1550 to $1900 (Escondido, CA). I agree that I cannot understand how the lower rent areas deal with the costs of tenant turn over, maintenance, and cap expense. I suspect many of these LL simply have not been buy and hold in those low rent areas long enough to realize how little their return is over the long term. Items such as maintenance and cap ex are not primarily functions of the rent amount but more a function of things like number of bathrooms, square footage, does it have a yard, quality of tenant, etc.- Rental Property Investor · Minneapolis, MN · Member since 2015 · 30 posts · 19 votes7y
The first system you need to nail down is tenant screening. If you screen for quality tenants that should solve your late rent problem. I recommend taking longer to lease a unit so that you can properly vet applicants. When you are new, you are very motivated to just shove the first applicant you get in the unit so you can say it's leased. In reality, it's much cheaper to let a unit sit vacant for a few weeks while you find a good applicant than it is to shove an unqualified tenant in. The process of getting bad people out is long and expensive. So, take your time and perform full background checks, verify employment, check references, and make sure they don't have previous evictions.
After you get good tenants in place, get a 2nd phone (cheap pre-paid) or a google voice phone number to handle your maintenance requests. That will keep the property management from taking over your personal life.
I personally vertically integrated by business by starting my own property management company to manage all my apartment buildings. Once you have enough units, you can do this too. Hire a professional property manager as an employee, or use a 3rd party company if you prefer. That will provide a good experience for the tenants, and give you your life back.
One thing that I keep on saying that no one is really picking up on here or elsewhere is about quality builds -- in my city, in many D-class areas, the quality of original construction of many brick-veneer 60-90 year old buildings in the area is exactly the same as in many of more desirable areas within the city proper, with the same sort of brick-veneer SFR and small multifamily. The only physical difference between one of these stately old houses that goes for $25K and one that's worth $220K is its location and how much the maintenance has been kept up on it, and maybe one or two bathroom or kitchen renovations. Sometimes not even that. It's just a feature of my city and others like it in the Rust Belt.
You've heard that LOCATION, LOCATION, LOCATION is the key to real estate, and this is true. But when you consciously choose to invest in the not-so-nice locations, BUILD, BUILD, BUILD becomes extremely important. I don't buy garbage-built houses. My primary siding choice is always be brick, brick, brick if I can get it. My primary roofing choice is always slate. I want just as little rehab to have happened in the property as possible. My part of the Rust Belt has undergone a massive economic decline for more than 60 years. I want as few residential contractor hacks as possible to have touched my property. I want to turn that property into a hardened SFR that can take all kinds of abuse and come back strong after the tenant leaves.
And the wild thing is, it's the better-built places, the places that were nicest originally, that have always been messed with, remodeled the least over the years and can be turned most easily into solid rentals. This is always a huge hidden bonus for me.
- New Haven, CT · Member since 2016 · 39 posts · 48 votes7y
Originally posted by @Jim K.:
One thing that I keep on saying that no one is really picking up on here or elsewhere is about quality builds -- in my city, in many D-class areas, the quality of original construction of many brick-veneer 60-90 year old buildings in the area is exactly the same as in many of more desirable areas within the city proper, with the same sort of brick-veneer SFR and small multifamily. The only physical difference between one of these stately old houses that goes for $25K and one that's worth $220K is its location and how much the maintenance has been kept up on it, and maybe one or two bathroom or kitchen renovations. Sometimes not even that. It's just a feature of my city and others like it in the Rust Belt.
You've heard that LOCATION, LOCATION, LOCATION is the key to real estate, and this is true. But when you consciously choose to invest in the not-so-nice locations, BUILD, BUILD, BUILD becomes extremely important. I don't buy garbage-built houses. My primary siding choice is always be brick, brick, brick if I can get it. My primary roofing choice is always slate. I want just as little rehab to have happened in the property as possible. My part of the Rust Belt has undergone a massive economic decline for more than 60 years. I want as few residential contractor hacks as possible to have touched my property. I want to turn that property into a hardened SFR that can take all kinds of abuse and come back strong after the tenant leaves.
And the wild thing is, it's the better-built places, the places that were nicest originally, that have always been messed with, remodeled the least over the years and can be turned most easily into solid rentals. This is always a huge hidden bonus for me.
Yes thanks for this. One of my units is exactly as you say. ALL brick, solidly built. The exact same house in says Boston would go for 4x as much what I paid.
I have the opportunity to purchase 2 more all brick multis on the same street as the one I just mentioned. It’s a decent street in a C class neighborhood. But lots of cosmetic deferred maintenance inside.
The deferred maintenance/ section 8 RE inspections on my current two is scaring me and causing some anxiety now. I don’t know whether I should jump on the opportunity. The seller is willing to work with me and do some seller financing for a portion....
- Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes7y
@Latisha Douglas Don't give up. You CAN make money in these class of properties. I love mine to be honest.
Lots of great advice in this thread from a lot of people I respect.
Here are a couple things I do:
#1. I remodel all of my properties when I purchase them or as soon as they go empty. Keep in mind the type of tenants you will be getting so do not over remodel this type of property. Only thing good tenants in this class look for are clean, safe, efficient. For example, I do laminate floors. I use the cheap Toffee Oak from Lowes. It is 88 cents per square foot. Holds up nice, looks good, easy to clean, etc. Paint, flooring, and light fixtures will change the entire look of a place.
#2. I ALWAYS rent my newly renovated units BELOW market rent. That's right, I said below market rent. This gets a lot more interest and allows you to choose a better tenant. I would rather choose from 40 potential tenants as opposed to 4.
#3. I do not charge for applications etc. Make it as easy as possible for them to apply.
#4. I do my best to supply a washer/dryer. I never buy new ones. I just get cheapest used ones on CL/FB Market place that still look nice. Never underestimate how appealing this will be to tenants in C/D class properties. Most can't afford their own washer/dryer. Having one in the unit is a game changer imo. I also, put in my lease that I am not required to replace the washer/dryer if it tears up. The one time it has happened I did replace it, but I don't want held to the fire if money is tight and a washer/dryer goes out.
#5. My listings mention the passing of a back ground check, etc etc. This weeds out a lot of the problem tenants before they even get to you. Make your listing seem like you are the type of land lord who doesn't put up with crap. Most problem tenants are looking for that easy landlord to take advantage of.
#6. Because I have renovated my units with laminate floors and most of the items although new, are cheap, I actually advertise to responsible pet owners. In my listing it says "Most pets are welcome." Believe it or not, I actually have some B type tenants living in my C/D properties because of this very reason. I have found most tenants in this class will get pets regardless if they really want them. I'd rather advertise to responsible pet owners and set myself apart. Only problem I have ran in to is fleas. Takes the pest control guy to come spray a couple times and its good.
Just remember, there are good people in these class ranges. I grew up lower class so maybe thats why I do pretty well with it. At the end of the day, these are my people. I just do as many little things as possible to attract the very best people in this tenant class. I've also found that if you find a good tenant in this class then you will not only make money, you will have less headache. The tenants are less likely to complain about petty things like the tenants in my higher end properties.
Best of luck to you!
#5. - Real Estate Broker · Detroit, MI · Member since 2014 · 384 posts · 149 votes7y
@Latisha Douglas Hiring a strong property management company will make or break your investment. When interviewing them dial in on their analytics; average length of lease, percentage of renewals, and average monthly maintenance costs. The numbers will tell you if they’re tracking things properly and what you’re likely to experience with your properties over the next 12 months. C/D class tenants are basically month to month renters. The manager you choose must be familiar with the mentality of your tenants.
- Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes7y
@Jabari Long I'm actually glad you mentioned month to month, I forgot to mention that. In my D class properties I start all of my tenants off on month to month leases. That way I can get rid of them if they are trouble and/or not taking care of the place.
- Flipper/Rehabber · Bloomfield CT · Member since 2020 · 1k+ posts · 409 votes3y
learning basic handyman maintenance and repairs yourself can save you many thousands a year. I am in the Hartford CT area and game to help you learn repair skills if desired.
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