The realities of C class neighborhoods

Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

4y

Quote from @Christian Clark:

Four murders? That's D-class, period.

Property Managers still work in a C-class neighborhood. I have quite a few C-class rentals and they are more problematic, but we handle them pretty well because we know what to expect. We inspect them more often, watch late-paying tenants more closely, nip problems in the bud more quickly.

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Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

4y

Quote from @Christian Clark:

Out of state newbie here. Just wanted to get a gut check from the more experienced folks about the realties of owning small multifamily in C class neighborhoods.

I have heard "C Class tenants do C class damage to your property so budget accordingly" Maybe 5% repairs gets bumped to 10%?

I have heard "I have had 4 murders to date."

I have heard the tenants generally leave every 12 months, so budget $2500 turn every year. Does this come out of the 10% or is additional?

I have only found one property manager who will touch this neighborhood. What happens if he quits one day because I'm a small fish and ask too many questions for his busy schedule?

Appreciation looks great, but it feels like a huge headache for cashflow that is less than a 3 year treasury. Maybe even negative depending on how it goes.

Really wondering how other seasoned investors think about this stuff and if perhaps there are still B neighborhoods in San Antonio or Kansas City that cashflow if the only neighborhoods that cashflow in Columbus are C class.

I'm also wondering if it's any better in single family.

Thanks in advance to anyone who can share some expertise and insight!

I think you get the idea pretty much correct. But expect $3000 for the turnover expense. Yes, SFR is less hassle than MF.

To be quick, any property that has more than $1k gross income per month is much more easier to manage compared to < $1k. Also PM quality made a lot of differences, don't use cheap PMC.

Thanks!

1 Reply

Caleb Brown

Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes

4y

Happy to chat on KC. Overall C/B is where most investor will be. It's a middle of the road area. You hit the nail on the head regarding expectations, granted some properties will have easier tenants or ones that stay longer. C class here tends to appreciate 2-3% annually.

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Scott Mac

Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes

4y

I'm not addressing cash flow here, because that's deal specific and investor specific.

But here is a little tour of a "Typical (San Antonio)" (C minus) neighborhood with typical (C minus) structures I picked in a random neighborhood on Google drive around view.

What (to me) makes a (C minus) area (in San Antonio) is an abundance of, Loose dogs in the street, fenced front yards with fences leaning and in disrepair, yards full of all sorts of debris (because the little houses lack storage space), antique (who knows how old) paint, neglected leaning secondary structures in disrepair, car repairs going on but seemingly abandoned, pickup trucks from the Carter Administration to the early 90's, Residents who WORK for a living, No chain of Murders, No Sal-mon in the fish tacos in neighborhood restaurants, decent nice (helpful) people you can talk to, extended families living close to each other who help each other, not unlawful in their ways. Wires for phone and cable randomly strung all over the outside of the house, dry-rotted wood trim and rotted windows, window A/C units.

(To me), this looks like a (San Antonio) C minus area with C minus structures in it.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

4y

Quote from @Nathan Gesner:

Quote from @Christian Clark:

Four murders? That's D-class, period.

Property Managers still work in a C-class neighborhood. I have quite a few C-class rentals and they are more problematic, but we handle them pretty well because we know what to expect. We inspect them more often, watch late-paying tenants more closely, nip problems in the bud more quickly.

was my first thought to only one manger will manage there thats not C class.. in the mid west the vast majority of the rentals are C class.. so he is describing D or war zone.

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Patrick DruryBusiness Member

Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes

4y

@Christian Clark
No part of Columbus is a war zone or a D neighborhood. I personally own a section 8 rental and a duplex in the worst part of Columbus. I also work with an investor who owns 50 doors all in Linden and Hilltop all C class with 50% of them being section 8 and he does really well for a 1 man show and he rarely has evictions. If you don't take care of the place and let it become a slum, you will attract slum tenants. That will segway into my next thing which is properly screening tenants. 90% of things that happen are because people didn't take the time to properly screen tenants adequately.

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Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

4y

Patrick, I was working with a ReafCo agent and a Columbus PM. They both seem to think D Class exists. I looked at a lot of properties in a lot of neighborhoods. One thing I learned? What someone from Columbus considers a B property may be a C property for me.

in my world, only D class justifies a security system or expectations of $2,500 in expenses every turnover.

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Christian Clark

OP

New to Real Estate · Los Angeles, CA · Member since 2016 · 23 posts · 16 votes

4y

I just wanted to say thank you to all of you for your time spent in responding. Very informative and entertaining and helpful.

Particularly @Scott Mac for the extra effort with the screen grabs!

I have passed on the deal I was so considering so the hunt continues -- San Antonio, Columbus, and maybe with more research Kansas City.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

4y

Quote from @Christian Clark:

I just wanted to say thank you to all of you for your time spent in responding. Very informative and entertaining and helpful.

Particularly @Scott Mac for the extra effort with the screen grabs!

I have passed on the deal I was so considering so the hunt continues -- San Antonio, Columbus, and maybe with more research Kansas City.

KC has a nice selection of rentals and some pretty good small plex's I was there last week . to stay in decent areas you will want to be well north of 100k and rents that are 1k or higher. Except of course the small plex's I looked at one that was a 15% Coc that i just funded for my team there I think someone will snag that one pretty soon.

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Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

4y

Quote from @Nathan Gesner:

Patrick, I was working with a ReafCo agent and a Columbus PM. They both seem to think D Class exists. I looked at a lot of properties in a lot of neighborhoods. One thing I learned? What someone from Columbus considers a B property may be a C property for me.

in my world, only D class justifies a security system or expectations of $2,500 in expenses every turnover.

One strange thing that I found is so called C+ class neighborhood in Midwest could very well much more beautiful outside and INSIDE compare to class A neighborhood in CA (although price is 7x difference). I agree all this neighborhood thing is very relative.

Eliott Elias

Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes

4y

Owning property in a C and D class neighborhood is no different that in A neighborhoods. As long as you set up the right systems and processes and know what to expect. We know the game, know the county judge if ever we need to evict, know the rental assistance program. It’s a lot less hands off

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

4y

Quote from @Eliott Elias:

Owning property in a C and D class neighborhood is no different that in A neighborhoods. As long as you set up the right systems and processes and know what to expect. We know the game, know the county judge if ever we need to evict, know the rental assistance program. It’s a lot less hands off

Eh dont agree with this statement your only talking one aspect thats the tenant.. the other major issues with C and D class is Theft and crime baby daddys drugs etc etc. There is a reason the condenser units are caged the windows have bars etc etc..

A class rentals may touch this a little bit but nothing like the C and D class..

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Mackaylee BeachPro Member

Real Estate Agent · Kansas City, MO · Member since 2020 · 1k+ posts · 492 votes

4y

@Christian Clark I supply single families and even duplexes every now and then in Kansas City. I have a very experienced PM team for A, B and C grade areas. It CAN be done!!!

[email protected]

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Scott Bowles

Real Estate Investor · West Linn, OR · Member since 2017 · 134 posts · 62 votes

4y

Quote from @Jay Hinrichs:

Quote from @Eliott Elias:

Owning property in a C and D class neighborhood is no different that in A neighborhoods. As long as you set up the right systems and processes and know what to expect. We know the game, know the county judge if ever we need to evict, know the rental assistance program. It’s a lot less hands off

Eh dont agree with this statement your only talking one aspect thats the tenant.. the other major issues with C and D class is Theft and crime baby daddys drugs etc etc. There is a reason the condenser units are caged the windows have bars etc etc..

A class rentals may touch this a little bit but nothing like the C and D class..

Concur, it is also wayyyyy more expensive, i.e. you have to plan on spending thousands of dollars every time there is a turnover. Stuff breaks more frequently you have more late payments, more phone calls, more evictions, more drug use, etc. All the way down the line it is do able but its tiring we have never owned class D but I dont think we are buying anymore C class property either.

Eric James

Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes

4y

Quote from @Nathan Gesner:

Quote from @Christian Clark:

Four murders? That's D-class, period.

Property Managers still work in a C-class neighborhood. I have quite a few C-class rentals and they are more problematic, but we handle them pretty well because we know what to expect. We inspect them more often, watch late-paying tenants more closely, nip problems in the bud more quickly.

4 murders = war zone

Eliott Elias

Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes

4y

Quote from @Jay Hinrichs:

Quote from @Eliott Elias:

Owning property in a C and D class neighborhood is no different that in A neighborhoods. As long as you set up the right systems and processes and know what to expect. We know the game, know the county judge if ever we need to evict, know the rental assistance program. It’s a lot less hands off

Eh dont agree with this statement your only talking one aspect thats the tenant.. the other major issues with C and D class is Theft and crime baby daddys drugs etc etc. There is a reason the condenser units are caged the windows have bars etc etc..

A class rentals may touch this a little bit but nothing like the C and D class..

My point is that with the right expectations and team in place you can mitigate and prepare for these things. I'm getting well qualified tenants applying for my rentals, for every 100 crack head applicants of course. Investing these areas aren't as bad as people are making it seem. Unless you manage yourself

Dena Puliatti

Property Manager · Huntsville, AL · Member since 2017 · 302 posts · 246 votes

4y

Not a good sign that all except one property manager will touch it. This one sounds like a huge liability. Doors kicked in, appliances stolen, HVACs in a padlocked fence. I would run from this deal. With the murders and violence, you are looking at an especially expensive renovation to clean any bio matter. Sounds like this is going to more of a headache than anything else.