Are you a slum lord?

44 Replies

So, since I've started as a pro member here on BP, a lot of the properties  in my price range are all in run down neighborhoods with high crime.  Does anyone have experience with these types of rentals?  Is it just a no-brainer to stay away? 

Someones making money from them. The ones you're talking about have the highest potential returns, but also have the highest cost and vacancies. So the stability, and predictability isn't there.

Biggest problem is high turnover but what seems crazy to you someone lives there don’t spend to much fixing the place think livable not rentable 

@John S Lewis I have a lot of "low end" rentals. As mentioned, the vacancy is higher and they are much more management intensive than my nicer stuff but the overall cash flow numbers on low end properties are almost always better so long as you are cut out for it (or have a management company that is). 

I would like note that there is a significant difference between responsibly operating rentals in C/D areas and being a "slum lord". All of my units are clean, well maintained and up to code. If something breaks, I fix it and fix it right....meaning safe, correct, and functional... never "high-end", though, unless we're talking heating systems or something that saves me money. No granite countertops or jacuzzi tubs!!.

Yes, the tenants are "rougher" but we still screen all applicants and pretty much shoot for "the best of the worst". Past evictions, significant/recent criminal history, etc will be grounds for denial. 

This is different than the stereotypical "slum lord" that rents to the first person to show up with cash, doesn't maintain his buildings, and when repairs are made they are absolute bare minimum (think lots of duct taped plumbing leaks...). If you're buying one of these buildings there is a good chance it's been run slumlord-style so be prepared for some heavy costs to catch up on deferred maintenance if that is indeed the case. Also, if it's your first landlording experience it'll be trial by fire for sure - low end property management is not for the faint of heart. Some people are good at it, some just simply are not. Some learn to be good at it only after countless expensive mistakes ( I include myself in this group..).

Don't necessarily let it scare you away just be aware of what you are dealing with and if it's a good fit for what you want to do.

@John S Lewis

I don't think you've quite understood how money is made in actual slumlording in war zones. BiggerPockets.com doesn't do webinars on that sort of thing.

1. Slumlords receive rents in cash through third parties and hide the income.

2. Slumlords buy property and drive it further into the ground in the hopes that it will become part of a government-sponsored urban renewal scheme.


3. Slumlords do not keep up their tax payments, especially in judicial foreclosure states, knowing that it will be years before the courts do anything about it, and consciously plan to sell just before foreclosure after using up every blocking tactic available to them. Sometimes they just plain abandon the property after exhausting every possible illegal tactic to make money out of it.


4. Slumlords knowingly rent to tenants who are not real occupants of the property, but are rather fronts for wanted fugitives or illegal aliens. These are the types of people who will willingly stay in the house or apartment as it's driven into the ground. The slumlord often helps find the front who rents the property.

5. Slumlords have links to organized crime gangs that allow them to intimidate their tenants.

6. Slumlords aid and abet defrauders of assistance programs to steal benefit payments from the government and their fellow taxpayers.

Don't do these things, and you're not a slumlord. You're instead the last guy who's giving people with extremely limited options a chance. You're the guy whose hand they're grasping to stay out of the abyss.

I think you'd really be surprised how much the most hardened police officers and child welfare caseworkers will typically respect the difference between a responsible landlord of low-cost properties and a slumlord. 

@Account Closed  

That is one huge education!  I had no idea about all the things you mention.  I just thought the term slum lord was for someone that rents out crummy properties in high crime areas - thus a slum.

Thanks for setting the record straight.

@John S Lewis

Oh, I'm all about the education.

In my target area, I once bid on a property that had been involved in two scams by a slumlord. What this guy did the first time was buy this house as a tax foreclosure under an LLC name, do some quick-fix work on it, and sell it to people who had no money in the bank.

What the sleaze first did from 2007 until around 2014 was was open an account in their name at a bank he chose, and then he put about twenty grand into it. He had an accomplice in the bank handle it all -- the people thought they were simply buying a house with no money down. The accomplice then started the process for the $65000 loan, secured by the completely legitimate W2s the buyers provided and the fraudulent bank account in their names. The loan would go through, the twenty grand was taken out of the account along with an additional $45000 (the loan amount) and handed back to the con artist as the buyer. The people got their house with "no money down."

This is bank fraud, of course, and that's what they finally got the slumlord and his multiple accomplices on, 145 or so properties later.

The house was a tax foreclosure. It was in no way livable, even though the quick-fix repairs hid the most obvious problems. The people who bought it could not possibly afford to fix it -- they could barely afford the loan payments. So in eighteen months, the house went through a mortgage foreclosure action.

Guess who bought the house back from the bank as a REO under a different LLC name? Uh-huh. Now the con artist ran the house through a different scam, the one that truly made him a slumlord. He put up a wall and changed the door set-up and sold the place for $55000 as a multifamily to investors who lived abroad, billing himself to them as a turnkey property manager extraordinaire. Big money in turnkeys in western Pennsylvania! What did they know? They lived an ocean and a continent away.

This was not by itself illegal, but the con artist never paid off his investors. He pretended to set the places up with tenants, pretended to be handling the property management on the place, and sent the new owner the first six months worth of fake rent after a host of fake repairs and maintenance that turned the amount of the fake rent into a pittance. The slumlord gave his business's address as an MMA gym in the middle of nowhere. The pittance was the last money the investors saw. This scam was simply a way to get quick cash for his exit strategy, and the slumlord did it for about 40 properties under his new LLC name before the jig was up.

The cops finally rolled up on him for bank fraud for the 145 properties. He surrendered to them, handed over his foreign passport, and posted bail. And of course he vanished in the wind. The feds caught the slumlord down in Florida after he got himself a Florida driver's license in his own name and was trying to get his hands on another foreign passport. This probably would have worked pre-9/11 and the Patriot Act. The feds hauled him back to hold him in contempt.

He's doing 51 months for the fraud and another 6 for the contempt of court in federal prison. The prison authorities says he prays, exercises, and reads motivational books daily. According to him, he was led astray by others. His lawyer passionate insists the slumlord con artist is good at heart and was turned to The Dark Side by his accomplices. There's no parole for federal prison, but the slumlord will earn 54 days off for good behavior for each year he prays, jogs on the treadmill, does his situps, and moves his bookmark through Tony Robbins's books. This man will be out in 2021, free as a bird at 54 years of age, ready to set up shop somewhere else. How much would you care to bet that a hefty chunk of the millions he defrauded out of the banks and then the foreign investors is wrapped up in plastic and hidden in a joist bay somewhere in this town or down in Florida?

This post has been removed.

I've bought in a low income and high crime area. COC return is 25%. I rent it through Section 8, they direct deposit the money in my account every month like clock work. The tenant pays a very small portion. It's been a great experience. "You've got to be bigger than your problems"-Secrets of the Millionaire Mind. I will do deals like this again and again until my W2 income is replaced. It will take me half as long in these areas than it would in B class neighborhoods. I wouldn't suggest buying in an area surrounded by vacant houses, try to buy on the fringe of these rougher areas (corner lot maybe or close to a highway) rather than dead smack in the middle and you'll be fine. What I've also noticed is that many people that live in these areas don't want to move to the suburbs, they want to stay with their family and friends and see the neighborhood transition. I would guess the turnover would be high if you don't go Section 8, Section 8 is a no brainer to me.

Updated 11 months ago

Also, certainly no slumlord here. I put 14k into the property. I provided a great home for a 50 year old disabled man that he can be proud of.

I currently hold property in areas that are lower than the national average for income.  They also qualify for section 8.  My properties are safe, clean and a good value for my tenants.  Everyone needs a place to live.  I make an outstanding return on my investment.  There are differences in this market than others.  The tenants are highly mobile, they move far more often than people in other communities.  This is a result of income be fluid.  My units rent immediately and I rarely lose a month of rent.  

There is not much to break or damage in my units.  Everything is functional and basic.  Tile floor same color in all the units, basic appliances.  I have had very low maintenance costs.   I will continue to buy in these areas, since the returns are superior to other areas,  

The key is to find good property management.  Unless you know these areas personally, you will not be successful.  

There are shady people in every aspect of RE.  If you have not run into them yet, you will.  Whether it is how they treat their tenants or agents not disclosing known deficiencies in a property or deferred maintenance. 

I don't think I have the stomach for C/D Class housing, but I'm curious about how you decide what to buy.  One thing I factor in is crime rate.  Do you just ignore crime and do the math?  I doubt I'll every need this information, but I'd like to know how to evaluate "good" Section 8 or other low cost housing, just in case I change my mind.  ;-)

Drive a three block radius and if almost every home looks occupied, buy the property. Like I mentioned above, try to buy on the fridge if you can (corner lot and/or close access to a highway). It's really not that big of deal, we live in the richest country in the history of the world. What we classify as a "warzone" is a paradise in a large part of the world. It's not as big a deal as you think, get in and do your rehab, put a team of handymen and women in place to fix maintenance issues, and collect big returns. I get above market rent in my area through Section 8.

Originally posted by @Jody Schnurrenberger :

I don't think I have the stomach for C/D Class housing, but I'm curious about how you decide what to buy.  One thing I factor in is crime rate.  Do you just ignore crime and do the math?  I doubt I'll every need this information, but I'd like to know how to evaluate "good" Section 8 or other low cost housing, just in case I change my mind.  ;-)

Updated 11 months ago

*fringe

The greatest rate of return tends to come with the greatest risk of failure.

Low-income properties can bring a much better return but they will require more sweat equity and sleepless nights. If you are looking for something that requires less and is safer, save up more money or find a way to partner with someone.

I know a guy that owned a large mix of homes and commercial. He takes first and last month's rent and hands you the keys. No application, no lease. He includes utilities in the rent so that if you stop paying rent, he shuts the utilities off. He also tells his tenants, "If something breaks, fix it."

I wouldn't say he's a slumlord, but he does call himself "The Slumlord of Cody." It's not my style but he provides homes at rates below market that are easy for people to rent despite bad credit, criminal history, etc. So you could argue he's providing a much-needed service.

By the way, he bought all of his properties with seller-financing and usually with no money down. Slow and steady as the opportunities presented themselves. He has one of the nicest homes in Cody and a couple other homes around the country. Last I heard, he was completely debt free and earning $40,000 a month in rental income. It's hard to argue with that!

Account Closed what a great post!  Thanks for clearing up that confusion for many of us.  I always just thought that slum lords just owned and rented in poor neighborhoods and didn't take care of their properties like they should and did a lot of deferred maintenance.  I didn't know about the illegal aspect of slum lording.  

I think @Jonathan Roper has the right formula. Don't listen to people that talk in absolute terms about "low end" rentals. Like when you here people say "Never" buy in these areas. Most likely these investors either have no experience in this arena, or they did 1 deal and got burned and now tell people to stay away. When it was probably more investor error that made them fail.

People make money in all niches of real estate. Everybody thinks their formula is the best, but in reality they all work. It just depends on your style and goals. It's just a different business model than higher end properties.

If you run a hamburger stand like a five star restaurant it won't be profitable. And if you run a five star restaurant like a hamburger stand it also won't be profitable. If you really feel that low end is the niche for you then find people who are successful with low end rentals and COPY THEM. Don't listen to the guy that only owns class A properties telling you it's a bad idea. He isn't running the same business.

There's so many different arguments for every strategy. Cash flow vs appreciation, paying cash vs leverage, Class A to war zone and everything in between. There's very wealthy people in all of these arenas.

@John S Lewis I read on one of these forums before about the Section 8 Bible.  I highly recommend it, you can google it and get the pdf from the guys site or buy from Amazon.  But his strategy is amazing to me and he gives good advice on which properties he likes to invest in in the inner city that most would probably classify has C/D properties.  I looked into it myself because I just bought two properties at auction in a lower income city than my own.  I thought I would be in the green with buying them because they had long term tenants placed in them (one since 2004).  After settlement we did the routine home inspection and found that the previous owner did not keep the places up much and it surprised me that people were still willing to live in these homes even though they did not appear safe (after actually being inside them).  My suspicion was confirmed when I had a roofer come and tell me the roof could potentially fall in!  That was a $5200 job.  

My take away from all of this is:

-never assume a home is habitable just because a tenant is living in it...slum lords are completely real and it could cost you a lot if you don't do due diligence

-never be a slum lord...its completely win-win to offer affordable housing, but spend the money and time to make it safe.  Anticipating when you buy a house in a lower class area that it may need big time repairs upfront, but its certainly money well spent to keep the house in a good working order to keep the monthly cash flow coming.  Once you get over the initial items, it should be all profit.  

Originally posted by Account Closed:

@John S Lewis
I think you'd really be surprised how much the most hardened police officers and child welfare caseworkers will typically respect the difference between a responsible landlord of low-cost properties and a slumlord. 

100% agree.  My husband retired after 40 years as a case manager for the chronic mentally ill.  He knew and respected the local LLs in the Tacoma area who would rent to the mentally ill on SSI, those just out of drug rehab, and registered sex offenders and felons.  These are the LLs who are willing to give the less fortunate a chance, and often give a heads up to the social safety net when a client/tenant is off their meds, relapsing, or otherwise decompensating. 

Not my desired tenant pool, but glad someone is willing to do it. 

Originally posted by Account Closed:

@John S Lewis

Oh, I'm all about the education.

In my target area, I once bid on a property that had been involved in two scams by a slumlord. What this guy did the first time was buy this house as a tax foreclosure under an LLC name, do some quick-fix work on it, and sell it to people who had no money in the bank.

What the sleaze first did from 2007 until around 2014 was was open an account in their name at a bank he chose, and then he put about twenty grand into it. He had an accomplice in the bank handle it all -- the people thought they were simply buying a house with no money down. The accomplice then started the process for the $65000 loan, secured by the completely legitimate W2s the buyers provided and the fraudulent bank account in their names. The loan would go through, the twenty grand was taken out of the account along with an additional $45000 (the loan amount) and handed back to the con artist as the buyer. The people got their house with "no money down."

This is bank fraud, of course, and that's what they finally got the slumlord and his multiple accomplices on, 145 or so properties later.

The house was a tax foreclosure. It was in no way livable, even though the quick-fix repairs hid the most obvious problems. The people who bought it could not possibly afford to fix it -- they could barely afford the loan payments. So in eighteen months, the house went through a mortgage foreclosure action.

Guess who bought the house back from the bank as a REO under a different LLC name? Uh-huh. Now the con artist ran the house through a different scam, the one that truly made him a slumlord. He put up a wall and changed the door set-up and sold the place for $55000 as a multifamily to investors who lived abroad, billing himself to them as a turnkey property manager extraordinaire. Big money in turnkeys in western Pennsylvania! What did they know? They lived an ocean and a continent away.

This was not by itself illegal, but the con artist never paid off his investors. He pretended to set the places up with tenants, pretended to be handling the property management on the place, and sent the new owner the first six months worth of fake rent after a host of fake repairs and maintenance that turned the amount of the fake rent into a pittance. The slumlord gave his business's address as an MMA gym in the middle of nowhere. The pittance was the last money the investors saw. This scam was simply a way to get quick cash for his exit strategy, and the slumlord did it for about 40 properties under his new LLC name before the jig was up.

The cops finally rolled up on him for bank fraud for the 145 properties. He surrendered to them, handed over his foreign passport, and posted bail. And of course he vanished in the wind. The feds caught the slumlord down in Florida after he got himself a Florida driver's license in his own name and was trying to get his hands on another foreign passport. This probably would have worked pre-9/11 and the Patriot Act. The feds hauled him back to hold him in contempt.

He's doing 51 months for the fraud and another 6 for the contempt of court in federal prison. The prison authorities says he prays, exercises, and reads motivational books daily. According to him, he was led astray by others. His lawyer passionate insists the slumlord con artist is good at heart and was turned to The Dark Side by his accomplices. There's no parole for federal prison, but the slumlord will earn 54 days off for good behavior for each year he prays, jogs on the treadmill, does his situps, and moves his bookmark through Tony Robbins's books. This man will be out in 2021, free as a bird at 54 years of age, ready to set up shop somewhere else. How much would you care to bet that a hefty chunk of the millions he defrauded out of the banks and then the foreign investors is wrapped up in plastic and hidden in a joist bay somewhere in this town or down in Florida?

Education helps us from repeating the past.

I've got three in a bad part of town. Had them for years. I used to have a 4th. They were easier when I had a construction company and could send guys at cost. Now I do it all myself.

I wish I had stayed away. The return is good, but I've had some expensive problems too, like sewer collapses and tenants who were subletting and stealing power, etc.

To me a slumlord is more determined by the type of landlord they are than the class of asset they own.   

I know of at least 4 'slumlords' in my area and only one of them even owns property on the 'other side of the tracks'.  They are just shady and completely without the ability to care about anything except their bottom line.

A buddy of mine told me she was doing work for Brian in exchange for rent concessions.  Brian is a slumlord in town with 61 units.  You won't find Brian on BP because slumlords aren't trying to better themselves and definitely don't care to help anyone else.

I told my buddy - "Be careful.  If you play with snakes long enough, you will get bit."  A month later she was crying and being kicked out.  She is poor and he cheated her out of 10 hrs of work.  When she brought it up, he gave her notice.  

That's the definition of a slumlord to me.  Just use and abuse people and agencies to get what they want, then kick them to the curb.

@John S Lewis , like @Chad C. said, someone is making money from them, but if this is your first property I wouldn't risk it. You should go for a property that would be a home run, not potentially tank your cash flow.  War zone/slum properties are a niche, and like any niche, require a certain type of investor. With the war zone properties it is likely you will have higher expenses and more damage from the type of personality and problems that come with those areas.

Get a couple properties under your belt, maybe you'll see you have the tolerance/desire/etc. to have a riskier investment with hope of more cash, but at least if you have a couple winners in your portfolio you can float your war zone one and it won't kill your investing dreams if it proves to be a problem.

Stay patient, keep looking, stick to your criteria and be flexible.

@John S Lewis nobody thinks they are a slum lord. Some people see a run down property and automatically think slumlord. Keep in mind that in D properties, often tenants break things faster than a landlord can fix them. They also don't report problems, so a landlord isn't aware most the time. Cosmetic care is particularly difficult in a D property. You get no value from painting the exterior or updating the carpet. After a window breaks three times, it is easier to board it up. A landlord has a responsibility to provide a safe home , follow code and follow housing laws. Anything beyond that is to attract a better tenant at a higher rent.

I think starting out in C or D properties is a great way enter the business. Owning run down properties that provide housing to low income people doesn't make you a slum lord. It is a difficult class of property to manage, so make sure you have ability to deal with it.

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