Seeking insight on C Class Landlord Challenges

2 Replies

Anyone experienced in C class investments? I am looking into a 4-Plex in a C class community with 11-12%CAP Rate. The CAP rates factor in property management fees and a projected 40% expense figure. The community has a medium/high crime rate and is not in the best part of town. Curious as to what challenges a situation like this may present an investor working through a property manager. Should I factor in a vacancy rate above 5% owing to potential turnover? Any other challenges I should be thinking about. My objective is cash flow and rapid mortgage payoff. Thanks!

I operating in this niche.  Half of my units are self managed, half are with a PM.

The biggest challenge is how well the PM will manage the properties.  Our area has one where the units sit empty way too long because their standards are too high and one has nothing but headaches because their standards are too low.  In both cases tenants rarely stay for longer than a year.  I would put in plenty for turnover and vacancy and uncollected rent.

We had a $7k turnover last year; they even busted the toilet paper holder.  Having plenty of units spreads the risk, but with one property this can get very challenging.

Is your plan to buy & hold?

Are you comfortable managing?

Are you sure it’s a C neighborhood?

Will a PM want to manage this?

Are the courts landlord friendly or will they let tenants live for months for free?

What’s your exit strategy?

—- Reality —-
high crime area will not give you choices on good tenants. If you have riskier tenants, you will have higher expenses and I doubt 40% is enough. You will have a higher chance of evictions or worse (tenants who play the system). There is money to be made, but it is work.

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