How do you be a successful C-Class and WAR zone landlord?

66 Replies

We hand them off to C-class investors, but hold the financing. These investors live in the area, understand their 'clientele', maintain the property @ their expense, pay all the taxes, utilities & insurance premiums & everyone makes a great exceptional return!!

Operating in a C- or D-class community requires a proactive, experienced Landlord or Property Manager. A novice can do it but they are probably more likely to lose money, thereby off-setting any benefit of buying cheap.

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I don't invest in war zones. But in my c-class (and all my other properties actually) I just hire out so I can focus on other things. The PM company I use requires a minimum credit score, clean background check and minimum salary of 3x monthly rent. So far, we've been able to find good tenants with those requirements. 

For starters, we need to fix the title of the post.  "Class C" doesn't mean war zone.  Those who think it does have a very limited understanding of what buying cheap, older properties is all about.  

I invest exclusively in Class C homes currently, although looking to transition into the B-/B arena and MFs.

There are several tools/processes I've found very practical and useful for managing Class C profitably:

1) 3x per year we get INSIDE to inspect our unit.  Change furnace/AC filters at the same time.  Make sure they have a trash cart on premises b/c if they don't I guarantee it's being stored in the garage, basement, attic, etc.

2) During screening, we actually go to where they live currently and look, smell, and listen to how their current home is.  If it's out of town, hire a local starving floor duty agent from any realty company to do it.

3) Zero tolerance on late/partial pays.  In my state there is no required grace period and we aren't required to post a Pay or Quit, so we file on Day 7 past due on ANY balance unpaid without exception.  They can always catch up or go onto a different payment plan to avert an actual eviction, but you cannot listen to or permit their "stories" to steal your income.  Some may be legit, but it really doesn't matter.  Pay and stay. No dough...out you go!

4) Iron clad, simple lease.  Everything spelled out in language a 5th grader can understand.  Get rid of all the "wherewithals, heretofores, and undersigneds"....  If they can't understand it, they won't follow it.  Heck, they don't always abide by the stuff that says: "If TENANT doesn't pay in full, on time, every time, then the LANDLORD may evict."  K.I.S.S.

5) Get rid of features that are expensive to maintain and do not earn you a dime of extra rent.  Carpets, dishwashers, garbage disposals, outside water spigots, landscaping, etc.

6) Make upgrades/repairs using very durable items.  I don't do carpet: vinyl plank, tile, or hardwoods only.  Basically, if you see it on the floor of your local Wal-Mart, it's probably a good choice because they cater to the same crowd and they know what works.  Leverage their knowledge.

7) Hire out the turn overs and the cleaning.  It gets too depressing DIY after a while, and your wife/girlfriend will not be pleased if you expect her to do it (unless she already owns a cleaning business).

At the end of the day, your model is based on cash flow.  Appreciation is minuscule or non-existent.  If you keep all that in mind, you can succeed.

How serious people take this ABCDF thing just amuses the heck out of me. It's so very subjective. Every single person is going to have a different perception of what each category is. If I were to divide the home classes in my area into these categories I am probably living in a "C". A would have to be the nicest subdivisions and they are 7 figure homes, Beautiful place truly. B? Medium to high 6 figures? Half the cost of the average A home? C would be somewhere down the hill from there.

Point being, its simply not quantifiable. A "D" in one area is a house trailer on an acre 1 mile from Walmart. A "D" in another region might be an inner city 'hood with a majority blue collar population.

If you grew up in a D or F your perception of what is truly bad is going to be different than the perception of the private school lacrosse kids.

@Charlie Moore , you asked a three part question and I will answer it in three parts.

1) Has anyone every gotten "MAD"?  Yep.  All the time.  I don't care.  I am not concerned with making every applicant happy.  I am concerned with renting to a tenant who will take good care of my houses.

2) Has anyone ever claimed discrimination?  No.

3) Is it illegal or wrong to enter someone's home if they say it's okay?  No.  Is it unusual?  Yes, but unusual doesn't mean bad.  It simply means not a lot of land lords are diligent enough to do it and/or don't care enough to do it and/or are to embarrassed to do it and/or aren't sick and tired enough yet of people who trash their rentals.  I am all of the above: diligent, caring, not embarrassed, and sick and tired of people wrecking my houses. Other land lords are welcome to run their model however works best for them, and if they don't want to look, smell, and listen to how their house will look, smell and sounds like 2 weeks after their new tenant moves in...that's fine by me.  Renting to Class C takes a little more than running background and credit though.  I've found this method works for those willing to try it.  I have rejected 2 applicants who screened well on paper but when we did the in-home visit found hoarder levels of junk, bugs, animal feces, holes in walls, unreported pit bulls, etc.  All of that would have been in my homes if I hadn't done those visits.

It's really not a big deal.  "Mr. Jones, we've finished processing your application and I just need to swing by and take a picture of your animals in their home for insurance purposes and go over some final details.  I see you work until 5 today, so how about I stop over at 5:30?"

Walk inside...snap a picture of animals if any, compliment any pictures of their family or art work (i.e. a Led Zepplin flag nailed up as a window cover is "art work" in some instances), then have them sign a printed copy of your online add to show they saw what the rent and deposit amounts were so that everyone is in the loop and then walk outside.  

But you'll know the minute you step inside if you will ever rent to them.  It takes less than 2-minutes, usually.  The front yard is enough sometimes.  Go forth and conquer!

@Erik Whiting

After you did the home walkthrough

And you saw the hoarding

Did you simply say “ I can’t rent to you, you are a hoarder “

Or did you use a more indirect term?

“ sorry, you didn’t pass final application stages! “

@Charlie Moore , I have a standard policy....

1) I never discuss application approvals/disapproval in person or on the phone.  Then it becomes "he said/she said" and that's how you end up in court.  Plus then all they do is argue with you.  They will never accept your reasoning is good enough and will whine, wheedle, and in some cases threaten you.  Remember, we're talking Class C here....

2) When we deny, we send an email to the address they provided on the application: "Sorry but you were not approved.  If you'd like more info, please send a self addressed, stamped envelope to PO Box 123, etc.  Allow 4 weeks for response."

I've been a land lord since 2005 and run over 500 applications.  Never ONCE had anyone send me a self-addressed, stamped envelope  They KNOW the reason!

When was the last time you applied for a W-2 job and the HR department called you to tell you why you didn't get a call back?  The Pro's have it figured out.  Leverage their knowledge/best practices.

Originally posted by @Charlie Moore :

Different markets surely require different practices...

How do you manage your c class and urban properties?

 War zones are where I started. I made money with them.

I made even more money with properties in D areas. Here's my first $1 MILLION profit deal in a D area which, luckily for me, transitioned and became a C area:

https://www.biggerpockets.com/forums/311/topics/644570-how-i-made-over-1-million-on-1-deal-after-6-years-of-headaches

I own 1,000 apartment units, and a significant portion of them are in C neighborhoods (and some in Bs and a few in As) and I have 50/50 split between section 8 and market tenants. 

I used to manage them personally but I put up my own property management company to ensure they are managed well.

Having said the above, I buy more Bs and As now than Cs and Ds. As and Bs have less work/less stress & more profit over the long run.

So, yes, you can succeed with properties in C areas and even in the war zones. BUT, it's a lot of work, a lot of stress, and to be honest, it's not for everyone, specially newbie investors.

Originally posted by @Bob Prisco :

@Charlie Moore a few :) not just sec 8, other programs similar but pay more 

 haha, I respect it all. 

What other programs do you work with?

Originally posted by @Michael Ealy :
Originally posted by @Charlie Moore:

Different markets surely require different practices...

How do you manage your c class and urban properties?

 War zones are where I started. I made money with them.

I made even more money with properties in D areas. Here's my first $1 MILLION profit deal in a D area which, luckily for me, transitioned and became a C area:

https://www.biggerpockets.com/forums/311/topics/644570-how-i-made-over-1-million-on-1-deal-after-6-years-of-headaches

I own 1,000 apartment units, and a significant portion of them are in C neighborhoods (and some in Bs and a few in As) and I have 50/50 split between section 8 and market tenants. 

I used to manage them personally but I put up my own property management company to ensure they are managed well.

Having said the above, I buy more Bs and As now than Cs and Ds. As and Bs have less work/less stress & more profit over the long run.

So, yes, you can succeed with properties in C areas and even in the war zones. BUT, it's a lot of work, a lot of stress, and to be honest, it's not for everyone, specially newbie investors.

 Mr. Early, the fact you own over 1k units is an american dream and a true blessing congrats.

My goal: 100 units by age 40 ( 14 years to achieve this)

I believe 100 units is when you become truly "Rich" and "Wealthy" 

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