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

66 Replies

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I am not an expert on this but I know a lot. C Class and D Class are different markets between one another. I have a home that most investors call a "D" market but I think of it as a "C" market since it is the better neighborhood with a "D" ghetto city.

I have two Section 8 tenants along with direct access to their Section 8 Case Workers. I have a pro active approach i.e. reporting to roach infestation and leaks ASAP as it it were an emergency. I screened and hired a great Property Manager and have a great highly experienced landlord / tenant attorney on speed dial if need be. I also have a couple local handymen for back up. With this approach you can scale the business and grow with a rough area. I met real investors in the middle of Newark NJ that utilize this approach and are up to 100+ units already. It has been working out great for me

Every city has its ghetto, every ghetto has its hood...Take a good look around you as there is a D Block near you - Eminem

I own in C's and some B's. You've gotta have extremely tough skin. It's stressful but you need to compartmentalize your problems and focus what's important - your growth and goals. 

@Pat L. Hey! Thanks for this response! I’m just starting out on this. Can you elaborate more on the “hand off”

You identify a property in a bad area, purchase it, and then resell it to a local and have them make payments on it? What’s your vetting process? Have you had a local just stop paying and disappear?

Originally posted by @Charlie Moore :

@Pat L.

Do you personally own some in the c class?

Not any more & if we did it was until it was 're-assigned'. Although the majority were acquired as foreclosures & from tax lien auctions we usually had a 'buyer' already in play. Some of these 'buyers' did walk away, so we would then simply take it back & re-sell 'as is'. The decision to 'walk away' varied, several moved out of state, some bought a more expensive property from us with a higher/door income stream or just had a string of bad tenants & gave up. But in all cases they still paid & we rarely had any significant expenses in taking them back. After some years of on-time payments many were actually sold to the investor & we continue to hold the notes. 

One investor family will take anything we have that comes due, (10 to date). They instinctively know the market & have been very successful in keeping the properties fully rented & well maintained.

 

This is a lucrative, but tough niche.  For out of state, passive investors, do not buy turn key properties in these types of areas.

I believe it is difficult to survive unless you utilize the section 8 program.  There are lots of defaults, and therefore you will be evicting, repairing and re-tenanting properties all the time.  

It is very hard to screen in an impoverished neighborhood.  Even good tenants have a high risk default because they don't have any financial back up.  Lose their job, and they stop paying rent.

Originally posted by @Charlie Moore :
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" 

 Charlie,

Thanks. It's EALY not Early :)

Don't focus so much on the number of units. In every deal, I focus on the money that I can make - it's all about the profit, cashflow and the return on my investors' capital.

I've actually acquired 3,000 apartment units but in the process sold 2,000 and kept 1,000. I've been doing this since 1999 so it's not really that big of a deal. You can do it too but you need to study the basics, take a lot of action and network like crazy. If you can do those 3 things, you will succeed in real estate investing.

Originally posted by @Joe Splitrock :

@Charlie Moore I sold all my C class properties, which solved 90% of my problems. I only buy B or even A class now. 

I would rater have 10 diamonds than 100 lumps of coal.

 Joe, The B class costs alot of money tho! 

Originally posted by @Angelo Mart :

I am not an expert on this but I know a lot. C Class and D Class are different markets between one another. I have a home that most investors call a "D" market but I think of it as a "C" market since it is the better neighborhood with a "D" ghetto city.

I have two Section 8 tenants along with direct access to their Section 8 Case Workers. I have a pro active approach i.e. reporting to roach infestation and leaks ASAP as it it were an emergency. I screened and hired a great Property Manager and have a great highly experienced landlord / tenant attorney on speed dial if need be. I also have a couple local handymen for back up. With this approach you can scale the business and grow with a rough area. I met real investors in the middle of Newark NJ that utilize this approach and are up to 100+ units already. It has been working out great for me

Every city has its ghetto, every ghetto has its hood...Take a good look around you as there is a D Block near you - Eminem

 Any more tips for me to survive in this sector?

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

 Charlie,

Thanks. It's EALY not Early :)

Don't focus so much on the number of units. In every deal, I focus on the money that I can make - it's all about the profit, cashflow and the return on my investors' capital.

I've actually acquired 3,000 apartment units but in the process sold 2,000 and kept 1,000. I've been doing this since 1999 so it's not really that big of a deal. You can do it too but you need to study the basics, take a lot of action and network like crazy. If you can do those 3 things, you will succeed in real estate investing.

Sorry for the incorrect spelling lol

Anymore places that i can go to find out tips?

 

C class and war zone are very different asset classes . There is so much to type but basically you gotta be as savage as your tenant base . You have to be the kind of investor willing to do nasty stuff and put up with things other investors would simply not be willing to deal with to make money . 

Big hearted ,timid ,or soft type people will find these lower income classes especially hard to manage . The tenants will steamroll over you . One of the best strategies is often overlooked . Pat L briefly discussed it . Becoming the bank instead of the landlord is a powerful tool in these places if you understand how to implement it . It’s better than tenants toilets termites and trash 

@Charlie Moore

Quarterly inspections.

Fast evictions

Good tenant screening

All done by employees not you so you can buy more of them.

Now your self managed class A 3 cap takes more attention than my C+ buildings from an ownership standpoint.

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