Landlords.....what headaches come with having C- and D tenants?
Rental Property Investor · New York City · Member since 2019 · 90 posts · 122 votes
Landlords.....what headaches come with having C- and D tenants?
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Investor · Brooklyn, NY · Member since 2018 · 20 posts · 95 votes
6yI’ll break down my solutions to @Philip Williams great list of issues.
1. To get rent paid on time, I use Cozy and let them know rent will be paid through direct deposit when they’re viewing the house. Anyone with plans of not paying won’t want their rent automatically deducted from their account. They also won’t like that their Cozy payments impact their credit score. I also have a Sec 8 tenant so getting the rent is never a problem.
2. If you have a nice home, people won’t want to leave it. Do the work renovating the space before and you’ll have a “one in a million” property with grateful tenants and super low turnover. Also, do the math to see if it’s worth raising the rent every year and risking the tenants leaving. I have good ones and don’t plan on raising their rent for the first 4 years they’re with me.
3. Don’t ever bend your standards in the screening process. I haven’t ever had to, but I’d rather give up a month of rent to look longer than lower my standards. I ask for 3 months pay stubs, last three bank statements, copy of photo ID, and contact info for their employer and past two landlords. I do a background check but not a credit check. Poor credit is assumed. I don’t even run it since that would bring it down even lower. If they tell me it’s very low and they don’t have much in reserves but they do have a good income, I’ll have them pay first, last, and security upfront. The last month gets paid in monthly installments and added to their rent payments.
4. Like I said, credit isn’t a big deal to me. Just use the last months rent installment payments to protect yourself.
5. No reserves is always an issue. It surprises me every time tbh but it’s the nature of the environment. You can use the strategy above and make sure your reserves are strong. If they have low credit and no reserves, I’d only rent to them if there are two or more working adults in the home. Or if they have Sec 8.
6. C and D doesn’t mean the neighborhood is dangerous. Check the crime report. My rental is in a town right next door to Newark, NJ (very high crime rate) but my area is extremely safe. With that being said, I still have video cameras and motion sensor lights on every door. It’s more to make my tenants feel safe than anything.
7. I choose not to increase rent but I definitely could. And my house has gone up in value about $25k a year since I bought it. You can’t buy in just any lower grade neighborhood. I looked for one within 30 mins of Manhattan with lots of access to public transportation. Mine was one of 3 houses being renovated on the street, and there are three schools within walking distance. Make sure the home you get is near something noteworthy and you should be okay.
There’s a lot of money to be made in lower grade neighborhoods. I also think it’s important for *US* to own in communities of color, which are often (but not always) C and D areas. Good luck to you!
81 Replies
- San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes6y
I would guess it would be attitude. A general disdain for landlords or unfair laws, etc.
The answer to that would be good negotiating skills. Treating people like they're smart enough to understand the consequences of bad behavior, and that they should also know that you respect them, but you're also not stupid.
I dealt with what I guess I would call C tenants as some of the inherited tenants I got, and this worked for me. Some I had to kick out, but it was done with respect on both sides and no damage done to the unit, and no lawyers or court appearances ever required.
So, there are diplomacy skills required and a level of real-ness that they can relate to.
- Rental Property Investor · New York City · Member since 2019 · 90 posts · 122 votes6y
@Account Closed Well put, I agree that there should definitely be respect on both sides. I could only imagine a scenario where lawyers or court appearances were involved!
- Rental Property Investor · New York City · Member since 2019 · 90 posts · 122 votes6y
@Jhon Restrepo Have you ever been in a situation where you had those types of tenants on a OOS property? If so, please elaborate.
- Rental Property Investor · Rockford, IL · Member since 2014 · 385 posts · 702 votes6y
Some of the headaches....man this could take a while.
1. Rent never being paid on time
2. very high turnover costs as that tenant class is much harder on the property than you could expect.
3. lack of quality tenants during the application phase. You will find yourself bending your standards regardless of how nice the property is.
4. low to no credit score which again makes it much harder to screen
5. no reserves to lean upon during tough times. Think about tenants who not only don't have savings, but also don't have many things people rely on during these times to bridge the gap. They don't have a 401k they can liquidate or borrow against, they don't have friends of family to borrow from. A lot of this tenant class doesn't even have a credit card they can put groceries or gas on.
6. C- and D properties come in C- and D neighborhoods which means greater damage and risk to your property. Between tenants you will have a much higher risk of your property being broken into, having your air conditioner stolen, having a door kicked in to steal appliances etc.
7. The inability to increase rents or get appreciation,as we have all heard real estate goes up over time as do rents. Well suffice it to say this happens much slower if at all in D neighborhoods.
As I'm sure you can guess I could go on and on ad nauseam. The simplist solutions to this problem is simply not to invest in those asset classes. I like many others started in that asset and still have the scars to prove it. I still own a few in those neighborhoods, less than 5% of my portfolio and the only reason being I cannot sell them for what I would like. Hope this list helps if you have any questions please let me know!
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes6y
D class rentals require you to be local and checking in on them constantly. You'll have a far higher rate of unpaid rent, lease violations, abandonment, evictions, damaged rentals, etc.
C class is the same but can be minimized. Most of these tenants are perhaps bad with finances or have low ambition but they won't cause as much trouble as D class. I have about 50 C class apartments and would say they are more work than 100 B class single-family homes.
C class is not that big a deal if you develop strong policies and stick to them. Give them an inch, and they'll take a mile.
The DIY Landlord Book4.7248 Reviews - 6yPeter TverdovBusiness MemberDeveloper · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
We manage some C/D class stuff in Central New Jersey. D class I would only consider D class because of the neighborhood. A class tenants usually want to live in an A class building, town, neighborhood...you get the idea.
One of our C-/D+ places we just filled and got lucky. Tenant made 3x rent, 600+ credit, no evictions. We deal with folks who don't speak English. My spanish gets better weekly lol.
However, this same house we just rented. I come to find out someone next door was squatting and broke into the basement of our property and ran 3 extension cords from our basement to connect electric into the house they were squatting in! Can't make it up. That's some of the stuff you deal with.
Most times you can't follow 3x rent, good credit...a lot of the times you are making a total judgement call on these folks. It's a tough business.
- Investor · Brooklyn, NY · Member since 2018 · 20 posts · 95 votes6y
I’ll break down my solutions to @Philip Williams great list of issues.
1. To get rent paid on time, I use Cozy and let them know rent will be paid through direct deposit when they’re viewing the house. Anyone with plans of not paying won’t want their rent automatically deducted from their account. They also won’t like that their Cozy payments impact their credit score. I also have a Sec 8 tenant so getting the rent is never a problem.
2. If you have a nice home, people won’t want to leave it. Do the work renovating the space before and you’ll have a “one in a million” property with grateful tenants and super low turnover. Also, do the math to see if it’s worth raising the rent every year and risking the tenants leaving. I have good ones and don’t plan on raising their rent for the first 4 years they’re with me.
3. Don’t ever bend your standards in the screening process. I haven’t ever had to, but I’d rather give up a month of rent to look longer than lower my standards. I ask for 3 months pay stubs, last three bank statements, copy of photo ID, and contact info for their employer and past two landlords. I do a background check but not a credit check. Poor credit is assumed. I don’t even run it since that would bring it down even lower. If they tell me it’s very low and they don’t have much in reserves but they do have a good income, I’ll have them pay first, last, and security upfront. The last month gets paid in monthly installments and added to their rent payments.
4. Like I said, credit isn’t a big deal to me. Just use the last months rent installment payments to protect yourself.
5. No reserves is always an issue. It surprises me every time tbh but it’s the nature of the environment. You can use the strategy above and make sure your reserves are strong. If they have low credit and no reserves, I’d only rent to them if there are two or more working adults in the home. Or if they have Sec 8.
6. C and D doesn’t mean the neighborhood is dangerous. Check the crime report. My rental is in a town right next door to Newark, NJ (very high crime rate) but my area is extremely safe. With that being said, I still have video cameras and motion sensor lights on every door. It’s more to make my tenants feel safe than anything.
7. I choose not to increase rent but I definitely could. And my house has gone up in value about $25k a year since I bought it. You can’t buy in just any lower grade neighborhood. I looked for one within 30 mins of Manhattan with lots of access to public transportation. Mine was one of 3 houses being renovated on the street, and there are three schools within walking distance. Make sure the home you get is near something noteworthy and you should be okay.
There’s a lot of money to be made in lower grade neighborhoods. I also think it’s important for *US* to own in communities of color, which are often (but not always) C and D areas. Good luck to you!
- Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes6y
@Ladè Baruwa
In my experience, D tenants seems to trash the places more and vacancies are higher. That's not to say there are no issues with B tenants...I've had my share with them as well
- Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes6y
@Ladè Baruwa A class tenants pay virtually. B class tenants pay virtually. C class tenants will pay in person or potentially in a drop box. D class tenants pay late, often, and very rarely on time.
It is hard to describe the amount of extra work it takes when you go even from B to C class. C to D is just not worth it in my opinion unless you stole the building (repeat. make SURE you stole the building).
- Rental Property Investor · Rockford, IL · Member since 2014 · 385 posts · 702 votes6y
@Nzinga Young I respectfully disagree completely with your post and I will outline some of the reasons why.
1. As @John Warren mentioned D class tenants pay late very often. Also true D class tenants very often do not have bank accounts. Expecting direct deposit from D class tenants is not something you can bring to scale.
2. The area dictates what kind of tenant you are getting, I have had immaculately renovated homes in D areas and guess what I got D tenants as they are the only ones willing to live in those areas.
3. If you aren't doing credit reports you don't even know if they have judgments against them by past landlords if they have balances sitting out there still needing to be collected.
4. I have yet to find a D class tenant that could afford first last and a deposit.
I could keep picking your points apart but I don't think your actually in true D class neighborhoods. You mention they aren't dangerous neighborhoods, that in and of itself makes it more likely to be a C neighborhood. Also D class won't appreciate 25k a year unless the neighborhood is gentrifying I suppose. But again describing your neighborhood as extremely safe that just simply is not a D neighborhood.
- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes6y
Originally posted by @Nzinga Young:
I’ll have them pay first, last, and security upfront.How are you able to do this? This is illegal in the tri-state area.
- Investor · Brooklyn, NY · Member since 2018 · 20 posts · 95 votes6y
@Philip Williams I'm in a C- neighborhood but very close to a train station to NYC. The OP and I are in similar areas so he can have the same positive experiences in any C-/D area with access to Manhattan. He also asked for potential solutions, so I gave them.
- South Holland, IL · Member since 2017 · 374 posts · 432 votes6y
@Ladè Baruwa
I wouldn’t not do D Class unless you’re a glutton for punishment.
I own C Class rentals and finding tenants that meet my qualification minimums is difficult. You have to accept 500-600 credit scores, Barely 3x rent. Most are young (26 and under) and have NO previous rental experience or an eviction (I won’t accept evictions!).
They have to be cudgeled to follow your preferred rental experience and it takes time. The properties barely appreciate. On my last rental I went through over 600 inquiries. Out of that only 20 answered the questions to our satisfaction. Of the 20 only 7 kept their appointment to view. Of the 7, 3 were interested and we liked 2 of the 3. Total vetting time was 3 weeks.
The only positive in this class for me is that I purchased them for cheaply and the tenants have paid the mortgage off so I can afford to wait for the “diamond in the rough.”
- Rental Property Investor · New York City · Member since 2019 · 90 posts · 122 votes6y
@Philip Williams @Nathan G. @Peter T. @Nzinga Young @CJ M. @Calvin Thomas @Quincy Lockett
Great responses! This content will defintely help with future decisons!
I am curious to know, would you say the reward (ie. low barrier of entry, high cashflow) is worth the headache?
- Investor · Brooklyn, NY · Member since 2018 · 20 posts · 95 votes6y
@Calvin Thomas it's an increase in monthly rent payments. They pay first and security upfront and the last month in gradual payments in addition to the rent. Then they have essentially no rent to pay their last month.
- Rental Property Investor · Newark, NJ · Member since 2020 · 7 posts · 1 vote6y
@Nzinga Young - I’m new to investing and that was A LOT of clear but very nuanced info, I appreciate it. Thanks!
- Rental Property Investor · The Vampire State · Member since 2013 · 2k+ posts · 2k+ votes6y
Originally posted by @Nzinga Young:
@Calvin Thomas it's an increase in monthly rent payments. They pay first and security upfront and the last month in gradual payments in addition to the rent. Then they have essentially no rent to pay their last month.
To @Calvin Thomas's point, that's still illegal. You cannot hold a cumulative deposit greater than one month's rent, even over time:
"No deposit or advance shall exceed the amount of one month's rent under such contract." (in this context, the contract is the term of the lease)
I'm afraid that collecting the last month's rent in advance, even in payments, would be considered an ADVANCE. I'd love to be wrong and have you tell me your attorney told you otherwise.
- Rental Property Investor · The Vampire State · Member since 2013 · 2k+ posts · 2k+ votes6y
Originally posted by @Ladè Baruwa:
@Philip Williams @Nathan G. @Peter T. @Nzinga Young @CJ M. @Calvin Thomas @Quincy Lockett
Great responses! This content will defintely help with future decisons!
I am curious to know, would you say the reward (ie. low barrier of entry, high cashflow) is worth the headache?
On paper, these D properties have great cap rates, but you are trading an increased return with your increased time, effort and attention. You'll have to decide if the increased cash flow is worth the time you will have to invest. (It may be, but only you can answer that.) There will be a regular number of contacts that you will require with these properties (others have mentioned them). You'll have to be hands on. You can't just ignore the property until someone needs you. You'll have to put in face time so they know you are paying attention, otherwise "the mice will play."
Another thing to consider is that if you get worn out, you probably won't be able to pass these off to a PM, as it just doesn't make business sense for a company to take these on. So, if you go down that rabbit hole, you have to be "all in" and could end up selling for a loss if you are not cut out for it.
It is a niche, I guess. And some people do it. I personally think there are more consistent revenue streams in the RE space, but that's me.
Good luck!
- Investor · Columbus, OH · Member since 2017 · 861 posts · 1k+ votes6y
One thing I found about trying to use Cozy in C- areas, the payments easily bounce and it takes several days between the "payment has started" notice to "payment bounced" notice. When I talk about with tenants after they said they never even had the money at the time it started, so I have no idea why Cozy delays so long. Cozy can be more trouble than its worth in these types of areas.
- Investor · Brooklyn, NY · Member since 2018 · 20 posts · 95 votes6y
@Wesley W. I never said this wasn't in their lease. The advertised rent for the property was $1600. They saw it, liked it, but didn't have enough reserves/high enough credit to qualify. In order to get it, they agreed that their rent would be $1733 for the first 11 months and $133 for the final month. This was our agreement and it was recorded in their lease.
- Investor · Linden, NJ · Member since 2016 · 190 posts · 116 votes6y
@Nzinga Young good pointers but i would suggest pulling credit. i own in newark and started pulling credit in the last 2 years. the first reason is i like to see what they are delinquent with. if it is a student loan or a CC bill that is one thing but if it is repeated car note issues, i pass. a tenant will choose paying the car before the rent every time. Another thing i find in C/D areas is that the applicants sometimes omits addresses they lived. the credit report may pick that up. the lease may not of been in the applicants name but you can question them about it, find the owner's name online and on the njcourts website see if that landlord has prior landlord tenant cases on that address. i disqualify any applicant that their unit has had issues, even if the apartment wasn't in their name.
I understand you may not want to raise rents in 4 years but i have seen rents change drastically in the last 4 years. even if its $5, you should get in the habit of increasing the rent. i even put a % of what the increase is with the dollar increase so they see it is not an outrageous amount (ex. $1000 will increase to $1005 (.5%) ).. what i found is that after going years without any increase, they will question and be upset the first year you do do an increase.
- Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes6y
The best way to thrive in lower income housing is to use the section 8 program. If not, you will have to carefully screen your tenants. Often, this is not enough, and your lost rent / evictions will be high.
The cost of evictions is very high. You live in NYC, so a City with strong tenant rights, slow courts and a slow sheriff make it very painful. New Jersey is no different.
There are good lower income tenants out there. That being said, investors in this assets class that are successful generally are local and experienced with this type of tenant. Screening becomes the most important aspect of your business.
- Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes6y
I've owned a few small commercial retail strips in the city of Detroit (and a bunch of SFH's), I would say most were in D areas, so I've been through quite a few headaches. I've also had 100% occupancy for many years, and only a couple short gaps where a long term tenant had to move out. But I think it's all about how you manage those, learn from them and put in systems to mitigate in the future. You'll never be able to mitigate & prepare for all issues, but you can manage in a certain way to reduce it to the point where it is profitable financially and not mentally draining. My first investment was in a D neighborhood, where I jumped right into it without knowing a single thing about RE & putting my life savings into it. So I had some battle scars, but what doesn't kill you (quite literally) only makes you stronger, so I would not change it for anything even as I've divested and moved on to better neighborhoods.
Here are just some off the top of my head, I'm sure there are many more:
- Consistently late rent. I just lived with this because I had a strict late payment penalty. Tenants would pay me late, every month for years, consistently 1 week past due and also pay my $75 late fee. If it ever slipped past their normal timeframe, I would have to build some rapport over the years to make them feel the responsibility of paying, and even help budget their finances at times.
- Clogged sewage. I had to put fines in place for when tenants wanted to throw diapers, tampons, tv's (kidding) down the toilet.
- Family, and their families. I rented to an elderly couple and their child. The mom brought her grown kids. These grown kids (adults) brought in their kids. Before I knew it there were 13 people in a 2 bdrm apartment! Surprisingly they passed my background check, credit check, had enough to move in, etc. but I had to kick them out within 2 weeks which they politely did vacate.
- Tenants complaining about gunshots, drug dealers, violence, etc. to try and negotiate rent, late payments, etc. We all understand the area but the rent is what it is, and in my case it was fairly priced but tenants want to use excuses to get out of the situation.
- I've taken a total of 6 vacation/sick days from my day job within a span of a little over a year to walk my tenant through his permits. He had no clue and had gotten a fine, so I had to help him out in front of the judge as well as through every step within the application process. He was always very grateful, and we had a great relationship. He would take care of my building as if it was his.
- Break-ins. I've had 5+ that I can remember. We had security cameras, etc. which I thought was enough. Nope. In my situation at least, we had to have the collective effort of the community. We found out it was the same guy from the word on the street that broke in the same place a couple times, and then now finally he's in jail from what I was told. But this is a neighborhood/community effort, everyone has to be looking out for each other. I wasn't a part of the community exactly, but I would spend some time hanging out with people there, talking to local business owners, etc.
- How I presented myself. I would visit my properties for showings after my day job, in business casual attire. I had an old 2002 BMW. I would accommodate the potential tenant if I had showings, so I would show at 7pm, 8pm, etc. sometimes as sun was setting. I was told on multiple occasions by different tenants and even my plumber to stop doing all these things and that I was sticking out too much as I did not look like or present myself in a mundane way. I did not know my surroundings, I didn't know that people were talking about me when I'd go to visit to possibly rob, I was just too naive. Long story short, I would later visit in jeans or gym shorts, bought myself an old beat up Toyota Camry, would only go out with hours of daylight left, and got myself a CPL to carry every visit thereafter.
- Parenting/family issues. Little kids being left at home till their single parent returned from work or on the other hand, "baby sitters" that would essentially live at the unit. Concerned neighbors had told me about this so I had to step in and consult to what was going on. I had a good relationship with the neighbors, so I would get a text or call about what was going on.
- The city office. The city office in my case was (is?) terribly inefficient, contradicting, significantly understaffed, etc. etc. When it felt like I was doing everything by the book, had great tenant & community relationships, yet I was still being hit with random fines and penalties. I had to waste time & $$ to go and fight these to get them removed which was usually coming from poor paperwork, misunderstanding, or other reasons from the city. Of course there were some times where I would get hit with some silly fine (I can't remember to list them) when my neighboring landlords were literally letting their buildings get run down, facilitating illegal activities, not per building code, etc. The city can be a pain in your butt given the area.
How I managed: collect all rent via Chase bank deposits (not everyone had a bank acct. for digital payments), electronic leases, and would have a list of vendors service the property if there was an issue. Last few years I was out of country/state travelling quite a bit and would still be able to manage just fine because of the foundation I had built with my tenants.
I will say that with these C/D neighborhoods come headaches, but at the same time there are also terrible landlords for one reason or another. Tenants have put up with horrible landlords for years in these areas, so they've been beaten down into a certain mental framework. When you can truly speak to your tenants, understand your community, and can genuinely manage your properties with a little patience & love, you will have a true bond that can/will mitigate many of the negatives.
- Real Estate Broker · Atlanta, GA · Member since 2017 · 229 posts · 145 votes6y
@Ladè Baruwa I primarily invest in C/D areas in Atlanta. I have a good property manager that gets tenants. I rarely have any tenant issues.
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