Landlords.....what headaches come with having C- and D tenants?
Rental Property Investor · New York City · Member since 2019 · 90 posts · 122 votes
What are some headaches that a landlord could run into when renting to tenants in a C- and D class neighborhood?
Also, what are some solutions for those headaches?
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!
@Philip Williams That was a perfect answer!
4. I have yet to find a D class tenant that could afford first last and a deposit.
LOL, For me, a tenant renting in a "D" neighborhood that can afford 1st, last, and security would be a red flag for a drug dealer. They're probably also willing to pay a double pet fee for their "very friendly" pittbull ;) too. Ask me how I know.
Oh yeah, and she'll want to put up some security cameras, but don't worry they'll be professionally installed.
after reading all of this I think I would rather fix and flip than be a landlord.
I Agree with @Brian Ploszay. The best way to deal with lower income housing is to utilize Section 8 voucher program. Section 8 tenants have been pre-screened and you get at least 60%of the rent on time which is guaranteed by the government. Section 8 tenants have an incentive to comply to the rules. Since it is not easy to qualify for Section 8 and the waiting list is long, typically Section 8 tenant will work harder not to have a poor rental or eviction record at the risk of losing their Section 8 voucher.
@Karen Schimpf That is a good point, a S8 tenant would have more to lose. Nonetheless, many on S8 still "shoot themselves in the foot" anyway. A strong screening process should help with that
@Nathan Gesner hit the nail on the head. His post sums it up. You have to develop your system, treat people with respect, but be very firm with the rules that are established. We currently have 32 C class units, we keep up on maintenance and take care of the buildings and the tenants appreciate having a nice place to live and pay the rent. If they are late with rent, we take action immediately.
Make no mistake about it, just because they it may be a rough neighborhood many of these folks know the laws better than you. They know every loop hole and know exactly how to delay eviction proceedings in order to get 2, 3, or 4 more months of free rent before the sheriff shows up.
Don't take any shortcuts in screening tenants. Verify credit and most definitely past landlords. Never fall for the "Oh, I have been living with my sister for the last 3-years". My published qualification requirement is clear, I must obtain good references from past landlords for the last 5-years. If you say you haven't had a landlord, then sorry.
Also, remember you are running a business, not a charity. We all feel bad that their grandmother died so they can't pay rent this month, but the rental agreement requires rent to be paid by the 5th.... You must enforce it and don't hesitate on going to the courthouse. You would be shocked at the number of folks who have gone decades gaming the system and manipulating landlords. Be a businessman, not their next victim.
Everything will be running smooth like clockwork then the boy friend with work allergies shows up and moves in..... Always ends ugly. Made me an eviction expert!!
@Nzinga Young -Good answer. Your response if full of great tips.
@Quincy Lockett - Am setting the bar too high by only taking high credit score? I normally aim for over 700.
Everything will be running smooth like clockwork then the boy friend with work allergies shows up and moves in..... Always ends ugly. Made me an eviction expert!!
Oh, Amen! And this is a really big reason why I only did month to month agreements. You can rent to the perfect tenant, then they get involved with some maniac - or - the baby daddy you didn't know about moves in, and then you're arguing about how often he's staying there - is he a guest? How do you prove how many nights he's staying over? With M2M, you just say bye bye. It's so much easier to dis-invite them, as the owner I worked for liked to say.
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.
Speaking of Spanish-speaking tenants, in CA, one of the problems with renting to C or D class tenants in Spanish-speaking neighborhoods, is that it's really common that they will make major physical alterations to the property. In Mexico, for instance, it's really common for the working class to be jacks of all trades. And, for them to not think twice if they have a friend they want to move in, but need a bedroom for him. So, they simply put a shower in the garage and add an electrical panel maybe, and put in a toilet. Or, they may actually build an addition on the back and run electrical and plumbing to it. I recently saw an ad on realtor.com for a house for sale in Fresno, CA, where they actually added a shower in a bedroom. And, then, you have permit issues and may have to un-do all kinds of crazy additions.
The upside, is they will probably faithfully pay the rent on time, hoping you never come around. But, it can cost you a lot of money in un-doing garage conversions with not-to-code plumbing and electical panels, etc.
Since they have little or no savings your rent is tied to any issue that comes up. Major car repairs, cut in work hours, medical bills, day care, injuries all expected events will have a huge effect on them paying the rent on time. The fact is people with lower incomes are at the mercy to life's cost events. When all is rolling all is good but once something comes up it puts them back and you have to have patience to work with them.
@Ladè Baruwa
Pretty silly question. Assume the worst. Because that is what you will get at some point if you get big into these properties lol. Murder. Drugs. Getting paid in 1’s....
I like the questions that are more specific: “I have a tenant that got shot this morning at 2 am. What do I do now?” Lol thats C & D...
A & B— Tenant is complaining that the carpet doesn’t match with the blinds and the rug is stained... pick yr poision!
If you’re getting applicants with a 700 credit score than you’re probably not in a C or D area.
@Dan Travieso I agree 100% with your statement. Many times they do know the laws better then us. A very tight screening process should mitigate issues that could a arise from a certain kind of tenant.
@Sue K. Apart from doing M2M, is there any other solution to a situation like a boyfriend or anyone for that matter just moving in (or frequently coming) when the tenant has a lease agreement?
Check out the BP podcast featuring Dr. Joe Asamoah. He primarily rents to Section 8 tenants, has a rigorous screening method that yields only those individuals that take pride in where they live, take care of the property as if it were their own and often are very long term tenants. A win-win situation.
Check out the BP podcast featuring Dr. Joe Asamoah. He primarily rents to Section 8 tenants, has a rigorous screening method that yields only those individuals that take pride in where they live, take care of the property as if it were their own and often are very long term tenants. A win-win situation.
Yeah I heard that one. That was a really cool and inspiring episode. That was the one where he actually goes to their current house to see how they currently take care of their place?
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.
I have never heard of D+ class, but I love the positive spin.
D+ delinquency + headache. That's what it means.
Yes. What I also took away was his emphasis on developing a mutually respectful relationship with his tenants. That along with his intense screening process works well.
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!
These tips are fantastic. Thank you for sharing!
@Ladè Baruwa
Crime, non-payment, drugs, addiction issues, property damage...
I tried multiple times. Just always is a losing battle unfortunately. I wish it wasn’t, but it’s very hard to change an area, especially D.
I just had an I retesting one I ran across. A prospective tenant reached out to me to see a place I have for rent. She shows up with her perspective roommate and the roommates 1.5 year old daughter. The conversation was normal till them mentioned making the third bedroom into a giant closet which I thought was odd but what do I really care. Then I caught an off the cuff remark about needed to get new cameras again no idea what they were talking about but all seems nice. One says she has excellent credit but when it comes back below 590 she’s unable to explain the missed payments and dismissed loans she didn’t pay back. When I get the roommates info her Facebook takes me to her Instagram account and her instagram accounts linked to her onlyfans account which is about when I start to realize she’s an aspiring webcam model which was why they needed the 3rd bedroom to be a closet/studio and the new cameras and the fiancés sudden departure all begins to make sense. Her credit score in the 400’s and no income to speak of in this economy lead me to pass but also gave a good chuckle.
Moral of the story is ask questions but more importantly listen! Then do the digging and put the puzzle together if you have more questions reach back out and ask sometimes the best tenants aren’t the ones who took the easy path.
@Sue K. Apart from doing M2M, is there any other solution to a situation like a boyfriend or anyone for that matter just moving in (or frequently coming) when the tenant has a lease agreement?
I just looked the other way, as long as there weren't problems. If there were problems, then I'd talk to them about addressing the problems. Sometimes the original tenant would kick out the lover, and things would get back to normal. If not, after giving warnings, I'd give them notice, and negotiate them out.