I want to specifically start a discussion on the topic of investing ONLY in D neighborhood quality properties. I have spent a LOT of time here on BP the last 10 days and my horizon has been opened to a lot more possibilities then I ever expected. Living in Utah, I feel the barrier to purchase more and more properties is becoming more difficult for me. I have been reflecting a lot on the different strategies mentioned here on BP. I see a lot of people say to stay away from D properties (specifically in OH, MI, etc) but I feel like there is little to no barrier to purchase those properties. Is it a bad strategy to have a consistant purchasing behavior of these types of properties? I feel like if I purchase 10 properties over 2-3 years, 6 would be good experiences, 2 would be home runs and the remainder would be terrible experiences. The law of averages would favor you. Do you recommend this strategy specifically for the buy & hold rental cashflow investor? Is there a better opportunity you would consider?

Yes and no. Mainly no. The problem is that they will always be D neighborhoods, unless you have a specific piece of knowledge that something in the area is changing. For instance, I've been toying with buying a couple of C/Ds. Seller is in no hurry, and I'm not exactly gung-ho for once. She wants $30k a piece. My inside knowledge is that the county is considering buying the 200 unit ghetto opposite and grinding it into dust. Essentially it keeps flooding, which is kinda what happens when you build 200 apartments in a swamp in a floodplain. The swamp even has a name, so you'd think it was kinda known about. But anyway, if that apartment complex goes, then that subdivision will definitely improve over time. One of our multi units is in a C/D, but again, that area is slowly gentrifying itself. The more stuff built downtown, the better that area becomes. So unless you have some inside knowledge, or know that changes are a foot you could do well. But. If you want cheap houses, when you come to sell them in 20 years, what you will have is lots of cheap houses. These houses actually become more of a liability than an asset. Telling people that you own 30 units sounds impressive, but when your bus fare cost more than your portfolio, the glow is short lived. I know a bunch of slumlords, they are not wealthy people.

I'm going to go against most of the advice here and say that D properties can be great investments, especially when you're starting out and money is more important than time. I invest in the few D areas left in Austin, and it has worked out well for me. That being said, investing out of state in tough areas is a different challenge which I would not recommend (although I've also never tried it). A few reasons I'm pro D class: • Less competition: As you can see in the comment thread, many experienced investors don't like to go into D class. • Better cash flow: D properties tend to give higher margins (also more headache). • Additional value add propositions: There are a number of strategies you can use to actually pull up the entire neighborhood; these tend to take a long time and are difficult to implement, but can be very lucrative and good for the community in general. • Lower barriers to entry: You can buy a lot more property for a lot less money • More creative savings opportunities: broken appliances? Buy used ones off Craigslist. Ratty carpet? Replace with cheap, durable vinyl plank. Try doing that in an A-class neighborhood and you'll never find a renter. • Experience: D-class will help you decide what you really want and how best to get it. You'll learn tenant management and who you really want as renters, repairs (if you're doing it yourself) or how to manage and negotiate with contractors, which kinds of property problems you're willing to deal with and which you're not, etc. I'd love to hear other D-class investor's views on this as well. Feel free to add to my list (or tell me why I'm an idiot). Either way, good luck @Nik Krohn.

Purchasing Only D Property Strategy - Do you recommend? No.

Coming in late on the discussion, a lot of good points in the discussion. I met a couple of PMs in the Central Ohio area a few years ago and they specifically told me that they do NOT manage rentals in the D areas. And if you look at the numbers, it makes sense. Say average rent is $600 - 10% PM fees is $60. The D tenants are not going to send payments automatically using ACH, heck they might not have a checking account to mail a check either. You're going to need to go there to pick up rent in cash. And you'll have to stop by a couple of times at least. Unless you manage the entire block you are losing money managing a few here and there in that area. $60 is too little. We're not even talking about crime. If you are investing out of state, you better have a great PM company - probably more important than the "deal" itself. Your chances of finding a good PM in a D area goes down quite a bit. That being said, I do know an investor here who does his own handyman work and has lived in the D all his life. He is a part time investor and is doing pretty good with the few properties he has. He is successful for obvious reasons, not every one has the same skills/background.

Purchasing Only D Property Strategy

Thomas S.

Member since 2016 · 13k+ posts · 12k+ votes

10y

From what I know none would be a good experience. They are all hard work in that they require hands on management. Being a landlord in a D property is like being a prison warden without any prison guards. Non payment is a common occurrence, damage, midnight runs, crime and violence.

Does Utah allow you to carry a gun ?

Purchasing Only D Property Strategy - Do you recommend?

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