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?

Listen to the counsel of the wise and experienced; the wonderful cashflow you see are mostly on paper; I do not know why someone will willingly want to invest in D properties and out of state at that!. Thomas S. couldn't have put it better: are you ready to carry a gun? Anyway, since you invest out of state, would be willing to arm your PM just to collect rent? My sincere advise is to stay away from ghetto properties, especially as an out of stater..... Look for more decent areas, they will cost you more but you will have rest of mind. My one cent!

D properties are my plan because A. That is what I can afford B. They can be obtained without loans and C. I dont have to pay labor for rehab plus D. people who rent in these areas arent too choosy....not that I intend on being a slum lord and E. Being from this area I know which blocks are relatively safe and which ones are not.

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.

@Nik Krohn D properties out of state are NOT an appropriate investment for an out of area investor. The only one's who make those work are locals who are hands on.. You CANNOT afford PM.. it will chew up your cash flow... and PM's that work in these asset class's are far and few between. the better PM"s won't touch them. You would be better off taking a nice vacation you will get more out of it with the same results IE your bank account will be smaller at the end of the day. That all said I have been funding primarily C grades with some urban core D grades going on the better part of 20 years. I have Never seen a West coast investor make any appreciable money at this and have witness first hand most fail and walk or lose the properties.. I know because I finance them for the local that buys them back from the west coast and foreign investors for pennies on the dollars.. I see the HUDS no getting around it in my book... pay 30k for a D class sell it for 8k and thats after rehabbing it for the 5th time in 3 years.. these are a great way to lose all your cash.. one of the fastest and easiest ways actually in Real estate to get wiped out.

Utah ain't got none D properties?

Thomas S. Thanks for the feedback. I would mainly be investing out of state. It doesn't sound like you would ever recommend investing in any D properties out of state.

Purchasing Only D Property Strategy

Mark Holencik

Investor · Coplay, PA · Member since 2015 · 404 posts · 315 votes

10y

Originally posted by @Andrey Y.:

Originally posted by @Mark Holencik:

It is a buy and hold market.

Why would anyone buy the one you have for sale when they can buy the one next to yours for less then you paid for yours? It is also in better shape then yours was when you bought yours. This is reality.

If you do not have someone you trust 100% to judge the home. Judging the home means the one behind it, next to it, across the street, up the block. Here are pictures from one I just rented out.

This is the property behind mine. That is the yard before I cleaned it up.

That is my property.

This the property across the street. You have to understand the mentality of the people and the system that keeps them renters . Anyone of these people could buy this home. I have have an investor that loaned me the money at 8% for 10 years. I fixed the property and rented it for $600 a month. Most rents for this house would be $400 - $500.

I have an investor that wants out and I am buying 5 with long term tennents in better blocks for 1/2 the price.

The streets in the Philippines look a lot more run down, and "ghetto" that what is in those photos. In my three times traveling there (having been to the major cities and more rural areas), never did I not feel safe. I just walk with a smile on my face, and talk to the locals and buy delicious pastries on the street for $0.10/ea. I wonder then, people feel unsafe walking through C-/D areas in the US?

You can not compare the looks of the buildings as having the same people living in them. Different cultures and wealth. Night and day you can not compare the two.

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Dave VisayaPro Member

Moderator

Audio Engineer and Investor · Cebu City, Cebu · Member since 2013 · 7k+ posts · 881 votes

10y

Hey @Andrey Y. I would have to agree with you. However, hopefully change is coming in our country for the better with the new president and all. :)

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James DeRoest

Investor · Century, FL · Member since 2015 · 950 posts · 603 votes

10y

Originally posted by @Nik Krohn:

I want to specifically start a discussion on the topic of investing ONLY in D neighborhood quality properties.

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.

1 Reply

Justin Hammond

Investor/Developer · Salt Lake City, UT · Member since 2015 · 207 posts · 106 votes

10y

@Nik Krohn why do you feel like you can't purchase properties here in Utah?

Also, if your strategy turned out the way you project (10 properties over 2-3 years, 6 would be good experiences, 2 would be home runs and the remainder would be terrible experiences), then it's a no-brainer. But it's not that simple. For instance, what if the 2 terrible experiences were your 2 FIRST deals? That would eat your bankroll pretty fast.

Also, I don't know what type of "home runs" you are hoping for in D areas... huge pockets of oil being discovered underground?

I wouldn't base your strategy off of some hopeful projections you come up with.

My advice is to invest in your back yard. Begin to create value by generating quality leads, negotiating well, and making financial partners.

Please reach out to me if you want to chat about some strategies!

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Melroy D'Souza

Investor · Hilliard, OH · Member since 2014 · 60 posts · 25 votes

10y

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.

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Peter Lohmann

Property Manager · Columbus, OH · Member since 2012 · 309 posts · 275 votes

10y

Purchasing Only D Property Strategy - Do you recommend?

No.

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Purchasing Only D Property Strategy - Do you recommend?

Purchasing Only D Property Strategy - Do you recommend?

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