Investors in High Crime Distressed Areas - Class D
Rental Property Investor · FL · Member since 2016 · 271 posts · 92 votes
Investors in High Crime Distressed Areas - Class D
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Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
3yIḿ recently migrating out of class Ds but Ive done them for the majority of my investing career. I have my share of horror stories but to the the same degree I have had much success. I know how to mitigate the risks and keep the tenants in line (most). I guess one part I do find rewarding is when I find that special tenant that deserves a good unit and great landlord. Most, just because of their zip code have never experienced decent housing experiences with landlords who respect them, the culture and community. It feels good to me when they say I´m the best they have ever had.
32 Replies
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Doing projects in these neighborhoods is one thing, holding them as rentals and managing them is another. I refuse to keep rentals in D class neighborhoods, especially if they’re built pre-1970.
- Rental Property Investor · New Braunfels, TX · Member since 2022 · 409 posts · 408 votes3y@Joshuam R. For the love of realness... Where is the dislike button for forum posts? 😂😂😂
Quote from @Eliott Elias:
Doing projects in these neighborhoods is one thing, holding them as rentals and managing them is another. I refuse to keep rentals in D class neighborhoods, especially if they’re built pre-1970.
- Rental Property Investor · FL · Member since 2016 · 271 posts · 92 votes3y
Quote from @Account Closed:
@Joshuam R. For the love of realness... Where is the dislike button for forum posts? 😂😂😂Quote from @Eliott Elias:
Doing projects in these neighborhoods is one thing, holding them as rentals and managing them is another. I refuse to keep rentals in D class neighborhoods, especially if they’re built pre-1970.
- Investor · Fort Lauderdale, FL · Member since 2020 · 1k+ posts · 755 votes3y
You'll generally want to stay away from managing tenants in high crime areas. The amount of headaches and down the line costs are going to be very high. I ask myself this question "If I buy a property in this area and need to go there, do I need to carry a gun?" If the answer is yes, then I don't even think about buying there. Also, your tenants are going to be lesser quality and find a PM will be difficult as well. Of course, there is still money to be made in it but at the cost of more headaches and time vs a safer area.
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes3y
Quote from @Joshuam R.:
Please if you like to share, pretty please with a cherry on the top, do so only if you personally or your operations reflect this question, thank you:
"I know we all here share plenty of advice to stay away from certain products or risks and projecting your personal reasons of why you don't want to invest in this, in that, etc.
I know all investments are hard work and dealing with people and responsibilities are hard work, but I want to know who actually is pursuing such properties in such neighborhoods with open arms and actually enjoy it and love the results in such D class and enjoy managing them."
Enjoy managing in those neighborhoods no, but I really do not do much PM handles. However if you know what you are doing it can be rewarding. Also D area in Chicago for example is much different than a D area in Cleveland for example. When was the last time you heard about gang shootings in Cleveland, never. But Chicago, Philly for example it seems daily. So am I really buying in a D area, not so sure but the returns are 25% ++++ net . Its all about your team and knowledge
Good luck
- 3yKevin MoyerBusiness MemberProperty Manager · Philadelphia, PA · Member since 2019 · 269 posts · 301 votes
I am a property manager in Philly. We work with a lot of C Class units and some D Class as well. It's tough work. Tough to find quality tenants. Tough to send quality contractors and showing agents into these areas. Tough to navigate the tenant-friendly regulatory environment.
That said- higher risk can result in higher return. Dollar for dollar the investors that are getting the best (and worst) returns are those working in these areas. If done right- you can make a better return than you can with A Class and B Class rentals.
I personally invest in some D Class because I'm confident that we can mitigate some of the risk with quality management processes and familiarity with the broken Philly regulatory environment.
Otter Property Management4.8628 Reviews - Member since 2023 · 216 posts · 133 votes3y
Quote from @Kevin Moyer:
I personally invest in some D Class because I'm confident that we can mitigate some of the risk with quality management processes and familiarity with the broken Philly regulatory environment.
This question may seem like a bit of a "stupid" question, but do you find it more time consuming managing the properties in Class D areas? Or is it pretty much just the same as any other area?Do you have "lower" qualification requirements for those areas or do you still require the same qualifications for all properties?
I have always been of the mindset of: "unless you have the funding to regentrify or be a part of a regentrifying project to stay clear of D Class areas to save yourself headaches down the road. But am always open to ideas and suggestions to possibly change my mind.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes3y
Quote from @Chris Merchant:
Quote from @Kevin Moyer:
I personally invest in some D Class because I'm confident that we can mitigate some of the risk with quality management processes and familiarity with the broken Philly regulatory environment.
This question may seem like a bit of a "stupid" question, but do you find it more time consuming managing the properties in Class D areas? Or is it pretty much just the same as any other area?Do you have "lower" qualification requirements for those areas or do you still require the same qualifications for all properties?
I have always been of the mindset of: "unless you have the funding to regentrify or be a part of a regentrifying project to stay clear of D Class areas to save yourself headaches down the road. But am always open to ideas and suggestions to possibly change my mind.
No, it's not the same at all. It takes a lot more time and more money to manage low income properties.
- Real Estate Agent · WA · Member since 2021 · 254 posts · 173 votes3y
Quote from @Kevin Moyer:
I am a property manager in Philly. We work with a lot of C Class units and some D Class as well. It's tough work. Tough to find quality tenants. Tough to send quality contractors and showing agents into these areas. Tough to navigate the tenant-friendly regulatory environment.
That said- higher risk can result in higher return. Dollar for dollar the investors that are getting the best (and worst) returns are those working in these areas. If done right- you can make a better return than you can with A Class and B Class rentals.
I personally invest in some D Class because I'm confident that we can mitigate some of the risk with quality management processes and familiarity with the broken Philly regulatory environment.
What are some of the best returns you've seen out of these areas? Are you referring to appreciation, cash flow, or everything in between?
- Member since 2023 · 216 posts · 133 votes3yMore money? Does this mean as far as repairs? And what is the cause of more time? Is it due to being tougher to sort through qualified applicants due to more or less interest? Do you care to elaborate further? PM is fine as well, I am curious as to the answers here.
Quote from @James Wise:
No, it's not the same at all. It takes a lot more time and more money to manage low income properties.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes3y
Quote from @Chris Merchant:
More money? Does this mean as far as repairs? And what is the cause of more time? Is it due to being tougher to sort through qualified applicants due to more or less interest? Do you care to elaborate further? PM is fine as well, I am curious as to the answers here.Quote from @James Wise:
No, it's not the same at all. It takes a lot more time and more money to manage low income properties.
Just Google Tenants From Hell and you'll see what I'm talking about.
- Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes3y
Iḿ recently migrating out of class Ds but Ive done them for the majority of my investing career. I have my share of horror stories but to the the same degree I have had much success. I know how to mitigate the risks and keep the tenants in line (most). I guess one part I do find rewarding is when I find that special tenant that deserves a good unit and great landlord. Most, just because of their zip code have never experienced decent housing experiences with landlords who respect them, the culture and community. It feels good to me when they say I´m the best they have ever had.
- Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes3y
@Joshuam R. I manage in hard C class areas that border D areas. We took over one building during the pandemic that was essentially a D class building, and we have been slowly turning it to a C+ building. It is no picnic. Break ins, thefts, petty theft, police calls, etc. You are dealing with around 7-10 times as many maintenance calls, and you will lose good tenants until you get a building turned around.
I met a local investor here in Chicago who runs a portfolio of nearly 1000 units in D class areas. The level of organization and structure to the management, maintenance, and construction was impressive. Literally everything is in house from pest control to major CapEx projects. I am sure the cash flow is excellent and the profit margins are there, but most folks would not be able to step into this type of an area and succeed.
- Rental Property Investor · FL · Member since 2016 · 271 posts · 92 votes3y
Quote from @Kevin Moyer:
I am a property manager in Philly. We work with a lot of C Class units and some D Class as well. It's tough work. Tough to find quality tenants. Tough to send quality contractors and showing agents into these areas. Tough to navigate the tenant-friendly regulatory environment.
That said- higher risk can result in higher return. Dollar for dollar the investors that are getting the best (and worst) returns are those working in these areas. If done right- you can make a better return than you can with A Class and B Class rentals.
I personally invest in some D Class because I'm confident that we can mitigate some of the risk with quality management processes and familiarity with the broken Philly regulatory environment.
Thank you Kevin, I appreciate your insight. Congrats on the hard work. Best wishes.
- Rental Property Investor · FL · Member since 2016 · 271 posts · 92 votes3y
Quote from @Mark Cruse:
Iḿ recently migrating out of class Ds but Ive done them for the majority of my investing career. I have my share of horror stories but to the the same degree I have had much success. I know how to mitigate the risks and keep the tenants in line (most). I guess one part I do find rewarding is when I find that special tenant that deserves a good unit and great landlord. Most, just because of their zip code have never experienced decent housing experiences with landlords who respect them, the culture and community. It feels good to me when they say I´m the best they have ever had.
Bingo! "Rewarding is when I find that special tenant that deserves a good unit and great landlord." @Mark Cruse excellent point, and that is what I am trying to see, who else see the full picture, and gives it a purpose for these areas. Yes there is the typical pattern, but if done right, firm, managed right we will get to serve the right tenants at the tough zipcodes.
I think Class A is a type of business to run, and Class D is a whole other type of business to run.
I think that for the ones trying to balance purpose using REI to try and get a few Class A/B under their belt with ++ results, then transition to Class D.
There are good auto mechanics, and there are bad ones. Same with Landlords/Real Estate Investors, and bad ones are at all Revenue levels in an industry that is set to service people.
Thanks for sharing, congrats on your hard work and best wishes.
- Rental Property Investor · FL · Member since 2016 · 271 posts · 92 votes3y
Quote from @John Warren:
@Joshuam R. I manage in hard C class areas that border D areas. We took over one building during the pandemic that was essentially a D class building, and we have been slowly turning it to a C+ building. It is no picnic. Break ins, thefts, petty theft, police calls, etc. You are dealing with around 7-10 times as many maintenance calls, and you will lose good tenants until you get a building turned around.
I met a local investor here in Chicago who runs a portfolio of nearly 1000 units in D class areas. The level of organization and structure to the management, maintenance, and construction was impressive. Literally everything is in house from pest control to major CapEx projects. I am sure the cash flow is excellent and the profit margins are there, but most folks would not be able to step into this type of an area and succeed.
Exactly, that I believe and see the pattern of the secret sauce, everything in house vertically integrated.
When the business structure is set to always outsource that's when a company stays steady in one particular class type A or B.
Good insights, thank you @John Warren
- Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes3y
Quote from @Joshuam R.:
Please if you like to share, pretty please with a cherry on the top, do so only if you personally or your operations reflect this question, thank you:
"I know we all here share plenty of advice to stay away from certain products or risks and projecting your personal reasons of why you don't want to invest in this, in that, etc.
I know all investments are hard work and dealing with people and responsibilities are hard work, but I want to know who actually is pursuing such properties in such neighborhoods with open arms and actually enjoy it and love the results in such D class and enjoy managing them."
The first 30 properties my partner & I purchased in Chicago were in so-called "Class D" areas. These were single families flips. Did we enjoy it- No. The results- $1.5M in profit. Yes. Then purchased some multifamilies and apartments, let a property management company manage the portfolio, and then sold. The bottom line- 90% of the people who live in these "D" neighborhoods are A-class people. Bottom line- While it may not be where you want to live, if you run a tight business, with the right systems, processes & relationships it can be very profitable.
- Rental Property Investor · FL · Member since 2016 · 271 posts · 92 votes3y
Quote from @Crystal Smith:
Quote from @Joshuam R.:
Please if you like to share, pretty please with a cherry on the top, do so only if you personally or your operations reflect this question, thank you:
"I know we all here share plenty of advice to stay away from certain products or risks and projecting your personal reasons of why you don't want to invest in this, in that, etc.
I know all investments are hard work and dealing with people and responsibilities are hard work, but I want to know who actually is pursuing such properties in such neighborhoods with open arms and actually enjoy it and love the results in such D class and enjoy managing them."
The first 30 properties my partner & I purchased in Chicago were in so-called "Class D" areas. These were single families flips. Did we enjoy it- No. The results- $1.5M in profit. Yes. Then purchased some multifamilies and apartments, let a property management company manage the portfolio, and then sold. The bottom line- 90% of the people who live in these "D" neighborhoods are A-class people. Bottom line- While it may not be where you want to live, if you run a tight business, with the right systems, processes & relationships it can be very profitable.
Excellent Crystal, thank you for sharing. This is good insight and hopefully newcomers can vision this possibility in their future of great Landlord path and apply to their REI goals.
- 3yAlan AsriantsBusiness MemberReal Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
Quote from @Kevin Moyer:
I am a property manager in Philly. We work with a lot of C Class units and some D Class as well. It's tough work. Tough to find quality tenants. Tough to send quality contractors and showing agents into these areas. Tough to navigate the tenant-friendly regulatory environment.
That said- higher risk can result in higher return. Dollar for dollar the investors that are getting the best (and worst) returns are those working in these areas. If done right- you can make a better return than you can with A Class and B Class rentals.
I personally invest in some D Class because I'm confident that we can mitigate some of the risk with quality management processes and familiarity with the broken Philly regulatory environment.
Higher risk - higher cash flow (NOT HIGHER RETURN)
This is a super common misconception. You can't only look at cash flow when analyzing real estate
If you buy a $100k house and put $50k into it, it might be worth $150k in these areas. Putting 50k into a 400k house will take your money a lot further.
When your $150k house appreciates overtime is much different than your $400k house overtime.
You'll be wealthier in the long term holding onto more valuable assets. Where here you will be chasing cash flow until you or your PM burn out.
Could be great cash flow, but other than that it's a headache and risk.
Just my 2 cents
Alan Asriants - New Century Real Estate 591 Reviews - Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes3y
I must say, many of the problems people are elaborating on are valid. It will be harder. In most cases it takes more time and clearly, no matter what there is more risks. However, you were very logical to directly go after the people who are or who have directly done it. No matter what, you are going to get so many that tell you it´s horrible or impossible. You will get people who tell you it cant work and to run. I never understood this if clearly they know there are people who go there and make it work all the time. It just cant work for them. I myself have an advantage because I have lived in those kind of communities and understand it. Also, I understand the culture and know what people want and need. If the landlord knows nothing about the community and is only after a money grab most likely they will fail. If their generalized impression of this community is formulated from watching the Wire or American Me, they will never be able to have an accurate perception of the asset the own. To any newbie contemplating this I advise they seriously educate themselves and do what you are doing here. If you understand what you are getting into, care about what you are getting into and will be and honest broker with good intentions your chances of success are great. You should check out a podcasts of one of my colleagues Dr. Joe who is astronomically gifted on this demographic. His model is not exactly what we are talking about here per se but much of the approach applies to much of what you can be dealing with. Best of luck!
Here is one of the most valid comments I´ve seen here ¨90% of the people who live in these "D" neighborhoods are A-class people.´
Profound!
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes3y
WARNING: Investing in D class areas is hard to describe/understand, you need to experience it first hand to understand what it really means. If you can't find a deal for the longest time, your motivation is ampted up form listening to REI podcasts every day, and reading success stories you soon start to think: I can do this, how bad can it be?
The real question is: do you have the stomach for the grind?
Plenty of people struggle with managing normal rentals, you can read here about it. Class D is taking this to a level that is hard to describe, both in the intensity and also the volume. You are battleing a constant stream of issues. And many of them fall into the "I can't believe this is happening" category. There is nothing passive about it. At all.
It can be done, but you really have to be prepared to deal with a lot - and you have to be local! I get phone calls on a weekly basis from someone out of State, who wants to buy a 50k property in Milwaukee and thinks they can just hire a PM. I always tell them to come here and spend a weekend in the neighborhood, before you decide.
Outisde of the people issues. Our Milwaukee housing stock is old, most of the homes are 100 years old, capex and maintencnace is expensive. These properties have not been maintained, deferred maintenance is everywhere. Original windows, elecrtical, plumbing, kitchen.. And investing 50k in a 50k house does not make it a 100k property, so it's a somewhat sunk cost.
I host a monthly class for the local REIA (RPAWI.org) and had a getlemen tell me he's been managing his portfolio in the hood for almost 30 years and he can't retire. He stated almost all of his cash flow has been consumed by capex over the years. Property values have not gone up much, he has verly little equity and no real exit strategy either. Which brings me to the
Last issue: hard to liquidate. You might think it's easy to sell low priced properties, but it's not. Sometimes they go under contract 2 or 3 times before they finally close. If you are lucky you can sell them to another investor who wants to try his luck - with a steep discount. Go online and check days on market in class D and compare to listings priced around the median / class B where everything sells in 2 days.
If you are local, have spent a lot of time in class D areas, you know your way around and you are up for the grind: it can be done. And these neighborhoods really need help. But if you are hoping for a quick and easy buck with a low down payment, think again!
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes3y
I JUST wrote a blog post about this.
My investing is primarily in C Class areas of Detroit but, while living there, I had a friend who was SOLELY focused on D Class areas.
He did well with it. But wow, what a mess. Literally every day was like watching an impossible to script reality tv show.
I'd often ride around with him through Detroit for the day and the stuff I would see, phone calls I'd listen to, etc. were just insane.
If you want to be successful with it I believe you MUST be local, super hands on, and enjoy the chaos. He had 100+ units and self-managed. He also strikes me as the kind of individual who genuinely enjoys being miserable.
- Rental Property Investor · Northern NJ · Member since 2019 · 673 posts · 677 votes3y
There was a guy on here who invests in strictly D properties or even motel rooms. His photo was him in a wife beater and he'd ask the most obscure questions like
"what do you do when your tenant propositions you to pay rent in oral sex versus paying in all pre-1975 quarters?"
Or something like that. Anyone remember him? Haven't seen him post in a while. Juat based off his questions he'd pose to get a rise out of people I'd prob pass on D properties. - Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes3y
Hey @Joshuam R. - In all honesty, the C & D class neighborhoods need positive impact investors the most.
Here in Chicago, it can be tough, but providing what we call "affordable luxury" is a rewarding feeling. We always try to aim to be in the top 10% of the market with our rentals...we get better tenants and help turn those areas around.
Most importantly, you have to have the right team to work in those areas, otherwise, you likely won't last long.
Quality Builders4.966 Reviews - Richmond, VA · Member since 2017 · 24 posts · 11 votes3y
I would say it is more work for sure. I own a single family in a class D neighborhood and had some issues while in rehab. We found a great tenant that is happy to have somewhere nice to live. I think being the best landlord possible, no matter the situation, can really make even a class D property profitable. By the way, that tenant is still there after 3 years! More consistent than my other properties.
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