Advice Needed! Looking for Insights from Experienced Class C Investors
I’m looking for feedback from experienced Class C investors who have managed challenging neighborhoods.
Last year, we purchased two newly built duplexes through Rent to Retirement as an out-of-state turnkey investment. We are now less than a year in, and we’ve already had two evictions. Then, our original property management company decided not to continue managing our properties.
We have since reached out to other property managers. The first drove through the area and said nearby Section 8 housing was a concern and that they were not comfortable managing there. A second property manager also drove through the neighborhood, sent us pictures of boarded-up duplexes nearby, and pointed out that there are roughly 20 duplexes (40 doors) on the same street that are currently vacant. They ultimately declined to manage the properties, as well.
Selling is not necessarily the easiest option right now, so we need to be prepared to hold these properties for at least the next couple of years if we cannot find a reasonable exit.
For those of you who have successfully invested in Class C or transitioning neighborhoods:
- Have you seen areas like this improve over time, or do they generally decline?
- What indicators helped you determine whether a neighborhood was worth holding?
- What strategies helped you stabilize properties in difficult areas?
- What would you focus on over the next 24 months to make this work?
We are looking for honest feedback from people who have experience operating in these types of markets. Are we facing an uphill battle, or are there ways to turn this around?
Most Popular Reply
@Samantha Andrews, a few thoughts:
1. If you post the market there may be some folks here who can give even more specific feedback. Especially if you wish to disclose the neighborhood as well.
2. I don't care who you buy an investment from YOU have to do your own homework and underwriting of it. You never trust what the seller says the deal is, YOU look at it with fresh skeptical eyes and determine what the deal is for you.
3. Who placed the tenant's you evicted? Did you look at the criteria they used? Did you see that they did all the due diligence you would expect?
4. Given #3, can you identify any shortcomings in the tenant screening process? For example, they provided false income documentation? They had evictions that were not disclosed or found on background checks?
5. Was the neighborhood the only issue for the property managers? Or could it have been a combination of what you want to charge for rent in addition?
6. A property manager might look at your rentals and the stigmatized neighborhoods they are in and realize they can only place subpar tenants in them at your expected rental price. They may be bowing out in part because they know they are unlikely to make you happy and will have to work HARD to even make you UN-satisfied.
7. Can you attract a better tenant to this neighborhood??? Often times people will move to a sketchy neighborhood if they can get more of what they WANT or NEED, especially if they are moving from outside the area where they aren't as aware of the stigma the neighborhood has.
8. To that end (7), obviously look at the rental price. Can you lower it and still do ok? Starting lower than you like may be part of the recipe to hold the property long enough to stabilize it and then bring rents up over a period of time.
9. In addition to price, evaluate what you offer in terms of BOTH amenities and policies.
10. Are there any amenities that you can add that would attract tenants and set you apart. For example, maybe you have laundry hookups but no washer/dryer. Adding the appliances is an easy upgrade. Maybe you dress the place up by adding cheap Walmart miniblinds so the tenant has window coverings to start with and the place looks more finished when showing it.
11. In terms of policies, allowing pets is an obvious one to consider. If it is a consideration, take time to learn what terms you can use to protect your interests.
However, consider that MANY rentals DON'T allow pets, so that means GOOD tenants have difficulty finding decent rentals with their pets. Once they find a rental that works for them that may stay LONGER than average! Considering that turnover/vacancy is expensive, attracting BETTER tenants for LONGER is potentially a double win!