Are your 2% properties in B or C areas?

[bearman]

Hoping for insight from *experienced* RE investors:

1. Are your 2% properties in B or C areas?
2. What is it like holding props in C areas? How stable are the returns? What is your maintenance, non-payment and vacancy like?

I'm targeting 2% fourplexes in B areas, but mostly finding C areas. My thinking is that I'd rather drop to 1.8% or something to get B over C. These will be owned remotely with local prop mgmt in place.

[math-ya]

It seems that you are looking for a hard rule here, and you're not going to find it. Real estate varies greatly from area to area, and grading of properties is totally subjective. I would suggest buying in a neighborhood where you personally feel comfortable, with good cash flow. Vacancies and non payment have to do with tenants, not locations. My properties are not in an A area, but with quality units at a fair price with good management, I am able to find good tenants.
If you have a big mortgage or other costly fixed expenses, leaving a unit vacant a little longer might be harder. You might compromise on the quality of your tenant to get the unit occupied, which is bad.

[Setters-r-Better]

How do you know what grade a property is?

[NoNonsenseLandlord]

How do you know what grade a property is?

There are many ways to see.  A Section 8 area is a Category D area.  A newer (< 10 years) area is a class A.  Mix of white/higher end blue color workers, is B.  Working class neighborhood, lower end blue collar is C.

Each area commands a different return on investment.   I have posted a bit about what expected returns should be.

[NoNonsenseLandlord]

Hoping for insight from *experienced* RE investors:

1. Are your 2% properties in B or C areas?
2. What is it like holding props in C areas? How stable are the returns? What is your maintenance, non-payment and vacancy like?

I'm targeting 2% fourplexes in B areas, but mostly finding C areas. My thinking is that I'd rather drop to 1.8% or something to get B over C. These will be owned remotely with local prop mgmt in place.

I have posted my maintenance and apartment turn schedules on my blog.  I am well under 5% vacancy, and maintenance is budgeted at  10%, but runs less.

[clarkfan1979]

I'm not saying that this is a hard and fast rule. However, I had the choice buying a 1% house in a B neighborhood or a 1.5% house in a C neighborhood. I picked the B neighborhood because the location is more central. The C neighborhood is on the outskirts of town with little potential for growth and demand.

[NoNonsenseLandlord]

A great way to make a lot of money is to take a class D property and turn it into a class C or B.  In a SFH is it not exactly easy, but in an apartment or multi-family you can do it.  It is called re-positioning.

I took a class D apartment complex and turned it into a class C+ complex.  It is in a Class A area, but had Class D tenants.  But changing the rental criteria to weed out criminals and low credit score tenants, rents went up over $200 for each unit.

Here is what I did.  It was a challenge, and a bit risky, but we made it happen.  You might want to get a bullet-proof vest first, like I did.
http://www.nononsenselandlord.com/2014/04/how-i-turned-a-class-d-apartment-classification-complex/

[sammybiker]

Eric/NNL knows his stuff and runs a great blog - huge fan btw!

That said, I have a couple of section 8 properties that I don't consider "D class" - I rent to section 8 because the rents are higher and generally lower maintenance.  I would live in this neighborhood, no issues.

But if you can drop from 2% to 1.8% and upgrade from a C to a B, I would do it.  Also, if you're managing it yourself and are hands on (as Eric/NNL is), then go for it.

I manage from 9,000 miles away so I go after C to B-  properties, the smaller, older single family properties in good neighborhoods and school districts, as that is what works for me.  My properties are in the 1.5% to 2%+ range.

I rent under-market and screen carefully - knock on wood, good so far and I'm continuing to scale up.  That said, the 2% rule in my area (good neighborhoods, good schools but smaller, older homes) is rapidly becoming a 1.5% rule.

[NoNonsenseLandlord]

Eric/NNL knows his stuff and runs a great blog - huge fan btw!

Thank you for following and being a fan!

Being a landlord is easy, when you have great tenants.

[monarda]

Eric/NNL knows his stuff and runs a great blog - huge fan btw!

Thank you for following and being a fan!

Being a landlord is easy, when you have great tenants.

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