Stay away from Class C low income property

By
Education & Training with Real Estate Expert Witness Support

Unless you know what you are doing,   I would suggest you don't sell Class C property,  especially if low income or Ghetto property.  These properties typically have great potential and too often look like good deal but they are not right for unsophisticated buyers.  Here are some of the issues

  • Higher turnover -  Turnover can kill a good project.  When a tenant leaves,  you have turnover costs such as clean up,  advertizing,  vacant for some time, etc, etc. Also,  many low income tenants live a very unstalble life,  so turnover is more frequent
  • Lower deposits:  Typically low income tenants do not have the capital to put up substatial deposit,  so if they don't pay or damage the property,  the landlord loses
  • Higher Expenses:  A well run property normally has expenses starting around 40% of Income.  Low income property is much higher.  You will have more instances of broken stuff.  In some cases,  tenants will actually steal everything in the apartment before they move out.  And, vancant apts are especailly vulnerable.  I remember one case where the teens who were dealing drugs,  would knock all the lights out in the back of the building.
  • More deliquencies:   Low income people,  are less finacially stable, so expect more problems.
  • Probably needs professional manager:  It is not uncommon for beginning investors to manage their own property,  to learn the business.  This may not be practical in a rough neighbor.  Are you going to go by in the winter,  when it gets dark at 5 pm,  to collect the rents that are past due?  Obviously,  this leads to higher costs.
  • Probably needs an onsite manager:  For the same reasons stated above,  unless you have someone onsite at all times,  you will have more incidents.
  • More crime:  Most new investors can't effectively handle the increased level of crime in these type properties.  I know of one investor who called me to ask if the SWAT team was required to repair the door they knocked off when the made a drug raid.  In another case,  prositutes were operating out of a vacant apartment, until the police raided.  I had another investor ask me if he had to disclose gun fire to a potential buyer.

Now before you make this about racism,  that is not the case here.  These are the truths about owning low income property.  If your buyer is not willing to undertake such a project,  don't sell it to them.  If they are,  many of these properties have great potential.

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Guy Berry

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Comments (2)

Chris Horton
Horton's Lawn Care L.L.C. - Burton, MI

This reminds me of my 1st landscaping job in the ghetto. It was in my first couple months of starting the business and figured ok, no biggy I am just going in to do my job. During the 1st half hour there a lady pulls up into the driveway of the home I was landscaping and talks to the homeowner.... After talking for about 15 minutes the car pulls away and the homeowner comes up and says "I feel so bad for that lady" Not even thinking I ask why... "Yesterday SWAT was at her house and she is coming around appologizing to the neighboorhood for having them come in here." Not wanting to know anymore details I just said Oh put my head down and hurried up lol. Oh yeah they still haven't paid the remainder of the $500 they still owe.

Jun 04, 2008 01:04 PM
Anonymous
DcDubbs

What are the people in Detroit saying. The entire city has become class c property

Any good articles on investing in class c property- i couldnt find much on google

other than a few links: http://query.nytimes.com/gst/fullpage.html?res=9F0CE5D8143BF93BA15752C1A965958260

http://www.bankapedia.com/mortgage-encyclopedia/residential-mortgage-terms/115-class-c-property

 

wikipedia doesn't even have an entry for class c property

Anyone here have firsthand experience owning and leasing class c?

sorry to hear of your experience Chris- I had an experience in highschool that sounds similar

Mar 09, 2009 05:18 PM
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