Low income apartment. To invest, or to not invest?

Question

Looking at a low income apartment complex and I'm only a few steps away from sending an offer. Before I do so, I'd like to see what the BP community has to say.

Do you have experience with low income properties? If so, are you still in it? Why/why not?

If you have not invested in low income properties. Why?

Lindsay McLaughlin · Answer

Class C - low income areas...I certainly have rentals (SFR) in these type of areas. I can get a high ROI and good tenants...everyone needs a place to live and I can help provide a nice home in these areas. I don't do war zones, but low income - I have certainly found very grateful and nice people as tenants who take great pride in their home.

Joel Owens · Answer

You will be buying yourself a job. Look up the tax records. If the property has traded hands multiple times over the last 5 years lookout.Low income is tough even with good management. If you have 80 to 100 units or more you might can scale some of it to be less hands on.If this is lower number of units you will be working for the NOI income stream if any is available after the problems.Low income tenants have constant life issues and their finances go up and down like a yo yo. The units trade out and you have constant lost rents,eviction costs, and they live hard in the units which causes substantial make ready again to release.

Michael Clevenger · Answer

@Michael LeNot off topic, that's why I brought it up! Figured someone would comment. There is always a legitimate reason if you ask a renter. Realize that I have absolutely no problem with renters or the reason why they rent. As long as they meet my requirements I'm happy that they are renting! Most of the applicants for my Class B property have lived in Fort Worth area for years and have the job history to prove it. The reasons you listed are reasonable! Not one applicant meet your legitimate reasons. While we all provide housing, I'd love nothing more than to learn my current tenant is going to buy a property.While working in the plumbing industry I had many coworkers whom rented. In conversation the main reason I found they did not own was a fear of being "committed" or "responsible" with a home. The committed ones always got me as they were all married. Most of these coworkers grew up in Dallas/Fort Worth and had no plans on moving. These guys also made 80K+. Perhaps, I think differently than most. I grew up with my mother and we moved every single year (minimum). Yet, my sister rents in Dallas then Austin then Amarillo and so forth. People will do what they feel most comfortable with. IT IS WHAT IT IS. Thank you for your words of encouragement in the topic of value add. I too hope this is the case.

Michael Clevenger · Answer

@Wade SikkinkThank you for sharing your experience!

Madeline Burke · Answer

I agree with @Wade Sikkink, tenant screening is imperative. Some landlords offer to deduct screening costs from the tenant's first month rent but not initially to deter non-serious applicants.

Wade Sikkink · Answer

We bought a 14 unit class C 3 years ago. I'll echo what people have said above. Budget more than you expect for renovations. We have spent north of $60k in 3 years rehabbing units. Also plan on getting rid of some bad tenants. That will be painful and take some time. My experience has been in this class of property tenant screening is the difference. As was mentioned, there are some really great, responsible people in these income ranges. There are also some dirt bags that will hose you over. Sorting them out before moving them in is key. A lot of money can be made with C properties as long as you know what you're getting into.Good luck.

Michael Clevenger · Answer

@Joel Owens"Like a yo yo" HaHaHa! Buying myself a job/ Think I'm okay with this as I'm willing to take on the task. The owner has held the property since early 2007. It consists of 16 units that to most on BP may consider small but this is a BIG step for me. I've got to start somewhere. The property will not take care of itself however I plan to increase my portfolio over time. Currently, I have the "I'ma" mentality (Jake & Gino show 182).

Michael Le · Answer

A little off topic but you since you brought it up, people rent for all sorts of legitimate reasons. If you're trying to get a feel for the right area you want to buy in. If you know you're not going to live there beyond a couple of years. If you're saving up money to buy and don't have the luxury of nearby family to live at home with. Back on topic, if this is a poorly managed, poorly maintained property then it sounds like you have good potential for value add.

Michael Clevenger · Answer

@Lindsay McLaughlinThank you for your support. My mind runs crazy sometimes and I can not help but anticipate a difference between Class C SFR and Class C MFR tenants. Recently, I put tenants into my first SFR rental. Even though this was class B+/ I was surprised to find a majority of the prospects had great credit scores, great jobs and anyone of the candidates could have purchased a home VS renting. So why rent? Perhaps this confuses me because I've never rented. My father always taught me "It's not how much money you make but how much money you do not spend". Therefore I lived with family while working 70+ hours as a residential plumber until the age of twenty when I built my home (the SFR I mentioned above). The idea of renting anything above class C is a little confusing. Although I realize that many investors only deal with B+ properties I'll have to start with what makes sense to me. From the numbers I've ran it appears to be higher ROI in these class C properties and even higher if going into commercial MFR. Either way I hope to find the success that you have found with your tenants!

Joseph Gozlan · Answer

good luck!