Are C/D area properties worth it?

[Devon Keaveny]

On the outside D type properties look like steals, but with the potential crime, turnover rate and bad tenant pools is there really good money to make? Or is it better to go for B type areas that won't cash flow as well in decent locations but you know there will be less turnover and less headache?

[Erik W.]

I am a solid Class C investor and have been for 15 years.  Yes, you can make decent money and avoid many pains described above if you are very careful about tenant selection.  There are good people in every income bracket.  I was once a broke college student living in a cinder block garage converted to an apartment for $150/month, but I took good care of the place and always paid rent on time.  Figured there had to be more folks like that in the world and made it my business to find them.

Class C is always "in demand" whereas higher end properties (Class A) can see less demand when times are tough.  I'm not talking about Class AAA like Manhattan penthouses for the uber wealthy: I'm taking 4-5 bed, suburban, 4000 square foot rentals.  In my market with Class B there's a ton of competition for those properties among casual investors who are willing to pay more because all they want is 2-5 properties vs. an empire and they're willing to pay for it and stop growing.  A house hits the market one day and is gone within hours to owner occupant (1st time home buyers) or investors.  My "little ATMs" (Class C) houses are around all day for months: I can buy them any time.  Btw, these last two sentences should show you a weakness of Class C and a strength of Class B as it pertains to exit strategy.