Plano, TX · Member since 2013 · 226 posts · 156 votes
To any experienced apt investors who own or have owned C class properties, how risky do you think such an investment is right now?
Obviously there are lots of variables involved, so assuming one doesn't overpay, manages it well, etc., I'm looking for opinions on the potential problems with buying right now.
Ive spoken with many apartment owners at length, and haven't found one yet that isn't doing extremely well or regrets the investment. I've heard of a few problems, like a chiller going out or occupancy dropping lower and more quickly than expected when getting rid of problem tenants, etc., but they've all gotten through the difficulties and are profitable.
I read an article recently talking about how many big investment firms that have always avoided c class properties are now looking into them, wondering if they're leaving money on the table. Uh oh....
Fresno, CA · Member since 2013 · 17 posts · 7 votes
13y
Assuming you run it right and manage it right, you should make good cash flow on a C grade property. You do have an opportunity risk in that it shouldn't appreciate as well as a better grade property. Also, you are likely looking at some 60's and 70's grade properties in the C space. You could have environmental risk. Those laws can change over time. If a phase I or phase II gets ordered or you have knowledge of environmental issues, you will have to disclose that. Can hurt your ability to rent and to sale.
Good Luck! Lots of cap rate compression in DFW, so make sure you buy right if you do decide to buy.
Plano, TX · Member since 2013 · 226 posts · 156 votes
13y
I actually learned about the phase 1 just the other day. Talked to someone that had to back out of a deal due to a phase 1 problem. Apparently the vacant lot next door used to be a Martinizing dry cleaners and the chemicals had penetrated the soil. I feel sorry for the current owner, they're gonna be stuck with that one!
Thanks for the reply.
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
13y
I think if you are willing to be more hands on with management and commit to solving problems quickly you can do just fine. I'd want to avoid areas that are still in decline so you don't find yourself in a D property or neighborhood. I'd also avoid master metered properties where your utilities expense could kill your profit.
Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
13y
Finding Class C tenants that are profitable is the biggest challenge. Having the money to take care of the place, creating security, good on-site management have worked for us.