Tenant Expectations for a C-Class Neighborhood

[Fan Bi]

Has anyone had good experiences investing in C-Class Neighborhoods?

To put some context around it, these are $60,000 a door multifamily units in Providence, RI, where a B-Class would go for $100,000 and A-Class $150,000. The C-Class unit rents for $900 a month with tenants paying utilities, and for these prices the demand is pretty good so physical occupancy isn't too much of an issue. On paper, this is a good deal. You hit a 1.5% rent rule, and cap rate of 10%+.

BUT, economic occupancy and its related costs are a killer. Most tenants in our C-Class units are either directly or close to living month-to-month which directly impacts their ability to pay. Cash flow stops, legal fees get involved, constable fees and varying degrees of tenant turnover later, on a $900 a month unit, your whole year's margin is gone. 

1. Outside of the tenant screening basics like credit score, no evictions, references and 3x salary to rent, do people who own C-Class properties have other things they've learned?

2. Once a tenant becomes late, how quickly do you push to go to court (expense), vs giving them a month to get current?