less profit class B+ neighborhood or more $ Class C-

[John G.]

This is a ? that we have not really asked ourselves until now.  Until now with 22 units its been finding great deals with awesome cash flow.

Lately I have been listening to a lot of BP podcasts and it has me changing my mind.  Its just hard to wrap ones mind around making less cash flow when that has been the strategy that got me to 22 units.  (A lot of the properties are C)

We have 2 different properties that we can buy.  The quality of house is about the same...needs some work.  But one is in C- neighborhood and makes decent 2-300 cash flow more than the B+ neighborhood home...same purchase price.

Does anyone have any guidance as to the risk rewards of either direction?

[Ray Johnson]

@John G. This is going to depend on your business model, how you operate your business, and the area of the C- neighborhood. A C- property in a major metropolitan city where you can evict and replace tenants a little easier than you can in remote Iowa makes a difference. A property in the C- category tends to have a higher rate of default so you're exchanging the higher cash flow for more stabilization and less headache.

Personally I do not invest in C- properties because I'm willing to exchange less money for less issues on my investments. I've been investing since 2003 and I've never received a late payment or had to evict anyone, while it's possible, going 15 years in a C- property without a late payment of eviction isn't the norm from what I hear. 

At the end of the day, Did I make more or less money than the guy that got higher cash flow but also had higher vacancy rates, attorney fees for evictions, higher property management fees and payments for placing new tenants, more Cap Ex, etc.? This is what you're really deciding on, which risk to take and that depends on your risk tolerance.