Investing in Class D Markets

[Michael Bennett]

I am a new investor in the Tulsa, Oklahoma Market and I have been studying real estate for about 6 months now. My first investment was a partnership on a flip project. We are about two weeks away from completing the renovations and listing the property for sale. Currently I am in the midst of acquiring two rental properties in a Class D+/C- neighborhood. My mentor is assisting me with the acquisitions. He has been in real estate for over 12 years and primarily invests in this area of the town. He has over 50 rental properties and has extensive knowledge within this particular market. He is prepping the properties so that they are turn-key for me and he will even assist me in finding my first renters. I am comfortable with the neighborhood because I grew up in this area of town so I am familiar with the neighborhood and I know what I am getting myself into. He will be selling the properties to me for about 35k each and they will rent for anywhere from $600 to $800 a month on a 12-15 year note with the bank. With his knowledge and history in this market I feel that my mentor is steering me on the right direction and not setting me up for failure. But he is benefiting from the deal so he could be out for himself in the long run. I’ve been taught not too much trust in investors these days unless you really know them. On the flip side of that I don’t believe in failure and I refuse to fail but at the end of the day I don’t know what I don’t know. As a first time rental owner I was wondering is there any advice for me for investing in this type of neighborhood and dealing with these types of tenants. I know i could invest in a Class B neighborhood but I would have to purchase the house from another investor and I would feel like I’m turning my back on my mentor. He is the one that connected me with his banker who approved me for the loans plus everything else he is doing for me. I’m grateful for the opportunity that he is giving me and I really don’t want to go against the grain with this opportunity. Any advice will help! Thank you!

[Marcia Maynard]

@Michael Bennett  I was with you up to the point of "But...." 

#1  Of course your mentor will benefit from the deal and will be looking out for his own interests. He should!  Aim for a win-win. Good mentors are worth gold! The best will be looking out for your interests too and help you avoid pitfalls. Trust in others, but verify who they are and what they can do for you. You seem to be confident this is the right market for you and you believe your mentor is steering you in the right direction. The info you shared appears to be sound. What's making you doubt?

#2  You will fail in some things in life. That's a given. Of course do what you can to mitigate your risk of failure.  Keep aiming for the target. Don't expect perfection.  When you miss the target or fail in a venture, pick yourself up, learn from the experience, and get back on track. There is always risk in real estate investing, but there is also the potential for great reward.

#3  Pursue life-long learning. Get the most from Bigger Pockets by delving into the Education tab. Use the search tool to find the information you need. Listen to podcasts, read blogs, participate in the forums. 

#4  There are many successful investors here who hold properties in class D and class C neighborhoods. These neighborhoods provide homes for many good people. Find and retain the best tenants you can.  Start by creating safe, clean and affordable units.  Use keen tenant screening techniques and a solid rental agreement that you can enforce. Know and comply with the landlord tenant laws for your jurisdiction. Understand the law better than your tenants. 

#5  Get to know the neighborhood police officers, city officials, and social service organizations in your area. Partner with them to enhance the livability of the neighborhood. Aim to create a place where you would feel comfortable living.

#6 Create a mission statement that works for you. It will become your beacon.  Here's ours.... "We strive to provide safe, clean, affordable, comfortable, and quiet housing for responsible renters in the neighborhoods of west Vancouver."  You can find responsible renters in every class of neighborhood. There will also be irresponsible and undesirable people in every class of neighborhood, so be aware. Do what you can to deter problems from erupting at your property. Make the property unwelcoming to rule breakers and criminals.

#7 Incorporate the principles of CPTED. Crime Prevention Through Environmental Design. The four elements of CPTED are: natural surveillance and visibility; lighting; territorial reinforcement and space delineation, and natural access control. Read up on how to do this.

Good luck!