Tenants from the Lower End of the Spectrum

[Jason Merchey]

Let's say I had $200,000 to invest (200 being the median in my area), and I decided to buy two, $100k SFDs instead of one $200k one. Is that a decent idea if you can get the same or more rent by doing it that way? Or do you think that someone who is paying $800 instead of $1500 in rent is going to be much more trouble and harder to find and this or that compared to the next tenant up in the price scale?

[Joel Owens]

It depends on the area is true for the most part.

Nothing wrong with the lower end tenants you just have to understand that many are barely surviving to live in that area for the cost of living.

Their income tends to be more sporadic, they work two jobs, etc. Usually you have a higher frequency of lates and no pays and life issues they are going through from stress and bad financial choices.

With these types of properties you are buying at a much higher cap to deal with all of that and price it in to your purchase price. The higher end rentals for an area the tenant base tends to have more income and assets, more education so usually more stable but the cap rate tends to be lower.

There are good and bad tenants no matter the tenant base but upon looking at data there are trends that occur.

It's really about what all you want to take on for the return and deal with. Some investors say I want a nice house or apartment building in a nice area with amore upscale tenant base and I will accept a 7.5% to 8 cap for that. Other investors say to get a 11 or 12 cap I will deal with all the issues of lower income tenants and units and areas etc.