Why Class D/Section 8 returns are not as good in Real Life vs on Paper - Real example

[Alan Asriants]

I often share this story with potential clients, investors, and those looking to start their real estate investment journey. My goal is simple: to illustrate why investing in lower-priced neighborhoods can be riskier and less rewarding than it seems.

I had a client who owned five properties in these areas, all rented through Section 8. He purchased them about seven years ago for an average of $80,000 each. Since they needed renovations, he invested roughly $30,000 per property to make them rent-ready—bringing his total investment to $110,000 per unit.

Once rented, he quickly encountered issues: non-payment, eviction filings, constant repairs, and tenant-related damages. Over seven years, he barely turned a profit. By the time he covered eviction costs, lost rental income, and re-renovated after tenant turnovers, any potential gains were erased.

Seven years later, his properties had appreciated to about $130,000 each—a 62% increase on paper. Sounds good, right?

Not exactly.

Before listing each property, he had to invest another $15,000–$30,000 just to refresh them for sale. Despite holding them for seven years without making any real profit, his total investment per property had now ballooned to roughly $140,000. And that’s before factoring in selling costs—commissions, taxes, and closing expenses. When the numbers were tallied, he had actually lost about $10,000–$20,000 per property.

Here’s the kicker: Had he simply bought the properties for $80,000, left them vacant for seven years, and only paid taxes and insurance (about $1,500 per year per property), his all-in cost would’ve been around $90,500. Even after spending $15,000 on a basic refresh, he could have sold for $130,000—without the headaches of evictions, repairs, and property management. And yet, after all expenses, he would have barely made a few thousand dollars.

So, despite the 62% appreciation, he still lost money. And that’s not even accounting for the countless hours spent managing the properties. He was burned out.

The Problem is two fold:

1. Cash Flow on Paper ≠ Real Cash Flow
   Many investors assume rental income will flow smoothly, but that’s rarely the case in high-risk areas. In Philadelphia, for example, landlords cannot deny a Section 8 tenant based on credit score—only for violent crimes or drug offenses. That means even applicants with a 400 credit score may qualify, increasing the risk of evictions, non-payment, and high maintenance costs. The projected returns often don’t materialize in real life.
2. Appreciation Is Misleading in Low-Value Markets
   While values in these areas do rise, the percentage gains are deceiving due to low starting values. So even a whopping 62% increase is only 50k of a 80k property. 
3. What baffles me most is how easily people jump into these investments in unfamiliar neighborhoods - especially out of state! It’s like choosing to invest in a friend’s startup instead of the S&P 500—just because the startup promises big returns at a lower entry point. The logic doesn’t hold up...

Let’s compare this with another investor who took a different approach.

Seven years ago, Investor X purchased a duplex in a stronger market for $300,000. They invested $50,000 in cosmetic renovations, bringing their total investment to $350,000. From the start, they cash-flowed around $500/month, had minimal tenant issues, and turned a profit year after year with little management hassle. Keep in mind rents also went up and opportunities to refinance were also available - elevating that figure. 

Today, that duplex is worth $475,000–$500,000. If they sell, they barely need to renovate because the demand is high for high quality RE. Their appreciation profit alone is nearly $100,000, and that’s not even counting rental income earned over the years. With 100k there's plenty left over after commissions and closing costs are paid.

Don’t chase high cash flow and "too good to be true" returns. If an investment looks too good to be true, it probably is. And please stop listening to gurus and paying them. it is their job to "sell" you something, not build a relationship with you. Its a lot harder to sell a $15,000 course that's titled: Invest in high quality assets and build solid equity vs "Passive income while you sleep - how section 8 helped me build a $100k/m portfolio"

Good luck!

[Drew Sygit]

@Alan Asriants VERY GOOD POST!

Am so TIRED of trying to explain this to naive newbies who think they need to buy Class D rentals because that's all they can afford and S8 is going to solve all their cashflow problems!

We try to help them as best we can, but then our name gets trashed when they don't get their paper results - because you know, EVERYTHING is the PMCs fault.