All Forum Posts by: Darius Lipsey

Our building is in a class B commercial transitioning to residential area.  The buildings to the west of our building are commercial, the buildings to the east of us are residential. Definitely a blue collar area.  Still a low crime area.  My tenants are WalMart employees, hairdressers, medical assistants.  They barely make 2.5 - 3 times rent.

We worked on upgrading the the exterior of our building with improved landscaping, and painting the carports.  We instituted a stricter rental agreement, kept all tenants on month to month, and started enforcing rental agreement clauses.  We gave 30 day notices to the slow payers.  This cleaned out a lot of trash. It turned out one tenant (whom we had nicknamed "Tat Man") was intimidating some of the other tenants -- but no one told us until Tat Man was gone.  Units were remodeled as they turned over.  We screened using the standard methods.  We insist on 1 months + security deposit at move in.  Our tenants may need to borrow from family to get in, but I don't want a tenant who does not have the social capital to be able to come up with funds.  We do not "work with" tenants.

We self manage, and are at the building twice a week, mowing, picking up trash, and general eyes on.  It gets easier and easier.  We are in an area of raising rents, and our tenant pool is actually improving.  Rents are rising faster the wages in my area.  We rarely have turnover and when we do, we are attracting newly divorced moms who are unable to qualify for the newer, fancier apartment complexes.  

The building cash flows like a dream, and we are very happy with our purchase.  It does however, require active management and enforcement of rules -- sort of like parenting teenagers.  

Hmm, so let me see if I have this right. It's a solid street without a lot of violence, drugs, etc. And it cash flows quite a bit. But it's somehow a "semi-rough area?" Honestly, that sounds like a great investment to me.

One of the hardest things for me to overcome when looking for properties for my clients is separating where I would want to live from where would be a good investment. The reality is where we would want to live is usually not a good rental property because the cost of the property is too high.

Having said that, there are a couple of caveats. If the property has not been well maintained by the seller, then you are going to be nickeled and dimed to death with repairs. So make sure you get a good quality inspection before you buy so you know what you're getting into.

And lower-income tenants literally live paycheck to paycheck. And if there's any kind of disruption to their lives, they will probably have trouble paying the rent. I'm dealing with that right now with a tenant who has been very good about paying the rent. He wasn't able to work for three weeks because of Harvey and he couldn't pay September's rent. But FEMA is going to pay him for the lost wages and we're waiting for the check.

So with the limited information, it sounds to me like it's a pretty good deal. 

We have a property like this. More time intensive, but it also cash flows much better than anything else you'll find locally at the moment.

Would the numbers support a property manager? That could make it more hands-off for you.