@Hau Vong
Beginning investors need to STOP believing all the fluff about rental investing, especially with the overheated real estate market trending to historic norms. Many believe unrealistic assumptions and often apply those assumptions to the wrong property classes.
In our OPINION (always verify your area for yourself!):
Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenants: Majority will have FICO scores of 680+.
Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenants: Majority will have FICO scores of 620+, some blemishes, but should have no evictions in last 5 years
Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should often be used to also cover nonpayment & evictions.
Tenants: majority will have FICO scores of 560-600, many blemishes, but should have no evictions in last 2 years. Verifying previous 2-years of rental history very important!
Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenants: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions.
Make sure you understand the Class of properties you are looking at and the corresponding results to expect.
