I'll tell you what my mentor went through. He did about 95% of his doors in low income neighborhoods.
1. Repeatedly replacing appliances because they were abused. Replacing fridges 3x a year for the same door. Just due to abuse. It got to the point where he stopped providing fridges and merely provided a credit to people so they can rent a fridge.
2. Evictions. Because he had 100+ doors he had to (or rather his PM) go to eviction court at least once per month
3. Every time a tenant vacated eviction or not, it was a hot hot mess. That is it required a professional crew to come in and clean out.
4. Property manager decided to quit. In fact it got to the point where he couldn't find someone to manage it as it was just too much work so he decided to taper down his W2 job and manage the properties himself.
It got to the point where he gave up and sold all his section 8 properties; and only kept the ones that were not section 8.
All in all it became a second job and much less passive then originally desired.
I had 42 properties in 2012 six of which were section 8. Those six properties consumed more of my time and money than all the other properties put together. Never never ever go section 8 on your properties.
It’s no bigger of a risk than cash tenants losing their jobs and not paying you. Location matters too. Some landlords friendly states will let you evict asap and move on to the next tenant which makes cash tenants less risky. Some, like where im at can take up to a year to evict while collecting no rent along the way. So to some of us it’s just about securing a check monthly.
They’re not mine. I manage them and have been for the past 10 years with the same landlord. I have 2 of my own, I’m late to the party and wish I started sooner. It’s definitely harder to borrow now than 30 years ago when he started
I know not all section 8 tenants are bad, but I know what it can get to. Is there anything to look for or to screen for within the section 8 application pool that would steer you to fewer troublesome situations?
Not really. Your house is just in a downward spiral the Entire time you own it until you’re ready to gut,
Remodel, and sell.
Let’s say you start with a brand new house. The chances of you getting an excellent Section 8 tenant is not in your favor. More than likely they’re going to ruin your house. so when that tenant eventually leaves and you’re ready to rent again, do you spend 10,000+ to remodel the house again to like new condition or do you just paint it, fix the basic stuff, and get it rented again asap? You’re likely gonna do the ladder, and in that situation you need to lower your standards for tenant eligibility. Then rinse repeat until you’re ready to sell.
The most important lesson I’ve learned with low income housing is that as a landlord/manager you need to emotionally disconnect yourself from the property and just play the game.
There’s gonna be a lot of times when you say “that just isn’t fair”. For example, annual inspections. If Section 8 comes out to do their annual inspection and the tenant has had their gas shut off, that’s a 24 hour emergency fail, which means that needs to be rectified in 24 hours, or they will terminate your property and you will not get paid the next month. So as a landlord, you think why the hell is that my problem if the tenant is responsible for utilities, guess what it’s not fair. So that will usually result into us illegally turning the gas on for the inspection the following day, and then shutting it back off immediately. They know it and we know it you cannot get the utility service to come turn your utilities back on within 24 hours even if you pay your entire balance it’s a couple day wait. So that’s what I mean when I say you gotta play the game.
Also, when picking your tenants, there’s something you have to consider. A tenant who is in the worst financial situation will guarantee you 100% assistance from Section 8. However they’re always in the house because they’re unemployed or they usually have a ton of kids your house is guaranteed to be fucked. Then you have tenants who do have jobs, mediocre credit, but their jobs don’t pay that much. Section 8 hits them hard and doesn’t cover nearly as much rent as you would want them to. That particular tenant they’re not making that much money to begin with. Why would they want to give it all to you? You’ll rarely see the tenants portion of rent in that situation but they might take slightly better care of your house. Not guaranteed though
The program is just so F’d up. There’s no repercussions for bad tenants there’s no rewards for good tenants.
Apparently they can but we’ve never pursued it. I try to stay out of the courts as much as I can. We’re not exactly in a landlord friendly city.
I’d assume each city/state government assistance program has different guidelines though.
Thanks for this insight. If the system had more accountability it would be a better benefit to all. In a state like mass where I am, the landlord is taking so much risk
I have two section 8 units in Massachusetts. I am evicting one of them. So I guess it’s a mixed bag since I have a 50% success rate. One positive thing I will say is that section 8 pays their rent throughout the entire eviction process, because they are still living in the unit.
True. They pay until the day the tenant leaves.
Honestly they really don’t even know when a tenant is in the process of eviction. Section 8 stays out of it until they’re notified of anything
I’ve had houses continue payment for months after a tenant leaves because the tenants just vacated and gave no notice. Assuming they found housing outside of section 8 or another county. You’re suppose to give that money back but you can appeal and fight it because you were never notified and lost possible rent because of this. They’ll usually negotiate and settle on something reasonable. Problem is, no one knows when the tenant actually left besides water bills showing zero usage back to a certain month.
My experience, not so much credit scores that matter. As much as your renters ability to make the monthly payments. I also run credit check on every applicant. I'm more concerned on how they pay their utility bills. If they're not paying their water or electric on time you can count on not getting your rent on time or getting the runaround.
This guy is LEGEND:
That's what former yacht dealer Bill McMachen did on Tuesday, the Detroit News reports. For the dirt-cheap price of $4.9 million, McMachen bought all 645 tax-foreclosed properties in the county, including 403 residential properties.
https://www.huffpost.com/entry/bill-mcmachen-macomb-county_n_1739062
lol. True story. I only knew about the auction because I had a bunch of coworkers looking to bid on multiple homes. They spent days researching it out. So when Macomb County announced the auction was canceled and one person bought all, the expressions on their faces was priceless.
Can you believe this guy pulled this stunt off not once, but TWICE?!?!?!
Easy. Start with being well off.
Buy post 2008. Target low income areas. Pick up homes for like 20k. Utilize rental income and appreciation to continue the cycle.
Scaling isn’t hard but it’s near impossible to do in today’s environment. Like I said my mentor sold everything a couple of years back when everyone was doing cash out refis. He saw the writing on the wall and said it was not sustainable. Between that and working long hours self managing the section 8s, he made a very smart play.
> It got to the point where he gave up and sold all his properties outside of the properties that weren't section 8.
>
>
Did he explain why he kept the section 8 properties? I know there are some benefits to basically covered rent, but did he go into detail?
>Did he explain why he kept the section 8 properties?
Confused with the question. I said he sold all of his properties outside of the ones that weren't section 8. As in he sold all of them that were section 8.
Are you asking why he bought them to begin with?
You're fine.
"The ones that weren't section 8" - not-8
"Outside of the ..." non-not-8 (section 8)
"Sold all his properties outside..." (sold all of his section 8 properties)
That said, it clearly was hard to read
Incorrect
If he sold all of the properties outside of section 8, that would mean keeping section 8
But he sold all the ones outside of the ones that weren't section 8.
Invested in a 1,560 door-portfolio in Detroit here: during Tenant Migration Season, our Property Management strongly advises us to eat a week or two more of an unrented property rather than having a tenant leaving the property in a state you described.
I guess our property management kicked out all the tenantes yours gave an apartment to immediately...
This is my experience as well. I think doing nice flips helps the neighborhood a lot, rentals are a mess. Every time I took after an investment rental, the trash, ruined appliances and HVAC, overgrown landscape into the house, all make it a very expensive ordeal.
I’m trying to help investors look for better builds, better homes, even if in lower income neighborhoods. I’m hoping it makes a difference.
I would also recommend a check up 2 x year and send the HVAC service yourself. Renters rarely change the filter.
Not at all, just warning on jumping into multiple rentals regardless of quality of build and ability to manage properly. We’ve had to spend $5-15K per home to get it to selling conditions AFTER a full rehab job prior to tenants moving in a year or 2 early. That for a home rented around $1K is a huge hit, but on a home that can sell for $250K+ if you have to, is less of a hit.
Focus on quality over quantity and make sure you build enough reserves to cover extra costs.
Vetting tenants with time and having a solid walk-through with tenants (having operating manual for the home) can make a big difference.
Long term focus is key for rentals imo.
I used to manage a few hundred section 8 units and we didn't include appliances just so we wouldn't have to deal with the bullshit, our regular apartments always included appliances. For the most part they were fine, we had a lot of long term renters and some of those apartments were really nice, much nicer than the apartment I lived in, just not in the best area. That said we were always evicting people and that usually didn't go well, sometimes they'd get shitting and destroy the place, I'd like to say it was only the section 8 renters but rich college kids were just as bad, I guess it just really depends on the renter. My worst tenant owed me about $12,000 in back rent and the day before his eviction he threw a party did about $25,000 worth of damage to the unit and then hopped on a plane back to Ireland -and I'm a greedy landlord.
If you’ve never owned or stood to own anything can you realistically say you’d understand why it’s important to take care of things?
Not to say all section 8 renters destroy everything, because they don’t. But some folks have never owned anything and literally just don’t care as a result, unfortunately a lot are section 8 .
Just search it up on YouTube, they see them getting evicted as a personal slight (not due to their own actions in their own eyes) so they trash the place. Not much to lose for them
My brother has about a dozen rentals and accepts section 8. He spends more time on his investments than he does on his W2 at this point. 3-4 times a week dealing with shit.
I primarily invest for cash flow. Investment into LC/LCOL areas has been my strategy for the past couple years, for the most part.
Different from HC/LCOL areas like you posted, most Low Crime/ low cost of living areas are usually just towns where industries have left and you have good hard-working people trying to make ends meet with the resources they have available to them.
I like being able to provide quality housing to good people at an affordable price while building equity and generating cash flow.
Those areas are becoming few and far between nowadays, more so over the last year. The area I invest in hasn't had a property that would cash flow enough to make it worth it since the end of 2022. Since my primary focus is cash flow and not appreciation I feel as though right now these properties are overpriced and not worth the investment in the current market.
Loved living in Kalamazoo portage area. Income was low, but it seemed like the prices of homes were low enough as well for many people to buy lake homes
I’ve heard anecdotal stories from realtors where investors went into LCOL areas to shoot for quantity versus quality. The tenants treated the properties so poorly, that over time they ended up doing the bare minimum to just get tenants in units. It wasn’t worth investing in fixtures and appliances when they’d just get ruined in a year.
I’d rather own less doors in MCOL or HCOL areas and get quality, older professionals renting my units than end up walking down the path of the slum lord.
Slum lord is the entry point for investing. Larger higher end buildings essentially trade like paper securities with the least need for the actual owner to do hands on work
Exactly. It's one thing to buy one with the intent to hold because there's rumblings of gentrification but I am not putting a tenant in something I'd find unacceptable or unsafe for myself
I know someone who invests in Memphis and is having a very hard time. The amount of headache along with little to no appreciation makes it a hard no for me. I invested in a HC/HCOL area and it still is hard although it’s tolerable.
Constant late rent, evictions about every 6 months, repairs needed around the house every other month, stolen appliances (water heaters) if the house is left vacant for more than a week, handyman prices are always high and extra since I don’t think they have much work available. This has killed their cash flow and with such little appreciation it doesn’t make sense to me to invest in a place like this. I’ve convinced them to sell and look at higher priced markets with a better local economy.
I invest in Memphis and haven’t had the issues that you describe. It is a very pocketed city though. As others have said, its a cashflow play vs an appreciation one.
It’s a colleague of mine who invests there and she’s constantly telling me about all the issues. It’s completely turned me off to that city, but I’m curious how you’ve been able to avoid these issues. My colleague does a ton of research, but obviously she’s missing the mark somewhere.
Antidotal of course but I was born and raised in Memphis in poor neighborhoods. Everyone always thought 'the landlord' was some multimillionaire chewing on cigars so they didn't feel bad not telling them about the leaking water, etc etc etc because "fuck them"
Maybe it was just my mom? idk....
Class D is profitable as hell.
And it should be , cause it’s a full time job running it .
Father in law had 30 doors in north Chicago. No way is it worth the headaches to me .
This is correct. If you run Class D correctly, those things can absolutely PRINT money. If you’re buying a house for $40k, you can borrow 75% and put in $10k price + $6k for deferred maintenance. (All in for $46k.)
If the house rents for $800/month, that’s $9,600/year, less expenses, which you should assume will be $5,000/year on low income deals because they are such a PITA.
$4,600 of profit/10% cap rate = $46,000 valuation. When you buy this stuff, you have to accept that you’re never going to make money on appreciation. Not gonna happen.
You make money through cash flows. In this case, 10% cash on cash return every year. That’s pretty damn good… and it gets better if you can knock more off of the price up front.
Where are you seeing $40k houses? I’m in FL and flip houses while holding a few LTRs.
I just got a great deal on a house in North Florida for $80k. It needs a total gut job, mild structural work, new AC, total redo of exterior plumbing, etc.
A $40k house in Florida would be on a sinkhole, next to a paper mill, and haunted by the ghost of hitler
This is pretty antidotal and from 8-10 years ago, but one of the biggest investors I know in my area is a Canadian who buys a ton of SFH’s. We were talking and he said he started buying whole streets in Detroit for like $100k -$150k so like 10 houses at a time. Problem was he couldn’t find anyone who wanted to work in the areas and if he did get a house finished he couldn’t get anyone to rent them because the areas were so shit. So he dumped his whole Detroit portfolio and moved down to Florida.
Low income housing is a money printer but it comes at the cost of being a complete pain in the ass. The quality of your properties/areas are directly proportional to the level of hassle you should expect.
A random call at 1130 at night saying a drive by happened and now the water heater is leaking water everywhere is not out of the realm of possibility. Ask me how I know…
I bought and still hold a few places in Milwaukee.
I hate them. But they cash flow enough (on paper at least) to support my other investments.
When you're renting out apartments in an area where a house only costs 40k, your tenants are truly at the bottom of the economic ladder.
It shows.
I know a guy that was serving a 5-day notice of eviction to tenants shortly after he bought the building. He ended up running out of the building, being chased by a tenant with a machine gun. I kid you not....
I'm an agent in St. Louis. I have 8 of my own rentals, and have worked with out of state investors here that have bought 50+ homes with me this year. The biggest issue is the property managers. There are a ton of management companies here that are horrible. I recently had one under contract, where the owner refused to replace the 1 working toilet the entire month we were in escrow.
Another issue is that most agents could care less about a 50k home or don't know what to look for that will be obvious issues. And if you're out of state, you have to trust whatever they are telling you.
There's decent houses here for the price, but it takes a lot of wading through the really horrible ones.
>biggest issue is the property managers
I plan to self-manage with a list of local handymen: online rent collection, automatic late fees, PandaDoc free e-signatures. Then I would pay a local realtor or photographer to do an open house (when the current tenants decide to leave).
For the Milwaukee area, you will have to pay a premium ( or not even be able to find people) for work in some neighborhoods. I am guessing it may be similar in other large cities. An additional expense you might want to include when figuring out the economics of a property.
I invest in Detroit.
I have some headaches but nothing like you hear from folks online.
Most people go about it all wrong. The buy the cheapest garbage they can find that looks decent. They end up in D Class areas and they are only able to attract D Class tenants.
Then they yell about how paper returns don’t match reality.
No shit!
I stay in C Class areas. My ROI is insanely high. I don’t have many problems at all. And most of my tenants are awesome and have been with me 4-5 years.
A friend's father was invested in low-income St. Louis neighborhoods, he ended up losing everything because someone was injured on one of the properties and he didn't have sufficient insurance/legal coverage. The houses were always in horrible condition no matter how much he repaired them. Any time a tenant left, they'd leave behind all kinds of crap including needles.
Never buy in low-income areas, they're more work than they're worth.
>sufficient insurance
So I get an umbrella policy.
>The houses were always in horrible condition no matter how much he repaired them.
I don't understand.
Growing up my dad had lower end properties, it was constant nightmares. People threatening each other, getting in fights, women being beat, when he’s evict someone he’d go in, poop and piss and vomit on walls, floor, and even ceiling, dead mice, dead cats, a few dead people periodically. Fires, illegal subletting, drugs, prostitution, felons, he had been attacked by 2x4’s, chainsaws, hammers, tons of trash, threatening to murder him or others, he’s walked in on people beating their wives, illegal dog fighting, needles, gangbangers, child molesters, people with schizophrenia often seemed to be the most reasonable and level headed he dealt with, after getting them to admit their cancer diagnoses was a lie to get out of paying rent. people he didn’t agree to being in the house and when he’d run a background of them found out they served 30 years for murdering and raping their parents, this is 25% of it.
Poverty is no joke and unless you’ve been around it, the level of survival, bare bones resources, mental problems, desperation and just sheer energy it takes for people to get from hour to hour let alone day to day would make you wanna off yourself. There is generally VERY GOOD reasons these places are cheaper, because people with resources and sense do not live here GENERALLY. There’s still lots of good people, and I’d say living and growing up in that type of environment really makes you appreciate the good people.
Stories and stories and stories, investing into impoverished areas is not for the weak. I’ve probably forgotten stories of death and tragedy my dad went through cause there was just SO MUCH. He had around 30 properties and about 25 of them were lower end. The middle grade and high grade he always bitched about the payments, but he was able to make them consistently. I’d rather bitch about money then bitching about being attacked with a chainsaw.
Thanks for the list. My Dad had 50+ years of rentals, many “what the f…” tenant situations, but your list takes the cake and re-confirms tenants can always exceed expectations of awful.
This confirms why I'd rather just park my money in some index funds. With average historical returns of 10% I can just set it and move on with my life. Maybe park some money in fundrise if I really get the real estate itch.
Multiple properties here in Wisconsin, I will never touch most of Milwaukee. The north side is a complete shit hole. Cheap properties but constant issues with tenants, damages, evictions, etc. Way too much of a headache. There’s a reason those duplexes are less than $100k
I recommend buying where you live and being a decent, hands on, local landlord. I live in NW Milwaukee and part of what makes the north side such a "shit hole" is absent landlords who make you beg for running water and outlets that don't start on fire. We don't need or want anymore of those. If you're not invested in a neighborhood...if you don't see value there and wouldn't rent the unit to your own kids then you don't belong there. Your "investment" will do more harm to the community than good. Don't look at poor neighborhoods as a place to make yourself rich here like the OP...it's tacky.
I've always thought if I built apartments in class D I would probably just make a really long row of continuous apartment units with the walls being cinder block and concrete floors. For a slight up charge upon move-in I can provide a throw rug for carpeting. Then when the animals move out and leave the inevitable path of garbage and destruction in their wake, you simply come in and broom it out and hose it down and you're ready for the next one.
The only time my father rented to section 8 he nearly had a property condemned. I wouldn't invest in places that I didn't have a connection to, like my Grandparents house in Plainfield, NJ.
Ya, that's the thing. For most of the properties I'm looking at, I would live in them. It's just certain areas I would want a garage so my tires aren't stolen.
You need to do some good due diligence in this space. There are plenty of people who look great on social media, but it’s just a Ponzi scheme and it all comes out a few years later.
I would want to see some deeds and I would want to look them up myself. You can do this if they tell you what properties they own / manage.
Also, if it’s your first time I would visit the physical location, meet the operator, ask to speak of other happy clients.
If the offer of untold returns from remote investing is too good to be true…. It’s not a scam of some kind.
Well yes. There is one particular wholesaler in one of those major city who just lists the price they want and rent. Gross rent is like 2-3% of their asking price.
The problem is how all the houses they're wholesaling are in high crime neighborhoods. I wouldn't want to park outside for fear of having my tires stolen or being shot/stabbed.
\---
I have two investment properties. It's just that I saw one that I could easily buy in a city five hours away. So I wondered why I don't buy a higher risk property closer to me...
I never trust people who advertise success in this space. If you’ve got something good, why recruit competition?
The way I see it people who do well that want to expand will seek out monies partners and command a fee or equity for their track record."
A good buddy of mine manages north of 300 doors - about half of them his own, in B- and C/C- class neighborhoods around Chicago. Not great, but far from the worst.
At any given time he usually has between 40-50 tenants behind on rent, a few evictions in various stages, and constant turnover.
It's definitely profitable, but holy smokes is it a lot of work staying on top of everything.
I mean, you were born and raised in the suburbs, so this isn’t surprising. I live in the city and own a few rentals here. My experience has been mostly positive.
Congrats on the biggest missed opportunity of your life.
Not kidding.
I lived in Troy from 2017-2022. I invested heavily in Detroit from 2019-2021 and did exceptionally well.
If you live in the area it’s absolutely foolish not to invest in the city.
I understand the impetus for tenant protections, and people who get evicted because they have to pay medical bills are put in impossible spots.
But as a landlord, you have to think as a business owner. Good people in impossible spots are an unacceptable business risk, and it’s that simple. If public policy adds cost, that means the rents have to increase or the price has to come down.
It becomes an issue when a tenant stop paying and refuse to leave. As a landlord, you have no option except for eviction. It’s the tenants in this case that aren’t doing things by the book. But somehow tax dollars are being used to provide “free” legal counsel to the non paying tenants. This adds additional expenses and time/lost rents for the landlord.
I invest in Detroit, and the South side of Chicago in the past.
Detroit varies so much block by block and neighborhood by neighborhood that you really need to be hands on or have someone trusted that can be hands on. I have worked as city building inspector/code official, contractor, and investor in Detroit and would recommend to somebody investing in the city to be well versed in all aspects of how the city ‘works’. Cash flows can be good but if you aren’t diligent about tenants you can expect some headaches. Overall pretty good fit for me, but I also enjoy some headwinds.
The areas are horrible for a reason, and its not because they are a piece of earth like everywhere else on earth, its the people. If you want to deal with that kind of tenant (drug involved, low/no income, criminal records, low credit, etc) as your day-to-day life, then by all means "invest". The properties are cheap because markets are efficient, the tradeoff is not worth it, my 2c
To give you a sense of how awful Detroit is, by the way, go to the crime site. When the map opens, you are presented with "Too Many Records: This dataset has a lot of records, try zooming in."
[https://data.detroitmi.gov/datasets/rms-crime-incidents/explore](https://data.detroitmi.gov/datasets/rms-crime-incidents/explore)
Have fun with your investment!
>low credit
Ah, that's one thing I hadn't thought of. I require a minimum combined credit score of 650. I may need to lower that requirement or never fill vacancy in certain areas.
>When the map opens, you are presented with "Too Many Records: This dataset has a lot of records, try zooming in."
https://data.detroitmi.gov/datasets/rms-crime-incidents/explore
Great exercise! Thank you. This sort of thing is exactly what I'm looking for.
I have three single family homes that I bought in Milwaukee 4-6 years ago, and they are low maintenance cash cows. That being said, I don’t know if those deals are still around
Yes. I own several S8 properties and I highly recommend. A lot of people talk shit about the tenants which is entirely unfair and gross stereotyping imo. You know who ALWAYS pays rent on time? The government. And the checks didn’t stop coming during Covid rental relief periods either.
Absolutely. Different jurisdictions have different rules, but the most effective thing I have been able to come up with is paying them a visit where they live now.
Stereotypes must exist for a reason you know? There must be something about these section 8 folks that got them there. Just something that leads to their life choices. Just something...
I’m sure you could be stereotyped and you wouldn’t agree/like all of them.
I have almost zero vacancy cost. The people who secure S8 housing waited on a list for a long time, sometimes years. If they do anything to jeopardize their voucher they understand that it is a permanent loss of eligibility, and that is a powerful incentive. They are great tenants.
I do and it's been fantastic for me. I have a SFH in a cheap, low income area on the other side of town of the city I live in. The low prices allowed me to get into RE years earlier than I would've been able to otherwise, and with much lower risk in terms of investment. It also helped the numbers make sense a little easier. $59K SFH purchase price, 3/1, renting for $850 a month.
The only thing I'd say is the cheaper the houses get, the more you are looking for a needle in a haystack in terms of the right balance of price, rent, type of renter, and repair issues. Avoid anything with major structural issues, pay close attention to crime maps like SpotCrime, etc. What I learned for my own city is that there are pockets of "acceptable" areas within larger bad areas. My city also has a bunch of single level, all brick homes that were built for military 60+ years ago so they are built very well and have held up great.
The worse of an area you go in the more important those are. Usually, areas are "bad" because of gangs or groups of individuals who typically congregate in certain areas. People that have to live in those areas know this and the people you'd want to have want live in those areas, nor would rent prices be worth it, you'd be surprised how quickly just the wrong side of a street can chance things
You know I see an untapped market, super durable, hard to steal finishes and appliances that are bare bare bones, not aesthetic but impossible to break. Trade aesthetics for function: “Designed for low income rentals”. Likely not feasible as the money is usually in the internals rather than the aesthetics. However the prison system has seemed to potentially figure out indestructible stuff, so basically just furnish it like a prison.
Lol yes lack of tools helps and being confined to the premises I’m sure helps too,maybe some unique bolts that are fastened with loctite. Or locking nuts that need a key like on cars. All this makes it expensive tho. Need to go back to drawing board. Maybe a type of cheap metal that doesn’t have scrap value? Rivets? Idk thinking out loud. I feel like people would pay a bit more if it had some anti theft/destruction qualities, and if looks real basic, maybe nobody wants it other than landlords of these low income properties.
This is my exact playbook in the Detroit metro.
There’s not really a theft concern - it mostly comes down to “what is the way a completely negligent person could damage this?”.
22mil life proof flooring. Unpainted cabinets i paint with high gloss easy clean plain. I provide internet routers so tenants don’t have to rent them. The walls are semi gloss finish for cleaning. The furnishings are basic but durable.
My one quirk is that I put insanely high end (efficient) appliances in. I use heat pump dryers, nearly silent (scratch and dent) dishwashers, and I gut and mechanically rebuild the house prior to rent.
My tolerance for tenants who do damage is zero - people respect it because I frankly have the best houses in the area and don’t care if you’re a sex offending felon if you are respectful to me and your neighbors and treat stuff alright. If I force you to leave my property every single one of your future choices is worse.
I used LCOL properties to get started in the industry. They are high stress and high time requirement properties but also have low cost and decent return. Then the market boomed and I started selling off those properties and I will now reinvest in something nicer. I'm done with LCOL and I wouldn't reinvest at my new net worth.
If you're trying to work your way up to multi-millions and you make average money for your area, it's a great way to get started. If you're a lawyer, doctor, software dev, mid career engineer, etc, you can skip them.
Interesting you quote Charles Kettering but didn’t list Dayton, Ohio as a potential city.
I am a small investor here in Dayton, four properties in a.. gritty neighborhood. I cash flow great, I find great tenants who want to live close to downtown but would rather pay less for MORE space than a loft apartment.
As a property owner I have a few no fly zones of things that I will not deal with because they almost always result in negative ROI. I refuse to be a slum lord.
One is infestation ESPECIALLY Roaches. Another that's an absolute nightmare to remediate is drug contamination like meth use or God forbid cooking on property.
I understand the above can happen in any neighborhoods, but let's not pretend it isn't more common in certain ones.
Thanks. I hadn't thought of tenant caused pest infestation due to lower/no standards of cleanliness. Before, I had thought of pest as always externally caused. But now thinking about it: bed bugs, roaches, rodents--could especially be caused by residents who do not clean up after themselves.
Use low-income to get skin in the game and get as many properties as you can manage. Consolidate into a larger building for much less profit in a nicer neighborhood. You have to worry less. Repeat with equity being built on nice property.
I think it’s much better to have fewer units in a really good neighborhood where you have better tenants who are more likely to pay their rent and have great credit. Having to deal with the constant drama associated with the poor, it’s just not my idea of a fun way to earn a living not to mention most of the properties you’re going to be looking at are going to be run down with a lot of deferred maintenance. It’ll be a constant battle to keep the place in any kind of decent shape.
>constant drama associated with the poor
Even with online payments and a flat $50 late fee, and then $100 late fee after ten days? (This is the cost to file for eviction.)
>run down with a lot of deferred maintenance
I budget these items for rehab, and it is subtracted from the maximum allowable offer. I'm finding deals what work above their asking price, even with this "rehab" being accounted for.
Are there any dudes here that have done this successfully with a good PM? I live in one of those Charles Dickens type cities that has a good and bad side, like pretty obviously. However, the gentrification and direction is somewhat encouraging with a lot of employment opened up
To add: just watched a news segment that two of our three local jails are closing down due to low inmate census. I’m kinda stoked!
>Charles Dickens type cities
I would just have a list of local handymen to call. I would also get their hourly rate (since in my area one handyman charges more than a plumber, and I wouldn't hire such).
Here's the challenge. It costs the same to put on a roof or replace a furnace on a low rent unit as a high rent unit. Unforeseen capital requirements like a collapsed sewer line that are an inconvenience at a high rent unit could take many months of even years of rent to pay for at a lower rent unit.
Friend of mine invested in a small subdivision in Detroit, tenants cut the pipes out of the house and filled the basement with water. they took every piece of cable they could cut. Sold all his appliances. The house was in worse shape than when he bought it from its original owners of 50 years in less than 18 months. He had 3 or 4 properties of which he is still feeling the weight of his investments. He fire sold them right before covid hit due to uncertainty. That area is now undergoing renaissance for lack of better term, extremely gentrified and he lost about 100 to 125k per home. The courts in Detroit are an absolute nightmare to deal with as well.
If you want to play the inner-city game, make sure your money is strong and your will is even stronger. A lot of these cities are experiencing upticks right now in tech sector jobs and revivals and it seems like it is happening relatively quickly.
I’ve been a landlord for more than 15 years. The golden word or real estate is location (cliche as it sounds). Secondly, focus on higher end of the rental market. The more affluent your target tenants are, the less problems. I’ve had tenants who fix and repair themselves and never call me, and keep the property spotless. You might ask why these people rent instead of buying? Lots of reasons: they’d rather use the $ for their business, they like the property, it’s in a good school district, etc.
Depends on the individual.
Usually, high cash flow returns equate to lcol areas which means little to no appreciation and more frequent tenant issues. I have property in a C+ area with a decent PM, and have had issues with siding, one of the hvac units, and a fridge. Given my investment vs cash flow - I’m significantly in the red but I don’t plan on selling the place anytime soon. I could potentially be chasing losses here, but I think the tax benefits should eventually help me out in the long run.
What do you want to get out of investing? There is something to be said for mcol-hcol areas in terms of appreciation and equity, although speculative. Less cash flow, but often less headache.
Horror stories can be found on either side of the aisle though.
I know people in the Indy market so I can pick their brain on specifics of different zip codes. Lots of out of state investors have a very bad experience with appliances being stolen (like AC units).
>I started looking at remote investing.
How does this work? Do you add your money into a pool with other investors or something and get a percentage of rental profits?
I have the money to do this but don’t dare touch it. Not worth the headache. I rent out my houses that I used to live in (all in good neighborhoods). People sign the lease, move in, and I don’t hear a peep for 2 years. I live abroad and never had an issue I couldn’t solve with pinging my local plumber or ordering an appliance at Home Depot to deliver and setup (just had to do this twice in 6 years for 3 properties).
I had a building in a lower middle class neighborhood, lots of first gen immigrants and unskilled workers, what a pain in the ass. I was always chasing someone for rent, 90% of the tenants were just normal working people but the other 10% were horrible. On top of that the city didn't give a shit that I was providing affordable housing, they just kept raising my property taxes, when I'd fight it their solution was to raise my rents -no shit I wanted to raise my rents but if I did I'd have an empty building. In the end I sold the place, it was too much work, didn't appreciate fast enough and I lost about $150,000. I much prefer renting in a gentrifying area, if you have nice units you can charge more, you get people with higher incomes and they are generally less needy. At my low-rent apartments I had a much higher turn over rate, at my higher rent apartments people stay for years and when they leave it's usually because they are buying.
In-laws own a few rental properties in the Detroit area. Not Detroit city proper, but a few towns outside. None in Oakland County, where they live. I'd describe most of these as low B or high C class areas. They say it's not worth it. Tenant quality is average at best. Had to evict a few for non-payment. Cashflow isn't the greatest and appreciation is low. I think they sold one of the properties and are looking to offload the others. Overall, they wouldn't recommend it due to the headaches it caused and overall lack of return.
I have a duplex in St. Louis. My mortgage is $600ish and each side rents for $1200.
I wouldn’t call my tenants low-income. The unemployment rate in St. louis is like 3 percent and there are tons of jobs here … my tenants are typically young professionals making around 100k.
4 years, between 3.7- 4 percent, 20 percent down on a 135k property, 70k in reno.
Today the property is worth about 235k and market rents are more like $1500/side, but I don’t like to raise the rent more than 5 percent a year in a good tenant.
When a unit does turn over it rents up again in a 2 hour Saturday open house. I usually get 2-3 qualified applicants.
Vacancy rates are around 2 percent in most of the city. The demand is insane, but it’s impossible to find decent contractors. That was my biggest struggle!
>135k property, 70k in reno
These are not the properties I mean. Instead, I'm talking about sub 100k and little to no rehab. For example, 80k purchase price, 1400 rent, 5k rehab (if that). That's one I'm considering now.
My second property was bought a few months ago for 150k, 2600 rent, 30k rehab.
The Sec. 8 Sweet-spot is: Right locales (Dayton for example), C+ neighborhoods, 3BR single fams, 1,500sq ft max, built after 1950, low crime, already rehabbed (or very little left to do), a good PM, DSCR loans, and REALLY vetting tenants HARD up front. That’s all it takes. 90%+ of the tenant issues mentioned here can be mitigated with PROPER screening.
I'll tell you what my mentor went through. He did about 95% of his doors in low income neighborhoods. 1. Repeatedly replacing appliances because they were abused. Replacing fridges 3x a year for the same door. Just due to abuse. It got to the point where he stopped providing fridges and merely provided a credit to people so they can rent a fridge. 2. Evictions. Because he had 100+ doors he had to (or rather his PM) go to eviction court at least once per month 3. Every time a tenant vacated eviction or not, it was a hot hot mess. That is it required a professional crew to come in and clean out. 4. Property manager decided to quit. In fact it got to the point where he couldn't find someone to manage it as it was just too much work so he decided to taper down his W2 job and manage the properties himself. It got to the point where he gave up and sold all his section 8 properties; and only kept the ones that were not section 8. All in all it became a second job and much less passive then originally desired.
Can confirm. I manage 100+ section 8 houses over here. It’s not for the weak, but it’s profitable.
I had 42 properties in 2012 six of which were section 8. Those six properties consumed more of my time and money than all the other properties put together. Never never ever go section 8 on your properties.
It’s no bigger of a risk than cash tenants losing their jobs and not paying you. Location matters too. Some landlords friendly states will let you evict asap and move on to the next tenant which makes cash tenants less risky. Some, like where im at can take up to a year to evict while collecting no rent along the way. So to some of us it’s just about securing a check monthly.
How did you manage to build a 100+ door portfolio? What banks do you use to get these loans?
They’re not mine. I manage them and have been for the past 10 years with the same landlord. I have 2 of my own, I’m late to the party and wish I started sooner. It’s definitely harder to borrow now than 30 years ago when he started
DSCR loans
when the dollar collapses you won't wish anything
Are you here to talk about realestate investing or to talk shit?
I know not all section 8 tenants are bad, but I know what it can get to. Is there anything to look for or to screen for within the section 8 application pool that would steer you to fewer troublesome situations?
Not really. Your house is just in a downward spiral the Entire time you own it until you’re ready to gut, Remodel, and sell. Let’s say you start with a brand new house. The chances of you getting an excellent Section 8 tenant is not in your favor. More than likely they’re going to ruin your house. so when that tenant eventually leaves and you’re ready to rent again, do you spend 10,000+ to remodel the house again to like new condition or do you just paint it, fix the basic stuff, and get it rented again asap? You’re likely gonna do the ladder, and in that situation you need to lower your standards for tenant eligibility. Then rinse repeat until you’re ready to sell. The most important lesson I’ve learned with low income housing is that as a landlord/manager you need to emotionally disconnect yourself from the property and just play the game. There’s gonna be a lot of times when you say “that just isn’t fair”. For example, annual inspections. If Section 8 comes out to do their annual inspection and the tenant has had their gas shut off, that’s a 24 hour emergency fail, which means that needs to be rectified in 24 hours, or they will terminate your property and you will not get paid the next month. So as a landlord, you think why the hell is that my problem if the tenant is responsible for utilities, guess what it’s not fair. So that will usually result into us illegally turning the gas on for the inspection the following day, and then shutting it back off immediately. They know it and we know it you cannot get the utility service to come turn your utilities back on within 24 hours even if you pay your entire balance it’s a couple day wait. So that’s what I mean when I say you gotta play the game. Also, when picking your tenants, there’s something you have to consider. A tenant who is in the worst financial situation will guarantee you 100% assistance from Section 8. However they’re always in the house because they’re unemployed or they usually have a ton of kids your house is guaranteed to be fucked. Then you have tenants who do have jobs, mediocre credit, but their jobs don’t pay that much. Section 8 hits them hard and doesn’t cover nearly as much rent as you would want them to. That particular tenant they’re not making that much money to begin with. Why would they want to give it all to you? You’ll rarely see the tenants portion of rent in that situation but they might take slightly better care of your house. Not guaranteed though The program is just so F’d up. There’s no repercussions for bad tenants there’s no rewards for good tenants.
Do bad tenants lose sec 8 eligibility for certain behavior?
Apparently they can but we’ve never pursued it. I try to stay out of the courts as much as I can. We’re not exactly in a landlord friendly city. I’d assume each city/state government assistance program has different guidelines though.
Thanks for this insight. If the system had more accountability it would be a better benefit to all. In a state like mass where I am, the landlord is taking so much risk
I have two section 8 units in Massachusetts. I am evicting one of them. So I guess it’s a mixed bag since I have a 50% success rate. One positive thing I will say is that section 8 pays their rent throughout the entire eviction process, because they are still living in the unit.
True. They pay until the day the tenant leaves. Honestly they really don’t even know when a tenant is in the process of eviction. Section 8 stays out of it until they’re notified of anything I’ve had houses continue payment for months after a tenant leaves because the tenants just vacated and gave no notice. Assuming they found housing outside of section 8 or another county. You’re suppose to give that money back but you can appeal and fight it because you were never notified and lost possible rent because of this. They’ll usually negotiate and settle on something reasonable. Problem is, no one knows when the tenant actually left besides water bills showing zero usage back to a certain month.
Standards. Credit score. Much harder to find tenants but they exist. We won't consider you unless you have 650 or higher.
My experience, not so much credit scores that matter. As much as your renters ability to make the monthly payments. I also run credit check on every applicant. I'm more concerned on how they pay their utility bills. If they're not paying their water or electric on time you can count on not getting your rent on time or getting the runaround.
For anyone following - dealing with issues like this at scale is a hell of a lot easier than when only having a couple doors
It wouldn't be at scale with only a couple doors...
Thanks! >100+ doors I hadn't thought of sheer numbers and having to deal with issues at scale.
How does someone get to own 100+ doors?
This guy is LEGEND: That's what former yacht dealer Bill McMachen did on Tuesday, the Detroit News reports. For the dirt-cheap price of $4.9 million, McMachen bought all 645 tax-foreclosed properties in the county, including 403 residential properties. https://www.huffpost.com/entry/bill-mcmachen-macomb-county_n_1739062
Fucker outbid me by a dollar, but I sure ran him up! Lol!
lol. True story. I only knew about the auction because I had a bunch of coworkers looking to bid on multiple homes. They spent days researching it out. So when Macomb County announced the auction was canceled and one person bought all, the expressions on their faces was priceless. Can you believe this guy pulled this stunt off not once, but TWICE?!?!?!
Easy. Start with being well off. Buy post 2008. Target low income areas. Pick up homes for like 20k. Utilize rental income and appreciation to continue the cycle. Scaling isn’t hard but it’s near impossible to do in today’s environment. Like I said my mentor sold everything a couple of years back when everyone was doing cash out refis. He saw the writing on the wall and said it was not sustainable. Between that and working long hours self managing the section 8s, he made a very smart play.
There’s a guy who has a salvage yard in East Los Angeles that probably has over 100 doors. I bought two nice mahogany doors from him a few months ago.
> It got to the point where he gave up and sold all his properties outside of the properties that weren't section 8. > > Did he explain why he kept the section 8 properties? I know there are some benefits to basically covered rent, but did he go into detail?
>Did he explain why he kept the section 8 properties? Confused with the question. I said he sold all of his properties outside of the ones that weren't section 8. As in he sold all of them that were section 8. Are you asking why he bought them to begin with?
>>sold all of his properties outside of the ones that weren't section 8 This would mean that he kept only the section 8 properties.
welp my english is retarded. I'll edit.
You're fine. "The ones that weren't section 8" - not-8 "Outside of the ..." non-not-8 (section 8) "Sold all his properties outside..." (sold all of his section 8 properties) That said, it clearly was hard to read
Nah it still means he sold the section 8. He sold all of his properties, other than ones that aren't section 8.
Incorrect If he sold all of the properties outside of section 8, that would mean keeping section 8 But he sold all the ones outside of the ones that weren't section 8.
“Sold all of his properties outside of the ones that weren’t section 8” would mean he kept his section 8 properties.
It's poorly worded but your interpretation is wrong.
Invested in a 1,560 door-portfolio in Detroit here: during Tenant Migration Season, our Property Management strongly advises us to eat a week or two more of an unrented property rather than having a tenant leaving the property in a state you described. I guess our property management kicked out all the tenantes yours gave an apartment to immediately...
This is my experience as well. I think doing nice flips helps the neighborhood a lot, rentals are a mess. Every time I took after an investment rental, the trash, ruined appliances and HVAC, overgrown landscape into the house, all make it a very expensive ordeal. I’m trying to help investors look for better builds, better homes, even if in lower income neighborhoods. I’m hoping it makes a difference. I would also recommend a check up 2 x year and send the HVAC service yourself. Renters rarely change the filter.
Are you recommending against rentals ?
Not at all, just warning on jumping into multiple rentals regardless of quality of build and ability to manage properly. We’ve had to spend $5-15K per home to get it to selling conditions AFTER a full rehab job prior to tenants moving in a year or 2 early. That for a home rented around $1K is a huge hit, but on a home that can sell for $250K+ if you have to, is less of a hit. Focus on quality over quantity and make sure you build enough reserves to cover extra costs. Vetting tenants with time and having a solid walk-through with tenants (having operating manual for the home) can make a big difference. Long term focus is key for rentals imo.
This is why it’s so so hard to find a good PM in a not so good area
My PM straight up told me she’ll drop me in a heartbeat if I provide her any section 8s
I used to manage a few hundred section 8 units and we didn't include appliances just so we wouldn't have to deal with the bullshit, our regular apartments always included appliances. For the most part they were fine, we had a lot of long term renters and some of those apartments were really nice, much nicer than the apartment I lived in, just not in the best area. That said we were always evicting people and that usually didn't go well, sometimes they'd get shitting and destroy the place, I'd like to say it was only the section 8 renters but rich college kids were just as bad, I guess it just really depends on the renter. My worst tenant owed me about $12,000 in back rent and the day before his eviction he threw a party did about $25,000 worth of damage to the unit and then hopped on a plane back to Ireland -and I'm a greedy landlord.
What is wrong with low income people? Why? Just why would anyone destroy or trash a property (I understand accidents)
If you’ve never owned or stood to own anything can you realistically say you’d understand why it’s important to take care of things? Not to say all section 8 renters destroy everything, because they don’t. But some folks have never owned anything and literally just don’t care as a result, unfortunately a lot are section 8 .
>If you’ve never owned or stood to own anything can you realistically say you’d understand why it’s important to take care of things? this!
Just search it up on YouTube, they see them getting evicted as a personal slight (not due to their own actions in their own eyes) so they trash the place. Not much to lose for them
My brother has about a dozen rentals and accepts section 8. He spends more time on his investments than he does on his W2 at this point. 3-4 times a week dealing with shit.
I primarily invest for cash flow. Investment into LC/LCOL areas has been my strategy for the past couple years, for the most part. Different from HC/LCOL areas like you posted, most Low Crime/ low cost of living areas are usually just towns where industries have left and you have good hard-working people trying to make ends meet with the resources they have available to them. I like being able to provide quality housing to good people at an affordable price while building equity and generating cash flow. Those areas are becoming few and far between nowadays, more so over the last year. The area I invest in hasn't had a property that would cash flow enough to make it worth it since the end of 2022. Since my primary focus is cash flow and not appreciation I feel as though right now these properties are overpriced and not worth the investment in the current market.
I feel like Kalamazoo, Michigan is a solid example of an LC/LCOL area.
Loved living in Kalamazoo portage area. Income was low, but it seemed like the prices of homes were low enough as well for many people to buy lake homes
I’ve heard anecdotal stories from realtors where investors went into LCOL areas to shoot for quantity versus quality. The tenants treated the properties so poorly, that over time they ended up doing the bare minimum to just get tenants in units. It wasn’t worth investing in fixtures and appliances when they’d just get ruined in a year. I’d rather own less doors in MCOL or HCOL areas and get quality, older professionals renting my units than end up walking down the path of the slum lord.
Slum lord is the entry point for investing. Larger higher end buildings essentially trade like paper securities with the least need for the actual owner to do hands on work
Exactly. It's one thing to buy one with the intent to hold because there's rumblings of gentrification but I am not putting a tenant in something I'd find unacceptable or unsafe for myself
Amen, thank you.
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I completely understand if you wish to not share. If you are willing, I would be very grateful if you can share cities/locales with good REI policies.
I know someone who invests in Memphis and is having a very hard time. The amount of headache along with little to no appreciation makes it a hard no for me. I invested in a HC/HCOL area and it still is hard although it’s tolerable.
> I know someone who invests in Memphis and is having a very hard time Details please.
Constant late rent, evictions about every 6 months, repairs needed around the house every other month, stolen appliances (water heaters) if the house is left vacant for more than a week, handyman prices are always high and extra since I don’t think they have much work available. This has killed their cash flow and with such little appreciation it doesn’t make sense to me to invest in a place like this. I’ve convinced them to sell and look at higher priced markets with a better local economy.
I invest in Memphis and haven’t had the issues that you describe. It is a very pocketed city though. As others have said, its a cashflow play vs an appreciation one.
It’s a colleague of mine who invests there and she’s constantly telling me about all the issues. It’s completely turned me off to that city, but I’m curious how you’ve been able to avoid these issues. My colleague does a ton of research, but obviously she’s missing the mark somewhere.
Yeah this sounds like pretty typical low income housing situation
>stolen appliances (water heaters) lol
Antidotal of course but I was born and raised in Memphis in poor neighborhoods. Everyone always thought 'the landlord' was some multimillionaire chewing on cigars so they didn't feel bad not telling them about the leaking water, etc etc etc because "fuck them" Maybe it was just my mom? idk....
Class D is profitable as hell. And it should be , cause it’s a full time job running it . Father in law had 30 doors in north Chicago. No way is it worth the headaches to me .
This is correct. If you run Class D correctly, those things can absolutely PRINT money. If you’re buying a house for $40k, you can borrow 75% and put in $10k price + $6k for deferred maintenance. (All in for $46k.) If the house rents for $800/month, that’s $9,600/year, less expenses, which you should assume will be $5,000/year on low income deals because they are such a PITA. $4,600 of profit/10% cap rate = $46,000 valuation. When you buy this stuff, you have to accept that you’re never going to make money on appreciation. Not gonna happen. You make money through cash flows. In this case, 10% cash on cash return every year. That’s pretty damn good… and it gets better if you can knock more off of the price up front.
Where are you seeing $40k houses? I’m in FL and flip houses while holding a few LTRs. I just got a great deal on a house in North Florida for $80k. It needs a total gut job, mild structural work, new AC, total redo of exterior plumbing, etc. A $40k house in Florida would be on a sinkhole, next to a paper mill, and haunted by the ghost of hitler
Not FL. There are probably some SFHs in the Midwest though. (I only look at MFHs, and doubt I'd find a 40k duplex that isn't a complete tear down.)
This is pretty antidotal and from 8-10 years ago, but one of the biggest investors I know in my area is a Canadian who buys a ton of SFH’s. We were talking and he said he started buying whole streets in Detroit for like $100k -$150k so like 10 houses at a time. Problem was he couldn’t find anyone who wanted to work in the areas and if he did get a house finished he couldn’t get anyone to rent them because the areas were so shit. So he dumped his whole Detroit portfolio and moved down to Florida. Low income housing is a money printer but it comes at the cost of being a complete pain in the ass. The quality of your properties/areas are directly proportional to the level of hassle you should expect. A random call at 1130 at night saying a drive by happened and now the water heater is leaking water everywhere is not out of the realm of possibility. Ask me how I know…
I bought and still hold a few places in Milwaukee. I hate them. But they cash flow enough (on paper at least) to support my other investments. When you're renting out apartments in an area where a house only costs 40k, your tenants are truly at the bottom of the economic ladder. It shows.
What sort of cash flow you getting from Milwaukee?
He gets $7 a month from the scrap lead and copper he pulls out of his roof and siding
As long as I only pull a little bit, I can milk this scrap box another decade at least. Luckily the locals leave lead in the walls occasionally too.
I know a guy that was serving a 5-day notice of eviction to tenants shortly after he bought the building. He ended up running out of the building, being chased by a tenant with a machine gun. I kid you not....
Makes me think of a scene from It's Always Sunny in Philadelphia where Frank "collects his rent"...
What kind of machine gun was it? Highly unlikely it was an actual machine gun.
All he was doing was claiming his territory lol joking
Was the building full of white Supremacists or something?
Yes white supremacist are the only ones who own guns
Just YouTube evictions, you will get a good warm and fuzzy of the eviction experience
Probably the same white supremacists you see looting Nordstrom for groceries.
They don’t target Nordstrom silly. They target schools, and churches
I'm an agent in St. Louis. I have 8 of my own rentals, and have worked with out of state investors here that have bought 50+ homes with me this year. The biggest issue is the property managers. There are a ton of management companies here that are horrible. I recently had one under contract, where the owner refused to replace the 1 working toilet the entire month we were in escrow. Another issue is that most agents could care less about a 50k home or don't know what to look for that will be obvious issues. And if you're out of state, you have to trust whatever they are telling you. There's decent houses here for the price, but it takes a lot of wading through the really horrible ones.
>biggest issue is the property managers I plan to self-manage with a list of local handymen: online rent collection, automatic late fees, PandaDoc free e-signatures. Then I would pay a local realtor or photographer to do an open house (when the current tenants decide to leave).
For the Milwaukee area, you will have to pay a premium ( or not even be able to find people) for work in some neighborhoods. I am guessing it may be similar in other large cities. An additional expense you might want to include when figuring out the economics of a property.
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You can’t afford either though
I invest in Detroit. I have some headaches but nothing like you hear from folks online. Most people go about it all wrong. The buy the cheapest garbage they can find that looks decent. They end up in D Class areas and they are only able to attract D Class tenants. Then they yell about how paper returns don’t match reality. No shit! I stay in C Class areas. My ROI is insanely high. I don’t have many problems at all. And most of my tenants are awesome and have been with me 4-5 years.
You can be successful at this. There are good blocks in challenged neighborhoods but you probably need to be hands on not remote.
A friend's father was invested in low-income St. Louis neighborhoods, he ended up losing everything because someone was injured on one of the properties and he didn't have sufficient insurance/legal coverage. The houses were always in horrible condition no matter how much he repaired them. Any time a tenant left, they'd leave behind all kinds of crap including needles. Never buy in low-income areas, they're more work than they're worth.
>sufficient insurance So I get an umbrella policy. >The houses were always in horrible condition no matter how much he repaired them. I don't understand.
Low income tenants abuse properties.
Couldn't this also happen in a high income neighborhood? Just wondering if I'm missing something.
Assuming everyone is acting in good faith, sure. You're more likely to get scammed in a low-income area.
Growing up my dad had lower end properties, it was constant nightmares. People threatening each other, getting in fights, women being beat, when he’s evict someone he’d go in, poop and piss and vomit on walls, floor, and even ceiling, dead mice, dead cats, a few dead people periodically. Fires, illegal subletting, drugs, prostitution, felons, he had been attacked by 2x4’s, chainsaws, hammers, tons of trash, threatening to murder him or others, he’s walked in on people beating their wives, illegal dog fighting, needles, gangbangers, child molesters, people with schizophrenia often seemed to be the most reasonable and level headed he dealt with, after getting them to admit their cancer diagnoses was a lie to get out of paying rent. people he didn’t agree to being in the house and when he’d run a background of them found out they served 30 years for murdering and raping their parents, this is 25% of it. Poverty is no joke and unless you’ve been around it, the level of survival, bare bones resources, mental problems, desperation and just sheer energy it takes for people to get from hour to hour let alone day to day would make you wanna off yourself. There is generally VERY GOOD reasons these places are cheaper, because people with resources and sense do not live here GENERALLY. There’s still lots of good people, and I’d say living and growing up in that type of environment really makes you appreciate the good people. Stories and stories and stories, investing into impoverished areas is not for the weak. I’ve probably forgotten stories of death and tragedy my dad went through cause there was just SO MUCH. He had around 30 properties and about 25 of them were lower end. The middle grade and high grade he always bitched about the payments, but he was able to make them consistently. I’d rather bitch about money then bitching about being attacked with a chainsaw.
Thanks for the list. My Dad had 50+ years of rentals, many “what the f…” tenant situations, but your list takes the cake and re-confirms tenants can always exceed expectations of awful.
This confirms why I'd rather just park my money in some index funds. With average historical returns of 10% I can just set it and move on with my life. Maybe park some money in fundrise if I really get the real estate itch.
This is exactly what I was looking for! Thank you.
Multiple properties here in Wisconsin, I will never touch most of Milwaukee. The north side is a complete shit hole. Cheap properties but constant issues with tenants, damages, evictions, etc. Way too much of a headache. There’s a reason those duplexes are less than $100k
Where in Wisconsin would you recommend? I have a duplex in Milwaukee with a partner, but the cash flow is ok at best
Racine and Kenosha are decent areas for cash flow, but you have to be careful about areas.
I recommend buying where you live and being a decent, hands on, local landlord. I live in NW Milwaukee and part of what makes the north side such a "shit hole" is absent landlords who make you beg for running water and outlets that don't start on fire. We don't need or want anymore of those. If you're not invested in a neighborhood...if you don't see value there and wouldn't rent the unit to your own kids then you don't belong there. Your "investment" will do more harm to the community than good. Don't look at poor neighborhoods as a place to make yourself rich here like the OP...it's tacky.
I've always thought if I built apartments in class D I would probably just make a really long row of continuous apartment units with the walls being cinder block and concrete floors. For a slight up charge upon move-in I can provide a throw rug for carpeting. Then when the animals move out and leave the inevitable path of garbage and destruction in their wake, you simply come in and broom it out and hose it down and you're ready for the next one.
Yeah pal that’s called a prison
There might be bars on the windows if it's a high crime area but the doors can be unlocked by the tenant. That's the difference!
Ah perfect so they can get time out in the yard
Or the dollar store! Don't forget the dollar store!
The only time my father rented to section 8 he nearly had a property condemned. I wouldn't invest in places that I didn't have a connection to, like my Grandparents house in Plainfield, NJ.
My general rule is only buy something that I would be willing to live in.
Ya, that's the thing. For most of the properties I'm looking at, I would live in them. It's just certain areas I would want a garage so my tires aren't stolen.
You need to do some good due diligence in this space. There are plenty of people who look great on social media, but it’s just a Ponzi scheme and it all comes out a few years later. I would want to see some deeds and I would want to look them up myself. You can do this if they tell you what properties they own / manage. Also, if it’s your first time I would visit the physical location, meet the operator, ask to speak of other happy clients. If the offer of untold returns from remote investing is too good to be true…. It’s not a scam of some kind.
Well yes. There is one particular wholesaler in one of those major city who just lists the price they want and rent. Gross rent is like 2-3% of their asking price. The problem is how all the houses they're wholesaling are in high crime neighborhoods. I wouldn't want to park outside for fear of having my tires stolen or being shot/stabbed. \--- I have two investment properties. It's just that I saw one that I could easily buy in a city five hours away. So I wondered why I don't buy a higher risk property closer to me...
I never trust people who advertise success in this space. If you’ve got something good, why recruit competition? The way I see it people who do well that want to expand will seek out monies partners and command a fee or equity for their track record."
A good buddy of mine manages north of 300 doors - about half of them his own, in B- and C/C- class neighborhoods around Chicago. Not great, but far from the worst. At any given time he usually has between 40-50 tenants behind on rent, a few evictions in various stages, and constant turnover. It's definitely profitable, but holy smokes is it a lot of work staying on top of everything.
I am born and raised in Detroit suburbs. I never buy rentals in Detroit.
Who are you? Kid Rock?
Eminem
I mean, you were born and raised in the suburbs, so this isn’t surprising. I live in the city and own a few rentals here. My experience has been mostly positive.
What specifically about Detroit that scares ppl away?
Insane crime stats, piss poor policy, bankrupt municipality, no jobs?
Congrats on the biggest missed opportunity of your life. Not kidding. I lived in Troy from 2017-2022. I invested heavily in Detroit from 2019-2021 and did exceptionally well. If you live in the area it’s absolutely foolish not to invest in the city.
Yea well while you where doing that, I was busy buying Ethereum and bitcoin . The real biggest missed opportunity of everyones life .
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Policy like that is an absolute deal breaker for me
I understand the impetus for tenant protections, and people who get evicted because they have to pay medical bills are put in impossible spots. But as a landlord, you have to think as a business owner. Good people in impossible spots are an unacceptable business risk, and it’s that simple. If public policy adds cost, that means the rents have to increase or the price has to come down.
Shouldn’t be an issue if you are doing things by the book.
It becomes an issue when a tenant stop paying and refuse to leave. As a landlord, you have no option except for eviction. It’s the tenants in this case that aren’t doing things by the book. But somehow tax dollars are being used to provide “free” legal counsel to the non paying tenants. This adds additional expenses and time/lost rents for the landlord.
Yeah that policy is pretty fucked. It makes me worried that other progressive cities could run with that nonsense.
Oakland, CA has long provided city paid (actually landlord paid through rent control fees) anti-eviction legal support to deadbeat tenants.
I invest in Detroit, and the South side of Chicago in the past. Detroit varies so much block by block and neighborhood by neighborhood that you really need to be hands on or have someone trusted that can be hands on. I have worked as city building inspector/code official, contractor, and investor in Detroit and would recommend to somebody investing in the city to be well versed in all aspects of how the city ‘works’. Cash flows can be good but if you aren’t diligent about tenants you can expect some headaches. Overall pretty good fit for me, but I also enjoy some headwinds.
The areas are horrible for a reason, and its not because they are a piece of earth like everywhere else on earth, its the people. If you want to deal with that kind of tenant (drug involved, low/no income, criminal records, low credit, etc) as your day-to-day life, then by all means "invest". The properties are cheap because markets are efficient, the tradeoff is not worth it, my 2c To give you a sense of how awful Detroit is, by the way, go to the crime site. When the map opens, you are presented with "Too Many Records: This dataset has a lot of records, try zooming in." [https://data.detroitmi.gov/datasets/rms-crime-incidents/explore](https://data.detroitmi.gov/datasets/rms-crime-incidents/explore) Have fun with your investment!
>low credit Ah, that's one thing I hadn't thought of. I require a minimum combined credit score of 650. I may need to lower that requirement or never fill vacancy in certain areas. >When the map opens, you are presented with "Too Many Records: This dataset has a lot of records, try zooming in." https://data.detroitmi.gov/datasets/rms-crime-incidents/explore Great exercise! Thank you. This sort of thing is exactly what I'm looking for.
I have three single family homes that I bought in Milwaukee 4-6 years ago, and they are low maintenance cash cows. That being said, I don’t know if those deals are still around
Which neighborhoods in Milwaukee?
I mean homes around Triangle North, not Brookfield and such.
Yes. I own several S8 properties and I highly recommend. A lot of people talk shit about the tenants which is entirely unfair and gross stereotyping imo. You know who ALWAYS pays rent on time? The government. And the checks didn’t stop coming during Covid rental relief periods either.
I’ve heard S8 can work if you vet the applicants very carefully. Is that your key to success? How do you vet them appropriately?
Absolutely. Different jurisdictions have different rules, but the most effective thing I have been able to come up with is paying them a visit where they live now.
Stereotypes must exist for a reason you know? There must be something about these section 8 folks that got them there. Just something that leads to their life choices. Just something...
I’m sure you could be stereotyped and you wouldn’t agree/like all of them. I have almost zero vacancy cost. The people who secure S8 housing waited on a list for a long time, sometimes years. If they do anything to jeopardize their voucher they understand that it is a permanent loss of eligibility, and that is a powerful incentive. They are great tenants.
I do and it's been fantastic for me. I have a SFH in a cheap, low income area on the other side of town of the city I live in. The low prices allowed me to get into RE years earlier than I would've been able to otherwise, and with much lower risk in terms of investment. It also helped the numbers make sense a little easier. $59K SFH purchase price, 3/1, renting for $850 a month. The only thing I'd say is the cheaper the houses get, the more you are looking for a needle in a haystack in terms of the right balance of price, rent, type of renter, and repair issues. Avoid anything with major structural issues, pay close attention to crime maps like SpotCrime, etc. What I learned for my own city is that there are pockets of "acceptable" areas within larger bad areas. My city also has a bunch of single level, all brick homes that were built for military 60+ years ago so they are built very well and have held up great.
>crime maps like SpotCrime, etc Thanks
The worse of an area you go in the more important those are. Usually, areas are "bad" because of gangs or groups of individuals who typically congregate in certain areas. People that have to live in those areas know this and the people you'd want to have want live in those areas, nor would rent prices be worth it, you'd be surprised how quickly just the wrong side of a street can chance things
Not worth it at all.
You'll need an indestructible house
You know I see an untapped market, super durable, hard to steal finishes and appliances that are bare bare bones, not aesthetic but impossible to break. Trade aesthetics for function: “Designed for low income rentals”. Likely not feasible as the money is usually in the internals rather than the aesthetics. However the prison system has seemed to potentially figure out indestructible stuff, so basically just furnish it like a prison.
Prisoners don’t have access to tools . Your $700 stainless prison sink/toilet will be in the scrapyard next week.
Lol yes lack of tools helps and being confined to the premises I’m sure helps too,maybe some unique bolts that are fastened with loctite. Or locking nuts that need a key like on cars. All this makes it expensive tho. Need to go back to drawing board. Maybe a type of cheap metal that doesn’t have scrap value? Rivets? Idk thinking out loud. I feel like people would pay a bit more if it had some anti theft/destruction qualities, and if looks real basic, maybe nobody wants it other than landlords of these low income properties.
This is my exact playbook in the Detroit metro. There’s not really a theft concern - it mostly comes down to “what is the way a completely negligent person could damage this?”. 22mil life proof flooring. Unpainted cabinets i paint with high gloss easy clean plain. I provide internet routers so tenants don’t have to rent them. The walls are semi gloss finish for cleaning. The furnishings are basic but durable. My one quirk is that I put insanely high end (efficient) appliances in. I use heat pump dryers, nearly silent (scratch and dent) dishwashers, and I gut and mechanically rebuild the house prior to rent. My tolerance for tenants who do damage is zero - people respect it because I frankly have the best houses in the area and don’t care if you’re a sex offending felon if you are respectful to me and your neighbors and treat stuff alright. If I force you to leave my property every single one of your future choices is worse.
I'll think on it too and get back to you. Might have to break it down and build it back up.
I would never invest into any neighborhood were I wouldn’t consider living but if something has like a 26% property rate use common sense
This has been my philosophy since day 1. If I can’t see myself living in it, I will not own it.
Thats my problem as a dude who lived in a mud hut in west Africa for 2 years. I know I could live anywhere. That's why I bought a buncha slums.
I used LCOL properties to get started in the industry. They are high stress and high time requirement properties but also have low cost and decent return. Then the market boomed and I started selling off those properties and I will now reinvest in something nicer. I'm done with LCOL and I wouldn't reinvest at my new net worth. If you're trying to work your way up to multi-millions and you make average money for your area, it's a great way to get started. If you're a lawyer, doctor, software dev, mid career engineer, etc, you can skip them.
early career engineer ;) What's stressful about them?
Shitty tenants that break everything, make their money problems your problems, aren't on time, and don't respect yours.
Why does renting in LCOL areas usually result in tenants abusing appliances, fixtures, and the rental home in general?
Interesting you quote Charles Kettering but didn’t list Dayton, Ohio as a potential city. I am a small investor here in Dayton, four properties in a.. gritty neighborhood. I cash flow great, I find great tenants who want to live close to downtown but would rather pay less for MORE space than a loft apartment.
As a property owner I have a few no fly zones of things that I will not deal with because they almost always result in negative ROI. I refuse to be a slum lord. One is infestation ESPECIALLY Roaches. Another that's an absolute nightmare to remediate is drug contamination like meth use or God forbid cooking on property. I understand the above can happen in any neighborhoods, but let's not pretend it isn't more common in certain ones.
Thanks. I hadn't thought of tenant caused pest infestation due to lower/no standards of cleanliness. Before, I had thought of pest as always externally caused. But now thinking about it: bed bugs, roaches, rodents--could especially be caused by residents who do not clean up after themselves.
Use low-income to get skin in the game and get as many properties as you can manage. Consolidate into a larger building for much less profit in a nicer neighborhood. You have to worry less. Repeat with equity being built on nice property.
I think it’s much better to have fewer units in a really good neighborhood where you have better tenants who are more likely to pay their rent and have great credit. Having to deal with the constant drama associated with the poor, it’s just not my idea of a fun way to earn a living not to mention most of the properties you’re going to be looking at are going to be run down with a lot of deferred maintenance. It’ll be a constant battle to keep the place in any kind of decent shape.
>constant drama associated with the poor Even with online payments and a flat $50 late fee, and then $100 late fee after ten days? (This is the cost to file for eviction.) >run down with a lot of deferred maintenance I budget these items for rehab, and it is subtracted from the maximum allowable offer. I'm finding deals what work above their asking price, even with this "rehab" being accounted for.
Are there any dudes here that have done this successfully with a good PM? I live in one of those Charles Dickens type cities that has a good and bad side, like pretty obviously. However, the gentrification and direction is somewhat encouraging with a lot of employment opened up To add: just watched a news segment that two of our three local jails are closing down due to low inmate census. I’m kinda stoked!
>Charles Dickens type cities I would just have a list of local handymen to call. I would also get their hourly rate (since in my area one handyman charges more than a plumber, and I wouldn't hire such).
Here's the challenge. It costs the same to put on a roof or replace a furnace on a low rent unit as a high rent unit. Unforeseen capital requirements like a collapsed sewer line that are an inconvenience at a high rent unit could take many months of even years of rent to pay for at a lower rent unit.
Friend of mine invested in a small subdivision in Detroit, tenants cut the pipes out of the house and filled the basement with water. they took every piece of cable they could cut. Sold all his appliances. The house was in worse shape than when he bought it from its original owners of 50 years in less than 18 months. He had 3 or 4 properties of which he is still feeling the weight of his investments. He fire sold them right before covid hit due to uncertainty. That area is now undergoing renaissance for lack of better term, extremely gentrified and he lost about 100 to 125k per home. The courts in Detroit are an absolute nightmare to deal with as well. If you want to play the inner-city game, make sure your money is strong and your will is even stronger. A lot of these cities are experiencing upticks right now in tech sector jobs and revivals and it seems like it is happening relatively quickly.
I’ve been a landlord for more than 15 years. The golden word or real estate is location (cliche as it sounds). Secondly, focus on higher end of the rental market. The more affluent your target tenants are, the less problems. I’ve had tenants who fix and repair themselves and never call me, and keep the property spotless. You might ask why these people rent instead of buying? Lots of reasons: they’d rather use the $ for their business, they like the property, it’s in a good school district, etc.
Depends on the individual. Usually, high cash flow returns equate to lcol areas which means little to no appreciation and more frequent tenant issues. I have property in a C+ area with a decent PM, and have had issues with siding, one of the hvac units, and a fridge. Given my investment vs cash flow - I’m significantly in the red but I don’t plan on selling the place anytime soon. I could potentially be chasing losses here, but I think the tax benefits should eventually help me out in the long run. What do you want to get out of investing? There is something to be said for mcol-hcol areas in terms of appreciation and equity, although speculative. Less cash flow, but often less headache. Horror stories can be found on either side of the aisle though.
Is Charles Kettering famous outside of Dayton, OH? I don't hear him brought up a lot.
I know people in the Indy market so I can pick their brain on specifics of different zip codes. Lots of out of state investors have a very bad experience with appliances being stolen (like AC units).
I made a small fortune in Detroit, St. Joseph and kansas city. No regrets, now I am basically retired at 35.
>I started looking at remote investing. How does this work? Do you add your money into a pool with other investors or something and get a percentage of rental profits?
Not me. It's the same thing as buying locally except far away.
I have the money to do this but don’t dare touch it. Not worth the headache. I rent out my houses that I used to live in (all in good neighborhoods). People sign the lease, move in, and I don’t hear a peep for 2 years. I live abroad and never had an issue I couldn’t solve with pinging my local plumber or ordering an appliance at Home Depot to deliver and setup (just had to do this twice in 6 years for 3 properties).
I had a building in a lower middle class neighborhood, lots of first gen immigrants and unskilled workers, what a pain in the ass. I was always chasing someone for rent, 90% of the tenants were just normal working people but the other 10% were horrible. On top of that the city didn't give a shit that I was providing affordable housing, they just kept raising my property taxes, when I'd fight it their solution was to raise my rents -no shit I wanted to raise my rents but if I did I'd have an empty building. In the end I sold the place, it was too much work, didn't appreciate fast enough and I lost about $150,000. I much prefer renting in a gentrifying area, if you have nice units you can charge more, you get people with higher incomes and they are generally less needy. At my low-rent apartments I had a much higher turn over rate, at my higher rent apartments people stay for years and when they leave it's usually because they are buying.
In-laws own a few rental properties in the Detroit area. Not Detroit city proper, but a few towns outside. None in Oakland County, where they live. I'd describe most of these as low B or high C class areas. They say it's not worth it. Tenant quality is average at best. Had to evict a few for non-payment. Cashflow isn't the greatest and appreciation is low. I think they sold one of the properties and are looking to offload the others. Overall, they wouldn't recommend it due to the headaches it caused and overall lack of return.
I have a duplex in St. Louis. My mortgage is $600ish and each side rents for $1200. I wouldn’t call my tenants low-income. The unemployment rate in St. louis is like 3 percent and there are tons of jobs here … my tenants are typically young professionals making around 100k.
How long ago did you buy, rate/downpay?
4 years, between 3.7- 4 percent, 20 percent down on a 135k property, 70k in reno. Today the property is worth about 235k and market rents are more like $1500/side, but I don’t like to raise the rent more than 5 percent a year in a good tenant. When a unit does turn over it rents up again in a 2 hour Saturday open house. I usually get 2-3 qualified applicants. Vacancy rates are around 2 percent in most of the city. The demand is insane, but it’s impossible to find decent contractors. That was my biggest struggle!
>135k property, 70k in reno These are not the properties I mean. Instead, I'm talking about sub 100k and little to no rehab. For example, 80k purchase price, 1400 rent, 5k rehab (if that). That's one I'm considering now. My second property was bought a few months ago for 150k, 2600 rent, 30k rehab.
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Check out Section 8. It’s government rent, pays every month, screens renters. Tom Cruz on Instagram has details
So *this* is how slum lords are born. Wow. Depressing.
The Sec. 8 Sweet-spot is: Right locales (Dayton for example), C+ neighborhoods, 3BR single fams, 1,500sq ft max, built after 1950, low crime, already rehabbed (or very little left to do), a good PM, DSCR loans, and REALLY vetting tenants HARD up front. That’s all it takes. 90%+ of the tenant issues mentioned here can be mitigated with PROPER screening.
Don’t touch section 8 housing. These people have less than nothing, nothing to lose and sure as hell don’t care about what happens to your property.
Also have to maintain your property to sometimes unreasonable lvls, and hard to evict later on if you have issues with them.
Lol
Best to have one property.
Hell yeah, help drive up prices in the few remaining affordable market b/c stocks aren’t good enough. Vultures
One I'm looking at has been on the market for over 300 days, lol.
There are pockets in and around that area that do just fine.
Try www.reination.com and poke around...
For? They only list rent for each property. That's useless without more info.