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Strategy Saturday
SS79: Don’t Buy D-Class Properties!
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SS79: Don’t Buy D-Class Properties!

Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing why I suggest you don’t buy class D properties.

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Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing why I suggest you don’t buy class D properties. When I grew up, my father owned a number of de class properties and they were a management nightmare needles left in hallways, police kicking down doors. You would need to literally rake the garbage left by tenants in the yard. Tenants would steal the batteries on smoke detectors. And even though he had a small management team, there were endless headaches. Now, before I go on, I wanna give you a quick overview of the four main property classifications a to D. So class a is the newest and most expensive luxury properties, high income tenant base, usually $200,000 per unit and up that’s what it usually costs to purchase. One of these typically construct it within the past decade. If constructed more than 10 years ago, they have been fully renovated, very high level of construction.

Charles:
They’re in the best locations, close to shopping offices, downtown areas. They’re nicely landscaped. If less than 10 years old, they will have all the amenities, dog park, pool, gym, valet, trash service covered parking electric, vehicle stations, pool tables, outdoor kitchen spas. You know, it’s similar to living in a resort when you’re living in a class, a property now class B ties, which is what we really focus on here at Harborside partners are properties that were usually built in the past 20 to 30 years. Middle class tenant base. There usually has been some updates since construction there’s minimal deferred maintenance. Now B plus property will differ significantly from a B minus property. So saying class B is a very wide range. Well-Constructed properties, nicely taken care of there’s good curb appeal. And there’s a minimal functionality issues. Not enough parking or narrow hallways or small bathrooms, small windows, low ceilings.

Charles:
You’re not gonna have too much of that. You’ll have some of that on some of the older properties, but you won’t have that many with a class B property. Now larger breed properties will usually have some amenities. And these properties are located in steady neighborhoods with demand class C properties are properties that were typically built 35 to 60 years ago. There is gonna be some functionality issues of some sort. So there might not, not be enough parking. There might be small bathrooms, small hallways, low ceilings. These are issues that can’t really be fixed easily. And there’s something that you’re probably not gonna fix as a landlord. You’re just gonna have to rent it as is. And your tenants will accept that the tenant base is middle class vacancy rates and properties appreciation are average 5% vacancy and appreciation of 3%. Typically they’re good cash flowing properties though.

Charles:
Usually they’re outdated and require renovation, which is a great value add project for investors. There’s gonna be minimal amenities at these properties and the areas they’re located are steady or possibly the areas declining. So you have to know the area when you’re buying class C properties. Now class D properties. They’re very rough neighborhoods. They’re bad locations, 40 plus years old, a lot of illicit activities that occur on them or around them. There’s never any amenities or there are, they’re not functional. So if there was a pool it’s, you know, it’s been filled over or it’s just, it’s just never been. There’s just water in it. And there’s no, it’s never been operationally as an actual pool cause no one’s ever maintained it. There’s major functional obsolescence. So there’s major things that can’t be fixed. And that means that it’s gonna restrict where the rents go and it’s gonna restrict really the tenant base.

Charles:
You’re not gonna be able to get a higher end tenant in there. A middle class tenant. There’s really no upside with de class properties. These properties are poorly constructed. They’re in need of major renovations, but there’s no upside after performing the major renovations. So the only exit strategy is cash flow and headaches. There’s no appreciation. And when you sell it, you need to sell to another de class investor. And there’s not that many of those, you might get a new investor to sell it to. But other than that, most experienced investors are going to avoid de class properties. Like myself management is a nightmare with de class properties. Most managers will not manage a de class property. And the ones that will probably should not the only solution is really self-managing them. It is not feasible to make large capital improvements. So you are constantly patching and repairing, not replacing and updating like you would be with a B and C class properties.

Charles:
Deferred maintenance is really a requirement. If you want to cash flow with D class properties, these properties will require constant daily management. There will not be one day that goes by that. It will not require someone from your team to visit the property. How do you know the class of the area? Well, your broker should be able to tell you, but by driving by it, you will know you wanna be focusing on purchasing outdated pro properties in good neighborhoods and markets, things outdated in C-Class properties and B neighborhoods. You want to drive the neighborhood and see work being done on other properties. Some properties have already been renovated areas where money is being invested. So you can ride the wave of gentrification when you purchase that neighborhood and renovate and rent. It is always worth it to pay more and buy properties and see C plus and B areas. So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments, and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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