I received an email last week from some guru recommending to new investors, “Class C” apartments make the best investment.
HUH?? WT? No way should you listen to this advice.
I SAY >> Do these guys actually own a C class property ?
Here’s my take on what is being said is absolutely bogus –
1. They say that that people who live in these types are property are 30-40 years old
I SAY>>> Show me something that supports this contention. MY C class properties have always struggled in occupancy. The cost per unit has nothing to do with someone’s desire to live there.
2. They say that these type of property sell at around 20,000-30,000 per unit
I SAY >>> Did you ever think that the correlation was true that because no one wants to live there, the price per unit is so low?
3. They because they are more affordable, they usually have higher occupancy rates
I SAY>>> See Point 2 above
4. They say these buildings are usually the first to appreciate in a rising market
I SAY>>> Really? Does gold rise in an appreciating market or tin?
5. They say these buildings usually have a nice cash flow
I SAY>>> Mine never have and I purchased them ‘correctly’.
6. They say that they house moderate income tenants. Moderate income tenants represent a very large pool of prospective tenants you can tap into
I SAY>>> That’s true and they don’t leave either and they are what we typically call “gimme-girls”.
7. They say that are made up of bread & butter buildings, where most of your tenants want to live
I SAY >>> Would you want to live in a c-class property? My adage is I do not buy property that I would not also want to live in.
8. They say that these buildings are in fairly stable neighborhoods, which means fewer occupancy problems since tenants tend to stay longer
I SAY >>> BULLSHIT. ABSOLUTE BULLSHIT (If you can’t handle the word BULLSHIT, you shouldn’t be in this business)
9. They say that these properties contain buildings where cosmetic improvements can do wonders for your bottom line. The ideal situation is to find a “Class C” property in a “Class B” area, where rents are higher. The idea is to fix up the property then increase rents, adding more money into your pocket every month. For these reasons, especially when you are starting out, “Class C” properties make the most sense.
I SAY >>> Wrong again. C-class properties are so far gone that cosmetics do nothing. What does wonders are controlling the utilities but because the buildings are so old, you lose your shirt. Ask him if c-class properties are typically tenant paid utilities or landlord paid utilities? If the former, you lose everytime the loser tenants are in partnership with the utility company against you.