Hello, and welcome to the Landlording Show. My name is Tim Harstead, and I operate Chicago Style Management. We are a third-party management company focused on helping investors manage their properties, specifically on the south side of Chicago and the southern suburbs of Chicagoland. We specialize in managing C and D class properties and have extensive experience dealing with all the challenges you can imagine in property investment.
Choosing a Property Management Company
If you're tired of self-managing your properties and want to make your investment truly passive, consider giving us a call. We'd love to discuss how we can help you make your property more profitable and passive, turning it into a great investment for your retirement and not just a second job.
Today’s Discussion: Property Classes
In today’s episode, we will explore the different classes of properties and how they can impact your investment strategy. Let’s start with what property classes mean:
- A-Class Properties: Located in affluent areas, these properties are newer, better built, and typically have fewer problems.
- D-Class Properties: Found in poorer areas, these properties are often older, around 100-120 years, and come with more issues or "skeletons in the closet."
Investment Considerations
D-class properties attract investors due to their lower price points—you might spend only $50,000 to $100,000 compared to $300,000 to $400,000 for an A-class condo. However, while the initial cost is lower, the potential for higher returns over a 5 to 10-year period comes with increased risks. Investments in D-class properties can yield significant returns if all goes well, but the likelihood of issues arising is also higher.
Misconceptions About C and D Class Investments
A common misconception is that cheaper properties won’t require much additional investment. However, many of these properties are old, with issues like failing roofs needing expensive rehabs. It’s crucial not to skimp on maintenance as this approach can lead to severe tenant and property management problems, turning your investment into a loss.
Screening Tenants
When dealing with different property classes, tenant screening processes vary significantly:
- A-Class Properties: You can demand higher credit scores (650-750) because of the desirability and cost of the properties.
- C and D-Class Properties: The rent might be higher than mortgage payments in these areas, so tenants often rent because they lack the credit or job history to buy. Here, you might accept lower credit scores (500 for D class), but it’s essential to check tenants' backgrounds thoroughly to ensure they are reliable and have not previously defaulted on housing payments.
The Importance of Proper Maintenance
For C and D class properties, ensuring that everything is functional and presentable is crucial. While you don't need to install high-end finishes like Jacuzzi tubs or granite countertops, the essentials must be in good working condition. It's less about luxury and more about reliability and cleanliness, ensuring tenants have a decent place to live.
Conclusion
Investing in A-class properties offers less risk and more stability, ideal for those without significant reserves. Conversely, C and D class properties can potentially deliver higher returns but require a readiness to handle more significant issues and a higher tolerance for risk.
Future Topics
We will delve deeper into specific strategies for managing different property classes in future episodes. Thank you for tuning in, and we look forward to bringing you more insights on property management.
