CHEAP Rental Properties – Should You Buy Them?

What’s going on guys this is Daniel one
half of the Kwak brothers and in this video we’re going to answer the question
should you buy cheap rental properties hmm let’s go ahead and cue that intro
and we’ll get right into it alright guys welcome back this video we’re answering
the question should you buy cheap rental properties well there’s a lot of things
that we could define as what is cheap rental properties and that just seems to
be one of the popular things that’s going on right now you know to where
people are like well I just want the cash flow it’s all about the cash flow
all about the cash flow all about the cash flow and don’t get me wrong you
know one of the biggest reasons as to why we do get into real estate is the
cash flow but how sustainable is that cash flow is that cash flow really there
that’s what we’re gonna talk about in this video because well a lot of people
that say you should always buy cheap rental properties well there’s a lot of
reasons that I’ve seen and observed that what made you think otherwise you know
so let’s go ahead and define you know what is a cheap rental property so there
are different classifications of properties and what I mean by
classification is I mean quality so let’s go ahead and dive eart that first
and we’ll go ahead and answer the question should you do that so we go
from a B C and D and obviously as you guys could think of class a is typically
your nice properties right so if we’re talking like a five-unit building or a
six unit building Class A is where you have like the nicest amenities right
maybe you know there’s a pool maybe there’s you know all the rehab has been
done I mean everything’s new you know like granite countertops and you know
the new doors new windows right like everything is just fresh you know
landscaping is off the charts great view right of a city or anything like that
that’s Class A you know you may have like indoor parking available as well
Class B is the step below that you know so maybe you know everything that you
have is like maybe five years old four years old you know maybe the parking lot
it’s outside it’s not inside but you know it’s outside but it’s still really
really nice and you know it’s maybe it’s still gated you know but it’s good
a step below Class A now Class C is a little different Class C is something
where you know it might be a little dirty
you know um it looks still looks nice right there’s still nice carpet nice
flooring but it may not be in the best location you know it may be its outdoor
parking and you know maybe there’s some cracks in the parking lot
and whatnot and Class D is kind of just like that worst of the worst you know
it’s kind of the ghetto area the ghetto neighborhood where you know you have a
lot of things that’s going missing and you know maybe there’s old windows
there’s a hole in the ceiling you know and these are the kind of units where
you may walk around and just kind of be like wow like how could anybody live
like this so now let’s talk about the pros and cons because well there’s pros
and cons there’s good things and there’s bad things according to every single
classification now I want to encourage you that as a real estate investor an
entrepreneur when we’re addressing the question of should you buy cheap rental
properties keep this in mind everybody has a different taste for something
different if you’re an investor and you want something more passive and you want
something that’s going to yield a return you know you want something that you’re
not gonna have to you don’t have to put in as much work well a Class B or a
Class A option may be more for you but if you’re an investor where you don’t
mind getting into the nitty-gritty and you don’t mind you know dressing some
issues every single week or dealing with some harsh tenants well Class A C & D
might be for you so let’s go ahead and just go down the list of the pros and
cons so Class A is you know you have higher quality tenants meaning that
these tenants although they rent you know they probably may be earning you
know $80,000 or more they have great job security you know they have multiple
cars you know they’re never late on their rent payment and they’re going to
be responsible you know they’re not gonna give you a tough time or what not
and you know that they’re going to be able to pay rent right you’re gonna get
the money the income is very stable it also means that the Class A building is
in a prime location meaning that if you bought it at a very high price you may
more than likely be able to sell around the same ballpark because of how
awesome the area is now if you’re buying a Class A building and you’re buying it
at a low price good for you that’s awesome you should be able to do that
every single time if you are able to so good location
you got tenants that pay rent high quality tenants so you’re not gonna have
too many repair issues or complaints or anything like that
and you know that they’re gonna do everything by the book now the cons is
that these units and buildings are obviously going to be worth more right
it’s gonna be worth more you’re gonna have to pay you know prime real estate
prices for something that is prime real estate you know because the income is
more stabilized it’s less hassle while security you know that security also
comes at a cost so be sure to keep that in mind as well now here’s a condom not
a lot of people talk about in Class A apartment buildings and it’s the fact
that if a tenant puts in like a repair order or they want something fixed well
you know it’s no excuse that you don’t get out there the next day or with and
then within that three day span a lot of times the Class A and also the Class B
tenants if they put in a work order they contact the landlord or the management
company in this scenario about something that needs to be addressed well they
want to fix now you know they want to fix right then and there they want
somebody to come that day and fix it you know they want it done ASAP so the
customer service for you has to be at a higher level
therefore it’s less room for error because you have such a high quality in
terms of the tenants now let’s move on to class and B so class B some really
good pros in Class B as well you’re not gonna have to have that high of a
customer quality as much as a Class A like you’re gonna have less pressure and
less demand but for the most part a really good pro is that you still have
tenants that pay rent you still have tenants that make good money decent
money and a lot of times the Class B you may have Millennials you know the 25 to
34 age group who have decent jobs who you know are consistently getting income
so you still have that security stabilization of getting the rent now
the downside is obviously it may not be as prime real estate as the Class A it
may not be that you know downtown area or the you know it may not be by that
river walk or it may not be by all the train stations or the transportation
areas but rest assured you still have a very good piece of real estate with
Class B matter of fact my favorite assets to go after is Class B because it
allows me to not have to worry about the building as much and allows me to focus
on acquisition of other deals now you still have to pay prime price on it
right now the going cap rate for a Class B apartment complex is six and a half
percent especially where I live in the state of Illinois in the Chicagoland
area so those are the pros and cons now let’s go down to Class C complexes now
here’s the pros the pros is that you are most likely not gonna have to pay as
much for the building you’re probably going to be able to get the building at
8% cap rate somewhere around that ballpark so you don’t have to pay as
much for the building as you would a Class B or a Class A and rest assured a
lot of your tenants may be blue-collar workers so they’ll still might be able
to pay rent consistently you may have a couple people in the building right if
it’s like a 20 unit building you may have one or two tenants that you know
are a little inconsistent with paying rent you may have three or four
depending on where you are investing and a lot of times the Class C buildings are
going to be surrounded by other multifamily buildings as well meaning
that you have a lot of individuals on that one street that rent that rent
apartment buildings that rent apartment complexes and whatnot so you know in
terms of parking and also in terms of population density and congestion that
may cost potential problems as well now the cons is now you’re kind of getting
into the lower tenant quality where you may have to do some repairs you may have
tenants that caused problems you may have a police officers that get called
in once in a while and the higher likelihood of going through the eviction
process is more like and meaning that turnovers can happen
which turnovers a lot of times guys when you do a turnover you’re talking about
new carpet new paint you’re talking about the leasing process and on average
what I’ve seen you know how much in terms of the cost to do a turnover in
terms of moving a tenant out and moving a tenant in well I’ve seen on average
between five to ten thousand dollars so that could be a problem in of itself now
let’s go on to the Class D which is the quote unquote cheap rental properties
when we’re talking about the question of should you buy cheap rental properties
these are the ones that are the cheap rental properties these are the class
and D buildings whether it be an apartment complex or a single-family
house yes on paper you’re going to be able to buy it at a very low cost and
you’re going to find the rents right fairly it might be fairly nice right you
might be talking about you know six hundred and fifty dollars a month in
rent you might be talking about seven hundred I’ve seen you know Class D
single-family houses go for as much as twelve hundred thirteen fourteen hundred
dollars in rent now that’s what it says on paper now guys I have owned Class D
apartment complexes and Class D single-family rentals before I’ve owned
a single-family house a three-unit I’ve owned an eighth unit right I’ve owned
multiple pieces of real estate that are classified as Class D and let me tell
you it’s not as good as other people may say sure on paper it might be great but
you have to put in a lot of time like you really have to be on top of things
to be able to enjoy that cash flow in the Class D aspect and not only that but
also a lot of the headaches that you may have to deal with in doing so which a
lot of times a lot of you guys might say well I don’t mind that Daniel I don’t
mind putting in a lot of time to do that well in a scenario like me an individual
that always is looking for another deal that wants to kind of go out and travel
and do a lot of things that’s not the case for me I want properties where it’s
very easy to manage your property manager could be on top of it
I don’t want properties that adore gonna break every single week windows
get shattered right and a lot of these expenses can pile up guys and can pile
up and cost you a lot of money think about what we talked about even with
just to turn over the eviction process I mean as I seen the eviction processes
get as expensive as five thousand dollars and obviously the turnovers on
the low end could be three to five thousand dollars so you’re talking about
eight thousand dollars guys for one eviction and one turnover if you have
that in one year you’re talking about a lot of rent being eliminated and you’re
not making as much money as you thought so hopefully I put in some statements
and questions that have made you think and have made you self sustainable
mentally in terms of should you buy cheap rental properties I say do your
research and align it with what your financial goals
and what you’re looking for you know your overall goals are right if your
financial goals is to be retired and put your money to work then class these
probably not for you if there’s somebody that’s a little younger and you don’t
mind putting into work and you want to deal with the headaches and things like
that then yes you should buy the cheap rental properties because it’s more
aligned with what you want to do so hopefully this video was helpful guys
again feel free to subscribe click on that notification bell so you can get
free content I hope I did a decent job and at least started a conversation and
answering the question should you buy cheap rental properties I’ll see you
guys in the next video

3 thoughts on “CHEAP Rental Properties – Should You Buy Them?

  • I prefer the pronunciation " Quack". Good video, very good channel. Any chance you guys can do some videos regarding Chicago real estate, since your from there too?

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