Today is the final blog in our series, looking at neighborhood classifications. In previous blogs, we looked at A, B and C; today, we will examine class D. Many investors tend to avoid Class D neighborhoods for a good reason. This class has many issues and few positive aspects, making it a financial risk compared to the other three categories. They are in poor condition, old and in areas with higher crime rates. Class D neighborhoods are easily recognized by the look of the houses, where you will find boarded-up windows and graffiti on the walls with very little landscaping. Sections of the roof might be missing making them unlivable with major code violations against them. The area is just as bad as the properties with high anti-social behavior, such as vandalism, violence and drug dealing. They’re typically far from restaurants, coffee shops, and good shopping areas. You might find small rundown shops, liquor stores, laundromats, pawn shops, and fast food outlets, and you might not see any area amenities for miles.
So who are the residents of Class D neighborhoods? There are, of course, good families. But you may also find drop houses and people who are up to no good. Concerning finances, the tenants in this area are very low-income earners. Additionally, compared to C neighborhoods, if you visit its streets in the middle of the day, you may find people hanging out on the street or their porches as they are not at work. You may find people that are on social welfare. This is a precarious property class to invest in; vacancies can significantly lower your ROI. Even though the cost of the property might be cheaper due to its age and condition, repairs and renovations may be expensive.
Some class D neighborhoods have the potential to upgrade to class C, but these will take a lot of work to find. You must research and be 100% sure that the neighborhood is up and coming. You may find a mix of well-kept houses and two or three houses down the road that are not. Some areas will be gentrifying, such as a Class C transitioning to a D or a D to a C. So you have to look at what’s around and what are the financial factors and employment opportunities in the future. So let’s take a look at the pros of this property; the pros include a low-cost purchase point due to the number of repairs required to bring it up to rental specifications and codes. The cons include high vacancy rates. So class D property for certain investors can be very lucrative, as most of its tenants are section 8 tenants supported by the government. We will discuss section 8, and remember, this is only for the United States. The government also subsidizes the equivalent of low-income housing in Canada. Certain investors I know only do class D neighborhoods, and they make an excellent income. But it depends on your comfort level.
So there you have it. We have completed all the classifications. So now that you have all the characteristics of all the neighborhoods, A, B, C, and D, tell me in the comments which one you would prefer. A lot will depend on your comfort level and expertise when it comes down to real estate investing. You may not want to invest in D properties if you’re a beginner. But also, you may need help to invest in A properties. So B or C might be your best bet. However, some other investors that are a little farther along might invest in neighborhoods that are higher class, like an A. I’ve seen some very savvy investors. They can predict that the neighborhoods are up and coming. They will buy many properties in D neighborhoods, rehab them, and move the entire area into a C classification, which will significantly raise their ROI because they’re buying at a discounted price. So it depends on where you are and what strategy you’re following. What is the neighborhood class that is your favorite? Let me know in the comments.
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