Not every real estate investor will have the resources to own rental properties in A or B Class neighborhoods. And some don’t care. With the right scenario, rental properties in more challenged areas can still make good, profitable investments for property owners. Below we offer three things to consider before investing in C Class neighborhoods.
Neighborhood Classes Defined
Frankly, neighborhood classifications can be pretty subjective, but most neighborhoods in each class have a few things in common. You can use sites like Niche as a guide, too.
Class A neighborhoods: have new, higher value homes or luxury apartment buildings in prime locations in town, often near major businesses or universities. These neighborhoods typically have the best school districts and highest per capita incomes.
Class B neighborhoods: have nice homes that could be a bit older and sit a little farther away from main locational draws. These neighborhoods have good school districts with a mix of working class and professional tenants.
Class C neighborhoods: are typically working class neighborhoods with a mix of tenants and owner-occupied homes in below average school districts. The age and quality of the homes could necessitate more maintenance and repairs.
Class D neighborhoods: consist of older, dilapidated houses or ones that have fallen into major disrepair. Crime and vandalism are major issues in these neighborhoods
Considerations before Investing
With few exceptions, D Class neighborhoods can pose more risk and costs to investors than profits. C Class neighborhoods offer investors lower entry barriers with the potential for good income generators despite the lower rent rates. Before investing though, consider these three things.
Prepare to Document Everything
Properties in C Class neighborhoods typically require high touch points for maintenance and repairs. These neighborhoods typically carry more Chicago Housing Authority (CHA) tenants, which necessitate CHA inspections.
As the property owner, you should prepare to document everything that goes on with the rental. This helps you protect your assets and makes sure your tenants feel heard.
Keep Units Basic but Clean
Because of the higher risk with more maintenance in these neighborhoods, investors should minimize items that will require repair. Invest in sanding floors, fresh paint and new appliances when necessary, but not much else. Many times property owners will add fancy countertops, way too many kitchen cabinets, crown molding, and so on. Most property owners will advise against installing ceiling fans, dishwashers, microwaves, or washers and dryers. Some even go so far as to remove ceiling fans in favor of two-bulb light fixtures.
Tip: installing two-bulb fixtures means if one bulb blows, tenants aren’t left in the dark until the landlord replaces it.
Do Invest in Security and Lighting
Tenants in C & D Class neighborhoods know they live in challenged areas. By installing proper external lighting and security doors, you help them feel safe.
When turning over tenants, make sure everything’s in good working order before showing and placing new tenants. Even with best intentions, landlords can overlook some items, so we recommend using a checklist to cover all the bases.
A Word on Blinds and Window Screens
Property investors have differing opinions on whether to equip rentals in C & D Class neighborhoods with blinds. Some don’t want to deal with the hassle of constantly replacing broken blinds or ripped screens. Others feel that these are a basic need in apartments and houses regardless of the neighborhood.
Tip: If you decide to provide window blinds and screens, build the cost of periodic inspections in the lease agreement. If inspectors find broken or missing blinds, add the cost of replacements to the ledger for the unit.
Main takeaway: Keeping units safe and functional keeps rental units filled.
After considering these factors, if you decide you want to own rental property in C & D Class neighborhoods, contact us! As fellow Chicagoland investors, we have the local expertise to help you on your journey!