Jonathan Cronin explains why high cap rates usually mean low-quality properties in declining neighborhoods. Class D buildings attract problem tenants and damage, eating profits. The real returns disappoint unless you're prepared to actively rehab and manage the property yourself.
The issue with these deals is bad properties and bad areas. Right. I see so many people go on LoopNet and say, oh, this is a high, this is a 10% cap rate deal. Well, typically that means not a very good area and it's a not very good property. And so you're going to be in a situation. Again, this is class D properties a lot of times and we don't want to be in those areas. That's war zone areas. You're going to get bad expenses, high expenses. And they have bad tenants. Like I already said, right. The tenants are lower income and they're not able to pay or they're not able to take care of the property. Right. They end up banging up your property and you got to pay more in expenses. And then obviously with all that being said, there's bad return. So high cap rate deals sounds exciting at first, but the idea of actually creating solid returns is not very good unless you're just willing to go in there and work it yourself and it's a smaller deal and you don't want the headache.
NEVER Buy an Apartment Building Without Checking These 5 Things (I'm a Real Estate Attorney)
