If you are thinking of investing in apartment buildings, one of your options is to purchase a complex that has historically been used as low-income apartments. Especially in cities, there are often many of these complexes available, and they tend to be priced lower than other apartment complexes -- making them a good choice for someone who is just getting into rental ownership. Still, there are pros and cons to owning a low-income property. Here's a look at both sides.
Pro: You'll have an easy time finding tenants.
Finding tenants for higher-end apartments can be a challenge since many people in higher income brackets want to own, not rent. Lower-income individuals, however, usually rent because the don't tend to qualify for a mortgage. So, you won't have to spend as much time hunting for tenants with a low-income property. You do need to screen them properly, but with so many tenants to choose from, you should be able to find a few good ones.
Con: You can't charge too much for rent.
When you rent out low-income apartments, the cap on rent is pretty low. If you want to make any improvements to your property, you can't spend too much on them because you won't easily be able to make money back from rent to cover them. Different states have different regulations when it comes to setting rent on low-income housing. Some may only permit you to raise rent by a certain percentage each year, and others may put a defined limit on rent -- such as $700 a month.
Pro: Quality expectations are lower.
When tenants are paying less for an apartment, their expectations are lower. While you will want to keep the apartments in decent shape, you don't have to keep them in pristine condition as you would with higher-income housing. This can take some of the stress off of you, especially when you are just getting into property ownership.
Con: You may have trouble with non-paying tenants.
Lower-income tenants are more likely to have money trouble. Even if you property screen your tenants and hire people with more stable jobs and a decent credit score, they are still lower-income individuals -- which means they may have budget troubles from time to time. You will need a strict non-payment policy, which you enforce fairly across all tenants. You will also need to budget ahead so that non-paying tenants don't put your business under.