The High-Stakes Gamble: Why Chasing Real Estate Risk Could Backfire
Real estate investing has always been about balancing risk and reward.
But lately, we’re watching investors tip that balance way too far in one direction.
From buying up Class A rentals in the post-2008 crash to the current trend of chasing cash flow in Class C and D properties—or banking on Section 8 or short-term rentals—it seems like everyone is taking bigger risks just to keep their returns looking good on paper.
Spoiler alert: It’s not going to end how they think.
If history has shown us anything, it’s that the higher you climb the risk ladder, the harder you crash when things go wrong.
Today, we’re looking at how investors got here, why we think chasing risk is a dangerous game, and what you can do instead to avoid becoming a casualty of this market.
How We Got Here
Investing in real estate wasn’t always like this.
Pre-2008 Stability—When Investors Worked Hard for Deals
Before the 2008 crash, it wasn’t easy to find rental properties that cash-flowed. You couldn’t just log onto the MLS and instantly find a great deal—those properties were few and far between.
You worked for it.
Most investors focused on Class B rentals. And even then, making the numbers work was tough, so you had to get creative.
Marketing to motivated sellers, hitting up your networks, looking at homes that had been sitting on the market for six months or more—it was a grind.
You might have to evaluate 100 properties, make offers on 10, and hope one would work out. Others took a shotgun approach, firing out 100 lowball offers and praying for something to stick.
The point is, back then, getting into the rental real estate game took grit, persistence, and patience.
The Post-2008 Crash—When Buying Anything Worked
Then came the 2008 market crash—and everything changed.
Property values tanked. We’re not talking “a little cheaper.” We’re talking up to 50% of market value slashed virtually overnight.
Then there were places like Detroit, where values dropped by 80-90%. Cue those now-infamous images of $500 houses for sale.
Here’s the kicker, though—rents mostly held steady through that period. People still needed a place to live, especially with so many foreclosures forcing homeowners to become renters again.
Suddenly, anything cash-flowed. Yes, even Class A properties.
For the first time, you could buy a high-end home off the MLS—at 25%-50% less than it was worth a few years earlier—and have it cash-flow from day one.
Investors who came up during this time had it easy. They didn’t have to struggle to find deals. They were spoiled by low prices, steady rents, and relatively low interest rates.
But that “golden era” didn’t last.
The Market Rebounds—And Investors Start Taking Risks
By 2012, the market began correcting itself. Prices rose, and it became tougher to find slam-dunk deals.
Slowly but surely, investors had to shift strategies.
Between 2018 and 2020, Class B properties became the standard again—slightly riskier, but with more potential reward. Short-term rentals (STRs) started gaining traction during this period, too, offering the promise of ridiculous cash flow if you could manage them effectively.
When COVID hit, the short-term rental market exploded. Everyone plus their neighbor—to hear investors talk—was buying potential Airbnbs and raking in cash. But there was one major issue brewing under the surface. Those properties were being bought—and often overpriced—based on STR projections, not traditional long-term rental models.
Then, when the dust settled, and people started returning to offices, the cracks in this strategy became obvious.
Today’s Trend—Riskier Investments, Bigger Problems
With property prices at peak levels in 2022, interest rates creeping back up, and cash flow becoming harder to achieve, investors started moving down the property class ladder.
This brings us to where we are now—investors chasing Class C, Class D, Section 8 tenants, or turning to oversaturated STR markets.
The Problem with Class C and D Rentals
Class C and D rentals come with higher risks, period. And you have to account for those risks in your numbers—vacancy rates, tenant non-performance, maintenance costs, and more.
Here’s the simple math we use when evaluating properties based on class:
- Class A: 5% vacancy is reasonable. Tenant defaults are rare.
- Class B: Double that to 10% (vacancy + tenant issues).
- Class C: Double it again, at 20%. Tenant churn and property issues will eat into profits.
- Class D: Depending on the submarket, you should plan for 30%-40% vacancy + defaults.
But here’s what we’re seeing—a lot of new investors are jumping into Class C and D with no adjustment to those numbers, modeling their projections as if they’ll have Class A performance.
The result?
They’re buying properties that won’t generate the returns they’re expecting.
When things inevitably go south (like tenants moving out mid-lease, racking up damages, or skipping utility payments), they panic. And they’ll blame everyone but themselves.
Is Section 8 Really the Answer?
Some landlords are turning to Section 8 tenants as a way to stabilize their cash flow. On paper, this seems like a safe bet—guaranteed government subsidies, right?
Not so fast.
- Today, less than 20% of Section 8 tenants have 100% rent coverage. Most pay 20%-50% themselves—and if they struggle, that money isn’t coming in.
- Cities put water and utilities in the landlord’s name in some areas, so unpaid bills become your problem.
- Statistically, Section 8 tenants cause more wear and tear on properties, especially as many tend to be home more often, which can drive up costs.
To be clear, there are excellent Section 8 tenants out there. But it’s not the perfect solution some investors think it is.
The STR Bubble is Deflating
COVID-era short-term rentals brought insane profits—temporarily. But that market got oversaturated, and now, travelers are shifting back to hotels, tired of overpaying for subpar Airbnb experiences.
Investors who bought STRs based on inflated returns are feeling the pain. Many will face a choice—sell, convert to long-term rentals (which won’t cash flow the same), or, in some rare cases, face foreclosure.
Our Prediction for What’s Next
We’ve seen this cycle play out before, and here’s what we think is coming:
- Burned New Investors: Those chasing Class C/D or overpaying for Section 8/STR properties without doing their due diligence will leave the market disillusioned.
- Market Corrections: Overleveraged STR owners may reset some market segments as they sell or foreclose.
- Savvy Investors Step Up: The smart ones will stick to solid fundamentals, adjust their numbers properly, and ride out the storm.
How to Avoid This Trap
Don’t get caught in the high-risk chase. Here’s what you should do instead:
- Know Your Class: Understand what you’re buying and the REAL potential risks.
- Adjust Numbers: Use conservative estimates for vacancy, tenant defaults, and maintenance costs.
- Stay Informed: Challenge assumptions and don’t fall for trends or fads.
Look, we get it—it’s tempting to chase higher returns in this challenging market. But there’s a cost to every shortcut, and those who ignore the risks will pay the price.
Want to invest without falling into these traps?
Reach out to us. We understand the Detroit market inside and out, and we’re here to help you make smart, informed choices that set you up for long-term success.
What do you think about the current trend of chasing risk in real estate? Share your thoughts in the comments—we’d love to hear from you.