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From 0 to 100 properties in 14 months…My personal experience
It may sound strange, or fake. But is not. My main objective here is sharing my personal experience with RE in the city of Detroit MI (and my first experience in Real Estate at all), basically to encourage those that are starting and just get surrounded with NOers and also to remember the big investors that the bullish spirit can never die.
Everything started January 2017 when reading a book that changed my life “Rich Dad, Poor Dad” (Robert’s Kiyosaki best seller that doesn’t need introduction), not essentially for the content that is pretty repetitive but for the hidden message of building wealth for passive income purposes. Later in August I decided to buy “The Book on Rental Property Investing” from Brandon Turner. I decide to start in RE in a distressed market. Why? Because I come from investment banking industry and I have done pretty well always with distressed assets (oil and gas in Texas, agribusiness in Latin America), so why not distressed Real Estate? Why not rentals? And even more challenging…why not Detroit MI (yes…I know…you are shaking your head Lol…keep reading, this one is a happy ending story).
January 2018 decided to book flight tickets to Detroit, one hotel night and a rented car. 500 miles in two days, more than 20 neighborhoods visited and one clear impression: “if I want to succeed here I will have to invest in”:
- Travelling often to the City (I live out of country with a connecting flight and almost 18 hs. To make it to Detroit)
- Developing a local Team (MOST IMPORTANT) to be my boots on the ground
- Hire inspection companies and try to be in every property I want to buy
- Have a GREAT real estate attorney (in charge of double checking all property related paperwork, Deeds, etc). Title houses don’t work for you, they want to execute transactions to get paid.
- Deal flow (MLS, off market, direct owner, Facebook, Instagram)
- CASH. I have done all my transactions cash, this has helped a lot. I know is not the common rule but is one of the factors that allowed to grow the rental portfolio that fast.
July 2018: closed my first property, those feelings that you will never forget. A nice 3/1 bungalow in a C class neighborhood in Detroit. Last week closed property #100.
My strategy: focus on 3/1 SFH with cosmetic repairs needed in up and coming neighborhoods, avoid structural damaged properties, NO fire damaged properties, No blights in the block, not vandalized houses in the block, screen tenants.
What I learnt from a challenging market like Detroit? (remember I have invested in class C and D neighborhoods).
- Cash is king (applies for every market LOL)
- Develop a local team you can trust on
- Always put “final water reading” as a condition to close in the Purchase Agreement (I have avoided $10,000 past water bills “surprises” doing this)
- Hire a good real estate attorney. Yes I know that title houses are responsible for doing it properly and you have the title insurance. If you are out of country its worth every penny when a real estate attorney puts on an email “I have checked all paperwork, you are good to sign the P.A. and wire funds”
- Always put the inspection contingency in your PA (feel comfortable with the period, I put 7 days).
- Send a certified inspector to the property
- Try to walkthrough every property you put an offer on. Make your videos, make your notes, write down your numbers to an Excel and try to understand if it makes sense to put an offer.
- Be picky with the level of tenants you want (you have invested a lot of money in the property and they have to take care).
- Tenants pay utilities (including water)
- Have your internal Maintenance Guy (when you reach volume like this is worth having this instead of calling maintenance every time something happens).
My results so far:
- Occupancy rate: 98% (two properties have been recently vacated)
- Evictions: 1
- Avg. Rent: stabilized portfolio at $825/month/property
- NET ROI / year: 12.6%
- Portfolio Capital Gain: 14% in one year.
The part that nobody says is that in this last year I have invested more than $18,000 in flight tickets, $13,540 in accommodation, $12,800 in car rentals, over $50,000 in legal fees, $1,500,000 in rehabs and hundreds of hours far away from family, nights sleeping on a plane, jet lag, airports rescheduling. Is it worth? Every single penny. So you better close your laptop or lock your phone and start making decisions that will change your life.