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Erich Oertel
  • Whittier, CA
14
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13
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Michael Smythe
Property Manager
#4 Off Topic Contributor
  • Property Manager
  • Metro Detroit
2,310
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3,945
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Michael Smythe
Property Manager
#4 Off Topic Contributor
  • Property Manager
  • Metro Detroit
Replied

@Erich Oertel

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

If you buy/renovate a Class A property in Class D area, what quality of tenant will you get?

Similarly, if you put all Class D tenants in a Class A 4-plex, what do you think will happen?

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

The City of Detroit has 183 Neighborhoods we’ve analyzed.

PM us if you’d like to discuss this logical approach in greater detail!

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1,790
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Rick Albert#3 House Hacking Contributor
  • Real Estate Agent
  • Los Angeles, CA
1,297
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1,790
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Rick Albert#3 House Hacking Contributor
  • Real Estate Agent
  • Los Angeles, CA
Replied

You can make it work anywhere. It just depends on your goals.

You also have to be careful with posts like these, this is where all the real estate agents come in and tell you that their market is best so that they can get your business.

If your goal is appreciation, I would focus on higher price point markets. Bigger loan buy downs and bigger numbers for appreciation. For example, a 3% appreciation on a $1M asset is better than a 3% appreciation on a $100K asset. Same principle for rents.

You posted this under land and new construction. Because the cost of new construction keeps rising, you have to work smarter, not harder. That's why in LA you only see new construction in the luxury markets. The cost of plumbing, drywall, electrical, roof, etc. is the same cost whether you build in Beverly Hills or in Pacoima. But your dollar will go farther in Beverly Hills. 

If you are thinking out of state, it really depends. If you are thinking Texas, the problem is so is everyone else, so your competition is much higher and unless your property is special, you can only compete on price.

I hope this helps.

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52
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40
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Shaheen Ahmed
Pro Member
40
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52
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Shaheen Ahmed
Pro Member
Replied
Quote from @Travis Biziorek:

Wow, nobody mentioned Detroit yet?! 

I have 12-doors there and live in California. The city has been undergoing massive revitalization over the last 10+ years, has seen its first population uptick in nearly 70 years, and prices have doubled in the last 5 years.

A lot of folks are finally starting to understand there's a lot of interesting growth happening in Detroit. But the fact that I'm the first one to mention it here goes to show that it's still early innings.

Happy to share some resources about the market there if you're interested.

Appreciate your insight. Love to connect and learn from you. I am in SoCal and Detroit has been in my mind but have zero knowledge about the market. I’m looking for my first. Thanks. 
  • Shaheen Ahmed
  • User Stats

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    Travis Biziorek
    • Investor
    • Arroyo Grande, CA
    1,779
    Votes |
    1,624
    Posts
    Travis Biziorek
    • Investor
    • Arroyo Grande, CA
    Replied
    Quote from @Shaheen Ahmed:
    Quote from @Travis Biziorek:

    Wow, nobody mentioned Detroit yet?! 

    I have 12-doors there and live in California. The city has been undergoing massive revitalization over the last 10+ years, has seen its first population uptick in nearly 70 years, and prices have doubled in the last 5 years.

    A lot of folks are finally starting to understand there's a lot of interesting growth happening in Detroit. But the fact that I'm the first one to mention it here goes to show that it's still early innings.

    Happy to share some resources about the market there if you're interested.

    Appreciate your insight. Love to connect and learn from you. I am in SoCal and Detroit has been in my mind but have zero knowledge about the market. I’m looking for my first. Thanks. 

    Good stuff, Shaheen. I'm also in CA (up on the Central Coast). Shoot me a DM any time and I can send you some info/resources.

    User Stats

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    Replied

    I've been studying real estate investing the last few years and am considering jumping in. I am 23 and married and just about to finish my bachelors degree this Summer. My wife and I run collegiately and can potentially get schooling and living expenses (such as housing) paid for with a sports scholarship. We have about 30K saved and are willing to move just about anywhere in the country (spots that cashflow??). Would it be wise to try a house hack (considering I can find a deal!) and dive in? Or would I be wiser to wait until I have a 9-5 post college and just enjoy these years and hope market conditions become more favorable? Thoughts? Thanks?

    User Stats

    24
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    24
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    Austin Wolff
    Pro Member
    • Rental Property Investor
    • Fayetteville, AR
    24
    Votes |
    24
    Posts
    Austin Wolff
    Pro Member
    • Rental Property Investor
    • Fayetteville, AR
    Replied
    Quote from @Porter Whitworth:

    I've been studying real estate investing the last few years and am considering jumping in. I am 23 and married and just about to finish my bachelors degree this Summer. My wife and I run collegiately and can potentially get schooling and living expenses (such as housing) paid for with a sports scholarship. We have about 30K saved and are willing to move just about anywhere in the country (spots that cashflow??). Would it be wise to try a house hack (considering I can find a deal!) and dive in? Or would I be wiser to wait until I have a 9-5 post college and just enjoy these years and hope market conditions become more favorable? Thoughts? Thanks?


    Are you willing to move to a completely new market and essentially "start-over" with your social life? If you can handle that kind of discomfort, I'd recommend moving to an emerging market and house-hacking (that's what I did). Otherwise, live where you want to live, and invest where you want to invest. My only regret is not having more in reserves before investing.

  • Austin Wolff
  • User Stats

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    Bob Stevens
    Pro Member
    • Real Estate Consultant
    • Cleveland
    3,660
    Votes |
    6,392
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    Bob Stevens
    Pro Member
    • Real Estate Consultant
    • Cleveland
    Replied
    Quote from @Erich Oertel:

    What cities are still great to invest in ?


     Cleveland of course, Has been the # 1 rental market in America for many years, always in the top 3. Where else are you going to get 10- 15% NET income. Heck 6 - 8 years ago, we were getting 25- 30% NET, 

  • Bob Stevens
  • User Stats

    1,264
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    Joshua Janus
    Agent
    #5 Classifieds Contributor
    • Realtor
    • Cleveland, OH
    1,456
    Votes |
    1,264
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    Joshua Janus
    Agent
    #5 Classifieds Contributor
    • Realtor
    • Cleveland, OH
    Replied
    Quote from @Erich Oertel:

    What cities are still great to invest in ?


    Cleveland, Ohio is a great market to focus on for cash flow and specific pockets have gone up 2x and upwards of 4x in the last 5-10 years even!
    Examples:
    44109 (median home price went from roughly 50k to 125k in 8 years)
    https://www.zillow.com/home-values/77009/cleveland-oh-44109/
    44102 (median home price went from roughly 30k to 120k in 8 years)
    https://www.zillow.com/home-values/77002/cleveland-oh-44102/
    44106 (median home price went from roughly 100k to 200k in 8 years)
    https://www.zillow.com/home-values/77006/cleveland-oh-44106/

    It has the highest rents on average in all of Ohio for major cities and the median home value is not even in the top 3. That creates a really nice price / rent ratio which is favorable for investors looking for cash flow. The median home price is also very low nationwide which creates a low barrier to entry. You can get solid cash-flowing single families in the 90-120k price range and duplexes in the 130-180k price range. There are cheaper one’s in D/F areas but I would be careful as those can create a laundry list of additional issues. In 2022 the rents increased 12.1% year over year which was the 3rd highest in the entire country per https://www.axios.com/local/cleveland/2023/02/14/cleveland-r...

    User Stats

    282
    Posts
    187
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    Regina Blake
    • Realtor
    • Cleveland, OH
    187
    Votes |
    282
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    Regina Blake
    • Realtor
    • Cleveland, OH
    Replied

    Hi, check out Ohio's real estate market and if you have any questions please feel free to reach out. Best of luck!

    User Stats

    52
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    40
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    Shaheen Ahmed
    Pro Member
    40
    Votes |
    52
    Posts
    Shaheen Ahmed
    Pro Member
    Replied
    Quote from @Regina Blake:

    Hi, check out Ohio's real estate market and if you have any questions please feel free to reach out. Best of luck!

    Been looking into Ohio but the property taxes for rentals are through the roof. 
  • Shaheen Ahmed
  • User Stats

    6,392
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    Bob Stevens
    Pro Member
    • Real Estate Consultant
    • Cleveland
    3,660
    Votes |
    6,392
    Posts
    Bob Stevens
    Pro Member
    • Real Estate Consultant
    • Cleveland
    Replied
    Quote from @Shaheen Ahmed:
    Quote from @Regina Blake:

    Hi, check out Ohio's real estate market and if you have any questions please feel free to reach out. Best of luck!

    Been looking into Ohio but the property taxes for rentals are through the roof. 

     Not sure what you're looking at and where but we avg, 1500- 2500 . There is a reason investor from around the world have been and are still buying there for 10 years. 

  • Bob Stevens
  • User Stats

    9
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    Replied

    Hi @Erich Oertel,

    Definitely is based on what your plans are and whether it is land or for purchasing property. The Midwest seem to be a popular choice in the chat along some areas of Texas are also good to consider for example, Austin or Dallas-Fort Worth. Good luck with your planning.  

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    User Stats

    24
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    24
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    Austin Wolff
    Pro Member
    • Rental Property Investor
    • Fayetteville, AR
    24
    Votes |
    24
    Posts
    Austin Wolff
    Pro Member
    • Rental Property Investor
    • Fayetteville, AR
    Replied
    Quote from @Shaheen Ahmed:
    Quote from @Regina Blake:

    Hi, check out Ohio's real estate market and if you have any questions please feel free to reach out. Best of luck!

    Been looking into Ohio but the property taxes for rentals are through the roof. 

    Ohio is one of the higher property tax states (the main reason I'm staying away from this state in general). It may just seem like a small amount because the properties there are pretty cheap, but if you back-calculate the property tax rate, it's relatively high (not Texas high, though). As your property appreciates in value, expect your tax bill to be higher as well. Plenty of people are making it work in these high property tax states--if a deal pencils, it pencils. 

  • Austin Wolff
  • User Stats

    52
    Posts
    40
    Votes
    Shaheen Ahmed
    Pro Member
    40
    Votes |
    52
    Posts
    Shaheen Ahmed
    Pro Member
    Replied
    Quote from @Austin Wolff:
    Quote from @Shaheen Ahmed:
    Quote from @Regina Blake:

    Hi, check out Ohio's real estate market and if you have any questions please feel free to reach out. Best of luck!

    Been looking into Ohio but the property taxes for rentals are through the roof. 

    Ohio is one of the higher property tax states (the main reason I'm staying away from this state in general). It may just seem like a small amount because the properties there are pretty cheap, but if you back-calculate the property tax rate, it's relatively high (not Texas high, though). As your property appreciates in value, expect your tax bill to be higher as well. Plenty of people are making it work in these high property tax states--if a deal pencils, it pencils. 

    Exactly, you really have to find a good deal to get cash flow after your expenses. Lots of people are having a great success in flipping over there. Unfortunately for me I don’t live there. 
  • Shaheen Ahmed