Advice on Investing in Detroit

[Natalie Allie]

Looking for advice from seasoned investors in the Detroit area - specifically how investors mitigate risk when investing in the inner city and what the best solutions are to secure properties, avoid squatters, etc... Thanks!

[Drew Sygit]

Quote from @Natalie Allie:

Looking for advice from seasoned investors in the Detroit area - specifically how investors mitigate risk when investing in the inner city and what the best solutions are to secure properties, avoid squatters, etc... Thanks!

 Some good advice so far from the responders.

Are you planning to DIY manage?

If so:

1) SCREENING IS UTMOST IMPORTANCE!
Application fraud is high and only getting worse.

SCORE-DRIVEN BACKGROUND CHECKS DO NOT WORK WELL WITH FICO SCORES UNDER 620! 
Make sure you get a background check that shows you every tradeline, with criminal & background check, as well as all addresses applicant has disclosed in last 7 years.
- We cross-reference the last 3 years of addresses against addresses on application, paystubs, W-2 and bank statements.

Be careful of applicants with only Chime or Student Loan tradelines. They're pretty much worthless.

VERIFICATION OF RENT: major importance!
Common application fraud is to hide current landlord by claiming they "live with relatives". 
- This is also were we use the history of addresses on the background check. We use Public Records to find the owners of the addresses in the last 2-3 years, then a Whitepages account to find their cell and contact that owner to see what they know about the applicant.
- If an apartment building we use Google Streetview to view the outside of the building for signage with a phone number we then call.

2-YEAR WORK HISTORY 2ND MOST IMPORTANT VERIFICATION!
How can you consistently pay rent on-time, when you don't consistently work?
- REQUIRE each applicant fill out COMPLETE 2-year working history! Many will complain, but do not bend.
- Get latest YTD paystub, W-2(s).  Since at least 90% of employers now pay via direct deposit (https://www.nacha.org/news/direct-deposit-clear-choice-payda...) use bank statement to cross-reference payroll deposits to catch frauded paystubs & W-2s. There's often additional interesting info on a bank statement - if you know how to intrepret the data.
- Also, average their income over at least 3-4 months, do NOT assume they always work 40 hours/week, 52 weeks/year! 
---Easy to do with a YTD paystub after April of any year, but Jan-March means you should average YTD paystub AND last year's W-2.
---WHY? Many jobs ebb & flow on working hours seasonally or have layoffs. Also, some applicants have ongoing medical issues - or just miss a lot of work.

USE DEBT-TO-INCOME RATIO INSTEAD OF SILLY INCOME = 3X RENT!
What do you think a tenant will prioritize, rent or car payment?
- Many will prioritize their car, because they need it for work and they know their car can often be repossessed faster than they can be evicted:(
So, why ignore the car payment - which the silly, income must = 3x rent does?

Don't be afraid to require an ACCEPTABLE cosigner if an applicant doesn't meet your requirements!
- Every month we get a few applications where the applicant has little to no credit, lives at home (verified), has only been on their current job a few months and has no stable work history.
--- Why would any landlord take a chance on them without a strong cosigner?
- The other type of application we get that we carefully scrutinize is the applicant living at home (verified), has little to no credit, has a steady job, but ZERO savings. You look at their bank statement and see they've got collections they should be paying off, but they're spending their money on doordash, casino, clothes, etc.
--- What are the chances they are going to suddenly change their lifestyle and somehow pay $1,000 or so in rent consistently?

2) SECURE VACANT PROPERTIES OR LOSE MECHANICALS OR DEAL WITH SQUATTERS

Best to remove the mechanicals, store them and reinstall DAY TENANTS MOVES IN.
- We've tried reinstalling the day before the tenant moves in and sometimes they get stolen THAT NIGHT:(

Who knew we installed them? 
- Only the neighbors!

This what many OOS investors don't understand about deep urban areas - the neighbors and family & friends of the tenants are often all working against the "rich landlords".

Reinforce your door jambs: https://www.homedepot.com/p/Jamb-Repair-and-Reinforcement-Ki...

Temporarily install double-sided deadbolts with tamper-proof screws.

Turn off water at the street.

Even this may not be enough - dealing with squatters right now that broke in, installed their own mechanicals(!), used a fake lease to turn water back on and then showed fake lease to police we called to remove them - so now we have to evict in court.

OTHER OPTIONS:
- DAWGS metal doors - thieves have bent them to gain access. Also difficult for agents to access for showings.
- Alarms - thieves are gone by time police respond - if they respond.
- Actual dogs left overnight - pain to manage and they can defecate and cause other damages.
- Housesitters - we had two actually steal the mechanicals! (what type of person will camp out overnight in a vacant property for $10-15/night?) So, we rarely use them anymore.

DM us if you'd like further tips.