All Forum Posts by: Adebayo Olusada

@Adebayo Olusada

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

Why is Property Class so important for investors to understand and apply in their investing strategies?

Because the Property Class dictates the Class of the tenant pool that the property will attract.

The Tenant Class greatly impacts rental income stability and property maintenance/damage by tenants.

Both Property Class and Tenant Class affect what type of contractors, handymen and property management companies will work on a property.

If you buy & renovate a property in Class D area to Class A standards, what Tenant Class will rent it?

Or, if you put several Class D tenants in a Class A four-plex, what do you think will happen to the property?

So, if you fail to apply the correct assumptions to a property, your expectations won’t be met and it may even be a financial disaster.

We use the following to rank Property Classes, in order of importance:

• Property Tenant Pool: closely linked to location, but not always.
• Property Location: closely linked to tenant pool, but not always.
• Property Condition & Amenities: it’s important to, “Maintain to the Neighborhood.”

Key metrics for each Property Class:

Class A Properties:
Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years.
Tenant Default: 0-5% probability of eviction or early lease termination.
Section 8: Class A rents are too high and won’t be approved.
Vacancies: 5-10%, depending on market conditions.
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.

Class B Properties:
Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions.
Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
Section 8: Class B rents are usually too high for the Section 8 program.

Class C Properties:
Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
Tenant Default: 10-20% probability of eviction or early lease termination.
Section 8: Class C rents usually meet program requirements, proper screening still recommended.
Vacancies: 10-20%, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.

Class D Properties:
Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
Tenant Default: 20-30% probability of eviction or early lease termination.

Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
Vacancies: 20%+, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.

Where did we get our FICO credit score information from?

Check out this chart:

FICO Score	Pct of Population	Default Probability
800 or more	13.00%	1.00%
750-799	27.00%	1.00%
700-749	18.00%	4.40%
650-699	15.00%	8.90%
600-649	12.00%	15.80%
550-599	8.00%	22.50%
500-549	5.00%	28.40%
Less than 499	2.00%	41.00%

Source: Fair Isaac Company

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

Metro Detroit has 132 cities, the City of Detroit 183 Neighborhoods, which we’re analyzing and classifying. Check out the map on our website where we’ve made this all easy to follow.

We can also share numerous examples of properties & portfolios we’ve assisted investors with!

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

Quote from @Adebayo Olusada:

Hello team, I live in the DC area and work and tech. I wanted to know how to invest 20k as a first time real estate investor. Wanted to know the dos and don’ts of this industry as I know there is a wealth of knowledge here. I’ve seen that is it a risk with investing but having money just sitting in a bank doesn’t really help when trying to build wealth. Any suggestions are appreciated. Thank you!

My first reaction, given the price points in your market it's going to be a stretch getting started with only $20K. Here's what I recommend.

1. Find out the maximum you can borrow given your income and savings for an owner occupied loan.  Find out the same for a non-owner occupied loan. At a minimum get pre-approved for an owner occupied loan

2. I've been to DC area many times staying in local AirBnBs. Once you get approved start looking for townhomes, condo or even single family homes in the DMV area where you can purchase and implement an Short Term Rental (STR) strategy.  It will have to be at lease a 2 bedroom, 2 bath property.

3. Live in the property for one year then repeat the process and purchase another one

Another thing to potentially consider is start to network with investors in your area. Find 4 other people that have $20K and put together a plan to pool your money; now you'll have $100K and go find a deal. 

$20k won't get you far if anywhere in the dc market or acquiring a single family but there are many other ways to invest in real estate passively. 

@Adebayo Olusada

hello.  i would start with a house hack as soon as you're ready.  it's tougher in the DC area, but still possible.  you may have to just save up for a while.  i know that's not what you want to hear.  think about it this way, though.  the median age of a first time home buyer in the US is 38.  doing something else crazy with it sooner will just be taking on risk.

hope this helps

$20k won't get you far if anywhere in the dc market or acquiring a single family but there are many other ways to invest in real estate passively. 

You're absolutely right—letting money sit in a bank won’t do much to build wealth. Real estate investing can be a great way to grow your assets, but it’s important to be strategic.

Since you're in the DC area, one smart approach would be to look at markets that are more affordable but still offer strong potential for appreciation and rental income. Richmond, VA, for example, has a lower cost of entry compared to DC, while still being a growing market with a strong economy, universities, and demand for housing.

Here are a few key dos and don’ts for first-time real estate investors:

Dos

• Research the Market: Look for cities where property values are rising but remain relatively affordable. Richmond, VA, could be a strong candidate.
• Consider Turnkey Properties: These are homes that are move-in ready and can start generating rental income immediately.
• Analyze the Numbers: Make sure your expected rental income covers expenses like mortgage, maintenance, and property management.
• Start Small: A single-family home or a duplex can be a great way to get experience without taking on too much risk.
• Leverage Financing Options: Even though you have $20K, consider loan programs that allow you to maximize your buying power.

Don’ts

• Overextend Yourself: Avoid buying something beyond your budget just because it looks like a good deal.
• Skip Due Diligence: Always inspect the property, research the neighborhood, and review all financials before purchasing.
• Ignore Property Management: If you’re buying outside your immediate area, consider hiring a property manager to handle day-to-day operations.
• Forget About Taxes & Fees: Factor in property taxes, insurance, and any homeowner association fees when calculating potential profits.
• Rush Into a Deal: Patience is key—take your time to find the right property that fits your strategy.

Good luck!

Hi Adebayo! I'd recommend start exploring options like house hacking. It's buying a multi-unit property, living in one unit, and renting out the others. This strategy can help offset your mortgage and get your foot in the door as an investor. If you go this route, an FHA loan might be a great fit since it only requires about 3.5% down and is more flexible for first-time buyers.

If you're looking to buy strictly as an investment (not living in the property), you’ll usually need a conventional loan, which typically requires 15% down for a single-family and 20-25% for multifamily properties. Either way, I’d strongly recommend keeping a portion of that $20k in reserve for unexpected repairs or vacancies can pop up, and you don’t want to be cash-strapped right after closing. Best of luck on your journey and hope this helps!

Hi Adebayo, I would recommend house-hacking if you are not already. You can buy a single family home to live in and rent out the other bedrooms or buy a small multifamily (2-4 units) and rent out the other units. House hacking will allow you to buy deals with less money down, get a lower interest rate (compared to investment property loans), and reduces your risk while getting started.