All Forum Posts by: Brian Ploszay

There is some good advice on this thread.  I built an algorithm of sorts to screen tenants.   Here is one thing that happened to me.  A lady had a good credit score.  I check their name manually to see if there were any local civil lawsuits against this person and evictions.  I found some of this stuff doesn't always hit one's credit score.  

There was a bunch.  My theory was that she got her credit professionally cleaned up.  I've met someone that reversed his bad credit this way.   Anyway, the lady was high risk, despite her decent credit score.  

In my market, the last month has shifted to a slightly softer market.  In urban areas, it is soft for sure, affecting the rental market, condos and higher end properties.   What is still hot are affordable single family houses.  I am carefully watching the supply of housing.  

I was caught off guard how strong the real estate market was for about 3 months.  Analytically, one of the major reasons was the artificially low supply levels, as people are not moving as much in the era of covid.  Second, the interest rates got people off the fence.  

They are buying a new house, so they actually care about their credit.  You can hold them to their lease, to some extent.  If they have been there less than a year, I would not be very accomodating.  I'd assess them a month penalty, and just let them go.

From your calculations, you'll need more than 20 properties.  Keep in mind that "repairs" sometimes sink some of that cash flow.   One roof replacement or furnace, wipes out your cash flow.  Someone mentioned the best way to scale up are apartment complexes.  Yes, but larger properties are something you should grow into.  I'd suggest patiently building your portfolio up.  You will meet your goal soon enough.

@Henry Lazerow  

The neighborhoods of Chicago don't fit nicely into an A to F class system.  I'd add pluses and minuses.

Brighton Park, Cicero, Aurora, Elgin - rental housing can also be called "work force housing."   That is a B rating.  The people have jobs.  Maybe you can call it a high C rating, but the tenant defaults are just not there to call it class C.  Collections are simply high there.

South Shore is "C" housing.  To some extent, people have some employment.   The area is propped up with section 8 vouchers and this stabilizes the housing stock.   It gets a C rating because the tenant base has a higher rate of default and crime is higher. 

For Class D, I would say Harvey, Engelwood, Riverdale, part of Roseland.  I call class "D" impoverished areas.

Class F - if there is such a thing, would be housing that is not safe to rent to any type of people.  The properties need substantial rehab and the neighborhoods don't justify the investment.  Just like high school, F means fail.

The fact is that rentals tend to be housing for working class people.  The middle class eventually become home owners, condo owners, etc...

There is luxury housing and that's A quality.  Or even older housing stock on the north side gets an A rating.  Mostly because location and people pay almost trophy prices for these buildings.  

@Todd Vernon Chunn   You fit right into my feelings about Flint/Detroit real estate.  You're a local, you know your market and you thrive.   Now, it is not ==impossible== to be an out of state investor, but for class C properties, there are challenges.  You need very good local connections / boots on the ground.   You need to know your market.  Locals have immense advantages for this asset class.  Just my opinion.

@Jason Ma    I invest mostly in the Chicago region.  And I live there.

Jason, I grew up in La Crescenta, which is right down the road from you.

I do both single family rentals and apartment buildings.  Apartments are superior in that you can scale up your business quickly and you have efficiencies such as only one roof system.

In my market, single family rentals have very strong demand to rent them.  Plus tenants end up staying around seven years on average.  I also have less defaults and less drama.  But way more repairs per unit.

For most smaller investors, rental houses are a good start.   To make a full time living at cash flow properties, apartment buildings are the way to go.

In markets like yours in SoCal, rental houses would result in a loss if you put a mortgage on it.  Even apartment buildings have meager cap rates in SoCal.  The real estate is simply too expensive.   

I have been a vocal critic of turnkey properties on B.P.   Flint Michigan is a good example of a place that you should exercise extreme caution in investing.   I have nothing against the city nor its people;  I have been there.   Flint is a shrinking and deindustrializing city.   The area has lost about 50 percent of its population since 1970.  What this means is the demand for housing is shrinking.  There is a lot of surplus housing, and not surprising housing stock gets torn down.  And pricing is low.  

The demographics are working against you, and there will be low appreciation. These areas often do deliver a superior cash flow yield, predicated if the investment is performing. If you choose to invest in C properties in towns like this, I would say you need to understand that they are risky. It is successfully done, but usually by hands-on, local operators. Markets like this have a lot of distressed real estate, so operators can buy properties cheaply, repair/rehab and then rent. As a turnkey buyer, you are not capturing this, because you will be paying a more full price. Make sure you get an independent valuation of what the property might sell for on the local MLS, if it was vacant. Look at all the comps, including the similar distressed properties in the immediate area.

You might want to look for properties in Eastern Pennsylvania towns instead.   They are closer to where you live.   It's cheaper than NJ.

Local laws have prohibited evictions for at least four months in my market.  Now another four.  And the courts will be very backed up.  

I operate in a very tenant friendly state.  It takes a long time to do an eviction in non pandemic times.  I predicted mid year 2021 before landlords get errant tenants out.   

I was doing well until last month, when I realized that I had a surge in late payers.  

I got my only real evictable tenant out by paying him a full months of rent in cash to get out.  He took it.  I am now being very careful on who I rent that unit out.  A vacant unit is better for me than one with a non paying tenant.