All Forum Posts by: Drew Sygit

Why don't you go find a deal, do the analysis, then market this deal to your personal network, here on BP, etc. looking for a private lender for the 25% down you need plus repairs,

The other 75% you'd get via bank loan.

The #1 purpose of this initial deal is to establish credibility and get attention. 

Doesn't matter if you actually acquire it. 

If it sells to someone else, just change your pitch to show it as an EXAMPLE of what you're doing & the deals you focus on. 

If you find good enough deals and put them in front of enough people - you'll find a private investor or two...

How well have you explored your personal network?

If you're connected to at least 100 people, chances are VERY high that one of them is/was an investor or knows one!

P.S. you should also be using/developing your personal network NOW to help find a job when you graduate:)

@Alex Mcfarlane

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:

Source: Fair Isaac Company

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

@Mario Gonzalez how much of a monthly house payment do you want to budget for?

Best idea is to buy a 1 or 2 family property to live in. 

You could put as little as 3% down with an FHA mortgage.

Rent out rooms to roommates or try your hand at MTR or STR Guests for higher cashflow.

@Tyler Munroe all sounds good except, "with it's own liability insurance".

An LLC can't get it's own liability insurance - we've been trying for over 20 years!

A PMC has two options in regards to liability insurance that covers "slip & falls":

1) Be added as Additionally Insured to owner's property policy.
2) Get it's own commerical, blanket policy that it adds owners' buildings to.

Regardless, if a tenant files a personal injury lawsuit, any good attorney representing them will sue the PMC, the LLC that owns the property and anyone they can personally get at.

So, how exactly will your idea afford you another layer of liability protection?

Great idea, know several people that have done this!

@Damian Pokoj Warren is the 3rd largest city in Michigan, after Detroit and Grand Rapids.

North of I-696 Freeway is mostly Class A and B.

South of I-696 is mostly Class B and C.

Overall, it's actually a fairly safe city and residents have a lot of job opportunities in other nearby cities.

DM us if you'd like more info:)

Thanks @James Wise

We see about half of Metro Detroit Property Management Companies not even properly licensed!

Many of the PMC owners think that having an RE Agent license is all that is needed.

The State of Michigan actually requires an RE Broker's license for the company - NOT that the owner be a RE Broker.

If PMC isn't even properly licensed, has a website with Owner & Tenant Portals - why would a property owner hire them?

@Amanda Rechsteiner nothing on Joe's portfolio list is in the CITY OF DETROIT.

They are all in the Ring Cities - inner-ring suburban cities around the City of Detroit.

The Ring Cities offer investors mostly solid Class B neighborhoods that make great rentals.

We've got a color-coded map on our website that may be helpful:)

@Nick LeQuia a quick Google of, "Oklahoma Landlord Tenant Security Deposit" brought up this:

https://cbcrossroadsrentals.net/oklahoma-security-deposit-la...

Copied text:

In Oklahoma, landlords can require security deposits to cover potential damages or unpaid rent, but they must hold the deposit in a separate, federally insured account within Oklahoma and return the deposit, less any allowable deductions, within 45 days of the tenant's move-out, with an itemized list of deductions. Here's a more detailed breakdown of Oklahoma's security deposit laws:Landlord Obligations:

• Holding the Deposit:Landlords must keep security deposits in a separate, federally insured account within Oklahoma, distinct from their personal assets.
• Return of Deposit:Landlords must return the security deposit, less any allowable deductions, within 45 days after the tenant moves out, the lease ends, and the tenant delivers possession of the property.
• Itemized Deductions:If deductions are made from the security deposit, the landlord must provide the tenant with a written statement, delivered in person or by mail with a return receipt requested, detailing the deductions.
• Tenant's Demand:Tenants have six months after the lease ends to make a written demand for their security deposit. If they fail to do so, the landlord may keep the deposit.
• No Limit on Amount:There is no statutory limit on the amount of a security deposit in Oklahoma, but it's generally recommended to be between one and two months' rent.
• Pet Deposits:Landlords can charge additional pet deposits, but they cannot require tenants with service animals to pay a pet deposit.
• Misappropriation:Misusing a tenant's security deposit is illegal and can result in fines and even jail time.

Tenant Rights:

• Written Demand:Tenants must make a written demand for their security deposit within six months of the lease ending.
• Itemized List:Tenants are entitled to receive an itemized list of any deductions from their security deposit.
• Legal Action:If a landlord fails to return the deposit or provides an inadequate explanation for deductions, tenants can pursue legal action.