All Forum Posts by: Drew Sygit

@Lucas Hannon so, you're going to manage a property that you don't own?

You may want to check out state & local laws about 3rd party property management and confirm you can comply.

Regarding what to do, check out all the materials BiggerPockets has under the Manage Properties tab! 

@Aahil B. where did you find the two rentals you bought?

Guessing the MLS?

You'll rarely find great deals on the MLS:(

What you want to do is find a way to get a somewhat consistent stream of property leads. You can then determine if the property, and your current resources, makes sense to buy & hold, fix & flip, wholesale or pass.

It takes time to make this happen, but if you don't start today...

Some copy & paste advice below:

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Why does everyone want to chase strangers – and ignore their own personal network?

Which do you think will be more competitive, buying from wholesalers or your own referrals?

Per this NY Times article, the average American knows around 600 people.
https://www.nytimes.com/2013/02/19/science/the-average-american-knows-how-many-people.html#:~:text=The%20average%20American%20knows%20about,do%20you%20know%20named%20Kevin%3F

Per the US Census Bureau, the average American moves 11.7 time in their life, which based upon an approximate lifespan of 84 years, works out to be about every 7 years.
https://www.census.gov/topics/population/migration/guidance/calculating-migration-expectancy.html#:~:text=Using%202007%20ACS%20data%2C%20it,one%20move%20per%20single%20year

So, if the average American knows 600 people and they each move about every 7 years, that means that the average American knows around 85 people that move in any given year.

How many of those moves do you want to be involved in?

To maximize the number of transactions you’re involved in you will need to:

• Be Top of Mind when they think about moving - which requires consistent reminders.
• Be seen as an Expert – which requires a consistent message and Evidence of Success stories
• Gain their Trust – which requires communicating with integrity

So, start out by CONSISTENTLY posting what you are doing on whatever social media channels you currently use. Not on any? You better fix that! You may also want to figure out which channels your family & friends use the most and get on those if you’re not on them currently.

What should you post?

How excited you are about what you’re doing in real estate investing! Share stories about your successes AND challenges. Then, ask them for their help!

IMPORTANT: do NOT ask people for THEIR business, ask for referrals! Why? Because they will get defensive if they feel you are pressuring them. Remember, they can always refer themselves😊

Use one of the ideas below to trigger who they know that they could connect you with:

• Just inherited a home
• Had a loved one pass away
• Is behind on their mortgage or tax payments
• Has a relative that can’t take care of their house anymore
• Has a house they’re having trouble selling
• Is facing bankruptcy
• Knows a probate attorney
• Knows a bankruptcy attorney
• etc

Putting this in OVERDRIVE

Create a spreadsheet (Excel or Google Sheet) listing everyone you can think of that would recognize your name or face.

Why a spreadsheet? Because later, you can easily upload to a CRM like Constant Contact to create an email list!

Create columns for Name, email, cell and even Street Address, City, State, Zip and then contact info: Last Contact, Relationship, Status.

Then start calling these people. Divide the number of people on your list by 20 - and that’s how many you want to try to target daily.

Whether you get ahold of them or leave a vm, use 1-3 of the above triggers for referrals.

Why only 1-3 off the list per contact? Because on average, we can only remember three things at a time. If you try to go over the whole list, you’ll lose the attention of the average person and they won’t remember anything!

It should only take you about a month or two to contact everyone on your list and then the tough part – you start all over again.

Be sure to also ask what social media channels they are on and connect with them there.

Why the repetition? Because it takes repetition for people to remember things and you have to be top-of-mind when they encounter a potential client for you!

Have you ever been to McDonalds? Of course you have! So, why is McDonalds still spending billions on advertising?

One more tip – people remember stories that trigger their emotions. So, tell a story of how you (or a fellow wholesaler) helped a seller out with their challenge(s). Change your story each month as different stories will resonate with different people AND use each story to emphasize one of your “who do you know…” questions.

One last thing – we recommended you create a Status column on your spreadsheet, now we’ll explain why. If you find someone that seems to know a lot of people needing your services, wouldn’t it make sense to focus more resources on them? Conversely, you will run into people on your list that just seem to be a waste of time, so you’ll want to avoid them. So, create status codes for both of these and a few in-between codes to help you work smarter, not harder.

What does your partnership agreement state about this?

@Ravi Pamarthi 

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.

@Chris Lo there aren't a lot of 4-plexes outside of Detroit and Pontiac.

You may want to expand your options to cover 4-20 units or similar. 

You'll usually need more than 20% down to cashflow, unless you can find an asset to reposition.

@Chandler Hall yes, as I already stated:)

The tenants that will appreciate this the most will be Class C and below tenants. Everyone else will be familiar with online options.

Many Class C tenants won't have a credit/debit card to use with Stripe.

So, you'll want to conside integration with Zelle, Venmo and other payment options.

@Michelle Simoni seller-financing usually only works on sellers with a problem they are motivated to get rid of:

1) Been for sale for 120+ days

2) Nonperforming property

3) Problem tenants

4) Deferred maintenance issues

5) No equity

6) And obviously they want to get rid of the problem MORE than they need their cash out

@Chris Lo so what are you asking?

"How much should we be profiting from this in order to make it attractive to jump in?"

Was tha an imaginary friend that was partnering with you and you're really soliciting for partners?

Where are you going to find this 4-plex - City of Detroit?

Vacancy + Maintenance/Repair figures you are using will only work for Class A properties. 

You'll want to double them for Class B, then double them again for Class C properties.

If you're serious about the 4-plex, you should live in one unit an rent out the other units as STR or MTR, along with any other bedrooms in your unit, to max out cashflow for first 1-2 years.

Then you can reposition it depending on equity or sell it.

Have done several LO and LC transactions on both ends.

Did them with integrity.

There was a company here in Detroit the 1990's and early 2000's called Phoenix Homes - like the rebirth of the mythical bird.

They has a half-page of multiple ads in every Sunday paper, "buy with no money down!".

That was a bait & switch as no one ever met the requirements for zero down, so everyone had to put down $3-5k on $80k houses. 

Then the sales price was so high, it would never appraise.

They eventually imploded and I met someone that worked for them, who told me they had almost a 100% default rate - intentionally.

Then went under because they were soliciting investors for funds and promising first lien protection - but, selling that to several investors, so the properties had multiple liens for more than they were worth. 

So true!