All Forum Posts by: Drew Sygit

 There will be no difference in the rent - unless the TurnKey provider threw in a desparate/bad tenant to get the higher rental amount.

With a TurnKey provider, you'll pay more for a property that they have rehabbed, versus hiring your own crews to rehab something.

@Nina Diehl what Property Class are you buying?

How have you adjusted your expectations to match the Property Class?

@Russell Brazil is Patterson Park a decent rental area?

Here's some copy & paste info you might find interesting:

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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.

@Devakumar Sai Chinthala There are income limitations for passive losses, you should check with your tax professional.

What will the property taxes increase to after you buy the property?

How much landlord experience do you have or will you be hiring a PMC?

When do you project rents will increase enough to break-even?

@Gp G. NOT a good idea to have one PMC managing a property and another trying to sell it.

Human nature is to comete, so they will do so by fighting and trying to make the other look bad. You will suffer.

PMC 2 may not be playing "fair":
1) What's the penalty if they don't rent the other unit in 21 days for $1350?
-- If there's no accountability, sales guys will say anything to get you business!

2) 4% commission to sell covers what exactly?
-- National Association of Realtors settled an anit-trust lawsuit last year. Now a listing agent cannot advertise the commission they will pay another agent for bringing them a buyer. What can happen is PMC 2 charge you 4%, but when an offer comes in they may have to negotiate with you to include the other agent's commission in the sales price, which may cost you depending on what the property appraises for.

@Rafael Ro Why are your numbers different for options #1 and #2?

The only real difference is when you start collecting rent after purchase.

How have you weighed this against the probability of tenant nonperformance?

REALITY: not much of a difference.

@Srini Rajamani you may want to touch base with @Jaycee Greene 

He's helped many investors create a strategy from the thousands of options.

In our experience, Remote Investing requires finding a PMC that takes the time to understand an owner's expectations and discusses if & how they can be met.

A common problem is a percentage of Remote Investors expecting their PMC to be a personal assistant. That only works with smaller, desperate PMCs. While they may answer their cell phone at all times of the day, most owners soon find out that the manager is spread too thin and constantly over-promises and under-delivers.

At the other end of the spectrum there are owners who are too hadns off, leaving their PMC to try to figure out how much they can do without owner approval. Often, a major or emergency repair is needed and the owner doesn't respond to fund the repair. Even if the owner responds, it's often all negative as they somehow expect their property to never need repairs.

There has to be a good balance of communication & expectations for the relationship to work.

@Scott Lorence make sure you find a PMC that has experience dealing with college rentals. 

You'll want a PMC that will check on the property monthly or even weekly, to keep the college students obeying the rules.

This management may cost a bit more, but is well worth it!

 Another reason to start looking for a new PMC!

@Samantha Bartlett What city do you live in?

College rentals are relatively expensive and come with their own unique challenges:
1) Roommates not getting along
2) No one cleaning or maintaining the property
3) Weekend party damages
4) Etc...

While you are considering what to invest in, recommend you also figure out the property Class you want 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.