All Forum Posts by: Drew Sygit

@Matt Schreiber you won't find any Class A or B properties that cashflow - whether SFR or MFR.

Price & interest rate increases have made it very difficult - unless you find something off-market BEFORE an agent or wholesaler finds it. Often, it will also need work.

So, that is causing investors to lower their standards and buy Class C & D rentals.

Problem is, most investors apply Class A assumptions to these Class C/D properties - and then blame everyone else when they don't get their "expected" results.

Check out copy & paste info below for more dtails:

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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.

Property Class will typically dictate the Class of tenant you get, which greatly IMPACTS rental income stability and property maintenance/damage by tenants.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

If you buy/renovate a property in Class D area to Class A standards, what quality of tenant will you get?

Similarly, if you put several Class D tenants in a Class A 4-plex, what do you think will happen to the property?

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

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

The City of Detroit has 183 Neighborhoods we’ve analyzed.

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

@Blair Ross Jr I tried this "new" thing called Google and look what I found:

https://www.michigan.gov/lara/bureau-list/bcc/sections/mobil...

@Stan Mendoza

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

Property Class will typically dictate the Class of tenant you get, which greatly IMPACTS rental income stability and property maintenance/damage by tenants.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

If you buy/renovate a property in Class D area to Class A standards, what quality of tenant will you get?

Similarly, if you put several Class D tenants in a Class A 4-plex, what do you think will happen to the property?

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

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

@John Paul Palace their bggest challenge is finding competent PMCs to recommend to their clients.

That's what most of the negative feedback here on BP is about them - which is UNFAIR as they're selling a rental property, NOT PMC services.

Recommend you do your own due diligence on PMCs before just going with their recommendation.

@Jarrett Fogelman who do you think knows rental properties better: an agent that's transaction based or a PMC that literally deals with rentals EVERY day?

@Adrian Lammersdorf-Scioll expand your mind!

Your sphere doesn't know ANY older people or have relatives that own homes?

Again, you do NOT ask them for their business, you ask them for referrals with, "Who do you know that...".

Also, how many times did you contact your sphere last year?

FYI - with all the social media choices, all you have to do is make a plan to post the same message across numerous platforms.
- You can even recycle the messages annually or quarterly!

Again, expand your mind and break your internal idea limitations!

@Khaled Seirafi

Recommend exploring as many sources as possible to get referrals AND cross-reference them to get as much accurate information as possible.

Check out NARPM.com, BP’s Property Manager Finder (BiggerPockets: The Real Estate Investing Social Network), etc.

Also, encourage you to learn from the mistakes of others - by reading posts here on BiggerPockets about owners not having their expectations met by their current Property Management Company.

To avoid going through the same poor experience, keep reading.

Even if someone gives you a referral here, do NOT make the mistake of assuming that the PMC will meet your expectations, just because they met the expectations of the referral source.

In our experience, the #1 mistake owners make when selecting a Property Management Company (PMC) is ASSUMING instead of CONFIRMING.

It's often a case of not doing enough research, as they don't know what they don't know!

Owners mistakenly ASSUME all PMCs offer the exact SAME SERVICES and PERFORM those services EXACTLY THE SAME WAY, so price is the only differentiator – so, they often select the first PMC they call or that calls them back!

So, the first question they usually ask a PMC is about fees - instead of asking about services and HOW those services are executed.

EXAMPLE: PMC states they will handle tenant screening – what does that specifically mean? What documents do they require, what credit scores do they allow, how do they verify previous rental history, etc.? You’d be shocked by how little actual screening many PMC’s do!

This also leads owners to ASSUME simpler is better when it comes to management contracts.

The reality is the opposite - if it's not in writing then the PMC doesn't have to provide the service or can charge extra for it!

A well written management contract should clearly spell out what is expected of both the PMC and the owner, to PROTECT both and avoid misunderstandings. Why do you think purchase contracts are so long and have such small print?

We recommend you get management contracts from several PMCs and compare the services they cover and, more importantly, what they each DO NOT cover.

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

P.S. If you just hire the cheapest or first PMC you speak with and it turns into a bad experience, please don’t assume ALL PMC’s are bad and start trashing PMC’s in general. Take ownership of your mistake and learn to do the proper due diligence recommended above😊

https://www.biggerpockets.com/member-blogs/3094/91878-how-to-screen-a-pmc-better-than-a-tenant-part-2-communication-and-docum

https://www.biggerpockets.com/member-blogs/3094/91879-how-to-screen-a-pmc-better-than-a-tenant-part-3-the-management-contr

May be better as a MTR or STR if it's unique.

@Shai Shushan visit the local Home Depot at 6am on a Saturday.

Contractors working weekends are the hard working ones.

Bring a clipboard because most of them won't have business cards.

Offering free coffee & donuts will also get their attention:)

@Adrian Lammersdorf-Scioll

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 integrity

So, start out by listing everyone you know in an Excel spreadsheet.

Why Excel? Because later, you can easily use it as your mailing list! Create columns for Name, Street Address, City, State, Zip and then contact info: Last Contact, Relationship, Status, Email & Phone.

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😊

Now, make it a goal to call at least 5-10 of these people EVERY day and ask a MAX OF THREE off the list below of who do they know that:

• 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

Why only three 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 an 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.

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.

As you start closing deals, you will need to reinvest your profits into mailing lists and other scalable activities to grow your business.

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.