All Forum Posts by: Drew Sygit

@Ben Callahan

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!

@Polat Caglayan we can answer all your questions, yet you avoid setting an appointment with us.

Very interesting approach you choose...

@Simon Girmay we've got many clients from Toronto and Vancouver areas investing in Detroit.

DM us...

@Heather Luu first, make it more efficient by only worrying about deadbolts.

There is actually very LITTLE additional protection a lock handset offers in addition to a deadbolt.

On the properties we manage, we remove all keyed doorknobs and just use passage locks. 

Benefits:

1) Tenants can't lock keys in house, they have to use their key to lock the deadbolt.
2) Cheaper to rekey or replace locks (only deadbolt!)

So, go with a good solution on the deadbolt.

Screw a lockbox in a wall near the door for an emergency physical key.

Find a locksmith that can rekey the doors between tenants - put ALL locks on the same key.

Most electronic locks warn you when the battery is getting low. Monitor this to alert tenant to change batteries. Have a clause in your lease that landlord is NOT responsible for battery issues - tenant is. Also make it VERY expensive for tenant if you need to give them lockbox code for manual keybox.

@Justin Smith Bernie Madoff and every other scammer also did deals with & thru family & friends.

Just be careful and good luck!

@Justin Smith wouldn't do it.

Why is he willing to sell you this SPECIFIC rental and not another?

Test him and ask if he can give you 2-3 choices from his portfolio.

If he gives you a line that this is his "best" one, or that the others are spoken for already - WALK AWAY!

Here's BIG concerns:

1) Tenant has been there for 25 years - that's a crazy amount of time
2) Rent is 27% below market - why is he giving this tenant such a big break?
3) Tenants is his handyman!
- The current low rent is probably to offset maintenance issues at the property.
- Try to raise the rent and the tenant will give you a list of all the maintenance issues they want you to fix. 
--- They will offer to fix them in exchange for lower rent, but ask yourself, if the tenant has been living there for 25 years, why isn't everything fixed already?

Of course, I could just be overly concerned and this is just a kind ol' investor trying to pay it forward.

@Adam G. go to Home Depot 6am-8am on a Saturday. 

You'll find a lot of hard working contractors.

Have something to write on as many of the contractors won't have business cards.

You'll still want to screen them a bit because, "there's a reason they work with the hands, not their heads":)

@Quan Pham have you investigated at all the potential increases in property taxes and home insurance (need to have landlord policy) and included them in your cashflow calcluations?

What would you save in captial gains on the $360k if you sold now?

Most investors are excited AND simultaneously nervous on their first few deals!
Heck, I was nervous on one of my most recent purchases because it was my biggest ever - and I've done over 100 transactions.

Your current house is probable a Class A property - which is the easiest to manage. 
Your biggest challanges:

1) Figuring out how to advertise on Zillow
2) Handling all the calls
3) Scheduling showings - and getting stood up
4) Finding a rental application to use - you can use Zillow's or easily Google for one.
5) Figuring out how to screen applicants ***** This is IMPORTANT! Poor screening can result in nightmare tenant!
6) Finding a lease that complies with all federal, state and local requirements
7) Figuring out how to accept rental payments - most Class A tenants won't want to mail you a check. They'll expect electronic payment options.
8) Understanding your local landlord-tenant laws, so you don't make a mistake or get taken advantage of by tenant.
9) How will you handle maintenance issues?
10) Knowing what to do if tenant is late on rent or doesn't pay.

There's a lot more, but many here on BP self-manage and learn via "trial by fire".

Of course, you can always hire a Property Management Company to handle it for you.

@Owen Rosen the links you shared pretty much only state a tenant shouldn't have to supply liability coverage to their landlord.

Of course they will say this as the provider does NOT want the extra liability of covering additional parties!

The landlord though, should WANT all the coverage they can get!

If a tenant causes a claim, why should the landlord's insurance pay - possibly resulting in an increase in premium or even a cancellation of the policy?

In a personal injury claim caused by the tenant, who's the plaintiff's attorney going to sue?

EVERYONE including the landlord!

So, again, why wouldn't the landlord want additional coverage from the tenant's policy?

Nice approach!