All Forum Posts by: Drew Sygit

@Andre Alexander: don't soft sell issues with Detroit rentals! 

@Chad Demoss: besides having to secure vacant properties against theft of furnace, HWH, copper and more, you also have to deal with a low-demographic tenant pool where  "pride in home" has been dis proportionally sucked out of them by the "system". They're hard on their homes because they don't really care about them. Rent is the last bill they pay every month. Detroit still works if you buy the right property and know what you're doing.

In the Ring Cities, these issues are less of a risk:)

@Vincent Egan: Not condoning what they did, but people do a lot worse in this business. Also, at the end of it all, did anyone lose anything of value?

@Chad Demoss: The number one question to ask yourself BEFORE investing in the City of Detroit, is what is your appetite for risk?

As with any type of investment, higher returns are tied to higher risks, Detroit is no exception. As @Travis Biziorek mentioned, you can get a pretty high price/rent ratio in the city, but there are corresponding higher risks. 

@Andre Alexander was offering you options in the Ring Cities around Detroit, which offer a lower return than Detroit, but also corresponding less risk. Many of these cities will still get you around a 1.5 price/rent ratio.

So, what do you want to do next?

@Dominique L Miller: $5k is not a lot to get started with on a remote property. Let's analyze your options:

1) Detroit Buy & Hold, or Flip: $5k will only get you really low-end properties either in terrible condition or in terrible neighborhoods - or both. Maybe you can flip it to someone that doesn't know any better, but that's not going to do anything for your reputation. Can you find the a fantastic deal for $5k? Your chances of doing so are higher in Detroit than in most markets, but still very low.

2) Partner: $5k isn't much to bring to a partnership. Your most likely match is someone like yourself with not much to invest. You'll then be stuck with trying real questionable deals with high likelihood of failure.

3) Lend: $5k isn't going to help another investor get a good deal. See #2 above.

4) Wholesale: you could invest your $5k in that, but as mentioned by others, everyone is doing it, so hard to succeed.

5) Crowdfunding: don't know much about this, but may be something to look into as it is happening in real estate investing.

You may be better off leveraging your $5k into a BRRRR locally and if successful, using those funds for one of the above.

@Erica Cartagena: make sure you use the search feature here on BP for "Detroit". There's a ton of info about the good & the bad.

@Kedrick Thornton: There are numerous security options, but as with car theft, the only real goal is to create enough of a deterrent that sends thieves looking for easier targets. 

Remove Furnace & HWH: best solution, but difficult to do during a winter rehab when heat is needed. You can pay contractors extra to bring in their propane heaters, but your mudding & painting quality may suffer.

DAWGS Boardup: metal screens over doors and windows. Good deterrent, but aren't cheap.

Plywood Boardup: relatively cheap, but not much of a deterrent in Detroit.

Reinforced Door Jambs: haven't had any doors kicked in where we've installed these. Evidence of thieves trying to kick them in and giving up. Eventually, a thief will be desperate enough to get past them, but it is a decent deterrent.

Housesitters: many investors use them, but they are also unreliable. What quality of person is going to sit in a property overnight with only a sleeping bag or cot, an electric hotplate and maybe a small TV? Have heard more than a couple investors with housesitters still complaining about theft issues.

Alarms: police won't really respond, so you will have to. How fast can you be there? What are you going to do when you confront a thief? To the gun advocates that are going to reply, "shoot them" - go ahead. It'll cost your $50k+ to defend yourself against any criminal charges and the inevitable wrongful death civil lawsuit.

Dogs: some investors leave a dog in their property overnight. Besides being potentially inhumane, someone has to either remove and "store" them daily or feed/water and remove feces/urine daily.

Anchoring: some investors are using hardened steel bands and mounting them to the concrete basement floors. 

Double-Keyed Deadbolts: we tried using these, but all the thieves did was kick in the door. 

@Johnnie Bembry: what about property managers? Unless your just planning on flipping:)

@Tommy C.: Don't let Paul stop you from pursuing a solid project.

Paul does his best to make sure "newbies" understand the challenges of investing in Detroit real estate. While the surrounding suburbs are safer and easier to invest in, the returns and potential growth are also lower.

The success of your project will depend on location, location, location. You'll also need to have a solid plan in place to secure the project against theft while under construction and vacant. 

To get more comments and advice, you'll probably want to share more numbers: specifics on the planned units, projected amenities, projected rents, etc.

@Christopher Goll: when are they scheduling the city inspection and lead-based paint inspection to obtain the Certificate of Compliance? Really isn't "turn-key" if they don't provide those.

@Justin Beavers:

Decent list, but not thorough and as @Paul S. pointed out, easy to misrepresent.

1. How long have you been in business?
Call references prior to hiring the company.
EASY: can do Michigan Business Lookup on company name.

2. Which property management services do you currently offer?
Be sure that this company offers all services that meets your needs!!!!!!!!
DIFFICULT: You Don't Know What You Don't Know! 
Some examples: Evictions, lawn/snow maintenance, utility handling, utility bills, property tax & insurance bills, court appearances, City inspections, general maintenance...

3. Can I cancel my contract without penalty if I'm unhappy?
Avoid! companies that try to lock you into a contract. You should be able to switch management companies if the service is TRASH!.
N/A: Be careful what you wish for.

4. What's your procedure for qualifying tenants?
Learn whether the company uses background, employment, credit, and landlord reference checks as part of their screening process.
DIFFICULT: doesn't matter what they check, how they INTERPRET that data is what matters!

5. What is the average vacancy rate among the properties you manage?
Determine if this vacancy rate is above or below the area average.
DIFFICULT: how are you going to prove this?

6. How often will you provide me with updates about my property?
You should be able to obtain information about your property as often as you'd like. THEY should send a update/notice EACH Quarter!!!!!!!!!
DIFFICULT: how are you going to prove this?

7. What's your process for handling service requests?
You'll want to know what the process is for tenants to communicate service requests to the PM, as well as your role in the process. Will you be making final decisions about repairs and maintenance? Can you require authorization for any expenses above a certain amount? Look for a company with a well-thought-out process.
DIFFICULT: We've seen dozens of management contracts and many are very vague when it comes to this topic. Many PM's hide their actual maintenance fees to owners by marking up maintenance invoices. And many owners are foolish if they think a good PM is going to babysit maintenance workers and verify the quality of their work for free.

8. How long do units typically stay vacant after turnover?
Look for companies that will have units rent-ready and leased up again within 30 days, which should give them plenty of time to refresh the unit and perform any repairs.
DIFFICULT: how are you going to prove this?

9. Are there miscellaneous fees that I should expect to incur?
Some companies charge EXTRA! for marketing units, evicting tenants, turning over units, etc.
DIFFICULT: most property management contracts are very deliberately vague when it comes to these expenses. A good PM cannot afford to stay in business if they do evictions and turn-over repairs for free.

10. Do you collect management fees when a unit is vacant?
If so, RUN RUN RUN
NAIVE: depends on what they owner expects a PM to do while a property is vacant. How are you going to secure the property against theft and squatters? They will be a cost to do so.

What about:
1) Does the PM have a Michigan Real Estate Broker's license as required by state law? Many PM's operating in Detroit think a real estate agent license meets the state's requirement - it doesn't.

2) What is the quality of the PM website? If it's not easy to navigate and thorough, it's not a good sign for how they run their business - and your properties.

3) Have they invested in setting up their own email exchange or are they using a <>.gmail.com or other general email?

4) Do they offer online owner & tenant portals and ACTUALLY use them? Owners & tenants should be able to log in 24/7/365 to check on status of issues.

5) Do they provide professional monthly Owner Statements every month, or are they using cobbled together Word, Excel, Google Sheets or Docs forms?

6) Do they ask owners for the everything the IRS requires for proper tax reporting: Articles of Org & Operating Agreements for LLC's, EIN Assignment Letters, a W-9, W-8BEN or W-8 ECI for foreigners, copy of government issued photo ID, etc.?

7) Do they require property owners to provide proof of liability insurance or is the PM so unorganized they unknowingly assume all the risk of a lawsuit?

There's so much more, but adding these to yours should help!

@Justin Beavers: thanks for starting a VERY interesting topic!

We are PM's and will never claim to be perfect. We do our best to address every mistake we make though.

Here are reasons we've heard from owners terminating their current PM and hiring us:

1) Lack of timely communication. 
2) Lack of documentation:
- Monthly Owner Statements
- Maintenance Invoices detailing costs
3) Lack of timely eviction actions.
- Taking over two right now where tenants haven't paid rent in 6 months and no evictions started!
4) Unapproved maintenance expenses (nonEmergency)

The #1 reason we've been terminated is due to owner communication issues. We use an online portal where EVERYTHING is posted to owners and anything we post automatically generates an email alert to the owner. Unfortunately, many owners seem to ignore these email alerts, and rarely log into their portal to monitor our messages about what is going on with their properties. Then they accuse us of not keeping them informed.

The #2 reason we've been terminated is over maintenance costs. Maintenance is never cheap enough for owners or fast enough for tenants. We've had owners call a contractor off Craigslist to challenge our prices as too high. The problem with that is most of the time, the cheapest contractors are the worst! They're not licensed, not insured and good luck getting them to consistently show up on time or come back to cover warranty repairs - and owners expect us to guarantee all this as their PM. 

Looking forward to what others post here:)