All Forum Posts by: Drew Sygit

@Sabri Isbikhene: too many people with money invest in real estate like they pick mutual funds - they do zero research and due diligence.

It is YOUR money, so do YOUR OWN research until you feel comfortable investing YOUR money. 

@Delbert Standifer: In what metro Detroit cities are you looking at properties

If you are looking in the City of Detroit, be VERY careful! As @Paul S. alluded to above, you can easily lose a lot of money in Detroit if you don't know what you're doing. Pay attention to the following:

1) How many board-ups, burnouts & blowouts there are on the street and within 2 blocks surrounding the your target purchase.
2) Warranties on repairs.
3) What specifically are you expected to handle vs the referred Property Manager? One of the bigger Detroit turn-key providers has their own PM and if you read their management agreement it states the property owner is required to handle all utilities, get the lawn cut and snow removed. How are you going to do that remotely?

Our advice is to ALWAYS interview a recommended PM along with 2 others. Don't hire the cheapest, hire the most thorough! The City of Detroit offers investors great opportunities, but has a lot of low demographic related issues that require better than average PM thoroughness.

@Stephanie Niles: we're taking over 3 SFR's for a foreign owner this week, where none of the tenants have paid rent in 120+ days, and the PM hasn't started eviction process yet!

SO MANY bad PM's in Detroit making the entire city look bad!

Unfortunately, the first question most investors still ask us is, "what do you charge?" Can't save penny-wise, yet dollar-foolish investors from themselves!

@Erold Merko: Thanks. I did that in 5 minutes, so it's not perfect, but hopefully helpful:)

@Darius Kellar: Pontiac is better than Detroit in many ways, including better city services and landlord-friendlier court.

It's still mostly low demographic tenants though and theft is a concern.

@Cindy Mastin: turnover in Detroit is a bit higher than in the suburbs, but for different reasons. While many tenants turn in the suburbs, they usually leave on good terms.

If a Detroit tenant isn't getting evicted for nonpayment, then they are typically breaking the lease for a multitude of excuses, leaving the property trashed and often the furnace & HWH mysteriously disappear around the same time - although they always claim they were there when they left.

Best cashflow outside Detroit? In general, the higher the demographic of tenants you can get, the better your cashflow. They pay on time and often stay longer. Think Birmingham tenants. Unfortunately, your cash-on-cash return in Birmingham will be terrible. 

Overall:

1a) Oakland County (except Pontiac)

1b) Macomb County: Macomb Twp, Shelby Twp, etc.

1c) Wayne County: white collar (G Pointes, Canton, Northville, etc.)

2a) Macomb County: blue collar (N of I-696 higher demographic than S)

2b) Wayne County blue collar (Harper Woods, Redford, Dearborn, Livonia, etc)

3) Detroit, Pontiac, downriver (River Rouge, Ecorse & others have no better tenants than Detroit)

@Brandon Johnson: is your house in Detroit or suburb?

In our experience with 33 metro Detroit cities, most won't care if you already have a tenant. Just follow the process. If you share the city, we can give you more details.

Most metro Detroit cities require some type of city inspection every 2 or 3 years. Detroit has started doing this also. Landlords shouldn't have a problem with this inspection.

As far as we know, Detroit is the only city in the country that requires lead-based paint TESTING. This is a separate inspection that costs $400-$600 on a SFR, depending on the square footage, beds, etc. The Michigan Lead-Based Paint licensed inspector is required to send multiple paint chips to a Michigan approved lab to be tested for lead.

If lead-based paint is found, the city gives a landlord two choices:
1) Scrape & encapsulate (usually with latex paint) by a contractor that has their lead-based paint license to handle lead-based paint. If you choose this route, you have to have the inspection/testing done every year, because tenants are hard on their Detroit rentals and someone has to take care of the lead-based paint their damages re-expose!
2) Remediation of the lead-based paint in the entire house by:
   a) All new drywall over existing plaster walls. Replacement of all wall, door & window trim.
   b) Demo'ing every surface that could have lead-based paint on it.
Once the remediation is done, another round of testing is done and if NO lead is found, you get a certificate and do not have to ever have another lead-based paint inspection done.

Given that many suburban Detroit cities have a decent percentage of houses built the same time as Detroit houses, and have never had remediation of lead-based paint done, why is this only required in Detroit? Why is it not required in any other city in the country

Another interesting fact: Detroit paid a NY consulting firm for a feasibility study that looked at what it would cost for lead-based paint remediation and modern code compliance for an average Detroit SFR. They actually looked at several different sizes of houses, but the cheapest came in at just over $100k. Are you surprised you can't find this study published anywhere?

There are many intelligent employees of Detroit that understand the realities of what investors will and won't do, due to the economics. I know of several that would like to at the very least, change the city code and only require LBP testing every 3 years

How did the code get passed in the first place? City Council proposed, voted on and passed it. Why? Typical political move to pacify constituents and get re-elected by appearing to pass the buck to landlords that either don't live in the city, so they can't vote (and thus have no representation) or only get one vote if they live in the city, no matter how many rentals they own.

The only way to repeal the LBP code is to buy politicians - I'm sorry, I should have used the politically correct term, "make campaign donations".

@Paul S.: now you made me go and think about it! Bought my first Detroit rental in 1999.

Learned a lot of stuff the hard way - tenants will teach you a lesson!

@Thuan Phan: while we appreciate the opinion of @John Underwood, what works for him may not work for you. 

There's also a big difference between remote managing suburban Detroit properties vs City of Detroit properties.

Section 8 (S8) has maximum rents they will pay, which means that properties in the best areas typically don't qualify. So, that leaves investors with properties in the lower demographic areas of the suburbs and the City of Detroit that have market rents that will qualify for S8 caps.

Tenant demographics are also a large factor to consider: S8 tenants, to qualify for the program, must be low-income. They also statistically tend to be low-educated. MANY investors make the mistake of thinking that just because the government is sending you a monthly check, they have nothing to worry about. 

Here are some common issues with tenants that S8 doesn't address for owners:

1) Monitoring Utility Bills - S8 prefers that landlords include utilities in the rent payment. That often leads to tenants not monitoring water usage from running toilets, kids playing with a hose and leaving it running, tenants cranking heat to 90 degrees in winter while opening windows, and more abuse stories. We DON'T recommend including any utilities in the rent. While electric & gas are private entities and allow tenant accounts, water in most Michigan cities is tied to the property owner. That often leads to absentee owners getting stuck with a large water bill when a tenant moves out. And NO you cannot put a utility cap in your lease and force the tenant to pay anything over it. That will get you BANNED from the S8 program!
2) Maintenance: several investors here on BP have mentioned how tough it is to find reliable & affordable handymen in Detroit, not to mention contractors. They try to rip us off and we're LOCAL, so what do you think they'll do to an absentee owner?
3) Protecting Vacant Properties: unmonitored, vacant properties in Detroit quickly lose their furnaces, hot water heaters, any copper plumbing - and we've even had kitchen cabinets and toilets stolen! Good luck managing that remotely.
4) Showing Vacant Properties: who's going to handle this for you? Yes, you can list it for rent with a real estate agent, but they split 1 month of rent, which on a $900 rent rate is only $450 per agent. Most of the good agents focus on buying & selling to make 5x that per transaction.
5) Damages: you'd be surprised how much damage S8 tenants cause to properties. Many simply live like pigs and don't care because it's not theirs! Many Detroit tenants get dogs (not just S8 tenants) in violation of their lease and then let the dogs use the basement for relieving themselves. Holes in the walls, cracked windows, broken doors, etc. are very common. Yes you can charge the tenant for the repairs, but they are LOW INCOME, so good luck trying to get blood out of a rock

A good property manager (us) is a lot like insurance: you don't need us when everything is going fine, but when everything goes south, because you didn't have time to keep tabs on everything, then a good PM is worth every penny you pay them:)