All Forum Posts by: Michael Smythe

@Brian Willie if you work with a reputable PMC, they should be following all the state and local legal requirements. Check out NARPM.com for these.

Regarding doing these, you technically need 3 documents, which should be SEPARATE.

1) Lease
2) Option contract
3) Purchase contract, associated with the Option Contract

A decent PMC should be able to handle all this, but they should also require you to supply the Option & Purchase contracts you want used.

Most PMCs are required to have a broker's license, so you should probably look for PMCs that will allow an agent to also do buy & sell deals.

If you do pursue partnerships, make sure any agreement covers the worst-case scenario!

What happens if one of the partners wants out or dies?

A lot of new investors are looking at numbers from 5+ years ago and wishing they started investing then.

No one has a time machine, so you just need to look forward.

Why can't you find a beat up property on the market for 90+ days or offmarket and buy it owner-occupied for best terms. You could even do an FHA 203(k) and finance the rehab.

Live in it while you supervise rehab and then rent out rooms. 

Buy wisely and watch the budget and you should have instant equity. 

Renting by the room typically generates 25% higher rents. 

What would all this look like for you?

What you're really paying a franchise fee for is their systems and processes vs trying to set them all up yourself. 

@Alexander Rodriguez so, the challenge is all you know about is the dog damage - there may be more:(

Would NOT recommend letting them try to fix the floor damage - they will just make it worse, or may even hurt themselves and sue you.

Pet urine is NOT easy to remediate. Often, have to cut out the saturated wood and replace. EXPENSIVE.

If these tenants are paying at the end of the month consistently:

1) They know the system
2) They are a sneeze away from being a month+ behind.

Instead of giving them notice, you could think through what might happen if you just raised their rent by 25-50%...

@Matt Pine no one's perfect, so occasional hiccups are part of the business - contingent on the acceptance of liability and reasonable attempts to cure.

Not sure why they installed 2" blinds unless this is a higher end property. Home Depot blinds are like $30 unless vertical blinds. 

FYI - most tenants EXPECT blinds and often do their own hack jobs if not included.

Worse-case: the materials probably benefit your property, so leave them, but have labor waived.

@Kevin Goldman if you plan on paying all cash on purchased rentals, your biggest challenge will be deciding what risk-reward strategy to pursue:

SFR vs MFR

What property Class?

@Marilyn Thompson multifamily meaning how many units?

@Yang Zeng Detroit market offers lots of great opportunities!

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

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

Here’s our OPINION for the Metro Detroit market (always verify each area for yourself!) 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+, 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, 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, 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 zero or 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, 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.

What else can we assist you with?