All Forum Posts by: Michael Smythe

@Jay Griffiths

We think the Midwest is a GREAT place for OOS investors to consider!

Check out some of things happening in Detroit in 2024:

https://michiganchronicle.com/2024/01/03/major-developments-that-will-define-detroit-in-2024/

Your first question shouldn't be WHERE to invest (that is #2 question), but HOW you will invest!

Many OOS investors set themselves up for failure because they don't invest the time to ACTUALLY understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Let us know if we can help in any other way.😊

@Michael Hodde what do you think of this?

Our OPINION for the Metro Detroit market (always verify each area for yourself!):

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?

@Emmanuel Rodriguez Not sure what you mean by, "Section 8 is so scalable"?

Pursuing Section 8 rentals & tenants is a TOOL, not a strategy - despite whatever the self-appointed "gurus" publish online.

Section 8 comes with it's own unique problems which many newbies don't take the time to understand.

You can PM us if you want to discuss further.

@Josh Mac we agree with 100% of what @Travis Biziorek has written, but...

An OOS investor can't search for properties or learn anything about the City of Detroit market with a "block-by-block" approach:(

Yes, zip codes are too big and will lead to bad experiences.

We believe you can use Neighborhoods to narrow your search to a reasonable area and THEN use a block-by-block strategy as confirmation before signing a purchase contract. 

Google Streetview can be a great tool to peruse "block-by-block", but you do have to watch the Capture Date in the bottom righthand corner. Most of Detroit keeps improving, but don't assume every area has! Worse-case you can hire us or Travis to do a video evaluation of the area of a target property.

Read below for some additional helpful info.

We think the Midwest is a GREAT place for OOS investors to consider!

Check out some of things happening in Detroit in 2024:

https://michiganchronicle.com/2024/01/03/major-developments-that-will-define-detroit-in-2024/

Your first question shouldn't be WHERE to invest (that is #2 question), but HOW you will invest!

Many OOS investors set themselves up for failure because they don't invest the time to ACTUALLY understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Let us know if we can help in any other way.😊

@Lauren Samford

@Nathan Gesner nailed it!

@Tyreek King-El while there is nothing wrong with you deciding to DIY manage, what's in all this for the PMC?

Contrary to what owners think, PMC's often do work they don't charge for!

As a PMC, we wouldn't want to do any free work for an owner terminating our services. 

So, if you want the PMC to handle this eviction to the end, which they probably know more about than you, then plan on compensating them properly.

@Mike Hsiao

1) Inspect home ASAP to determine:
- If they are taking care of the property and YOU want to renew
- Do Pre-MoveOut Evaluation of potential repairs needed. This can be used to:
---Plan a faster RentReady flip
---Alert the tenant to potential Security Deposit charges, giving them the opportunity to fix themselves. This should minimize their later complaints.

2) If either party doesn't want to renew, send LEGAL notice of lease termination with 30-Day Notice of Possession. You do NOT want to wait until end of lease and then find out they haven't moved out. Explain to tenant you are only sending as a precaution.

3) Schedule locksmith for day after scheduled MoveOut.

We do NOT recommend doing final walk-thru with tenant present as only leads to them pressuring you not to hold them liable for damages.

@Vasudha Chaudhary everyone is jumping on the "passive income via real estate" bandwagon BEFORE doing enough research!

Believing anyone's numbers BUT YOUR OWN is foolish.

BTW - we've got some swampland for sale, you interested?

@Marco Padilla

We think the Midwest is a GREAT place for OOS investors to consider!

Check out some of things happening in Detroit in 2024:

https://michiganchronicle.com/2024/01/03/major-developments-that-will-define-detroit-in-2024/

Your first question shouldn't be WHERE to invest (that is #2 question), but HOW you will invest!

Many OOS investors set themselves up for failure because they don't invest the time to ACTUALLY understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Let us know if we can help in any other way.😊

@Jad Alomari was our post helpful?