All Forum Posts by: Michael Smythe

Your CPA can't tell you if you will get part of the 10% withholding from the sale?

Smart move to flip. Use the funds to buy a better long-term rental.

@Jonathan Small can be done, but as others have pointed out, can be expensive.

If you pursue this, you will want a "master" or "property management" LLC. This LLC will act on behalf of the property LLCs and sign leases, collect rents, etc. You will need to disburse funds annually to each property LLC - but if they are all single-member LLCs this may not be required and only the PM LLC will need a bank account, etc.

This is not legal or tax advice, so be sure to check with tax attorney and/or tax professional.

@Patrick Crehan you should be contacting your state's real estate licensing department and asking about this, or find a competent real estate broker or attorney to help you out.

You won't survive your mistakes if you are asking for advice from strangers on this site.

@Andrew Belz agree with everything others have written so far!

Will add the following as we bought a competitor 3 years ago, 150 doors:

1) Check the PM contracts CLOSELY for income opportunities. Previous PMC owners didn't charge for anything! So, even though we got all the owners to sign our contract, they weren't happy with our fees any many terminated.

2) Understand that the PMC contracts are hard to enforce if an owner wants to terminate you. Usually not worth the legal costs. What you can do, is put a clause in your PMC allowing you to put a lien against properties as some protection from owners leaving you with outstanding balances. Of course, it will only matter when they try to refinance or sell.

3) Understand the owner's EXPECTATIONS! The mom & pop shop we bought gave out their cell phones and were available 24/7/365. Our company has reasonable limits on all that. You may need to reset owner expectations.

4) You should NOT pay the purchase price upfront. There should be a minimum 12 months for the 2nd/final payment with clawback parameters. 

5) Seller Noncompete: make sure it includes that the seller cannot conduct ANY real estate related business with the owners you are buying for X years. Should also tie any violation penalties into the final payment.

Hope you know you typically need at least 100 doors to make a living at this business - and that's with only having a part-time assistant.

200 units with 3-5 agents won't generate much profit for you. Each agent should have 75-125 doors.

Not a lot of mentors out there interested in anything but sucking as much money from you as possible.

Spend your time building a good team and they will mentor you while they make money off your transactions.

Working with the right team will make this a win-win!

@Jesse Leigh

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.

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.

@Chaithra Kumar why would you need a property management contract for properties you own?

@Ana R. seems you are soliciting DIY landlords.

To expand your reach to PMCs, you may want to share any PM software you are familiar with:)

@Rajshekar Manaliker 

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.

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.

PM us if you'd like more info:)