All Forum Posts by: Michael Smythe

What a mess!

Sounds like you and your PMC are NOT on the same page:(

Recommend hiring a new PMC.

As to an attorney running a PMC - good luck.

Your challenge is, how are you going to be a successful investor without putting in the time to build your knowledge?

If you're not going to seriously make the time to do so, then go conservative to avoid making costly mistakes.

Following your logic, it actually doesn't matter what the rent amount is, all that matters is what the tenant pays and for how long.

Class C properties do NOT perform like Class A or even Class B properties. Tenant performance decreases as the property Class decreases.

Have seen too many out-of-state investors misread the City of Detroit neighborhood markets and liquidate their holdings when their expectations weren't met. 

We WANT YOU TO SUCCEED and bring more money to Detroit and keep the city's revival going.

To that end, we ranked all Metro Detroit cities and City of Detroit Neighborhoods on our website.

Let us know how else we can help you better understand the City of Detroit markets:)

@Julia Williams Some issues you'll need to address:

1) Convert your insurance to landlord policy, which may be more expensive.

2) Speak with an attorney about giving up your homestead exception, which will increase your millage rates and property taxes.

3) Fill out rental license application with city, schedule city inspection, do any required repairs, schedule reinspection to get rental license.

4) Figure out rental application you can legally use in Michigan

5) Figure out your screening process to comply with all federal Fair Housing and Fair Credit laws. Michigan really doesn't have any additional laws.

6) Locate a lease that complies with all Michigan and federal laws.

7) Learn Michigan eviction process to be prepared if your tenant doesn't pay rent.

OR hire an experienced Property Management Company.

Feel free to contact me with any additional questions.

@Michelle Hagewood Be careful of how you set your expectations.

When I first got involved with RE investing 20+ years ago, all the successful investors I met told me the same thing: 

1) Write 100 offers

2) 5-10 may get accepted

3) Only 1-2 will close

It takes a lot of work to find actual deals - or you can just buy something that will really be just an expensive hobby.

Here's some other info that you might find useful:

In our OPINION (always verify 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.
Tenants: Majority will have FICO scores of 680+.

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.
Tenants: Majority will have FICO scores of 620+, 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 often be used to also cover nonpayment & evictions.
Tenants: majority will have FICO scores of 560-600, many blemishes, but should have no evictions in last 2 years. Verifying previous 2-years of rental history very important!

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.
Tenants: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

Look for any area investor Meetups and Facebook groups.

Class A markets offer great appreciation, but rarely cashflow as LTR for first 3-5 years.

That's why STRs have caused Class A investing to explode - they allow investors to cashflow immediately.

Like anything though, some STR markets are getting saturated.

@Vikram Singh

Even if someone give you a referral, don’t make the mistake of assuming that PMC will meet your expectations, just because they met the expectations of the referral source.

We also can’t believe how many owners hire the first PMC they speak with!

Then they complain their expectations aren’t being met!

In our experience, the #1 mistake owners make when selecting a Property Management Company (PMC) is ASSUMING instead of CONFIRMING.

It's often a case of not doing enough research, as they don't know what they don't know!

Owners mistakenly ASSUME all PMCs offer the exact SAME SERVICES and PERFORM those services EXACTLY THE SAME WAY, so price is the only differentiator – and they often select the first PMC they call!

So, the first question they usually ask a PMC is about fees - instead of asking about services and HOW those services are executed.

EXAMPLE: PMC states they will handle tenant screening – what does that specifically mean? What documents do they require, what credit scores do they allow, how do they verify previous rental history, etc.? You’d be shocked by how little actual screening many PMC’s do!

This also leads owners to ASSUME simpler is better when it comes to management contracts.

The reality is the opposite - if it's not in writing then the PMC doesn't have to provide the service or can charge extra for it!

We have a 14-page management contract that we've added our real experiences to over the years, with the intent of protecting both us AND the landlord. Beyond the Monthly Management, Placement & Maintenance fees, all other fees in our contract are IF EVENT -> THEN fees.

We don’t know any PMCs to recommend in the area mentioned, but since selecting the wrong PMC is usually more harmful than selecting a bad tenant, you might want to read our series about “How to Screen a PMC Better than a Tenant”:

https://www.biggerpockets.com/member-blogs/3094/91877-how-to-screen-a-pmc-better-than-a-tenant-part-1-services-and-processes

We recommend you get management contracts from several PMCs and compare the services they cover and, more importantly, what they each DO NOT cover.

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

P.S. If you just hire the cheapest or first PMC you speak with and it turns into a bad experience, please don’t assume ALL PMC’s are bad and start trashing PMC’s in general. Take ownership of your mistake and learn to do the proper due diligence recommended above😊

Just follow the lines on the IRS Schedule E, unless you need more granular info for tracking ROI, etc.

@Michelle Hagewood

You might want to follow the "Deep Dive" series we're doing on our BiggerPockets blog about Metro Detroit cities, City of Detroit Neighborhoods and comparing Metro Detroit to other hotspots investors usually consider:

https://www.biggerpockets.com/member-blogs/3094/99854-deep-dive-into-metro-detroit-cities-ecorse