All Forum Posts by: Mike Liu

@Mike Liu there's always a tradeoff between risk & reward.

If you want higher cashflow, you'll need to get into riskier investments.

STRs are riskier than LTR due to: saturation, changing local government regulations, more intense time required, etc..

Regarding LTR higher cashflow:

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.

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

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) 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.

PM us if you’d like to discuss this logical approach in greater detail!

@Mike Liu Hey Mike. With $600k in pretax income I would imagine you could use some write offs. I'm no CPA but I would think more properties with more leverage will help with this. If you sell or leverage your 2 properties and use the $100k you have you to buy rentals you will not even come close to making as much in cashflow as you make with your current career. I typically don't suggest this, but given your current income I would go after class A/B+ assets with low maintenance and with much greater chances of appreciation potential. I don't know when you're planning on retiring but I would venture to say you can work a few more years and save $300k a year and spend that on additional investments and in a few years increase your net worth by at least $1 mil. But with your high income and not a lot of savings I would try to save as much as possible for the next few years and then reap the rewards. Regardless of the real estate type, I think it's more productive to just make $600k a year in your job and get some great properties in great locations, enjoy the tax savings, and let time do its thing with appreciation and mortgage pay down. And regarding the BRRRR strategy, I love it but think it's a waste of time for you. A BRRRR without the rehab part will be incredibly difficult to find. You should be able to save more than enough for 25% down payments with your current income, and focus on buying newer lower maintenance properties in excellent locations. Hope this helps!