All Forum Posts by: Michael S.

@Nathan V. Congratulations on your first deal.  Sounds like you have learned some good lessons through this process.  As far as getting feedback and finding people to connect with, most have alerts setup for different locations.  So if you do some searches on the areas that you are looking for, you will find lots of great information and people to connect with.  I have an alert for "Detroit" because that is one of the markets that I invest in and when @Shawn M. post included it, I got sent a message.

I have also looked at the Grand Rapids market and seen some opportunity but have not made and investments there yet.

Keep learning and networking.

@Austin Largusa  In case you did not find this post.  There are examples that some of us posted on how 16 feet can become a different world in Detroit.  There are many in the Detroit market that pray on the out of state investors.  We are just saying be very careful and wish you the best.

https://www.biggerpockets.com/forums/12/topics/853279-looking-for-my-market

Your numbers, locations, and being from out of state . .  just asking for trouble in so many different ways.  Do a search here on Bigger pockets for Detroit and you will find many discussions on why this is a bad idea for you and why you get reactions like @Paul S.

Just to close the loop to any that might find this post in the future.  I have reviewed my case with a lawyer and basically because this was one of my first attempts at personal lending with not enough provisions in the documentation, I am paying a large tuition bill to the school of life.

Lessons Learned:

1. Follow up on a persons background and ethics. Do not assume that if they attend a lot of REIA meetings, have over 8k posts on BP, have over 10k votes on BP, can verbalize/design a good investing plan, that they have integrity and can actually execute a proper investment plan.

2. Secure the loan against property.  Non secured debt is easier for the investor to move from one property to the next but a good steward of other people's money will not have an issue with a little more paperwork to file proper leans.

3. Get Personal Guarantees on new or smaller partners.  This is basically having them put their money/reputation on the line if they can't perform as another form of collateral.

4. Communication is a two-way street.  Open two-way communication is key and when that breaks down, you should take that as one of the largest red flags and take immediate action to cut your losses.

All in the past and now time to go find some better and bigger deals.

Happy Investing Everyone.

@Richard Dunlop  That is the good example with one big exception.  These $7k-$12k houses are extremely nice as seen from the street view.  Most are more like the 3rd picture.  Even still there would be no budget for repairs on these properties and still be able to keep costs below the value.  Unless there is a desire to be a slum lord, there is no way these cheap properties will generate any positive equity and all cash flow (and additional funds) will be consumed by repairs and cap ex.

$700K House from Richard's post

$7K-$12K House from Richard's post (back yard neighbors share a property line)

Typical Detroit $5k-$10k house (and the whole street looks like this) This is 2 min drive or 5 min walk, and 0.3 miles from both of the properties above.

@Richard Dunlop and the 95% good house could be just a couple of houses down from the 95% bad house, lol.  Detroit is tough.

@Gregory Brown, When starting out with limited funds you really need to limit your risk and focus on learning.  Most people will tell you from experience, the first one is rarely a home run and turned out as expected.  If you focus on a lower risk area/property/etc.. , you lessen the risk of loosing all of your funds and the amount of education that you gain from doing the first deal will have much greater returns in the long run than trying to get a spectacular first deal.

@Unique Gatson  I will kind of echo @Paul S. concerns in that in the city of Detroit, even 5-10 houses in any direction can/will put you in a completely different market.  Unless you are within a 5 minute walk to one of the major attractions that you mentioned, you are not Downtown.

I probable had a couple of years of talking to people, contractors, and driving the areas before I even looked at making a purchase in the city.  Everything is different in Detroit and you really need to have a good plan and team in place.  Now after a couple of years of actually purchasing in the city, with all of the due diligence and some good resources/team members/partners there has been some tuition paid to the school of life and my real world MBA.  

I would say that within the city is not a good place to start.  There is a large chance for unexpected things to happen and then it could wipe out your funds and turn you off to investing.  I would focus on a small lower risk option that is in line with your investing goals and take a small win ( or in most cases small loss) on the first deal to really jump start the learning process.

@Dennis Soto A HELOC is kinda like opening a credit card but secured with real estate. The amount and terms are determined when you open the line of credit but you do not start paying until you actually charge something (in this case withdraw funds). One you have the HELOC open, then you really just write a check to get the funds for your purchase. You will need to research the different lending institutions on what their requirements and terms are as they can vary a lot.

What is your current focus and needs?  Cash flow or increasing asset base?  I personally do not need the immediate cash flow to support my life style so I am more focused on accumulating assets that will provide increasing future cash flow.

With an accumulation mind set, I would refinance (or get a line of credit, this will get funding in place but allow time to find a deal before having to pay for the financing) on the current property up to an amount that still allows for some cash flow and take the proceeds to purchase more properties.  This will still allow for the full cash flow of the property once the mortgage is paid off.  This process forgoes current cash flow until you stop making new purchases, the mortgages will payoff quickly and have great cash flow in the future.

With a cash flow mind set, I would 1031 exchange this into the largest multi family property deal that makes sense.  Then when this property increases in value through normal or forced appreciation, then you could exchange again into an even larger property.  This process will allow for incremental increases to current cash flow upon every exchange/stabilization cycle.

It is not that any one idea is better than another or that any one idea is a bad one.  It is just what fits with your goals and comfort level.

@Timothy Moore  Great work.