All Forum Posts by: Paul S.

@Paul S.

I appreciate the thoughtful feedback! Maybe I'm not quite as ready to start as I hoped! I'm not as optimistic about a recovery in Detroit's neighborhoods compared to the city center. It will be interesting to see how the next 3-5 years plays out.

OK, for starters, listen to everything Paul says and then do the opposite. I kid... kind of :-)

Understand that Paul is part of the old guard Detroit investor. He represents those that bought the blood when everyone was scared to touch anything. He scooped up buildings for cash, has loans on nothing, and has zero interest improving properties beyond basic needs. I pass no judgement. I've hung out with Paul, he's a cool dude and it's an incredibly interesting perspective to learn from. 

But I'm new guard Detroit. I go in and do full rehabs, redoing my rentals as if they're flips. And I get premium rents for them and strong tenants. My last home was rented at $1,125/mo to a middle-aged couple. He's a substitute teacher and she makes $90k/year as a physical therapist. This is a C-class neighborhood that's working its way to B-class-ish.

I have another in the same neighborhood on a better street that I'm working on now that I've already got a tenant lined up for at $1,500/mo. She makes $140k/year. I forget what her husband does. 

I'm not saying I'm doing it right or that Paul is wrong (or right). I'm just saying look at both strategies, understand that they are both co-existing in Detroit, and decide which is best for you (or a blend). Some folks come in and do cosmetic rehabs and get average rents. That's fine too. That's not my bag though.

So now that's out of the way, and I'm done counting my money, (or what's left of it since I'm currently stretched as thin as a drum while I await three cash out refi's), let's talk about why I wouldn't touch that Warren house.

First, it's a VERY small 3/1... like under 900 sq ft small. Any house I buy I generally like to see it over 1,100 square feet. 881 square feet? Well that's just super tight, and from what I can tell there's no basement. Oof. I think noticeably shrink your tenant pool with either of those things. Combined... not great at all. How fast are folks growing out of that home? That's turnover, and turnover is money.

But let's say you don't care and want to buy it anyway. $15k? Are you doing some of that work yourself, because I'd blow through that no problem. If it were me and I had to buy this house I'd probably do the following:

- Gut and redo the bathroom ($6k)

- Redo the kitchen ($6k)

- Rip up the carpet and refinish the hardwood (if there) or put down LVP ($2k)

- Paint the entire home ($2k)

- If you wanna go nuts I'd redo the siding (no clue here... $4k?)

- Add 10% for random stuff and just general over spending ($2.5k)

So we're in for ~$22.5k on rehab costs. I don't know if those numbers are super accurate, but I'd bet they're pretty close. 

At this point, the house would be VERY nice and I'd rent it for probably $1,100/mo. Paul will laugh at this (and likely everything above), but that's the way I do things.

Now, I am not an expert on Warren. I don't own any houses there and never plan to, so take everything I say with a grain of salt. I don't know what the house is worth at that point... $50k? $60k? No clue. Less? I'd do some research here before thinking about buying and talk to an agent or other investors that know the area.

But here's where Paul simply doesn't understand our side of the game. If you could buy that house for $20k, put $22.5k into it and it appraises for $60k... that's a home run. All your money comes out on a refi. Paul doesn't do that so he's looking at your payback period assuming you buy it, put cash into it, and you aren't getting your money out until it comes out via cash flow.

So that's my quick take, but again, I don't know Warren. But I know a lot of folks that do invest there, and I don't understand why they don't just invest in Detroit where they're more likely to get appreciation on top of great cash flow. 

How triggered is Paul with that last sentence? ;-)

@Travis Biziorek

As a investor just getting started in metro Detroit, I appreciate this discussion. I'd love to hear your "back of the napkin" analysis on a property in Warren. It seems like an excellent investment. 8244 Cadillac Ave. I found it just browsing on Zillow. Asking price is $44k. Probably needs $15k in rehab but should be able to rent it out for $950 month.

It was listed over a month ago which makes me wonder why other more savvy investors haven't jumped on it. I'm interested in your quick evaluation. Is this the type of deal that you look for? Thanks!

@Travis Biziorek

As a investor just getting started in metro Detroit, I appreciate this discussion. I'd love to hear your "back of the napkin" analysis on a property in Warren. It seems like an excellent investment. 8244 Cadillac Ave. I found it just browsing on Zillow. Asking price is $44k. Probably needs $15k in rehab but should be able to rent it out for $950 month.

It was listed over a month ago which makes me wonder why other more savvy investors haven't jumped on it. I'm interested in your quick evaluation. Is this the type of deal that you look for? Thanks!

@Paul S. Although we can debate the percentage, we're conceptually in agreement:)

Not sure though, that the eviction process is our main issue. Yes, in normal times, it could go faster, but it's usually not that bad. 

Our wish list:

1) Squatters actually getting arrested - and quickly: Once word gets out on the street that this is being enforced, it will become less of an issue.

2) Tighter scrapper laws and aggressive enforcement: City wants new furnaces & hot water heaters per code, but what's the point if they keep getting stolen?

3) DHC and Housing Agencies actually enforcing S8 tenant requirements: Too many S8 tenants don't pay their portion of the rent, water and damages. How is it we can pass S8 inspection last year, yet this year need all new smoke detectors, have to repair holes in walls, fix broken windows, etc. Who does S8 think caused the damages?

4) Better money judgments & garnishments: too many judges will only approve ridiculously low garnishment payments. $50/month on a balance of $2500? Really?

Long-Term: Improve Financial Literacy! Ever look at applicant bank statements? We had an applicant last year receive $11k in tax refunds as shown on the bank statement. We also had the tax return and somehow they got back significantly more than they paid in taxes, but that's another story. Within 3 weeks they spent $9k of it! Some of it we could see was warranted: new tires for their car, clothes for the kids, a nice dinner out for the family, a new TV. Most of it though, was spent on STUPID stuff - several visits to casinos to "live large", eating out almost every lunch & dinner, several beauty treatments, buying a bunch of online movies, etc. You know what they didn't spend a penny of it on? The $4k in bad debt on their credit report! What's more, they had a car loan from one of the scam dealers that sold them an overpriced lemon with a 20%+ interest rate. If these applicants had any financial sense, they would have used the refund to pay off their bad debt to fix their credit, so that in the near future they could get a better car for a smaller payment!

We'd like to see evictions and the corresponding collections somehow tied into a forced financial literacy program, to try to educate slumtenants and improve themselves. 

Something has to be done to break the cycle.

Thanks for listening, we now return you to reality:(

Current landlords will dump, but new ones will replace them.

The real interesting part: If the city is successful in forcing what they perceive to be as "slumlords" out, and owners bring their properties up to compliance, how likely are those owners to rent to the same low-demographic tenant base?

Obviously - not likely!

So, then where will all the slumtenants move to?

FYI - we coined the term"slumtenants" as we believe slumlords & slumtenants deserve each other:)

It is certainly a crazy time for both the renters and landlords, and I realize something must be done to not cause massive trouble for both parties particularly in Detroit. I am curious how the 50-75% drop in market value number was calculated?  Is it from renters in non-compliant housing forcing rents down or just the lack of rent being paid during the COVID times?

@Paul S.