All Forum Posts by: Ryan Tongue

@Ryan Tongue we deal with the FIRE Team all the time and they know what they are doing. Of course, they are sales people so may focus on the best numbers, but they won't take advantage of you:)

More importantly you should understand that 95% of agents, in our experienced opinion, only know how to deal with owner-occupied transactions. 

Sure, they can do the paperwork for an investment transaction, but they are clueless about the extra precautions needed. 

So, let’s go over some documents you may need and why each is important:

1. Lease: this one should be obvious. A lease is a contract between the landlord and tenant. It spells out the monthly rent, when it’s due, the length of the lease (or term), should contain clauses required by the federal and state governments, and much more. Without the lease a buyer has no legal means to collect rent from a tenant or evict them for nonpayment.
2. Rent Ledger: this is a record of all tenant charges and payments. It proves if the tenant is current on their rent and their history of whether they’ve paid on time or not. It should also show any security deposit collected, pet fees, cleaning fees etc.
3. Tenant Contact Information: current phone number and email address are needed to be able to communicate with tenants.
4. Tenant(s) Government Issued ID: typically, this will be a driver’s license to prove the identity of the tenant(s). Without, you have no way of confirming the occupants of the property are those named on the lease. Proper identification of tenants is also needed if you want any chance of having local code enforcement write tickets against the tenant and not the owner.
5. Any Legal Action Documents: you’ll definitely want to know if the current landlord is evicting or suing the current tenant(s).
6. Tenant(s) Social Security Number: this should have been obtained by the current landlord to do a background check during the application process. A new owner will need it if they want to pursue collection and garnishment for unpaid rent and/or property damages.
7. Tenant(s) Employment & Bank Information: additional information useful for garnishment actions to collect unpaid rent and/or property damages. Usually collected as part of the application process.

Fraud: let's not pretend it doesn't happen. Desperate sellers do desperate things. We've seen fake leases and rent ledgers, even fake tenants - who were placed by the seller to backup the fake lease and ledger. So. it's not uncommon to request proof of rent deposits via bank statements and corporate/LLC tax returns. Of course, it can be almost impossible to validate any rents the seller claims they collected in cash. So, sellers can also be asked to sign notarized affidavits personally guaranteeing the validity of leases and ledgers.

So now, let’s get to the clause to include on your purchase agreement to make sure you get all this information in enough time to review it.

Seller(s) agrees to provide the following to the buyer within X days of buyer’s satisfactory inspection, but in any case at least X days before closing: All rental leases, rent ledgers, tenant(s) valid phone numbers and email addresses, rental applications & supporting tenant identification, income and asset information, any documents corresponding to any ongoing legal actions pertaining to the property, leases, service contracts, etc., at least three (3) months of the most recent bank statements for any account(s) rental funds were paid into and any company or corporate tax returns for proof of income and expenses. Seller(s) also agree to sign an affidavit at closing personally guaranteeing the validity of all leases and rent ledgers.

Now that may seem like a lot for a seller to agree to, but if they have nothing to hide, why would they not agree?

As always, none of this should be construed as legal advice and we recommend you consult a real estate attorney.

Hey Ryan, I have a ton of experience investing in Detroit proper. I lived in the suburbs from 2017-2022 and built my portfolio while on the ground, intentionally choosing the city itself.

I know Joe Hammel from FIRE is active here on BP and him and I have interacted plentTrqvy in the past but I've never personally done business with them. They have a good reputation and seem like great folks though.

 Hi Ryan,

First off, you write very well. That's not just education, that's a gift. Maybe sometime in your adult life you might want to take on a side gig writing fictional books, or romance novels, or something like that- if you are creative, and so inclined. 

OK now let's get down to Brass Tacks. 

You're from Michigan, so I'll put this into Michigander for you.

Let's say it's dear season, and you are out sitting in a deer blind. To your left is a 12 gage shotgun and to your right is a bolt action rifle with a scope.

You've been sitting there all morning, eating sandwiches you brought from home waiting for a deer to appear.

You've just taken a bite out of your sandwich and out of the trees steps 4 big bucks. All with massive racks of horns.

You don't have time to think because they will run away soon. So you slowly reach for your shotgun and bring it to bear on the poor animals.

As you look down the barrel of the shotgun you can see all 4 of them, and you know that the buckshot in your shotgun may hit more than one. The question is which one should you aim at, And how accurate will the buckshot be flying through the Forest.

Had you chosen the bolt action rifle instead of the shotgun. When you shouldered that and looked through the scope you would only see one deer. 

What I'm saying is, right now you might want to give consideration to--Is your view too broad and too long term. Are you seeing too many deer?

Give some consideration to looking for 1 purchase instead of seeing it as many years of a plan.

You have your long term plan , now is the time to have a  plan for one place.

And this analysis paralysis thing, most likely is just a fear of losing money, time and effort

If you draw your focus down to you're only going to make one purchase. One that appears in your scope, it might be easier to pull the trigger. Verses looking at it as one of many.

If you have a solid buy criteria, and enough money in your pocket to buy it comfortably- this so called paralysis might be a thing of the past.

Meaning also do something to get enough money in your pocket to buy this cash, so that the purchase is not your last penny, or you're not gambling 100 percent of what you have on these deals because as you know sometimes they do not work out.

Just my 2 cents.

@Ryan Tongue This is such a great post. I am an Investor, Broker, and Property Management company owner in Grand Rapids Michigan. I would be happy to sit down with you, although I am not sure I could be a mentor in the sense of spending time together in the field.

Without a mentor, or buying an expensive workshop, I would suggest exploring job opportunities at a property management company. This will allow you first hand experience observing what other investors are doing that is successful, give you great local market experience, but best yet, give you industry experience, learning laws, codes, leases, tenant relations etc..

Consider a JV relationship with an experienced investor. You may have to contribute more than your partner but its the same as buying an education while creating an opportunity to be a part of a successful deal.

Pause the degree, and jump into real estate where true wealth can be built. ;)

@Ryan Tongue thanks for your post here. Rehabbing a property that is local to you is pretty hard. Rehabbing from afar can be very demanding. If you have someone that can give you a firm recommendation on a contractor that's where I would start. My contractor that I used came from my network. Now, you can certainly form your own network as well. There are TONS of facebook Michigan real estate investor pages. Connect with those and ask other investors who they are using. Buying a "turn key", "move-in ready" home is a lot less risky but if you do want to go the BRRRR route then make sure you have a great contractor.

@Ryan Tongue

just curious - house hacking in UT is out of the question?

Hey Ryan. Not saying I haven't had success in GR I do have 2 SFH rentals in GR that are doing just fine. But overall just more opportunities in Metro Detroit in my experience. A lot of that depends on your price point and what you're looking for.

I've seen quite a few investors achieve FIRE through REI. REI is by far the best vehicle to do so.

Personally, my portfolio here is to that point..making over $100k/yr cash flow from 16 properties here. All of which, I’ve purchased only within the last 4 years.

Metro Detroit has what 99% of Real Estate Investors want. Couple hundred bucks a door monthly cash flow, double digit ROI, and yes the prices appreciate and you build equity. It statistically has the best price/rent ratios in the country...so it's arguably the "easiest" place to execute FIRE.

Some people don't like Detroit.

There are 2 types of people who dog on Detroit..

1. People who don't actually own property in Detroit

2. People who did it wrong and weren't able to execute.

If you do it right, it’s statistically the best market in the country for cash flow.

$100k a year and also built a lot of equity which opens up a lot of doors as well.

Here is the primary target...

Purchase: $80k-$130k

Rent: $1100-$1500 (no rent control in MI)

1% rule: 1%-1.4% rule deals

ROI: 10-14%

Cash flow: $150-$300/door (after all expenses and budgeting for maint, capex, vacancy)

Appreciation: 3-10%+ (has been double digit for a decade)

Location: C+, B-

These numbers are based on the "sweet spot" in Metro Detroit. These are largely in the suburbs and some markets within the city. You can find higher ROI (on paper) here and probably in other cities…but the probability of actually collecting rent significantly decreases. Where these numbers are found, there is a very high rate of rent actually being paid.

We have over a dozen Fortune 500 companies just in Metro Detroit with huge Healthcare, Auto, and mortgage industry National footprints. Ford, Rocket mortgage, Beaumont hospitals and more. All complimented with Amazon fulfillment centers, google, and more tech manufacturing jobs.

The bad reputation of “Detroit” comes from OOS investors wanting sub $40,000, D class properties in poor condition, because they pencil out to 2-3% deals on paper. We don’t buy those.

Detroit has the the highest rent to price ratio in the country…and we focus on the best balance of price/location within the area.

You may have noticed our name is literally FIRE lol.

Questions:

1) Best price/rent in the county. Easily beats the 1% rule and cash flows

2) Taxes pencil out fine and deals cash flow

3) Michigan is considered a swing state..Detroit isn't notably hard on landlords. No rent control, you can evict as needed. It's likely not an easy thing to do anywhere, but can be done.

4) No notable natural Disasters

5) A dozen fortune 500 companies. See notes above

6) We target $80k-$130k (for SFH)

Here is a picture of my portfolio...

@James Wangthanks for the post. I moved to Texas from New York...a world of difference in home affordability. The general metric we use when investing in single family homes is a 3BR/2BA home that is at 60% (or so) of the market's "median price point". In most markets, that gets us into a good rental property.

So, which market to choose from? The answer to that is with another question - where do you have trustworthy people? Since I lived in NYC, I couldn't invest there. I had to invest elsewhere. I choose, Jacksonville, Florida. Why Jacksonville? Because I knew good people there. This is coming as a 15 year, out-of-state investor - my recommendation is to ALWAYS choose whatever city you have the most trustworthy contacts in. Keep in mind that you may never see your asset. That's an ENOURMOUS amount of trust/money to put into a stranger's hands. What I mean here is that if you know someone in a different city...but that city may not have as good as numbers as this other city...then stick with the city where you know people. One wrong move, one wrong contractor, one wrong vendor…will erase any "benefit" one city has over another. Your network is the most important piece for any potential returns when you invest out of state.

Hope all of that makes sense.