All Forum Posts by: Steve K.

Yes, it needs to be your primary residence and you can only have one primary residence (where you live the majority of the time, get your mail, pay taxes, sleep at night, etc.). At closing you will sign a document that says this will be your primary residence, that you will move in within 60 days and live there for at least the next year. To sign that with the intention of living elsewhere during that year constitutes mortgage fraud. However my understanding is that exceptions can be made if unexpected life events happen such as job relocation, eminent domain, marriage, divorce, changes to family size, deployment, imprisonment, bankruptcy etc.

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We've gotten off topic a bit but now I'm unclear on who is correct about Additional Insured vs. Additional Interest...

My property manager is on my landlord insurance policy as Additional Insured, and my tenants add me as Additional Interest. My understanding is this is the correct way to do it for these reasons: Renter's insurance is for renters, landlord insurance is for landlords. We each have our own coverage for our own property and our own liability, separately. Typically people only get insurance on things that they own, or liability insurance for their own protection.

It makes sense for a PM to be Additional Insured on a landlord policy because they can't get insurance coverage on a property they don't own. It makes sense for house mates, spouses etc. to be Additional Insured on a renter's Insurance policy if they also live there and keep their stuff there (although I think anyone on the lease is typically covered anyway). But I don't see why I would be Additional Insured on my tenants renters insurance when it is for their property and their liability, not mine.

If a situation arises where landlord and tenant end up suing each other or both being named in a lawsuit, and we're on the same insurance policy together, that seems to create more problems than it solves. This structure probably just means more grey area which means more legal fees and perhaps less chance of either of us being covered at all. In some places I think courts prevent people on the same insurance policy from suing each other, and some insurance policies exclude two people on the same policy from suing each other. So this would actually work against the intended purpose. Additionally I think the coverage amount will be limited in some scenarios because by being on the tenant's policy, the landlord is no longer considered a 3rd party. They could get a portion of what the tenant gets in coverage but wouldn't get any additional coverage as a 3rd party. So it's not really "extra coverage" for a landlord, but rather a setup that can potentially create problems and less coverage. What if only the tenant is sued, or only the landlord? Probably better for the other party to not be on the other's policy in that case. What if only the tenant's property is damaged? No need for landlord to be involved in that claim. Renters insurance is so cheap because it is not connected to the property and the landlord after all, right? It's renter's insurance, not landlords.

It seems like keeping separate insurance policies is the preferred way to go while being added as Additional Interest on the tenants renter's insurance policy in order to be notified of any changes to their policy.

What is the argument for a landlord being added as Additional Insured on a tenant's renter's insurance as opposed to Additional Interest?

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You're supposed to have a license in every state if you are representing either a buyer or a seller in a real estate transaction, or acting as an intermediary in the sale of real estate. The way wholesalers get around this is by claiming to simply be marketing the contract and not the property itself (hard to do legally), or by doing a double close (buying the property then reselling it immediately). In my experience many unlicensed wholesalers operate in a grey area and often cross over into what is obviously brokering real estate without a license.

If you adhere strictly to the laws, you will be limited in the services you can offer to your relative compared to what they would get if they listed their property with a licensed agent, and they will get less money for their property working with you than if they hired an agent.

They will get the highest price and the best terms for their property by marketing it professionally and exposing it to the maximum number of retail buyers, which means putting it on the MLS with an agent.

Personally I wouldn't feel comfortable trying to wholesale a relatives $1M home knowing that I am breaking the law if I cross over into doing anything that can be considered representing them in the transaction, and knowing it will only be marketed to people who buy properties wholesale (typically investors who don't want to pay retail prices), instead of the majority of retail buyers active in the market who are typcially willing to pay more.

Plus by going with you, they won't have the benefit of an agent's errors and omissions insurance, the support of their brokerage, and the experience an agent has in protecting their clients from everything that can go wrong in real estate transactions. It could easily go sideways and ruin your relationship with your relative or get you in legal trouble.

Speak with a real estate attorney about the legalities of wholesaling real estate in your specific area, the internet isn't the place to get legal advice.

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New York City, New York

Quote from @Travis Biziorek:

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Love to see it as I've been pounding the table on Detroit for a long time now.

@vgj makes a good point... yes, it's from a small base, but you quickly lose the plot.

When I started aggressively buying in 2019 the median home price in Detroit was $40,000... it's now $95,000.

That's massive, and it doesn't matter if it's a small base or not as long as you're putting the same amount of capital to work you'd invest in another market.

Second, what are people going to say 5 years from now when the median price of a Detroit home is $200,000?

But... BUT... it's from such a small base! Who cares? It's about rate of return and it's been hard to beat Detroit over the last 10 years. I imagine that's not going to change over the next 10.

But you're welcome to keep betting against it. I won't be.

In bold, that's exactly what I mean. The absolute value is 55k.

Go show me the other large metros 2019 median house price versus today. Check the absolute value. I'll give an example Nashville was $300k, now $425k. That's $125k.

If it's $95k going to $200k in 10 years, it means Nashville is $425k going to $700k. Check the absolute value differential.

I'm not saying Detroit isn't going to go higher, or suggesting I am betting on it. Go read my post again, I just said the message in the OP actually tells me a different story-- those larger metros performance is superior. If we changed the metric to absolute value, not percentage, not sure Detroit is even on that list. Whereas those are likely on the list if it's absolute value OR percentage. Now, that's impressive and that's the real story here.

FWIW, I'm not betting the dollar is stronger only weaker just a matter of how. So I expect (general) appreciation everywhere, Detroit included.

You're thinking in nominal returns when you should be focused on ROI.

If you had put $1,000,000 in Nashville in 2019 and $1,000,000 in Detroit in 2019 you'd have $1,400,000 in Nashville and nearly $2,400,000 in Detroit.

I know which of those I'm taking, but I understand some people prefer worse returns.

A million dollar of value adds in Nashville versus Detroit is no question to which is superior, did you factor that in to your equation?

Also, I think when you're evaluating returns, you're associating no risk.

In 2019, $1mil is 25 houses in Detroit. 3.3 houses in Nashville right?

That's 3-4 tenants, 3-4 sets of capex, 3-4 sets of reserves versus 25, do you agree?

Tell me which is riskier. Then go give me risk adjusted returns, not blanket biasedness assuming every dollar in RE extrapolates like that. Infact, I can find a ton of your posts where you mention the risks of investing in Detroit. ****, the OP has that in his disclaimer at the beginning.

The right answer to your question is at the house level, not just at the capital invested level. That's more appropriate.

Quality over quantity. I'd take 4 houses over 25 **** houses. Pretty confident, we've been through this quality over quantity argument on this board a lot, but incase you weren't privy to it maybe you should understand why and the exposure risk of quantity.

Don't get me started on the value add process.

Thanks, Jason, I very much understand risk adjusted returns.

But that wasn't your argument. You were simply pointing to nominal returns and, no that you're clearly wrong, you're moving the goal posts.

I have no interest in doing a risk-adjusted return analysis between Detroit and Nashville. If you do, I'm sure we'd all love to see your results and detailed methodology. I'd be willing to be Detroit still outperformed Nashville since 2019.

But I've already made my bet.

I pointed out an obvious detail which was AV versus %. You wanted ROI.

I simply pointed out risk in the cities profiles, and you chose to step out. Tells me everything.

Also, we can use ROI. Let's do ROI on $1mil of rehabs in Nashville versus Detroit, pretty sure the return is higher in Nashville too. Absolute value wise and probably %. I don't think you want to go down that route, neither.

Then again, your business here is to push Detroit. I don't have anything to push.

LOL, I already showed you ROI on $1MM invested in both markets.

We have not done a risk-adjusted ROI, that's correct. I'm not going to waste my time doing that and neither are you.

But that won't stop either of us claiming to be right.

And that's the beauty of it. I invest in Detroit because I've done a "quick and dirty" risk-adjusted return analysis for me, personally. And you've done the same.

I could invest in Nashville or anywhere else. But I favor higher returns, even if they come with higher risk.

Obviously, you're on the other side of the spectrum.

I don't care. But when you go around touting nominal returns while ignoring actual return on investment, I have to call that kind of silliness out.

I never said nominal returns only, that's what you came to the conclusion of. I said look under the hood, it's a percentage versus AV thing because of the host of dilapidated properties. I wasn't associating risk in that former part?

Shoot, next time I will be sure to be clear and concise, and let me people know the dilapidated properties are higher risk. Glad, you don't do that and sell it to the prey.

Your first reply to me literally cited only nominal returns. It's not until I called you out for it that you started immediately moving the goal posts to risk-adjusted returns.

And yes, being clear and concise is great advice always.

If you think I don't warn people about the risks of Detroit you're incredibly ill informed. I literally have blog articles detailing why NOT to invest there.

But, by all means, continue to make assumptions.

Fair, my reply to you did. That's right. My original post did not. I was making that more of a continuation.

The percentage basis vs AV is likely(and predominantly) due to the risk.

The point stands against the OP; this isn't exactly what it looks like.

Fair. I still believe Detroit wins on a risk-adjusted basis. Prices in Detroit are unlikely to drop at this point. The bottom is in.

Sure, there are other risks like age of housing stock, tenant base, etc. but a lot of that is normalizing as well.

At the end of the day, real estate risk-adjusted returns aren't as easy to calculate as they are in the stock market. Real estate risks can't simply be quantified by historical returns.

So a lot of these risks (e.g. tenant risk) are weighted on a subjective basis by the individual taking on that risk.

So for me, personally, the risk of investing in Detroit, compared to the potential for much higher returns, was more than palatable. I've had conversations with people where I literally tell them NOT to invest there because it becomes extremely evident that their risk tolerance doesn't align with some of the challenges of that market.

But again, I don't think you can quantify this with a simple equation because of everyone's varying risk tolerance for these non-quantifiable variables.

Travis what leads you to believe that prices in Detroit are unlikely to drop? Isn't it historically more of a boom/bust market than a steady and consistent appreciation market? Is the recent steep appreciation curve due to strong underlying fundamentals like a diverse, recession-resistant job market with high-paying jobs, population growth combined with restrictions on new construction/ supply and demand imbalance, desirability, affordability, etc. or was it driven more by speculative outside investor money that could quickly dry up in a down market and cause it to crash again? According to this study that made the rounds last fall, 40.7% of homes in Detroit are overvalued making Detroit the most overvalued RE market in the US: https://www.fau.edu/newsdesk/articles/detroit-most-overvalue...

Have wages increased proportionally to home prices? Are homeowners going to be able to survive the next round of tax assessments or the next big recession? Or will the median home price go down to $7,500 again like in 2008? Isn't the population still around 1/3 what it was in 1955?

My take is that the steep appreciation in the last 4 years is due to Detroit being the last market in the US to finally recover from the global crash of 2008-2010. Prices didn't come back to 2007 levels there until recently. If you zoom out beyond the last 4 years, the numbers are actually not good. For example if you apply the national average appreciation rate to Detroit from 2007 to now, the average home should probably be like $350,000 there, but it is only $95,000. Detroit has performed worse than any other city in the US over that time period, with the exception of the last 4 years... seems high risk to me but I don't know the market that well, other than that historically all the jobs there were in industries that have now crashed...

Hey Steve, I write a TON on my blog about all the positive things that have been happening in Detroit in the last 10 years.

You have a lot of assumptions that are pretty common with the mainstream narrative around Detroit. Although, I'll say, the narrative has changed a lot in the last few years but if you aren't digging into the changes there I understand why someone still thinks this way.

In short, Detroit is not a boom-and-bust market any longer. Employment is well diversified and leadership is doing a lot more to continue that trajectory.

It's worth digging in.

I think my skepticism comes from having grown up in a town that hit it's peak in the late 19th century and has been in post-industrial decline ever since. Every now and then a new mayor comes in with a few wealthy investor friends and they hype up a "renaissance" but it's always an uphill battle when the population is a fraction of what it once was, most of the city is now urban decay, and the jobs that built the city jut aren't there anymore in the same numbers.

I would guess that the steep appreciation Detroit has experienced over the last 4-5 years is unsustainable and will either correct hard or just revert to the historical appreciation trend.

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Detroit, Michigan

Quote from @James Wise:

Not for nothing, during this whole trade war with Canada we got going on, Trump did just say

"we get 20% of our cars from them. We don't need them. I'd rather make them in Detroit."

Gotta fact-check everything that dude says though: the number is actually 8-9% from Canada. We get 20% of our cars from Mexico, so perhaps he confused Canada with Mexico, which would not be surprising at all.

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