All Forum Posts by: Tim Swierczek

Wow thanks for letting me know! As a first time investor I am quite wary of going out of state. Many of the connections I've made are here in Minnesota and I just feel a bit more comfortable starting here. 

@Charlie Moore, the challenge I have with this question is: how are you planning on calculating CoC returns. There is no universal way, especially when directly owned.

If you buy a $1mm asset, you will likely be putting all $250k into the down payment, leaving nothing left to renovate. So your renovations will be from cash flow. So your early CoC will be 0%.

Or you buy a $600k place, and hold 50-70k for Renos.  Now, you have a Cash on Cash in year 1, because you are not using cash flow for renovations.  

Assuming the second way, anything north of 5% in year 1 is probably good.  Anything north of 10%, I would assume you are likely not underwriting correctly.  

I see many on these forums assume that a Class C or D property will have the same assumptions as an A or B.  But in reality, you will likely have more frequent turn over in C and D than A and B assets.  On top of, typically, higher vacancy as you wait for a qualified tenant to apply.  So more vacancy + higher turn over costs quickly eats into the C and D returns, often yielding returns only marginally better than A or B assets.  Additionally, C and D assets have lower rents, but roto-rooter and Home Depot don't care whether you get $500/mo in rent or $5,000/mo.  That plumbing bill or new appliance will generally cost the same, so higher R&M reserves, as a percentage of rent, are needed in lower quality/lower rent assets, too.

 Would you be willing to send that my way as well? I'm new to real estate investing and my first property is in Duluth.

@Mohammad Al-hadad investor expectations have been skewed by the last 5 years of low interest rates and artificially low prices.

10+ years ago, most investors focused on Class B and C properties, not Class A.

Reason: hard to get Class A properties to cashflow!

Class B typically cashflows from purchase or within a year or so.

Class C typically cashflow well from purchase, but has tenant performance challenges.

Read copy & paste info below:

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

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.

 Thanks Tim, good to know that people are able to find success with the right type of deals in the area. It would be great to connect sometime and discuss the market. 

I was recently notified by my tenants that they have bedbugs in their unit and they've obtained 3 bids from exterminators for removal. In all 3 cases it was the opinion of the professional that infestation was related to recent travel and the tenants have been in the unit for 6 months. 

The unit was vacant for a month or so prior to their move-in and had been professionally cleaned. They also admitted that the bedbugs weren't there until recently and that they likely brought them in but they still feel that I should be financially responsible for removal costs (averaging about $2500). 

I declined and suggested they move forward with the bid they felt most comfortable with at their own expense but they then seemed to threaten legal action in a veiled manner citing their understanding of Minnesota state law which they feel puts the duty for pest removal on the landlord. This property is located in Minnesota. 

I do not have a specific pest clause in my lease but I struggle to see how someone bringing bedbugs into my property after 6 months without them, admitting that they likely brought them in and having a professional opinion stating as much would then require me as the landlord to be on the hook financially for removal? Do I need to be worried? Property is not located in St. Paul or Minneapolis proper so I don't think this city has specific regulations for that but I will confirm. 

I live in California but have a property in MN that’s currently rented out. The California State Farm agent says they can’t write policy for MN property and MN agent says he can’t write policy because I live in California. Is that a thing? They are refusing to write my policy for no apparent good reason. I have been with State Farm for 8 years. One small claim so far.