Remote Property Management of Iowa Property?

Question

So I'm in South Florida and as everyone knows, prices here are sky high, and I can't afford to buy almost anything without a considerable loan. Now, I happen to have a good friend in Davenport, Iowa. I've been perusing the property listings there on Zillow, etc... And the price differences are enormous. Would it make sense for me to buy a property there and have my friend help me manage it?

Of course, I'd pay him for it, but it'd be cheaper than a professional property manager and would be extra side money for him. I would handle everything that could be handled remotely. He would simply be my eyes over there and help verify what tenants and technicians are saying. Of course, I would have to run the numbers on the specific property.

But, for example I saw a 1070sqft house with 2Bed/1Bath for $100K that was supposedly being rented for $1200/mo. According to the listing, it was updated only a few years ago and has a new roof. The only thing is that it's literally over a hundred years old, but I figure that if it's still standing, it must be well-built. Is my enthusiasm wrongly-placed, or can this work out?

Drew Sygit · Answer

@Mat Garcia The entire Midwest offers these types of deals, although we're partial to Metro Detroit:)

Regarding the age of the house, as long as it's been prperly updated it doesn't matter. Spent time in Marblehead this past summer where EVERY HOUSE was at least 100 years old, many pushing 200 years old! Go look at how much they sell for...

Read below our copy & paste advice for what investors often get wrong when they start looking at cheaper investments:)

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

Why is Property Class so important for investors to understand and apply in their investing strategies?

Because the Property Class dictates the Class of the tenant pool that the property will attract.

The Tenant Class
greatly impacts rental income stability and property maintenance/damage by tenants.

Both Property Class
and Tenant Class affect what type of contractors, handymen and property management companies will work on a property.

If you buy & renovate a property in Class D area to Class A standards, what Tenant Class will rent it?

Or, if you put several Class D tenants in a Class A four-plex, what do you think will happen to the property?

So, if you fail to apply the correct assumptions to a property, your expectations won’t be met and it may even be a financial disaster.

We use the following to rank Property Classes, in order of importance:

• Property Tenant Pool: closely linked to location, but not always.
• Property Location: closely linked to tenant pool, but not always.
• Property Condition & Amenities: it’s important to, “Maintain to the Neighborhood.”

Key metrics for each Property Class:

Class A Properties:
Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years. 
Tenant Default: 0-5% probability of eviction or early lease termination.
Section 8: Class A rents are too high and won’t be approved.
Vacancies: 5-10%, depending on market conditions.
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.

Class B Properties:
Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions.
Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
Section 8: Class B rents are usually too high for the Section 8 program.

Class C Properties:
Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
Tenant Default: 10-20% probability of eviction or early lease termination.
Section 8: Class C rents usually meet program requirements, proper screening still recommended.
Vacancies: 10-20%, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.

Class D Properties:
Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
Tenant Default: 20-30% probability of eviction or early lease termination.

Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
Vacancies: 20%+, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.

Where did we get our FICO credit score information from?

Check out this chart:

FICO Score

Pct of Population

Default Probability

800 or more

13.00%

1.00%

750-799

27.00%

1.00%

700-749

18.00%

4.40%

650-699

15.00%

8.90%

600-649

12.00%

15.80%

550-599

8.00%

22.50%

500-549

5.00%

28.40%

Less than 499

2.00%

41.00%

Source: Fair Isaac Company

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

Metro Detroit has 132 cities and the City of Detroit has 183 Neighborhoods we’re analyzing and ranking on a map on our website. NO ONE else is doing this anywhere in the country!

DM us if you’d like to discuss this logical approach in greater detail!