Figuring out a Strategy

[Victor Cooke]

I will be moving back to my hometown after we sell our house in the Metro-Detroit area probably in the spring. Having been in the residential construction field for awhile, we are thinking of doing the BRRRR method with houses in our hometown to start out. Many of the houses I have been looking at need work and there isn't much that scares me, but that might be a more of an issue than an asset starting out. I am figuring on focusing more on the "Old" town area that would probably be considered a "C/D" area by the locals. Having spent the last 18 years around Metro-Detroit I would up it into a strong "B".

Here are some of the stats for the city:

26% residents rent

2621 renter-occupied apartments

$587 Average gross rent 2016

10,247 population 98% urban 2% rural

-9.4% population change since 2000

$88,053 Median house value 2016

2.2 people average household size

$36,670 Average Household Income 2016

16% Residents below the poverty level in 2016

248.4 Crime index (280.3 US Average)

4.7% Unemployment in 2015

In one of the BiggerPocket Podcast, we listened to someone mentioned that when they do basically a BRRRR they gut the house and fix everything since they are planning on holding it forever. Considering the vast bulk of houses that we will be buying for long-term rentals will be well over 75 years old. The house my wife is living in was built somewhere between 1890-1901. Most of these houses lack insulation, have old single pane windows, have galvanized/copper/cast iron/PVC plumbing all in the same house, post-n-knob electric or cloth wiring or both, and lots of bad remodeling done over the years. Considering all of this I completely agree with the gut and fix approach, but can see this cutting very very deeply into any crumbs of cash flow they might generate. Most SFH rent in this area, in the $600-700 range and it seems that a lot of them include utilities. I am not planning on including utilities as I am strongly in the tenant pays for all the utilities camp. Most houses in this area are in the $30K-70K depending on how close they are located to the factories. On a few of the houses, I ran through the Rental Calculator I was able to reach the standard that Brandon mentions of a $200 cash flow on a SFR and close to a 12% ROI.

I haven't had the chance yet to reach out to any of the local investors due to not being up there, but talking to some people it seems like there are only a handful of investors that own more than one property. 

I had my wife interview the only property management company I found with a quick Google search. Using some of the guidelines and questions to ask from the "The Book On Managing Rental Properties" and they couldn't even say what the average vacancy rate was let alone explain how they screen tenants and what their minimum standards are. SO pretty sure we will be handling this on our own.

As we will be just starting out cash flow is going to very important, but I don't want to defer maintenance and repairs. I could look at other parts of the city but the competition greatly increases due to both investors and homebuyers. Having grown up in the area I would like to make some of these old homes new-ish again and to make enough money to buy the factory and turn it into a nice lakeside development. So what do you more experienced investor think?  Advice? Any points to pay special attention to when dealing with old houses?