Knoxville, TN · Member since 2018 · 24 posts · 12 votes
Hey Guys. I call myself a longterm newbie. I have a duplex that I used as a House hack, Airbnb and Long term rental for about 6 years now. I’m just now ready to invest in my next deal. I have some capital about 30k and the real estate ocean just looks different now that I’ve dove back in. Different kind of fish in the water, gotta be more creative im noticing.
I’m willing to partner if the right deal and numbers are good, im willing to do a syndication, and im always willing for buy and hold. What are you guys recommending for the amount of capital I have?
Real Estate Consultant · Ann Arbor, MI · Member since 2022 · 466 posts · 257 votes
1y
Hi Dahrian in Knoxville, TN-
Congratulations on having your first duplex and being ready for your next investment.
You say you have about 30K in capital and wonder what to invest in.
I would look at a duplex in Lansing, MI for between $120,000-$130,000 and I have an excellent property manager there as well to help.
Lansing is the State capital of Michigan. There is a lot of economic development which creates jobs, which drives housing demand, which is good for housing providers. The cost of living is also more affordable in Lansing and so is the cost of labor to maintain your property.
Real Estate Consultant · Ann Arbor, MI · Member since 2022 · 466 posts · 257 votes
1y
Hi Dahrian in Knoxville, TN-
Congratulations on having your first duplex and being ready for your next investment.
You say you have about 30K in capital and wonder what to invest in.
I would look at a duplex in Lansing, MI for between $120,000-$130,000 and I have an excellent property manager there as well to help.
Lansing is the State capital of Michigan. There is a lot of economic development which creates jobs, which drives housing demand, which is good for housing providers. The cost of living is also more affordable in Lansing and so is the cost of labor to maintain your property.
With $30K in capital and experience in house hacking, Airbnb, and long-term rentals, you have several options. In today's market, creative financing is key—consider partnering on a small multifamily, using seller financing, or leveraging DSCR loans for a short-term rental in a strong market. If you're open to syndication, you could invest passively in a larger deal to diversify.
The Real Estate Crash of 2008-2010 caused real estate prices to crash across the country - but didn't affect rent amounts. This caused a historically unique opportunity for investors - they could buy Class A properties and immediately cashflow when renting them out.
This couldn't last forever, and it didn't, as excited new investors drove up prices.
Eventually, Class A property values increased to the point that even increasing rents didn't allow them to cashflow upon purchase.
So, the flood of new investors switched to buying Class B properties.
COVID created a chaotic spike in both the sale & rental markets, attracting even more new real estate investors. According to CoreLogic, in December of 2023, almost 30% of home sales were to investors!
Investment also spiked in Class A Short-Term Rentals (STR) and investors started paying higher and higher prices based upon anticipated STR rental rates, that exceeded sustainability based upon Long-Term Rental rates (LTR).
Now we're seeing investors pouring money into buying Class C rentals - but, many are getting burned.
In our experience & opinion, the main determinant of property Class is not location or even property condition, those are #2 and #3. The #1 determinant is the Tenant Pool.
If you don't believe us, try putting several Class D tenants in Class A apartment buildings and watch what happens. Or try the reverse - rehab a property to Class A standards in a Class D neighborhood and try to get a Class A or B tenant to rent it.
Unfortunately, many newbie real estate investors are jumping into buying affordable Class C rentals - expecting Class A results. In our opinion, Class C tenants have FICO scores from 560 to 620 - where their chance of default/nonpayment is 15-22%. See the chart from Fair Isaac Company (FICO) below:
According to this chart, investors should use corresponding vacancy+tenant-nonperformance factors of approximately 5% for Class A rentals, 10% for Class B and 20% for Class C.
To address Class C payment challenges, many industry "experts" are now selling programs to newbie investors about how Section 8 tenants are the cure. If only it was that easy. Yes, the government pays the Section 8 rent timely, but more and more tenants are having to pay a portion of their rent. Then there are the challenges with Section 8 tenants paying utilities and taking care of their rental property.
Investors should fully understand that Section 8 is not a cure-all for Class C & D tenant challenges, it's just trading one set of problems for another.
We see too many investors not doing enough research to fully understand all this and making naïve investing decisions.
DM us if you'd like to explore investing in Detroit!
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