New Real Estate investor looking for my first deal

[Natalie Meyer]

Hello! I am excited to be a part of the this group! I have listen to the podcasts for years and finally I am able to start looking to buy my first property/ properties. My husband and I live in Palm Beach Gardens area which is about 90 miles north or Miami. We are looking to buy a few properties and we have over $100,000 to invest and have access to additional capital to get started.

We are trying to figure out the best strategy to get started in this crazy market. We are both had working people. I recently left my job working in pharmaceuticals for 15 years and I am willing to put time and hard work into things, but would love advice on how the best property to get started with. When running the numbers on long term rental properties in my areas (Pompano beach all the way up to Sebastian, FL), currently, it seems that breaking even is the best outcome? Is investing in a property that you could loose money in or break even a bad idea? I know long term the appreciation is valuable but would prefer not to loose money every month on my property if possible? Is that the normal game these days on long term rentals?

Also Wondering if we should look in another area or switch up our strategy? Our goals are to build some equity by owning property and hopefully bring in some extra monthly income in the next 12 to 18 months, if it is not available immediately. I would do a fix and flip to bring in extra cash now while also buying a long term rental for equity but I do not have access to a great contractor here.

I am open to ideas and am willing to swap services with someone to make things beneficial. I worked in sales in marketing for 15 years so I could swap time to help someone willing to be a mentor? I do not want to waste anyone's time, and I am willing to give back to help others in the community. 

[Drew Sygit]

@Natalie Meyer

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

Property Class will typically dictate the Class of tenant you get, which greatly IMPACTS rental income stability and property maintenance/damage by tenants.

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.

If you buy/renovate a Class A property in Class D area, what quality of tenant will you get?

Similarly, if you put all Class D tenants in a Class A 4-plex, what do you think will happen?

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+ (roughly 5% probability of default), 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 (around 10% probability of default), 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 (approaching 22% probability of default), 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 little, maybe even 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 (almost 30% probability of default), 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.

The City of Detroit has 183 Neighborhoods we’ve analyzed.

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