Experienced Agent, Inexperienced Investor

[Josh Mitchell]

Hi All, 

I've been a real estate agent for 8 years and picked up a single-family rental a couple of years ago, but have never really gotten into the investing side of things myself even though I have several investor clients (foolish, I know). This year, I am finally looking to change that and become a more active investor. 

I've followed Bigger Pockets for a while but have never got involved in the community. I am planning on changing that this year as well. Although I have knowledge and experience in my local market, I am most interested in some out-of-state options as I like those opportunities better than what I have locally but know little about where to begin evaluating those markets and the pros and cons of the different states. I currently lean toward upstate NY and MI (Detroit metro) as I live in the west but have family in Canada not far from those locations and the idea of being able to visit family with trips that can double as business write-offs is appealing. Regardless, I'm excited to learn and grow, both, my portfolio, and more importantly, personally. Let's Go! 

[Michael Smythe]

@Josh Mitchell from what we know about NY state, it's one of the most tenant-friendly states in the country. Please Google to verify.

Michigan, is not the best or worst, falling in the middle.

Regarding @Jacob St. Martin comments on Detroit, they are typical OUTDATED negative views. Again, please Google to verify and you'll find a lot of RECENT national views due to last week's NFL Draft that set records for attendance and exposed many to the new reality of Detroit:)

BTW: the city also recently beat out Miami for the highest amount of appreciation in the country. 

It's not all rainbows & unicorns, but the city has turned the corner on recovery and those that get in now, in the right areas, should ride a solid recovery wave to wealth.

Now that we've covered that, read our standard copy & paste advice about rental investing 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.

What else can we assist you with?