Section 8 BRRRR in Baltimore

[Michael Beirne]

Hi everyone,

Some business partners of mine are looking into BRRRRing in the Baltimore market and are looking to find a GC, agent, property manager and an attorney that could help us affordably close on properties.  

Our strategy is to buy out of shape properties and rehab them back into shape, so a GC with experience in doing extensive renovations at once would be preferred. An agent with market knowledge and deal flow that could present us with off and on market properties that match our strategy will be needed. A property manager that can assist with rent collection, tenant screening, maintenance, and run an online ledger for us to track expenses. Lastly, we'll need a closing attorney who can close quickly and as inexpensively as possible.

Any recommendations are much appreciated!

[Isaac Blas]

Hi, we do property management in Baltimore as well as GC projects for our clients. We also have connections with real estate agents, wholeslaers and title companies. Happy to be of service. Feel free to reach out! 

[Drew Sygit]

@Michael Beirne chat with @Russell Brazil before doing anything!

You can get eaten alive in the Baltimore market by people selling you Class D properties "dressed up" as Class B.

[Logan Lambert]

Quote from @Michael Beirne:

Hi everyone,

Some business partners of mine are looking into BRRRRing in the Baltimore market and are looking to find a GC, agent, property manager and an attorney that could help us affordably close on properties.  

Our strategy is to buy out of shape properties and rehab them back into shape, so a GC with experience in doing extensive renovations at once would be preferred. An agent with market knowledge and deal flow that could present us with off and on market properties that match our strategy will be needed. A property manager that can assist with rent collection, tenant screening, maintenance, and run an online ledger for us to track expenses. Lastly, we'll need a closing attorney who can close quickly and as inexpensively as possible.

Any recommendations are much appreciated!

 Hey Michael,

I work for Beltway Lending in Baltimore. I would love to connect with you. I am not looking to pitch you but I can have connections for what you are looking for. Shoot me a conenction.

[Michael Beirne]

Quote from @Drew Sygit:

@Michael Beirne chat with @Russell Brazil before doing anything!

You can get eaten alive in the Baltimore market by people selling you Class D properties "dressed up" as Class B.

 Thanks for the advice! I just messaged him :)

[Mija Aguilera]

I completely agree contact @Russell Brazil, he is very knowledgeable. 

[Jake Baker]

@Michael Beirne

I agree with @Drew Sygit about class D properties. On the surface, they can look like great deals. 

General Contractor - Look for someone experienced in renovating older structures common in Baltimore. Many properties will need specialized attention, especially with plumbing, electrical, and historical elements. 

Agent - Work with an agent who focuses on investors. They can provide access to off-market deals and connect you with a network of contractors familiar with BRRRR projects. https://www.biggerpockets.com/business/finder/agents

Property Manager - Choose a PM with Section 8 expertise to ensure smooth tenant placement and compliance with inspections and rent guidelines. 

[Stuart Udis]

@Michael Beirne Lower priced markets such as Baltimore are very difficult to operate in utilizing entirely 3rd party support. You and your partners are going to do nothing but put food on the table for your GC, Agent & PM. You may want to reconsider your approach to investing, especially since you are already pooling resources with a few partners. It may not appear this way on the surface but you are going to come out ahead by focusing on purchasing fewer but quality assets rather than becoming a door accumulator. Take advantage of the pooled resources you have at your disposal.

[Jay Fayz]

Quote from @Drew Sygit:

@Michael Beirne chat with @Russell Brazil before doing anything!

You can get eaten alive in the Baltimore market by people selling you Class D properties "dressed up" as Class B.

 Is there a reliable source to get this information from other than agents? 

[Drew Sygit]

@Jay Fayz what info please?

[Jay Fayz]

Quote from @Drew Sygit:

@Jay Fayz what info please?

 Of what class neighborhood it is and what the evection rate is in the area.

[Drew Sygit]

@Jay Fayz for SFR (1-4 family) Classifications are mostly opinion-based.

Not aware of anyone tracking eviction rates, except Evictions Lab nonprofit that doesn't like landlords.

Here's some info that might helpt:

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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.

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 property in Class D area to Class A standards, what quality of tenant will you get?

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

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!

[Jay Fayz]

Thank you!!!