All Forum Posts by: Chanel Pearson

 Just curious... 

You are referencing Jackson, Mi but the tag on the initial post is for Jackson, Ms.

Which is it?

@Chanel Pearson

is your issue the down payment, or qualifying for the loan amount?  or both?  i agree... i think the kind of property i'm talking about is probably in the low 200s.  but if you look at 10 or 20 or 50 maybe you'll find a deal... most people don't want to put in that kind of work.

and, a fixer upper isn't "cheap" either... because it has to be fixed up.  you could easily be more out of pocket on a fixer upper (until you refinance) than with a low down payment on something in better shape.

@Chanel Pearson

2 things

1, if you're going to house hack you don't need something cheap in need of a major rehab.  in Pittsburgh for example a lot of the duplexes and triplexes are big houses that were divided up, and so the units are different sizes.  there might be a triplex with a 2 BR, a 1 BR and a studio.  or a duplex with a 3 BR and a 1 BR.  you could buy it, live in the smaller unit and rent out the bigger unit and even at today's rates, do really well in terms of rent vs. mortgage.  (not a plug for pittsburgh, just an example).  this is the unique advantage of house hacking.  and again, you're not trying to be at $0 each month.  you're just trying to spend equal to or less than you would renting.  so if renting would be $1200 a month, and your net payment on a house hack is $847, you're way ahead, because not only are you spending less, you're building equity.  the equity is the big advantage.  

i'll repeat that.  the equity is the advantage!

i am seriously not trying to talk you into moving to the US.  just trying to steer you off of something that needs a monster rehab.  it's not necessary for  a house hack.

2, there are absolutely markets in which there is NO PRICE at which a certain property is a good deal.  maybe not in LA... but in the midwest for example, it's perfectly possible to buy a house for $1, fix it up for 100K, and when it's done it's worth... 100K.  again, there is nothing wrong with that.  that is awesome.  it's great for the neighborhood.  granite countertops are nice looking.  it's just not a good INVESTMENT.

@Chanel Pearson

When investing in areas they don’t really know, investors should research the different property Class submarkets. 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.

Our OPINION for the Metro Detroit market (always verify each area for yourself!):

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 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.

 I just noticed something. Nova Scotia. Have you been to Jackson, MI before?

Well the big downside is of course, if it doesn't go as planned, losing a big pile of money :)

"why are these houses not being scooped up? What am I missing?"

A question every buyer should be thinking about or asking. There are companies scouring every inch of real estate, coast to coast, who do this full time, have plenty of funding, experience, and often, political connections- they can definately see these properties, yet haven't snatched them up before you.

Too small of a project for them perhaps? all of them? Or maybe the numbers don't add up. The chances that something of value is just left sitting around on the shelf for retail level amateurs in these market conditions are pretty low. Not impossible. But really low. 

This is why you have to be able to estimate all of it accurately yourself, or you're jumping in blind to a potential money pit. 

@Chanel Pearson

it's probably not good value... here's roughly how the numbers would break down.  if you did that, you could refinance and get 70-75% of the 150 out, minus refi fees.  so you might get 100-105K out.  but you spent 160K... plus holding costs, plus closing costs on the buy, etc.  so you're into that deal for 60-70K of your own cash.  that would not make any sense - if you want to spend 60K, you can buy something in better shape.  or just put it in a savings account.

make sense?

@Chanel Pearson

it is POSSIBLE to fix something up and really boost the value as you described, but it's also very difficult. here in Pittsburgh, for example, you can buy a house in a decent neighborhood for 50-80K, rehab for 50-100K, and boost the value significantly... although if you buy for 80, rehab for 80, and the ARV is 150, you might have a nice house, and you might have done a nice job on the renovation.. but it won't have made sense as an investment. and appraisers couldn't care less what you spent or how hard you worked or your new granite countertops. they value based on COMPS. 

the trick in any city is knowing in which neighborhoods, and on which streets, to buy.  i don't know anything about Jackson but i suspect an 18K house is going to be very, very challenging to renovate and might be in a more challenging neighborhood - so tough to manage and keep up when done.

some of these houses ARE being scooped up, and others aren't.  some people are good at doing these big rehabs, and others aren't.  some people go in thinking it will be 40K to rehab, and it ends up being 100K.  like these folks.

https://www.biggerpockets.com/forums/853/topics/1152071-help...

so... don't do what they did.

hope this helps.