All Forum Posts by: David Fitch

I would also be concerned about the longevity of this portfolio. Did someone buy, rehab, and stuff these with renters all within the last year? Or do they have a history of rental income for you to evaluate? I've heard a number of stories from similar *portfolios* being sold in Detroit, where the seller put a bunch of bogus leases in place, including making rent payments for 1-2 months to show that history (net is still profitable to them), just to sell as a portfolio, and then within a few months the whole thing falls apart. 

@JR Hinds

If you find another PM company in Chicago that you think is good, please post that detail and maybe a few posts over time on progress. Would be good to have a plan B just in case. The two key risks I've zeroed in on here are 1) the Property Management (not sure how many PMs will take on homes in these areas, so if Elite can't follow through that's no bueno), and 2) They are setting the market, so resale price to an unbiased third party is unknown. I'm sure there have been some, but I have no way to know. Presumably an appraiser is going to be that unbiased opinion, but that didn't exactly pan out pre-2008 so I take those numbers as an estimate at best. 

@JR Hinds

Can you share what was projected vs. what you ultimately got? And what month / year you first purchased? PM is fine if you think that's not appropriate for the thread.

Thanks

Thanks for the continued posting. I close in May, so it's quiet in my thread until after that!

As an investment, the numbers you provided don't leave any room for cash flow. Once you factor in vacancies, repairs, other random things that pop up, seems like you're guaranteed to lose money. Probably better off parking that $40k in a mutual fund or else shopping around for a better rental property.

Be careful of those anecdotal stories of people killing it ($6k purchase, $1k/mo in rent). If you don't know the area yet, you're likely to end up getting fleeced. Not saying the above didn't actually happen, but there are far more stories of people losing their shirts than the other way around in Detroit, because so many out of town investors were trying to cash in on the low prices, and they relied on infrastructure they couldn't fully vet. 

You might be better off looking in places just north of Detroit (Eastpoint, Hazel Park, Ferndale, Oak Park, Royal Oak, Madison Heights, Warren, etc.) or south west (Dearborn, Wyandotte, Allen Park, Inkster, Taylor, Westland, etc.). Once you have a good sense for what it takes to do your own due diligence, then maybe revisit Detroit proper.  

Mike - 

Can you share the details of the inspector you mentioned? It would be great to use someone that has experience evaluating other Elite rehabs. 

Also, did your inspection find anything that you brought back to Elite to have addressed, or was it 100% clear?

Thanks!

Mike - thanks for this thread; I've been reading it for a while, and just signed my first purchase agreement with Elite. I'm documenting my experience in similar fashion:

https://www.biggerpockets.com/forums/223/topics/28...

A big question for me was how close their rent estimates are to actual; looks like they come in fairly close, so that's good to know. I was there in person last weekend and got to physically see a number of their buildings; not sure if you had the opportunity to do that with yours. 

Peter -

I don't have (or really track to) those metrics. I suppose I would focus on cap rate if I was buying a property where the purchase and resale price was directly tied to cap rate (e.g. valuation of an apartment complex). For SFH and small multis, I just do my own thing.

Specifically:

• 25% down = $68,750
• $3600/mo = $43,200/yr
• Annual P&I = $12,600/yr (assume 4.25%, 30y fixed)
• OpEx  = $21,600/yr assume 50% per the general rule of thumb I see floating around these forums (mgmt fee, repairs & maintenance, vacancy, insurance, snow removal, etc). 
• Net CF = $9,000
• $9,000 / $68,750 ~ 13% 

Honestly, I think the 50% OpEx is high on the repair component for the first few years because it's a gut rehab, but it's a high crime / high risk area that may get trashed more than average too, so I'll assume 50% for my calculations. 

I got a lot of value from Michael L's ongoing post about his experience with Elite in Chicago, so I thought I'd replicate that for others. 

https://www.biggerpockets.com/forums/223/topics/16...

I live in Southern California now, but am from the midwest, spent many years living in downtown Chicago, and went to grad school at UChicago, which is right where these guys are operating, so I'm familiar with the area. 

I happened to be in Chicago for work last week, and gave them a heads up that I would be in town, that I wanted to meet up, check out their operation, etc. Long story short, I liked what I saw, and just signed an agreement for my first property with them. I close in Mid May, and I'll provide updates as they are warranted.

I went with a 3 unit / 4bd (12 total bds) building, gut rehabbed. $275k, 25% down, estimated monthly rent $3600, pending review by CHA (these are almost all Section 8 tenants). 

More to come!