All Forum Posts by: Fabiola F.

@Javier Gaillard Besides the info I shared in the post above, I would say get with a realtor or someone else from Detroit who can really take you by the hand. 

@Keyonte Summers In other markets, I can generally invest from a distance, but not in Detroit. I learned quickly that I really needed to get ingrained. So I spent my time not only discovering the neighborhoods with my developers but also networking and socializing so that I could get acclimated with the local culture. I'll be returning again in a couple of weeks and spending another 4-5 days.

@Jamiel Strickland One day was the first stop; I returned the following week for 4 days and spent a lot of time on the ground both times. I was with the right people too.

Like all other investors, I heard all of the talk about Detroit, and since I needed to scale up my business and acquire large multifamily 20+ units, and because Atlanta deals were becoming tougher to negotiate, I knew that I needed to move into more emerging markets. I combed through a few opportunities in Macon and Birmingham, but didn't find the numbers that I was looking for. 

So I made a 1 day stop in Detroit and was blown away that I returned the following week last week for another 4 days of discovery. Yes, it's all true - good and bad. Cheap deals, lots of vacancies, a lot of investor speculation, wide open market, buyer beware, etc. However, as an investor out of Miami with a base in other top markets like Atlanta, all I saw in Detroit was opportunity. 

I did have a lot of help during my canvassing spending my days with 2 Detroit-based ground up multifamily developers and a realtor that helped me identify pockets of opportunity. However, I'm not blind to the Detroit horror stories and overly optimistic investors that have lost more than they gained. 

Since there's plenty on the BP posts warning investors about Detroit, I thought it would be right to share a few tips for investors still curious or optimistic about the Detroit market.

1) First, it's overwhelming how every block is completely different from the next, and just because you spot a good deal on one block doesn't mean that the next block or parallel streets carry the same energy.

2) Secondly, you have to think placemaking instead of spot investing due to the excessive vacancies and blight. The more energy you can create in a target zone, the stronger it makes your deal.

3) Development costs will be at a premium due to a loss of trades and labor shortage. What I'm accustomed to paying for renovations in South Florida is at least 2.5x the cost in Detroit.

4) There's also a huge labor shortage due to all of the investor demand. I've had headaches with this in Jacksonville and had to bring in a labor team from 2 hrs outside of Jacksonville just to complete the project. Plan ahead for the labor shortages in Detroit. 

5) Don't get too fixed on price. There's a lot of dirt cheap deals (under $10k for a SFH) that can be enticing, but those may be your toughest streets, but there's also huge inventory of higher priced commercial and multifamily deals that's been vacant for a while that you really can drive a hard bargain on.

Detroit isn't for the novice, but don't let it scare you away, and obviously, the more ground network you have, the easier it'll be to navigate. I had a phenomenal time learning the city, and as disheartening as it is to see what the recession did to this thriving historical city, I'm also very optimistic about the social impact that developers will be able to create in the city.

If you've had Detroit experience, been curious, or have been warned against Detroit, I'd love to hear your feedback.

@Lance Lvovsky Since you're in South Florida, I'll inbox you to set up a call.

Thanks @Michael Ealy My game plan is pretty similar to the example you shared. And for clarity on the double digit cap rate, I'm not don't purchase at double digit. However, since I'm purchasing value add in B-/C areas, the strategy is to increase cash on cash, cap & drive ROI by forcing appreciation through the renovations and increasing rents to what the market can support.

On another note, are you syndicating your deals?

@Zachary Bohn Problem is that he didn't take any depreciations...assumed that I didn't need it and didn't bother to ask even though he knows I have assets. 

Not all CPAs are created equal, and I'm firing mine because he's good for simple tax/accounting matters, but he's not a tax strategist. For instance, he didn't maximize my depreciations. Most of the CPAs I'm coming across don't really have experience in the real estate industry. So I'm looking for referrals for a CPA with a record of working with investors/developers and preferably one who's also an investor. I'm willing to work with someone out of market. 

I'm also seeking referrals for a trust attorney for asset protection. Any referrals are welcomed. 

I have the operational structure together, equity partners, financing, and have targeted B-/C class value add deals in 4 key markets. I don't have anything holding me back nor obstacles, but it's a marathon finding the right deals with the right footprint (20+ units) and competitive cost per door, and that's probably where many people tap out. 

I've negotiated on some but some of the pricing are still overly optimistic for distressed/value add, and I'm looking for strong cash flow and double digit cap. So I don't allow myself to get overzealous by the thirst to just do a multifamily. Goal is 100 doors by Dec 2019, and I'll get there. Right now I'm driving for dollars and calling owners direct to see who's open to offers, which is the tedious part. But if it were easy, everyone would be doing it, right?

Thanks @Theo Hicks & @Taylor L. I looked a few PPM as examples of how voting rights and ownership equity should be allocated to LPs vs SP. So in my operating agreement, I guess I wasn't distinguishing between ownership & equity vs voting rights and gave them the same weight. 

For clarity, my structure is SP (guarantor, asset manager and GP) and I also have another GP (not a guarantor but has sweat equity in the deal to manage the day to day renovation project + pay monthly holding costs in the meantime), and then LP (only equity contribution). 

Profit structure is 8% preferred, followed by catchup provision to SP, then the 30/70 equity split.