All Forum Posts by: Christian Hutchinson

I am in Michigan.  I have a Condo, I have found a great niche it appears.  I am near some new construction developments.  I was having challenges getting the the amount of money I wanted to generate the return I desired doing traditional leases.

Because of these new developments it appears there is a Healthy short-term rental market. People are willing to pay 3-6 months upfront while their home finishes being built, but they sold their previous home.  They then can renew for 3 months, or go on a month to month(at a higher rate than prepaying for 3 months).  I checked my local laws, in terms of landlord tenant, and didn't see anything illegal.

Is this good practice and is it ethical?

With $30K you can't buy anything in Detroit that isn't high risk, or its in an area where the tenant pool is low quality.

Appraisals are an issue in the city, very low chance you can finance anything.  If you had $70K you could pay cash for something that will generate for you pretty good, meaning double digit returns.

I would not invest in Detroit as a first-timer, or doing it remotely.  Its an hands-on market.

IF you were to do it, check the area between Mexicantown and Corktown. You could score a duplex to quad thats 2000-4000 sq ft, and hope Corktown and Mexicantown keep getting people so your investment appreciates from spillover tenants.

But expect some elbow grease to get it livable, and try to have it ready to rent in June and July.  You can snag Medical/Dental/Law/Pharmacy Students, or some of the new Fellows through various foundations who trying to score a cheap place, $400-$600, in the City(requirement to their employment) but don't have the money to live in Downtown, Midtown, Lafayette Park where one bedrooms start at $1000/month, two bedrooms start at $1300.

Check areas off/on of West Grand Blvd, but south of Michigan Ave.

Also,

Right now The North End is in play, thats the area off of Woodward but south of Highland Park. The closer to Woodward you are the better.  I had one set of tenants move out of my place in Midtown where they payed $1500/month to move to that area for an unit that runs $750 this month. I was surprised they would move there but, ran through that neighborhood about six months ago and several homes(8+) were being completely gutted.  I have a quad in that area, but we are 4 blocks off Woodward, so tenant type changing is probably 2-3 years away, or the when the Light Rail Project completes.

If you invest in Detroit.  Walk the neighborhood.  Come back in a week and walk it again.  Walk it at 6 AM-7 AM and 8 PM-9 PM.  Invest in Motion Sensor Lights, and if possible a six foot fence. Glass Block Window anything less than 5 feet from the ground.

I say all this, and I make pretty good money on my Detroit Units. Good Luck.

 Try to find out is there any deferred maintenance.  Also, track if the rents are going up or going down, and how the units track with the area Market in general.

I'm not in the Pittsburgh area.  So I'll give you some basics of where to search in any city, especially the "Rust Belt"(I'm a Detroiter), I have 11 Units throughout Detroit and the Suburbs. My wife and I are 31 and we have FT jobs, this is just a side business(a lucrative one however).

University Districts, So score a Duplex/Home with income suite in University Areas. Meaning Campus Police Patrol there.

Go to a place where the young kiddies move to when they first get out of college(near the bars, clubs, boutique shops).  

Remember in this situation, They are paying your mortgage, and they are subsidizing your equity position.  Plus you save money every month because you have reduced living expenses, or even positive cash flow at the end of the month.

This is a "get rich slowly" business.  You need to mindset, I am going to have $400-$700/month in my pocket. You will live in the house for 3-5 years, get married/buy another home, and you get to rent out both units. Remember your home is a performing asset/profit center.  If you need $400 to fix the plumbing, or $400 to go to Boston for a Steelers VS Pats game, invest in the plumbing.  You have a $100K+ asset thats appreciating, provides living quarters, cash, tax advantages, etc.

The asset comes first. Also, INSURE INSURE INSURE don't be cheap. Lastly Credit/Background Check everyone, even your best friend's cousin, it cost $30, charge a $50 Application Fee. It attracts a certain level of tenant, your tenants are a revenue stream, not a person. If they someone doesn't gross 2 times the monthly rent(if utilities are included), or 3 times the monthly rent(if they pay their own) DO NOT RENT TO THEM.  They can't afford it.

Make sure you spell out building rules, where people can smoke cigarettes, drink beer, when are quiet hours, how many people can they have on property before they notify you, how long can a visitor stay before they request permission(I do three nights).  If they have a Boyfriend/Girlfriend who stays over A LOT, and they want to give them a key, the Boyfriend/Girlfriend gets a Credit/Background Check.

Goodluck with everything.  I can't help you with PA Law, but those are some tips of how to run the business on the ground.  It won't find it in a book, but any person in this business will gladly tell you how to handle it.

 I have a couple of Multi-Families in Metro Detroit. The first question, which is the biggest is? What is his goal?

Does he want Cash Flow or upside of sale? Is he trying to help out a down on their luck family member/friend, but still pull a good return?

Though they say the the current owner is a great source for the actual market, I have found the owners I bought from either couldn't leverage, or didn't know how to leverage technology to increase their rental price, and renter pool. I have a couple places, where the the previous owners, worked strictly on word of mouth, classified ads in the NEWSPAPER.  They failed to leverage CL, Facebook, Twitter, or Postlets(it posts your property on 30 websites by filling out one form: Zillow, Hotpads, Trulia, etc).  Owners who said they were having trouble finding one person at $500/month I found 4-5 people willing to pay $700/month.  

Any multi-family make sure your roof and HVAC are in top condition, spare no expense. Its worth it. Same goes with Plumbing.  If the plumbing isn't done correctly spend the money to correct, its not worth the hassle. One problem multiples very quickly in a multi-family. I don't use coin operated machines, I charge $50 more a money to have a Washer and Dryer on each unit, its a luxury.  Make it known that there is zero tolerance for non-building residents to use the facilities.

If the Unit provides "additional storage" like say a 3 car garage, or some sort of barn/shed outside of the building, monetize it.

 Thats correct once I calculate my Cash outflows I tack on 10-25%.  Meaning that amount of money is mine, it goes in my pocket.  The 10% of the Acquisition cost represents the opportunity cost of engaging in the transaction.  Like I stated you can get 7% buying an Index fund of the SP500,  So if I spend $100K, $10K a year could be earned in interest doing nothing. SO I have to have a justification for engaging in the transaction.

To calculate the price of my rentals I use the following equation...

((10% x Purchase Price or Acquisition Cost)+ taxes+insurance+HOA+Mortgage Payment) * 110% to 125%

So a property thats $100K paid with cash

((10% x 100000) + $2000 Tax + $900 Insurance) * 115%= $14835/yr in rental revenue/12 months = $1236/month in rent.

If the property doesn't yield $1250/month then why am I buying? Its not generating cash for me? Not saying you can't buy the property, but you can put your money in the stock market in an Index or Mutual Fund and get 7% return doing nothing. Only engage in the real estate transaction to get the extra 7% a year in earnings, so it is therefore worth time, effort, and risk.

So if for instance your kids are going to college nearby and need housing anyway 4% yield is okay. I frankly dont buy anything giving me less than 15%, 10% is a non-starter. 20% is a guaranteed purchase unless issues are around with the property(major repairs due in less than 5 years) or the neighborhood itself(major employer leaving).

I did a 30 yr 25% down mortgage on a duplex in a Detroit Suburb in July...This is a pricing metric I put into every deal we evaluate.  FYI we get 600 in one unit, and 750 in the other. So our return is 70% because we get 1350/mo.

To me to get your feet wet, a great way to start is a simple condo in a nice shopping district.

or

A Duplex in an area with "good" but not "great" schools. The reason is because you will get younger families  one or two kids tops.  They are trying to save to buy a McMansion in the best area, but can't afford to rent a house in that area, and probably don't/can't live in an apartment in those areas.

To calculate the price of my rentals I use the following equation...

((10% x Purchase Price or Acquisition Cost)+ taxes+insurance+HOA+Mortgage Payment) * 110% to 125%

So a property thats $100K paid with cash

((10% x 100000) + $2000 Tax + $900 Insurance) * 115%= $14835/yr in rental revenue/12 months = $1236/month in rent.

If the property doesn't yield $1250/month then why am I buying? Its not generating cash for me? Not saying you can't buy the property, but you can put your money in the stock market in an Index or Mutual Fund and get 7% return doing nothing.  Only engage in the real estate transaction to get the extra 7% a year in earnings, so it is therefore worth time, effort, and risk.

So if for instance your kids are going to college nearby and need housing anyway 4% yield is okay.  I frankly dont buy anything giving me less than 15%, 10% is a non-starter. 20% is a guaranteed purchase unless issues are around with the property(major repairs due in less than 5 years) or the neighborhood itself(major employer leaving)

Wow what are the chances you have been held at gunpoint and found dead bodies in Detroit.  Somehow I've managed to live there on and off for 20 years and never once have seen a dead body, shooting, carjacked, etc.  Neither has my Wife in six years.  I call BS.

You should be advocating for Detroit to improve it will help your property values in your "nice" neighborhood of Lincoln Park/Allen Park(which from where I'm from is a near slum).  This SE Region of Michigan needs growth and growth are driven by core cities.  I rent to 5 people in a triplex in Detroit.  Two are graduates from Ivy League Universities with degrees in Architecture and Civil Engineering, and one is an Urban Planner fromTufts University(all from places out of state with no Michigan ties).  In the other unit one Teaches Metal Working at CCS and he froms from Florida.  People like that came here because they said "Detroit, sounds like something I want to see".  They didn't sit in their dorm and say, "Man I can't wait to graduate and move to Berkley, MI". They could have went to any other city but they choose Detroit, and Michigan as a whole. People should be drawn to the Region because of Detroit, lay down roots, establish themselves then move to nicer suburbs. Thats how the REST of the country works instead we have people hear openly bash the City of Detroit, then wonder why their property values are not going up as much as people in Chicagoland, DFW, The Valley, Tri-State Region, or the DC-BMore Metroplex.

Its people with your mindset thats why this region has struggled for 30 going on 40 years.  I travel 45 weeks a year across the country for work.  Metro Detroit is viewed as place the world has passed by.  If you look at data and census tracts there has been ZERO growth in SE Michigan since the late 80s in terms of people so all your neighborhoods are being propped up by people leaving Detroit(rearranging deck chairs).  So in other words your neighborhood wouldn't exists without it. Its amazing to see a region that was built on industry and a "can do" attitude its devolved into negativity wins.