All Forum Posts by: Jonathan Weinberger

I am excited to see this. I am in a situation that I am looking to start my Real Estate Investment Journey. I live is the Western Suburbs of Detroit (Van Buren TWP). I would love to learn from an experienced person like you as I want to grow my financial security. I am in a really good income situation at this time but need something that provides long term security not just high income right now.

Pretty impressive Johnathan,

As you stated, the majority of your spending in Detroit has been turnkey properties that required very little work.  I would assume that they were already tenanted with Section 8 renters since most of the time properties that pass municipal code requirements don't necessarily meet requirements for Section 8 rentals, meaning there is typically a list of repairs generated by the Section 8 inspector that need to be addressed even if the home previously passed a city inspection.  

One of our firm's areas of focus here in Detroit is scalability and repeatability for our clients. Buying turnkey Section 8 rentals which are also positively cash flowing is wonderful, but you cannot calculate how much of that will be available at any given time. I think the real magic comes in when you develop a system that allows you to create these cash flowing rentals from the vast number of vacant homes in the inner city. Converting blight to cash flow has two rewards, the first is that you don't have to hunt for opportunity that shouldn't exist (i.e, investors selling positive cash flow which require little to no CapEx). Buying and rehabbing ensures you grow at a pace you control. The second reward is that you add value to the community by renovating eyesores. This revitalization lifts the spirit of community residents and it raises property values including your own. If you repeat this in the same geographic footprint the reward intensifies.

@Jonathan Weinberger

What areas of Detroit do you invest in? Do you live nearby? How do you find properties?

Is the economy there still heavily reliant on the auto makers?

@Jonathan Weinberger

thanks for the transparency.   were these all BRRRRs that were purchased with cash or short term debt and then refinanced? 

@Jonathan Weinberger, you’ve done many things (most things probably) right; so congratulations on that.  I’m most impressed with the fact that you studied real estate and real estate markets for a year before investing; that you scanned the possibilities, chose what you considered the best opportunity, and went all in.  You’ve become THE expert on residential housing investments in Detroit.  Excellent start. 

I don’t know whether or not investment in Detroit residential property will make you rich.  My 46 years in the real property investment field has taught me that almost all wealth in real estate is accumulated through price appreciation of the subject property owned and amortization of the associated mortgage note(s).  Cash flow, even that which looks good initially, tends to get eaten up by the real cost of the upgrades needed to keep the property rented.  If these continual expenses are not made  you end up with slum properties renting for a minimum weekly rate to transients.

I don’t know your properties so I can’t form a specific opinion; however, based on the information you’ve shared I trust your opinion and knowledge.  And, just maybe you’ve purchased at a point where Detroit has hit its low, bottomed out, and is set to reverse trend and grow.  But, nobody knows because we have never come across a situation like Detroit, . What once was a city of 1,600,000 people 60 years ago is now a city of less than 600, 000.  Losing 60+ % of your population for a city of this size is unprecedented.  In 2008 a friend of mine spend $300,000 to buy 100 houses in Detroit.  Houses that sold for $35,000 in 1970 sold for $3,000 in 2008.  We all know the auto manufacturing industry left.  But Detroit’s decline was vastly accelerated by people leaving for Southfield, Dearborn, Birmingham, etc. because of terrible, corrupt politicians who (Coleman Young) continued to get elected.  

In any case, I thing your investment are pretty solid and should earn you something between a decent return all the way to a spectacular return depending on the local economic situation.  You’re not overleveraged, so you’re in pretty good condition to ride out a downturn.  I would submit that you will have an excellent career as a real estate investor. 

Way to go! What's next for you? Are you going to continue adding SF's or try something else? 

This is an awesome breakdown. Affordable / section 8 rentals look great on paper but it's one thing to review the numbers and another to actually own a portfolio of them for years and years. If the portfolio pays for itself and you don't have to pull out cash from somewhere else that is a win in my book. There are so many benefits to buy and hold real estate excluding the supposed 10% cash on cash return with a 10-15% margin for maintenance/capex, PITI etc. I've learned that in my journey to scaling to 150+ units in an affordable market.

Glad it's going well, Jonathan.

I did chuckle when you said, "Nobody raves or brags about the Detroit opportunity..."

Nobody, huh? ☺️

Quote from @Jonathan Weinberger:

Hey BP community, 

Every so often I enjoy writing about my investing experience here. It helps me build connections with other investors, and it helps me expand my network of capital partners. 

None the less, I come from a background of training people for a living and it comes naturally to me to help others get started on this amazing journey called "Real Estate Investing"

I started my cash flow real estate investing journey In January of 2023. I spent the prior 18 months obsessing over the markets, reading every book, diving into a massive rabbit hole with mobile home parks, and ultimately decided that in 2023, I had done the research that would suggest this journey is an absolute certainty. 

I came to the conclusion that there is an affordable housing crises. I became obsessed. Toledo, Akron, Cincinnati, Cleveland, Birmingham, Memphis, Milwaukee, St louis...the list goes on. 

These cities are the well known, sub 100k markets in the US. I've talked with people who own hundreds, even THOUSANDS of these units and they all shared the same intuition. There is an affordable housing crisis here in America. There is a perfect recipe brewing where inventory is at an all time low, with interest rates significantly higher than we're use to, capitalized by the insane economic struggles that are going on in our every day lives.... 

That list of areas, it's what everyone talks about...

Nobody raves or brags about the Detroit opportunity...

I think I'll save my story for choosing Detroit for another time, but the long story short version is this: 

I believe Detroit is the greatest economic opportunity standing in front of us all today, and those who know how to navigate it will get stupid rich.

Below is a snapshot of my Detroit portfolio. 

(You may need to right click and open image in new tab to blow it up) 

But I'll provide written information for what you're looking at: 

I'm a 100% section 8 Investor. I don't **** with cash payers. 4 Units are currently vacant, being screened for tenants. The numbers calculated assume 0% vacancy (but I reserve 5% for it) . The 4 vacant are new rehabs I just completed.

Total Rents Collected: $23,025/mo 
Debt Service: $12,358/mo (sad for me. 8% interest rates lol) 
Property Management 10%: $2,303/mo
Reserves (Vacancy 5%, Maintenance 10%): $3,454/mo
Phantom Cash Flow: $8,365/mo
True Cash Flow: $4,911/mo (Money I can legit burn) 

Total Purchase Price: $1.573M
Total Rehab Cost: $122,617
Total Cash In Deals: $539k 
Total Appraised Values: 1.81M


Hope this inspires someone. If you have questions about getting started in Detroit, post your comments below, or feel free to send me a DM!

My plan moving forward is to acquire another 20 doors before years end and I'll provide another Portfolio update around then.


Happy Investing!

Jonathan

 Having worked most of those markets (Detroit included), I'd say most all of them will offer investors a very similar return. Detroit absolutely needs to be on the list. The fact that it's not always on the same list as the rest is crazy. The price to rent ratio one can get in the Section 8 space in Detroit is next level.

@Jonathan Weinberger that has been a lot of work, really impressive pace! Most investors start with 1 unit a year or so. Before you press on, maybe take a break and consolidate. 

You have 22 properties that are probably at least 60 years old. 15% maintenance of $1000 rent does not get you very far when you start looking at big-ticket items like roofs, windows, plumbing, HVAC, driveway, tree-removal etc.

I am doing this long enough here in Milwaukee that I own some properties I have rehabed twice. First when I bought them and "fixed them up" and then 10 years later when I had a little better understanding and started doing things the right way. We are now at the point where we replace 3 driveways every year, starting with the worst ones. On average we have spent about $60k to reset the clock on a 1960's single family home. And in a severe duty application like renting to section 8, you probably have to do that every 30 years.

In other words, your portfolio carries a $1,320,000 future liability ($60k x 22), which equals about 22 years of present-day cash flow. And cost is not coming down. In 2024 I can't do roofs anymore for 8k, so adjusting for inflation the 60k is probably going to be more like 80k.

So how do you make this work long term? First of all, do not take any money out of the business, because you will need it. Second: cash-flow get's dwarfed by capex over time, so the only equally strong force you can set against capex is appreciation. If you have appreciation, you will create enough equity over 30 years to reset the clock on all your capex items. If you don't have appreciation capex will wipe out your cash flow. 

WARNING: if you do not prepare for this, you can enter a death spiral: deteriorating properties lead to lower rents, worse tenants, more wear and tear, even less cash flow to fund repairs and ultimately erode asset value.

I do not mean to rain on your parade, hopefully, this is a helpful long term perspective. You can be proud of what you have achieved in a short amount of time, this is really impressive!