All Forum Posts by: Kenneth Jenkins

My opinion is don't try this in Detroit proper.  I'm sure Detroit isn't unique in this, but managing without being present requires you to rely on others.  Detroit in particular has been a haven for out of state money and there is a sub culture that has developed of "contractors" advertising to provide this type of service while at best underperforming and at worst completely stealing from you.  Yes, on paper you can do it, and seasoned investors with very close ties to the area are also successful.  So it's not impossible.  But we field calls several times a week from investors who fell into this trap.

One very knowledgable and successful guy is @Travis Biziorek take his advice seriously.  He is making it work, and has a multiple year track record.  I see he commented on this thread above, so reach out to him.

 Acquisition can be a challenge.  Is there a reason why you have chosen that specific geographic area?  It's not very densely populated.  You would do much better to expand your search and build a team where there is more opportunity.  I would consider Western Wayne County (suburbs of Detroit).  Have you thought about making commercial multifamily your next step?  If so I may have a property that would be suitable (off market).  It really depends upon your availability of capital.

 @Yoav Gilad is a great lending resource and sounding board.  Also, I second the meetup in Ypsilanti as it is very close to you and should be a convenient way to meet people face to face.

The experience you have will set you up quite nicely. As I'm sure you know there is a pullback in STR going on at the moment in the states. That being said, it's tough to get over the relatively high rate of return for STRs when you are comparing them to LTR. We have found that in metro Detroit at least LTR can absolutely be a "set it and forget it" strategy with very little input beyond major asset management decisions being made by the owners. $450,000 can buy you an amazing return in the C class suburbs around metro Detroit. We like Western Wayne County for LTR because of the responsiveness of the courts, high wages relative to rent levels, and access to a lot of quality contractors.

Best of luck in your search!

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In the immortal words of Ross Geller "Pivot!!!! Pivvoottt!!!!". I had a similar situation in which I bought a 20 unit at 100% occupancy and 90 days later had 8 vacancies, with NO placements at all. It was a shocking realization that URGENT action needed to be taken. I fired one PM company, placed 6 tenants in the course of a week myself and hired another one directly after that. That wasn't the end of the story or my PM saga, but I was able to sleep knowing that I had rescued the project from certain bankruptcy.

Now, 5 years later, the property is amazing and I'm still satisfied with my proactive approach. Of course I never could have done it remotely, so you are facing other challenges as well. If you'd like to chat directly about some options moving forward (including how I hired my first direct employee as a PM) I'd be happy to do that.

 The number one thing I tell fellow investors is that in the city proper you will deal with 36th district court and that has a material impact on the speed with which the court process will proceed if you need to evict.  It can take 2-3x longer than in the suburbs and that does impact economic vacancy.  Not everyone starting off gets hit with this, and if you can buy a portfolio it can "de-risk" the issue to some extent, but if you have one property and experience an 8-9 month fight to collect rent prior to eviction with a large repair bill after that it can be very painful.

ALWAYS use a licensed PM in Detroit.  Otherwise prepare to cry and wonder if your money is being stolen.  

To answer your questions, yes we have encountered issues with property managment. That's the reason we self manage today.

Yes, our properties are cash flowing, but to varying degrees.  Our best property may be 20% coc and the worst is around 2%.  The average is in the low double digits.

Yes, we typically buy and renovate.  See my other posts for typical renovation costs in Metro Detroit, and how to build a portfolio in Metro Detroit if you don't live locally.

 I'd love to know as well.

 Are you finding enough lenders can give you reasonable GFE without needing to spend an excessive amount of time on each?   Are you active the Metro Detroit area?

The current interest rate environment has put a damper on a lot of investor's plans to execute a cash out refinance.  If you didn't move quickly to execute your value add you might find yourself stuck in a similar situation.  While it's always best to have a plan for how you are going to execute your exit strategy BEFORE you get started, if you're like me and just jump in you could easily find yourself wondering how to execute this plan if your initial plan runs into problems.

BP is full of great advice on refinancing and if you just post that is what you're looking for, the vendors will come out of the woodwork.  That's one way to do it, and if that works for you then do that.  However, I often like to do business with vendors who are recommended to me.  No, this isn't a pitch for some of my friends who do lending. :-)  Assuming you have your basic underwriting skills honed, and you find yourself with no plan, or a primary plan that doesn't work, here is what I would do:

1. Talk to the person who sold you the deal initially to see if they have a recommendation for a lender (local bank, credit union, DSCR guy, or Hard Money). If some time has gone by this should be a very easy conversation to have. There is just no pressure for them to be anything but honest.

2.  Attend meetups.  This is a bit easier if you are local, of course.  Tell everyone who will listen exactly what you need.  You will get plenty of references.

3.  Talk to your PM if you aren't local.  They should definitely be able to give you the contact information for lenders actively loaning in the area.

Now that you have 3-5 potential lenders it's time to work the phone and call them. Make it easy on them and yourself. Go into any conversation with a potential lender knowing what you want, like a 15 or 30 yr amortization, 75% LTV cash out, minimum loan value etc. Then make certain they can offer what you need. There is no sense in speaking to a DSCR guy who can only offer a 15 year am if you need 30. Next, ask about their underwriting. Does the lease need to be submitted for their approval? Is there a seasoning period? If it's a non recourse DSCR to they pull your credit, and what is that requirement? Finally, understand who is the approver for any loans. Are you speaking with a person with no lending authority, or are you speaking with the person who can approve the loan personally. Get it all out there on the first call. Think speed dating, not romantic dinner. Assuming you have a lender who fits what you need, and the end of this call you should know whether your deal is financeable through them, pending of course appraisal or whatever else is outside of your control.

I personally avoid any lender who says "We can sometimes make exceptions to do "x, y or z"."  My experience is that is a kind way of saying "We will add 200 basis points to our quote because your deal isn't normal for us."  

I also avoid anyone who can't give me a straight answer that allows me to underwrite the new loan myself to see if it's something I want. If I need to undergo a colonoscopy to determine if a lender makes a 30 year loan to people with an 815 FICO at 85% LTV with an in place tenant and monthly income of $1400 with a market value of $125,000, or if you can't tell me any interest rate info until I submit my tax returns to you... I'm walking. This type of generic information should be easy for a lender to provide. Just remember such a verbal conversation is for your guidance only.

I'd love to hear anyone else's advice, and particularly if you're working in Metro Detroit if you have local or national lenders. If you're doing SFR do you use loan brokers?