All Forum Posts by: Kenneth Jenkins

 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?

I've received this question from 3 investors in the past week so I'd like to just put my 2 cents out there for what works in my current market.  A little bit of background, I own and manage several hundred doors in the Metro Detroit area and have been active in the investing community since 2003.  I've seen the ups and downs and ups again, but I'm far from all knowing.  

The general question is "How do we invest remotely from out of state in the Metro Detroit area and get to scale quickly?".  This breaks down to a couple of basic issues with buying property remotely.

1. Can you assess rehab costs without being onsite?

2.  How can you find enough deals to hit critical mass?

3.  How do you keep the management straightened out to execute your cash out strategy?

1.  Can you realistically assess the rehab costs without being onsite?  You can search another one of my posts to give you a sense of generic rehab and maintenance costs, in the end this is the key variable in your underwriting that needs to get nailed down. So how do you do it?  The first way is build a team large enough to do it all in house, now you have a crew lead who can go estimate time and materials to get jobs done.  This helps keep your funnel full without dealing with contractors.  BUT... this also means you need to put a plan together to keep 4-6 full time guys busy.  For this you may be looking at buying 15-25 houses every 6 months.  You need to buy in cash and you need to rehab in cash and then quickly move to recycle your money.  Bottom line, this type of activity will cost 3-6k a week in labor, and materials are above that.  It is not cheap so you must have volume to keep the guys busy or else they will leave you.  You can do the math, but assuming it takes 6 months to get your money back you will be floating these types of purchases with cash or hard money loans.  It is being done today by a number of investors and this is the number one way to scale.  Think of it as building your own construction company, daunting, but it is being done today.  

Okay, if you don't have $1,000,000 to drop in the Detroit market and build your own construction team, now what? It is still possible, the next best thing is to get vetted deals through property managers. These may end up being 1.3% rental deals instead of 1.5-1.7% but they can still be great adds to your portfolio. The real value here is the rehab costs, if any, are absolutely known. In most cases these deals are just churn as investors come and go from the market. Many don't even trade on the MLS because if you have to do $10-15k in repairs the market just isn't there. The MLS is for turn key properties that can get financed conventionally.

One way to fail is to rely on a real estate agent to give you a definitive answer on rehab costs.  You should view what they tell you as guidance only.  No offense to all the great agents out there but unless someone is willing to sign up to get the work done at a certain price then anything they say should be critically examined.

2.  How do you find enough deals to hit critical mass?  Assuming you aren't doing this full time from your yacht sitting off of the US Virgin Islands you will be busy during the day living your actual life.  This means you will need to rely on wholesalers, Property Managers, Investor Specific Real Estate Agents.  You can find those here on BP, or in FB groups.  Again, if you have deep pockets you can just buy a portfolio.  This works best for those with a local construction presence.  For the rest of the investors I strongly advise setting up 15 to look at and getting on a plane and flying in for 2-3 days to see them all.   Then, after one or two trips into town you can use your agent to make offers on your behalf.  Just don't forget to have your strategy for item 1 nailed down.  Attend those virtual meetups that are available (DM me for more details on this).

3.   How do you keep the management straightened out to execute your cash out strategy?

This is the easiest one.  Use a professional, licensed PM.  In Michigan the laws require property managers to have the same licensure as real estate brokers.  If you violate this rule, especially in the city, prepare to be sitting at home wondering if your money is being stolen.  Banks and lending institutions love to see the PM statements from a 3rd party company.  They know there is a much lower chance of any financial shenanigans with professional management in place.  

I'm certain I've forgotten a few key details here, but to sum it up, it is possible and key partnerships are the key.  I know very active guys like @Travis Biziorek are doing it.  Although he may have a different take on what is required to be successful.

 There are two that we have found to be reliable in getting investors into solid deals.  The first is the Stephan Group, and the second is Jerry Weaver.  Both have realistic expectations and set investors up for success.  They know the city like the back of their hand.

 There are a number of great ones to choose from... Renegades meets in Southfield at Telegraph and 10 Mile at Shields Pizzeria on the second Tuesday of each month from around 6-9 pm.  There are lots of deals to be had at each meeting.

There is another one based off of the FB group Metro Detroit Real Estate Investors which meets on the 3rd Thursday of each month at Mcveighs Pub in Troy from about 6-10.  Fewer deals but incredible networking.

On the west side (suburbs of Canton and Ypsi) there are two more smaller ones.  Feel free to PM me with what you're looking for and I'll try to point you in the right direction.  Good luck investing!!

@Ayyoub Feza Congratulations on making the decision to get started.  We love to direct investors to the Western Wayne County because the price point to rent is still very attractive without the downside risk of 36th District Court in the city proper, or the challenges of an uncooperative city government like Warren.  If you want more details feel free to reach out to me directly.

They have a slick marketing campaign and are a national company.  We have several clients who started with Evernest and then came over to us.  Full transparency, we DO NOT manage in Detroit proper.  A lack of accountability and a PM Agreement with onerous cancellation fees is the norm with these guys.  @Chris Turner I'm sorry this has happened to you.  In the end your eviction protection guarantee may not be honored and you may just be better off firing them now.  They can't force you to do anything without suing you in court (or at least taking you to arbitration)  If you sign with another PM and they don't send over the security deposit your new PM can file a complaint with LARA (the regulatory board in Michigan) and you can bet 100% that they will cough that security deposit up.  No licensed broker is risking his livelihood to withhold a single security deposit.  

 This is very true. We do have multiple entities, not just properties, with multiple different ownership groups, various capital accounts, cost segregated depreciation schedules, different EINs and we use QBO to facilitate 1099 submissions as well.   It is "possible" to apply classes to almost all of these items but since we have chart of accounts for different buildings even within an entity our chart would look crazy.  At this point we get a discount for an accountant level and for the simpler entities use the new basic level.

 Who are you working with in Detroit?