All Forum Posts by: Leroy K. Williams

 Being right in the thick of it I can say for sure that you have cited a few very critical misconceptions about Section 8 rentals in the inner city:

1. "They are probably in sketch locations"- 

If by "Sketch" you mean anywhere in the inner city you would be right, however if being in the inner city alone doesn't qualify as sketchy then there are plenty of Section 8 rentals in low crime and very stable neighborhoods.  As a matter of fact, crime very rarely comes up as an issue with tenants.

2." I think the maintenance/repairs are vastly underestimated - 5% for vacancy and 10% for repairs. I would think you'd be looking at 30% between both repairs and vacancy at the minimum."-  

Section 8 rentals typically follow a purchase and rehab project.  In Detroit you see investors buying for 40-60k and investing 30-50k into the property ahead of placing a tenant.  This being the case for the first 2-3 years maintenance is low since most of the typical repair items (toilet, furnaces, sinks, etc) have recently been updated.  Ahead of tenant placement you have to pass a pretty thorough inspection which includes pretty much everything.10% maintenance is reasonable for year 1-3 and thereafter 15% for year 4 and back to 10% again for 3 more years.  

3. "I'm not betting against you, but it seems like it could be a massive problem snowballing in the future."

Done right its exactly the opposite.  If you look at the City of Detroit wholistically its trending upward very quickly.  Appreciation is a real thing and not only this the demand for quality low-income housing is real.  Detroit provides the opportunity to buy low, collect solid income as you watch your investment grow in value every day. 

Hi Casey,

I would recommend looking into buying right in the City of Detroit and not necessarily the suburban areas. This is where the true opportunities are.

Detroit, starting with Downtown is experiencing a massive redevelopment, at this point its no longer a secret.  Windsor, Ontario has partnered with us on many new initiatives aimed at making Detroit an international destination.  Many of the neighborhoods which intersect with downtown are experiencing waves of new residents looking to join in on the action.  We have a few areas hotter than others which include West Village, East English Village, Corktown, Jefferson/Chalmers, The University District, Northend, Sugar Hill District/Medical Center, and others.

If you want help navigating Detroit we would love to show you around and point you toward where the best deals are.

Hey Kaleb,

I would suggest investing in one of America's emerging cities like Detroit.  The demand for quality housing continues to grow as we are seeing a surge in population growth and its projected to continue. Here are a few stats which should raise an eyebrow about Detroit 

• $1 billion invested in more than 4,600 units of affordable housing over the past five years
• Job growth with more than 25,000 more Detroiters employed since 2014
• A return to investment grade bond status for the first time since 2009
• Reductions in crime beating national trends, including the fewest homicides in 57 years
• Successfully hosting the largest ever NFL Draft at 775,000 people over three days
  
  In terms of starting out in Real Estate it also makes sense to invest in Detroit considering that the entry costs are low and if you plan to buy and hold, Section 8 makes for a great partner to insure steady rent payments. In Detroit you can own a Cash flowing Section 8 rental (3 bd, 1 bath $1375-1400 per mo.) for a total investment of $85,000-$90,000.  Couple this with the fact that values are appreciating (even in the interior neighborhoods) and it becomes a great opportunity all the way around.  

Hi Martti,

I happen to be someone that lives, eats and breathes in this area of Real Estate investing every day in Detroit MI. I believe there are a few unconventional approaches that work best for OOS investors looking to perform BRRRR in Mid- to lower income communities.

1. Yes, you need a team, however you can't just assemble people together and call it a team.  There is a way to do it. From my experience the first team member to recruit will be a local Project Manager-someone who wants to help you long term as your eyes in the field and boots on the ground.  Next you want to hire a realtor. Make sure you choose a realtor who is used to travelling into your target community and not just engaging properties from behind a phone/computer screen. Make sure your real estate agent isn't just about closing that one deal but understands the benefit of protecting you on each purchase to ensure that you keep buying because you are enjoying success.  

2. Don't hire a GC yourself. Let your Boots on the ground do it. You can oversee this aspect from the background but don't try to directly engage a GC from out of State without having someone tied to your success there to watch what's going on. The GC is a business person who doesn't care about your ARV, LTV, or your budget. They don't care when you try to explain all the future projects, they actually hate hearing that since it sounds like a scam, when an investor says, "Give me a good price and I will have a lot of work for you" it sends chills up their spines. Guys have heard that ad nauseum and its now a code word for "Do it cheap". If they are good, they don't have a problem finding work so doing your project at a deep discount makes no sense for them. That said, there are specific contractors who like working with investors since they can avoid the hassle of working on occupied homes. Finding these guys will require someone local or a lot of luck. Your project manager should know plenty of guys- delegate this to them

3. As it relates to hiring your Property Manager- Go to a local REIA meeting. During the networking session ask around and see who others are using. Don't hire the first company that presents a lot of sleek Razzle dazzle. Trust me on this. A little secret is that Property Management companies come in two basic varieties. They are either a combination of a Maintenance/Tenant Management business or Accounting/Real Estate sales/Tenant management service. The first type is more hands on, direct engagement with the tenant and the property, the other one is more hands off, and work at a distance. The Big Razzle Dazzle PM's are horrible when it comes to building your portfolio, they are better when it comes to managing an already performing large portfolio. Build up your portfolio with a professional landlord and then as your portfolio grows transfer the assets over to a larger PM firm for ongoing accounting and management.

Respectfully, 

Gandalf 

It depends on the type of rental. If it is a market rate class A, B or even C properties, I would say that it (basic maintenance) is something the tenant should handle considering that for these properties the tenants likely have additional resources to handle small maintenance issues.  For low income (especially multifamily) I would recommend that the landlord take care of all maintenance.  

Typically, unattended to small maintenance items will become bigger issues over time. Your tenants who faced with an already tight household budget may decide to rig the issue instead of fixing it properly.  

I think you can resolve this issue by digging beneath the frost line in 4 places beneath the basement floor or crawl depending on which one you have. Fill with concrete and set 4 floor jacks beneath a new I beam, or LVL right below the joist in the bedroom. This should transfer the weight of the room to the new support as the seasons change.  

How did the tenant respond when they were informed that they the cause of this problem?  Did they offer to take care of it?  I would start there.  Next, 10k in damage seems excessive for an emergency leak, since if the leak was in a wall, it would most likely result in most of the water falling into a basement (if there is a basement) or it would pool along the floor. Replacing flooring, repairing a punctured pipe and repairing the wall hardly seems like 10k worth of worth.

if you have a good tenant you shouldn't attempt to capitalize on this obvious mistake. If you can have insurance pay for it that would be the way to go. 

I would only look at this differently if the tenant was unapologetic and dismissive.  In that case I may go after them.

It may be time to refresh the photos in your advertisement and offer a move in special with a reduced first month rent.  Also consider adding higher end finishes in the bathroom(s). Sometimes better finishes make all the difference when it comes to choosing a home.

 Hi Priyanka,

When you say C+/B- for cashflow in the City of Detroit you should know that there is a relatively limited opportunity for this. In the inner City those neighborhoods tend to be densely populated with residents who own their homes and when there is a vacancy the home is normally purchased and flipped by investors watching the MLS like a hawk. Additionally in a C+ neighborhood the cost for purchase/rehab will not be appealing when it comes to cashflow. The rent cap in the neighborhood will mirror what you see for Section 8 rentals in lower income areas. So basically, for a B minus area, for a 3 bedroom brick home you will spend 110k for a rental that brings in $1,400 per month and in a class D neighborhood Section 8 you will be all in for the same cashflow at $80k.

If you extend you view to "Metro" Detroit you have more opportunities in Cities like Warren, Hazel Park, Taylor, Romulus, Eastpointe, et al,.  That said, those areas don't differ much in any significant way than other Metro Areas in the Midwest.  

 The unique opportunity is in the inner city. You just need the right team of passionate Detroiters who understand every neighborhood, block by block and also understand the needs of investors.  Feel free to Inbox me for more info.  

I think you should take a closer look at Detroit and here is why:

1. Detroit's population is actually growing according to recent surveys not shrinking 


Census Bureau estimates: Detroit population rises after decades of decline, South dominates growth (michiganpublic.org)

2.  The new population coming to Detroit are young and talented people who want to be part of the rise of the Motor City.  These young adults who are currently filling up apartments will eventually start building families and will be looking for single family housing. We are already seeing this trend unfold in certain neighborhoods and values are spiking fast.

3. The Major international border project is nearly complete called the "Gordie Howe International Bridge" This will increase the connectivity between Detroit and Windsor Ontario and create synergy which will change both riverfronts and the surrounding neighborhoods 

"As one of Canada’s most significant infrastructure projects, the Gordie Howe International Bridge is creating thousands of jobs and driving economic activity today and will serve as an important trade corridor for Canada and the U.S. once complete and for generations to come. Congratulations on this important milestone.”
– The Honorable Catherine McKenna, Minister of Infrastructure and Communities

Detroit will likely become the greatest opportunity for real estate investors for the next decade.