All Forum Posts by: Leroy K. Williams

Hey Lucas, I would begin my search at one of the local suppliers like Sherwin Williams, or a Building Supply Yard. Just go up to the counter and tell the guys what kind of project you are looking to complete and ask if they can refer one of their regulars. Many times, smaller yards have bulletin boards, and you will find contractors posted there.  Ask the counter guys if they are familiar with any of the people with flyers or cards posted. 

I would not suggest doing your first project with a General Contractor. You expose yourself to a bigger lose if for some reason things don't work out. For your first project you should act as your own GC and hire subcontractors by trade.  Start with an electrician, plumber and HVAC guy since this is how your project should start which is figuring out all of those items (Find guys at the trade specific supply yards)

As you hire in the subs ask each of them for a good referral for the other trades.  Ask if they know a good trustworthy painter, carpenter, drywall guy etc.  

Once you assemble a team you can choose the person you trust most from the group and ask if they would be willing to take on the role of project manager for future rehabs. Offer 10% of the total rehab budget.  When you create the budget pencil this in and let your PM know that if he/she can get it done for less without sacrificing quality or time they can keep 50% of the money saved  

This is exactly what I would do if I was new to an area or new to managing rehab projects.  

As a Project Manager for hundreds of rehabs over the years I can say that there are strategies for finding a good contractor.

1. Visit his/her current jobsites. Ask to see homes that are just started as well as homes which are nearly complete.  Ask what the budget was and check out the finishes.

2. Visit the local supply houses with him. if he/she is worth anything they can take you to local suppliers who know him/her and will say great things about them. 

3. Ask them where they buy countertops, carpet, roofing, etc. They should know these answers immediately without fumbling if they do this every day why wouldn't they know where all of the suppliers are in their area?

4. If they are an installer look at their tools. if they don't have the right tools, are asking to borrow yours or asking you to buy tools for the job- That would be a red flag. 

5. Look at their bids. if they don't know the actual names of the items they plan to install or they don't use language like linear ft, square foot, depth, or know the proper name of materials like Trex, mosaic, service disconnect, hidden hangers, etc. If he has his own names for the materials...Red Flag.  if he/she cannot stand at the counter of a professional supplier and order his/her materials with confidence they are likely not "Good". 

A few suggestions for investors/owners who decide to self manage their rentals:

1. Create leases in your company name with your company mailing address listed on the agreement.

2. Set up a completely separate phone line for tenants and NEVER..EVER.. give tenants your main personal phone line. You will deeply regret doing that.

3. Don't negotiate with tenants as it relates to what is in the lease agreement or what is not.  If the lease plainly states-enforce, if it is a gray area, state what you allow and stand on it.  Tenants can become bullies if you let them.

By applying the above you can hire whoever you wish whenever you like and all calls can be forwarded to the new PM.  

Love the topic 

(However, I don't think throwing any specific company under the bus was needed to make the point.)

Being knee deep in the market here in Detroit for the past 30 years as a rehabber and property manager, I can say for sure that as a cash flow strategy the turnkey model can work great pretty much "anywhere" in the Metro Area. We have seen it work firsthand.  Detroit is as eclectic as an urban area can get in terms of how diverse the neighborhoods are and how fast the property class changes within the same zip code or for that matter even within a 1/2 mile radius.  Zip code is a poor indicator here. 

I have a client from CA who recently purchased a turnkey SFH in a class D neighborhood in Detroit for approximately 90k. The comps came in around 95k so he had a little equity that carried over. We placed a Section 8 tenant in 3 days after posting it for rent who will be paying $1,350.00 per month. The cash flow is set for approximately +325.00 per month.

You could have walked the neighborhood, talked to local realtors, placed an ear against the ground, hired a shaman, etc. and it would not have told you if this was a good purchase.  As a matter of fact, the analytics may have said it was a "No go". What will make this deal a "Good" one is the strategy and the team, not the property, the neighborhood, The class, or even (in most circumstances where you plan to hold it for 3 or more years) the rate of appreciation. if you have the right team of committed professionals who understand your goals and know their territory you have a good chance for success pretty much anywhere.  There is a winning strategy for every neighborhood.  

 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.