All Forum Posts by: Drew Sygit

@Dayana García so you THINK you have 3 vacant apartments?

DEMAND your PMC go there and video the 3 vacancies and share with you - bettting you have at least one squatter:(

OR, a neighbor is stealing electricity via extension cord.

Why doesn't the property have separate electric meters? 
- Water you can't get separate meters for and submetering a 4-plex is too expensive, so no ROI.
- Gas can be difficult to split as running new gas pipes may require cutting holes in a lot of walls - that will need patching & painting. You may even have to remove kitchen cabinets:(
- Electric is the easiet utility to separate. Even if you have to run new wires, long, bendable drill bits minimize damages. Your biggest expense will be permits and new panels. 
EXAMPLE of 54 inch long, extendable drill bit:
https://www.homedepot.com/p/Eagle-Tool-US-1-2-in-x-54-in-Fle...

@Javier Contreras save yourself a bunch of headaches and potential losses and connect with @Samuel Eddinger!

@Danny Daniels or you could reach out to schedule a chat...

@Jason Wu I was actually refering to this part of your post:

"I do all my own property searches, inspections, book work etc. It's not easy work but I enjoy finding the 'gems'."

When's the last time you bought a Detroit property?

@Jason Wu why isn't your Detroit PM assisting you with all this in Detroit?

Are they an actual PMC or just a "dude" that's a one-man show?

@Mat Garcia The entire Midwest offers these types of deals, although we're partial to Metro Detroit:)

Regarding the age of the house, as long as it's been prperly updated it doesn't matter. Spent time in Marblehead this past summer where EVERY HOUSE was at least 100 years old, many pushing 200 years old! Go look at how much they sell for...

Read below our copy & paste advice for what investors often get wrong when they start looking at cheaper investments:)

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Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

Why is Property Class so important for investors to understand and apply in their investing strategies?

Because the Property Class dictates the Class of the tenant pool that the property will attract.

The Tenant Class greatly impacts rental income stability and property maintenance/damage by tenants.

Both Property Class and Tenant Class affect what type of contractors, handymen and property management companies will work on a property.

If you buy & renovate a property in Class D area to Class A standards, what Tenant Class will rent it?

Or, if you put several Class D tenants in a Class A four-plex, what do you think will happen to the property?

So, if you fail to apply the correct assumptions to a property, your expectations won’t be met and it may even be a financial disaster.

We use the following to rank Property Classes, in order of importance:

• Property Tenant Pool: closely linked to location, but not always.
• Property Location: closely linked to tenant pool, but not always.
• Property Condition & Amenities: it’s important to, “Maintain to the Neighborhood.”

Key metrics for each Property Class:

Class A Properties:
Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years.
Tenant Default: 0-5% probability of eviction or early lease termination.
Section 8: Class A rents are too high and won’t be approved.
Vacancies: 5-10%, depending on market conditions.
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.

Class B Properties:
Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions.
Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
Section 8: Class B rents are usually too high for the Section 8 program.

Class C Properties:
Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
Tenant Default: 10-20% probability of eviction or early lease termination.
Section 8: Class C rents usually meet program requirements, proper screening still recommended.
Vacancies: 10-20%, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.

Class D Properties:
Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
Tenant Default: 20-30% probability of eviction or early lease termination.

Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
Vacancies: 20%+, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.

Where did we get our FICO credit score information from?

Check out this chart:

Source: Fair Isaac Company

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

Metro Detroit has 132 cities and the City of Detroit has 183 Neighborhoods we’re analyzing and ranking on a map on our website. NO ONE else is doing this anywhere in the country!

DM us if you’d like to discuss this logical approach in greater detail!

@Danny Daniels So many issues, where to begin?

1) You may have overpaid for these, definitely Property 1.
- Auction Fees & Taxes are irrelevant to rehab and loan numbers.

2) How are YOU budgeting the rehabs?
- Guessing you're letting everyone else determine the budgets?
- EXAMPLE: Property 1 - $100k ARV x 80% = $80k - $24,750 buy = $55k for rehab. MAKE THIS NUMBER WORK!
- Cut back on your renovation plans. Budget in this order:
--- Health & Safety: to avoid personal injury lawsuits
--- Governmnet required: city inspections & Section 8
--- Property Preservation: foundations, roofs, windows, etc - except if you can band-aid them for 2-3 years.
--- Marketing Impact: got to be able to attract a tenant! But it may only be a Class C tenant.
--- Miscellaneous: anything you want to do that doesn't fit in above categories. Make SURE it adds value though and is NOT just a personal preference!

3) You're overspending on rehabs!
- Willing to bet you are rehabbing like you'll be living there, instead of rehabbing as rentals. 
- Write this down, "MAINTAIN TO THE NEIGHBORHOOD!" Tolerence of 5%, at most 10% - otherwise you're either a slumlord or thorwing money away.

4) You need a new contractor!
- These are NOT Class A properties, so why are you hiring a Class A contractor? They will only do what they know and over-improve your properties.
- These are probably Class C properties, so find a Class C contractor(s) - definitely NOT a Class D hack. You should invest a LOT of time to find 2-3 of these guys, but properly manage them. EVERY contractor will take advantage of you in some way, if you let them.

5) Why didn't you properly research funding BEFORE you bought these?
- For where you're at, you've found a pretty decent loan. What's the prepay penalty? You can always refi in the future.
- Why do you have to do all 4 rehabs at once? If you pay cash to rehab one, you can then do a cashout refi on it much easier and use those funds for the next property. 
- Look into a personal line of credit. Just be sure to ONLY use it for your properties and check with tax professional on what documentation you will need to be able to writeoff as business expense/interest.

6) You WILL have an issue with title work!
- In Michigan, you only get a tax deed when buying at county tax foreclsure auction, not a warranty deed.
- Lenders will NOT recognize this deed.
- You will want to find a title company willing to research (for a fee) if county met all state legal requirements on posting proper notices for their tax foreclosure. Otherwise, you will have to hire attorney to go through 4-6 month court process to Quiet Title (cost $1500+ each).
- We have a good referral for a title company that does this for us!

7) What kind of mentor do you have, that's missed educating you about all this stuff AHEAD of time?
- How much have you paid them?

DM us if you'd like better advice than what you've been getting!

@Priscilla C.

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

Why is Property Class so important for investors to understand and apply in their investing strategies?

Because the Property Class dictates the Class of the tenant pool that the property will attract.

The Tenant Class greatly impacts rental income stability and property maintenance/damage by tenants.

Both Property Class and Tenant Class affect what type of contractors, handymen and property management companies will work on a property.

If you buy & renovate a property in Class D area to Class A standards, what Tenant Class will rent it?

Or, if you put several Class D tenants in a Class A four-plex, what do you think will happen to the property?

So, if you fail to apply the correct assumptions to a property, your expectations won’t be met and it may even be a financial disaster.

We use the following to rank Property Classes, in order of importance:

• Property Tenant Pool: closely linked to location, but not always.
• Property Location: closely linked to tenant pool, but not always.
• Property Condition & Amenities: it’s important to, “Maintain to the Neighborhood.”

Key metrics for each Property Class:

Class A Properties:
Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years.
Tenant Default: 0-5% probability of eviction or early lease termination.
Section 8: Class A rents are too high and won’t be approved.
Vacancies: 5-10%, depending on market conditions.
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.

Class B Properties:
Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions.
Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
Section 8: Class B rents are usually too high for the Section 8 program.

Class C Properties:
Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
Tenant Default: 10-20% probability of eviction or early lease termination.
Section 8: Class C rents usually meet program requirements, proper screening still recommended.
Vacancies: 10-20%, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.

Class D Properties:
Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
Tenant Default: 20-30% probability of eviction or early lease termination.

Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
Vacancies: 20%+, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.

Where did we get our FICO credit score information from?

Check out this chart:

Source: Fair Isaac Company

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

The City of Detroit has 183 Neighborhoods we’ve analyzed and ranked on a map on our website.

DM us if you’d like to discuss this logical approach in greater detail!

Refi if you can get a rate that leads to a payment around what you have now on the HELOC.

If you plan to hold the rental for 5+ years, you can even buy points to get a lower rate.

why are you trusting rental rates from an agent?

It's easy to use Zillow to check yourself!

What are the new property taxes and landlord insurance going to be once you buy it?

Why are you worried about S8?