All Forum Posts by: Lucas Schlund

@Marcus Watson do NOT try to use zip codes in the City of Detroit!

They cover too large an area and will lead to you either getting take advantage of or making a costly mistake:(

Investing in the City of Deroit should actually be done block-by-block. Unfortunately, that is too granular for OOS investors.

So, we recommend investing via City of Detroit Neighborhoods. There are 173 of them and you can find them in Google Maps & Zillow if you know how to search. We have color-coded 104 of them at our website. Working on the rest.

We rank them by Class A, B, C & D.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

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

Here’s our OPINION for the Metro Detroit market (always verify each area for yourself!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

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

What else can we assist you with?

@Lucas Schlund, where to look?  Start local.  

Get in the habit of looking at and inspecting what's happening re listings and sales in your local area.  Local = no more than 30-minute drive from your home base.

Yes, I mean going out and looking at the neighborhood, the property, the surrounding amenities, etc.  The more property you inspect, the more of an expert you will become in your area.

Once you feel comfortable with inspecting properties, learning the right questions to ask, understanding your local market, and HOW to evaluate each potential deal, THEN you will know a good opportunity when you stumble upon it.

You can transfer those skills into looking at other markets and will have some clues as to what makes a good deal.

Hi Lucas Schlund! One of the best one's you can use is from BP, but I believe you may have to be a PRO member. If not, another widely used one is dealcheck. 

Yes, just like @Jon Gibbens said, run your comps and never rely on the estimate that the platforms give you. If you don't have access to the MLS, I've found that Prop Wire is very good for running comps since it has option filters that will make your search easier and faster.

I wouldn't trust the value provided for either, I use propstream for a multitude of things, but I always run my own comps. The best way to do it is to use something like redfin to see what has sold in the same zip code and same neighborhood boundaries as your subject property within the past 3-6 months. Filter by +/- 12 years on year built, +/- 150 sq ft and see if there are any like comps that have sold and for what they've sold. 

The issue with using comps on any type of software, especially propstream or dealmachine is that they tend to use an "estimated value" of the homes that they are using for comps, not actually comparing to what has sold recently in the area or what is currently listed, not accounting for DOM (day on market) or other market shifts that play into realistic valuation of a property. As an example, you may have a property that one of those systems says has a "value" of X (let's say $500K), and they have all sorts of nearby "comps" that are in the same value range. However, when you pull up the current market, you see that nothing comparable has sold in the past 6 months, and that the currently listed properties have been on market for far too long, meaning this is an area where there are no buyers, no appetite for these homes. The home can be worth as much as you'd like it to be, if there is no one to buy the home or dispo it to, it might as well be worthless. 

I hope that all makes sense! Always run your own comps, don't trust software to do it for you.