Author: Ana Hernandez

Categories
Landlords

5 Signs that a Guest Is Now a Tenant

Photo from Unsplash.

So, you’re a landlord, and you suspect that one of your tenant’s “guests” has somehow transformed into a tenant themselves, without your knowledge. They’ve been staying for months in your property, and yet they’re not on the lease.

This can be a tricky situation to solve. That’s because you must allow your tenants to live peacefully on your property as part of their tenant’s rights, which means you can’t disturb or harass them unnecessarily. But it’s also your right to know if someone is staying for an extended period in your rental unit, be part of the lease agreement, and be held accountable for rent.

When you have unwelcomed residents on your rental property, they can threaten the well-being of your unit, since you won’t be able to hold them accountable for any damages they cause.

In this article, we’ll help you navigate this tricky situation and shed some light on why having unwelcome tenants can harm your rental business.

The Shift from Guest to Tenant: Why It’s A Big Deal

When you own a property and decide to rent it out, you have a particular set of expectations and agreements with your tenants. These agreements often involve things like rent payment, lease duration, and the overall management of the property. As a landlord, you have the right to control who occupies your property and under what conditions.

When a guest starts behaving like a tenant, it can cause serious complications. Let’s take a look at a few reasons why:

  • Unauthorized Occupancy: When a guest becomes a tenant without your approval, it means they’re occupying your property without going through the proper screening process. And every landlord knows a thorough screening process is vital for success in the rental industry. Without it, you’re faced with a security concern, as you do not know the occupant’s background or ability to meet your rental criteria.
  • Lease Agreement Violations: As a landlord, you have a lease agreement in place with your tenants, which outlines the rules, responsibilities, and terms of their tenancy. With unauthorized occupants, you can’t enforce the rules you laid out for your property. Add to that, you’ll also worry about potential violations beyond the property, such as noise complaints, parking violations, or HOA issues with little recourse.
  • Financial Implications: Guests who become tenants without your consent might not pay the proper rent amount or adhere to the agreed-upon payment schedule. This can result in a loss of income for you as a landlord, and enforcing the appropriate financial arrangements becomes challenging without a formal lease agreement.

So, the shift from being a guest to an unauthorized tenant can be problematic for landlords.

Let’s move on to the signs indicating a guest has turned into a tenant without your knowledge.

Signs You Have Unauthorized Tenants

Courts recognize various contracts to determine who is a tenant of your rental property. These contracts can include a written conversation, a written document, or a series of acts to be considered part of a lease.

However, different states have laid out different thresholds for the evidence showing a mutual arrangement for the rental unit.

#1 Extended Stay

One of the most apparent signs is when a guest exceeds the typical length of stay expected for temporary guests. If they have lived in your property for an extended period, they have likely transitioned into a tenant.

#2 Financial Contribution

Guests do not pay rent or share utility costs because they stay temporarily. But, when “guests” start contributing to rent, maintenance, or utilities, they’re considered a tenant.

#3 Belongings in the Unit

If you notice that a guest starts moving their belongings into your rental unit, they’re considered tenants. Whether they move their clothes or pets to the apartment, that’s a sign that they should start paying rent.

#4 Changes to the Property

Guests often don’t change the property significantly since their stay is temporary. If you notice alterations like new furniture, decorations, or maintenance work done without your knowledge, it could be a sign that they now consider themselves long-term residents.

#5 Change of Address

When they change their permanent address to the rental unit, you can consider guests a tenant. You may notice they are getting mail or delivery packages to your rental unit’s doorstep.

What Landlords Can Do With Unauthorized Occupants

At one point in your life as a landlord, you’re bound to deal with unauthorized occupants. The key is knowing how you can deal with the situation or avoid it entirely by having a well-written lease and thorough tenant screening. Here are five steps you can follow:

1. Include A Guest Clause In The Rental Agreement

As a landlord, include a clause in your rental agreement about guests, which outlines various factors when you can start considering a guest as a tenant. You can also include how to handle any issues with unauthorized tenants.

Having a guest clause protects your property while ensuring that your tenant knows the consequences when they violate it.

2. Reach Out to Your Tenant

The next step is to talk with your tenant and remind them of the lease terms regarding long-term guests. Use this opportunity to gather information on the names of the guests and how long they’ve been staying at the apartment. Once you address the situation with the tenant, it lets them know that you know about it and are willing to enforce the rental agreement’s policies.

Ideally, the unauthorized occupant will vacate the property after bringing this to the tenant’s attention.

3. Remedy the Situation

If talking to the tenant didn’t resolve the situation, you can send a 3-day notice to your tenants to remedy the violation or vacate the property. Once the notice period specified in the notice has passed, landlords can proceed with a formal eviction process if the unauthorized occupant continues to stay in your unit.

4. Document Everything

Keep detailed records of any communication, payments received, and evidence supporting your claim that the guest has transformed into a tenant. Having a hold of this documentation will be crucial if you need to take legal action later on.

However, as a warning, Never accept any form of financial contribution from guests or agree to accept payments. Because once you do that, you’re entering into an informal landlord-tenant agreement. Guests can become tenants with a verbal agreement, and they will have all the rights of a paying tenant, even though you don’t have a written contract!

5. Seek Legal Advice

If the guest refuses to comply with your requests or if the situation becomes more complex, it’s advisable to seek legal advice from a professional who specializes in real estate law. They can guide you through the necessary steps and help you protect your rights as a landlord.

Protect Your Property From Unauthorized Tenants

Maintaining control over your property and ensuring that guests respect the boundaries you’ve set is essential for the success of your rental business. And determining whether a guest becomes a tenant is vital to ensure your property is not at risk from unwelcome “guests”.

That’s why you have to keep an eye out for signs guests have become tenants so that you can take appropriate action and keep your property under your control.

Want more tips on investing in the Metro Detroit area? Sign up for our newsletter or attend one of REIA of Oakland’s meetings for more professional insights.

Categories
Wholesale Wholesaling

Responding to Seller’s Objections to Wholesale Offers

Caption: Image byAnnika Wischnewsky on Unsplash

You’ve made your offer to a seller. You did your due diligence and made a great offer, and they have some objections. How you respond could make or break this deal. Understanding the seller’s objections and how to respond is crucial to obtaining the assignment contract.

Making the Initial Offer

Having a thorough offer will help you justify your offer. Include a detailed market analysis that includes comparable properties in the area that have sold within the last year to back up your proposal.

Add a list of your transaction costs. Being transparent about your costs will help you justify your offer price and show them the expenses you pay within the purchase price.

Being upfront and honest will go a long way in making the seller see your offer as genuine and lead to increased trust.

Seller Objections

Sellers voice objections for multiple reasons, below are the most common. Your understanding and response to their objections can help persuade them in accepting the offer you have on the table.

  • I’m Just Not Ready

The seller is procrastinating. They want to sell the house, they just need a nudge in the right direction.

Suggestion: Explain you’re there to close the deal and be respectful. Do not be condescending! They were interested in selling and you wanted to buy the property. Remind them time is money for both of you, the sooner they sign the sooner they will have the money they need. Have everything they need to sign at that moment. As you speak, hand them the pen and the contract. Worse case, set a followup date with them.

  • Why Should I Trust You?

Sellers may need reassurance about your credibility due to all the online scams and warnings..

Suggestion: All you can do is be patient, be confident and perhaps share addresses you’ve previously wholesale.

  • I Need to Think About This a Bit Longer

The seller may not be serious.  Your number one goal should then be to find their “hot button” and what motivates them. Reinforce how selling the home will benefit the seller. Remind them about the contracted time agreement and you would hate to see them lose the opportunity to get the assignment. Be empathetic but firm.

Caption: Image by Bruno Guerrero on Unsplash
  • I Think You Are Low Balling Me

The seller wants the best price possible, but you do too. Ask why they feel you are low balling them. Go over the numbers in your proposal to justify your offer. Reassure them you are offering the best price you can. Use your transaction analysis as your proof.

Remind the seller that you can close quickly with no inspections or other delays. Again, focus on their motivation! You can even ask them, “Do you want to list with an agent and wait 6 months or close with me in 6 days?”

  • I Need to Run This By My Significant Other (or someone else)

They wouldn’t be this far into the deal if they hadn’t already discussed it with their significant other (or someone else. This is just another delay tactic for them to solicit other, hopefully higher, offers.

First, ALWAYS be sure to confirm who the decision-maker is before making an offer. You may even want to confirm this over the phone before setting an appointment. If they still stall, you may have to play hardball with them and tell them your offer is only good until you leave. 

  • There are Other Buyers Interested in the Property

Just another stall excuse to solicit higher offers.

Again, your options are to find their motivation and focus on that or play hardball.

  • What Makes You a Better ChoiceThan Someone Else

Sometimes sellers are emotionally attached to a property. Maybe they grew up there or often visited and have fond memories. The only way to overcome emotional objections is with empathy and establishing rapport. This can be time consuming, so be prepared. 

Keeping Your Eye on the Prize

At the end of the negotiation, you want to walk away with an assignment contract. Listening to the seller and using some psychology to understand a seller’s objections and how to respond can  help persuade your seller that the offer you made is exactly what they need. Being empathetic, respectful, and professional and having a thorough market analysis, can be the solution to your seller’s financial objections.

REIA of Oakland members receive a monthly newsletter, industry-leading resources, and informative monthly meetings. If you haven’t taken advantage of what they offer Michigan property investors, contact them today and become a member!

Categories
Short Term Rentals

STRs: How Short-Term Rentals Can Handle a Recession

Photo from Pexels.

As the months of uncertainty go on, one thing that keeps Airbnb owners up at night is the potential for a looming recession. And it’s not a questionable concern, especially when Americans have been constantly told since mid-2022 that a recession is just around the corner.

In fact, as of May 2023, the New York Fed recession probability indicator suggests a 68.2% chance of a recession happening in the US in the next 12 months—the highest reading in over four decades. That in itself is already a great reason for distress.

So, before you frantically search for a panic room, let’s navigate how you can best leverage your property investments and make them recession-proof.

Airbnb in a Recession

During a recession, it’s common for travel patterns to shift as people adjust their spending habits. While luxury travel may experience a decline, the short-term rental industry, including Airbnb, has shown some resilience in previous economic downturns. For example:

  • In the travel industry’s post-2020 recovery, big hotel chains, like Hilton, only started to see positive earnings in the fourth quarter, with revenue per room increasing by 60.4% from the previous year—still nowhere near pre-pandemic levels. In contrast, Airbnb exceeded pre-pandemic sales with a fourth-quarter revenue of $1.5 billion, a 38% increase from the same period in 2019.
  • A report by Airbnb showed that long-term stays of 28 days or more have become more popular as it doubled in the first quarter of 2022 compared to the same period of 2019. The reason cited was growing work flexibility and the rise of remote working.

While short-term rentals may demonstrate relative resilience during recessions, market dynamics can vary based on location, local regulations, and individual property factors.

For instance, short-term rental investors must be informed about the local market during an economic downturn, because some travel destinations may experience an unwelcome shock from traveler elasticity.

How to Recession-Proof Your Airbnb

If your property is in a tourism destination, you will likely stay profitable during an economic downturn. But, if you’re located in an area saturated with STRs and limited tourism attractions, staycationers are spoilt for choice—making staying afloat challenging.

But worry not. You’re not alone. After all, no company or industry is 100% safe from an economic recession.

Here are five ways you can navigate a recession:

1. Accept Medium and Longer-Term Guests

Think about embracing monthly and extended stays to maintain high occupancy and a steady flow of income. Doing so prevents you from keeping your calendar empty for days and keeping your property consistently booked.

Plus, you can encourage more guests to book longer stays if you offer a discount on monthly bookings—it’s always good to strive for customer retention.

2. Offer Flexible Pricing Options

In an economic recession, you have to factor in that demand might become more price-sensitive, and competition within the short-term rental market could intensify. Often, most property owners will bring prices down, and you can also do that and see if it brings you good results. If not, you can do the exact opposite by charging higher than your local competition. A bit ironic, but this capitalizes on the concept of “perceived value.”

You have to let your customers recognize your property’s value so they’ll be more willing to pay your asking price. On top of exceptional property and service, you can add a few more amenities, like:

  • Bikes or scooters if your property is in the suburbs
  • Dog-walking services for pet-friendly places
  • Fast and reliable wifi to attract co-working

Just to name a few.

3. Focus on Exceptional Guest Experiences

Delight your guests with experiences they’ll remember. As we mentioned earlier, adding amenities that guests want will help you capture more customers. According to Airbnb, most travelers say amenities are their top priority for a great trip—which is more crucial if you want guests to stay longer.

So, pay attention to interior design & cleanliness, provide essential amenities, and add thoughtful touches that make your guests feel special. Word-of-mouth and positive reviews are priceless. In fact, 88% of consumers trust online reviews as much as personal recommendations.

4. Build Relationships with Local Businesses

Form alliances like the Avengers!

Partner with local attractions, restaurants, and shops to offer exclusive deals to your guests. This will enhance your customers’ experience and strengthen your ties within the community.

Remember, collaboration is vital in tough times.

5. Leverage the Power of Social Media

Maximize the power of social media to boost your property’s visibility, engage with potential guests, and drive bookings. Here are three ways social media can help you recession-proof your Airbnb:

  • Showcase your property: Use platforms like Instagram, Facebook, and Pinterest to visually highlight your Airbnb property’s unique aspects. Share high-quality photos and videos that show your amenities, decor, and local attractions to entice potential guests.
  • Engage with followers: Respond promptly to comments, messages, and inquiries on your social media platforms. Engage in conversations, provide helpful information, and address potential guests’ concerns. Active engagement builds trust and shows your commitment to providing an exceptional guest experience.
  • Provide local insights: Share tips, recommendations, and insights about your location. Be a valuable resource for travelers and staycationers by sharing information about local attractions, events, restaurants, and hidden gems that potential guests might appreciate. Position yourself as a trusted source of local knowledge and build customer relationships to get repeat bookings.

Thriving Beyond A Recession

No one can predict the future with certainty, but historical data and trends indicate that the short-term rental industry, including Airbnb, has shown resilience during previous recessions. As travelers seek cost-effective options and prioritize domestic leisure travel, STRs offer an attractive alternative.

However, staying informed, monitoring market conditions, and adjusting your approach to cater to evolving guest demands is vital to stay afloat.

Remember, it’s crucial to remain prepared and proactive to navigate any economic climate successfully. So, keep a positive mindset and adapt your Airbnb business to thrive even during challenging times.

Join a REIA of Oakland meeting for more tips on managing your property investments.

Categories
Flipping

3 Best House Flipping Shows on Discovery+: Lessons Learned and Caveats to Keep in Mind

Source: Annie Gray from Unsplash.

Are you looking for inspiration and a bit of entertainment to fuel your house-flipping endeavors? Look no further than Discovery+’s selection of top-rated shows featuring experienced professionals.

Each show offers valuable lessons on how to achieve success in the world of flipping. From navigating tricky negotiations to making quick decisions for maximum profit, these transformation stories will both surprise and entertain you.

While it’s important to approach these shows with a grain of salt, there’s still much to learn from them. Here are the three best on Discovery+ to get you started.

#1 Flipping 101 With Tarek El Moussa

Flipping houses can be a daunting task, but Tarek El Moussa’s show FLipping 101 makes it easy. With over 300 homes flipped in his career, Tarek is a seasoned expert in the real estate industry.

Source: HGTV

He uses his wealth of experience to help novice investors navigate the tricky waters of house flipping and turn a profit. With Tarek’s guidance, viewers can learn how to assess a property, create a budget, and manage a team of contractors. Flipping 101 is a must-watch for anyone interested in turning their passion for real estate into a lucrative business.

What sets FLipping 101 apart from other house-flipping shows is Tarek’s emphasis on function over form. While a pretty bathroom might be tempting, Tarek understands that it needs to be functional for everyday use to avoid wasting space and money. By sharing his own mistakes, Tarek helps viewers avoid costly errors and achieve success in their own flipping endeavors.

Don’t miss out on the opportunity to learn from Tarek’s expertise—watch Flipping 101 With Tarek El Moussa on Discovery+.

#2 Fix My Flip

When it comes to flipping houses, doing things right is critical to achieving success. After all, why invest time and money into a project that won’t yield the desired outcome? That’s why I always say, “What’s the point in doing something if you’re not going to do it right?”

But if you’re struggling to achieve your flipping goals, don’t despair. Help is at hand with Fix My Flip.

Source: HGTV

With their expert knowledge and skills, they can take any fixer-upper and turn it into a masterpiece, so you don’t have to settle for a sub-par renovation job.

One of the most valuable lessons from Fix My Flip is the importance of making decisions based on numbers rather than emotions. Flipping houses can be an emotional experience, given the significant time and money investments involved. Remain objective and analyze the numbers to ensure that your project is profitable: that’s the moral of this show’s story.

So, if you’re ready to learn from the experts and transform your fixer-upper into the home of your dreams, tune in to Fix My Flip on Discovery+ today.

#3 Property Brothers

Well, well, well… If it isn’t the Property Brothers.

With over a decade of experience in the industry, the Property Brothers are the go-to experts for anyone looking to buy or sell a property. Their ability to stay within budget while still overdelivering on their clients’ dreams is a testament to their exceptional skills.

Source: HGTV

Whether you’re a first-time homebuyer or a seasoned property owner, these household names can make all your wildest real estate dreams come true. From finding the perfect home to transforming it into a stunning masterpiece, these brothers have got you covered.

For inspiration and guidance in your own real estate endeavors, tune in to Property Brothers on Discovery+. With their expert and captivating transformations, you won’t want to miss a single episode.

Caveats to Keep in Mind While Watching Flip Shows

While these shows can be inspiring and entertaining, remember that they may not always reflect the real challenges and risks involved in flipping houses. It’s crucial to approach them with a grain of salt and consult with professionals to ensure that you’re making smart decisions.

Here are some caveats to remember:

  • Flips always have some risk, no matter the cost of repairs and market conditions. These shows make flipping look easy, but it takes hard work and knowledge to be successful in this business.
  • Don’t expect your flips to turn out just like the ones on TV. The timelines, budgets, tools, and markets in real life may be completely different.
  • TV shows often leave out important details and show the most attractive parts of a flip. There’s no way to predict whether your flips will turn a profit or even break even—and that’s okay!
  • Flipping houses takes time, money, and experience to set yourself up for success. Working with experienced professionals can help you learn the ropes and reduce risk.

Ultimately, these shows are fun entertainment, but shouldn’t be taken too seriously when considering your own house flipping projects. Do your research and consult trusted experts before embarking on any major renovation project—it’s never as easy as it looks.

Learn From These Shows, But With a Grain of Salt

Discovery+ offers a great selection of top-rated shows that provide valuable insights and lessons on how to achieve success in the world of real estate flipping, such as how to deal with difficult situations and interact with others in a variety of contexts.

From Tarek El Moussa’s emphasis on function over form in Flipping 101 to the importance of making decisions based on numbers rather than emotions in Fix My Flip, and the Property Brothers’ exceptional skills and expertise, each show offers something unique for real estate flippers.

With the right guidance and hard work, you too can turn your passion for real estate into a profitable business. Tune in to Discovery+ today to take your flipping endeavors to the next level.

And, once you’ve feasted on several episodes, join as a REIA member, and join our community of flippers and other real estate investors by subscribing to our newsletter, and joining our upcoming REIA meeting.

Categories
Landlords

Should You Allow Tenants with Pets? If So, How?

Source: Justin Veenema on Unsplash

Though most of us have pets that we love more than our children, you may be hesitant to allow pets into your precious rental properties. It’s understandable—but do the benefits outweigh the risks?

Pet owners are everywhere, especially here in the US. According to the American Pet Products Association’s National Pet Owners Survey, there are approximately 65.1 million households that own at least one dog, while 46.5 million households own cats.

As a landlord, allowing pets in rental units can be difficult. On the one hand, there are pet-owners out there who will only rent properties that allow pets—they consider their furry friends a family member. But on the other hand, pets can cause property damage and create noise disturbances for other tenants (especially if it’s within an apartment building or multi-family complex).

In this article, we give you a low-down on the risks and benefits of allowing pets and include info on protecting your property while avoiding liability.

The Risks and Benefits of Allowing Renters with Pets

The majority of renters own pets, and businesses outside of real estate are capitalizing on the trend by catering to pets and their owners. For example, brands like Starbucks are offering pet-friendly products and experiences, promoting a positive attitude among pet owners.

Source: bark.co

Like any business, landlords pet owners are a lucrative market to tap into.If you consider allowing pets into your property you run into an equal amount of benefits and issues:

Be vigilant with your pet and tenant screening, and you’ll reap the benefits and mitigate risks. Here’s how.

Decide and Inform What You’ll Allow

It’s crucial to be clear about what is and isn’t allowed when it comes to pets in your rental property. That’s why it’s a good idea to include pet requirements in your lease agreement, as well as a pet addendum.

The pet addendum should outline specific rules and regulations related to pets. It should include:

  • The number of pets allowed
  • The types of animals permitted on the property

The addendum should also include clauses that protect you as a landlord:

  • Allowing you to remove aggressive or dangerous pets while allowing the tenant to remain
  • Revising pet rules with 30 days’ notice, and outlining penalties for violating pet-related rules

What to Pet Rules to Include

When creating your pet addendum, consider the following:

  • Common pets in your area
  • Potential damage each pet could cause

You can then include specific requirements in your lease agreement and pet addendum to address these concerns. For example, you may want to limit the number of pets each tenant can bring and exclude larger dogs or exotic pets.

To protect yourself as a landlord, include key clauses in the lease explaining the agreement for responding to problems concerning pets. These clauses should clearly outline the procedures for dealing with pet-related issues and any potential consequences for tenants who violate the rules.

By including a pet addendum in your lease agreement, you can ensure that both you and your tenants are on the same page regarding the expectations and guidelines surrounding pets in your rental property.

Get Insurance and Follow the Law

Before allowing tenants with pets, check your insurance policy for any limitations, exclusions, or coverage requirements. These regulations will vary from one state to another.

For instance, Michigan landlords must also comply with state pet laws, such as requiring pet vaccinations and enforcing proper pet waste disposal. Landlords should also ensure responsible adult supervision of pets in common areas. Visit the Michigan government website for a complete list of pet laws.

Follow Fair Housing Laws

Be mindful that a Fair Housing Law protects disabled people who need animals for their emotional well-being and physical safety. The term “disabled” now includes the blind, paralyzed, those with clinical depression, and those with post-traumatic stress.

You can request a note from their physician to verify their condition and animal assistance requirements to keep things documented.

Charge Higher Fees for Pet Owners

Landlords can charge pet-owning renters a premium in three ways due to the additional risks involved in allowing pets into the property. Here are the three:

  • The first is a pet deposit, which is refundable and ranges from $100-$300, collected at the beginning of the lease to protect the property from damages related to owning a pet.
  • The second is a nonrefundable pet fee, collected at the start of the lease, usually 25% of the first month’s rent, acting as compensation for the property damage risks resulting from allowing pets.
  • The third is a “Pet Rent,” a monthly fee for keeping a pet on top of the rental price that ranges from $25-$50/month.

Screen the Tenant and Pet

Conduct thorough screenings that include feedback from references and past landlords. During interviews, landlords should ask about the pet’s vaccinations, licensing, and past behavior.

Clear expectations for pet owners should be outlined in the lease agreement, including requirements for keeping shots, licenses, and tags up to date, registering the pet with the landlord, and taking responsibility for any harm caused by the pet.

Also observe physical and behavioral characteristics of the pet, such as aggression or friendliness, interaction with the owner, and whether the pet is spayed or neutered. By taking these factors into consideration, you can make informed decisions about whether to allow pets in their rental units.

More Tenants and Extra Income: Consider Allowing Pets

With nearly 90 million households owning a pet, it’s safe to say American love their fuzzy friends. So, ignoring that fact might lead to lost profits if you’re a property owner. As long as you follow our tips above and be careful with your contracts, allowing pets into your properties only has upsides.

Learn more about your rights as a landlord over tenants’ pets, reach out to us today to connect with our team of experts. Join REIA and subscribe to our newsletter to get the latest news in real estate.

Categories
Wholesale Wholesaling

Some Sellers Are ALWAYS Desperate: Tips To Wholesale Metro Detroit Real Estate in 2023

A hand holding house keys with a door behind.
Source: Maria Ziegler from Unsplash.

The market is constantly changing and in the real estate industry, so you have to adapt to stay ahead of the game. As a real estate wholesaler, you have to know what’s happening in the market you’re operating in—the market isn’t the same playground as it was last year.

In this article, we’re looking specifically at Metro Detroit’s real estate market scene. We’ve provided new tactics and strategies to help you leverage current market trends, allowing you to serve potential clients to the best of your ability—and, of course, make really good profits.

Real Estate Wholesaling in Metro Detroit 2023

Higher prices and mortgage rates make buying properties a little more difficult for buyers. They’re no longer in a buy-buy-buy state of mind, being more careful with their purchases this year. So the median home sale prices in Metro Detroit are almost 7% down from last year, and inventory has risen 36%.

Median home sale prices in Metro Detroit.
Source: Axios Detroit.

Still, even with property prices dipping overall, the Metro Detroit market is still hot in several cities, where prices are stable and properties are selling over asking price, according to Crain’s reports. These “hot markets” include St. Clair Shores, Westland and Ypsilanti Township. Other markets to look out for are also Canton Township, Wixom and Sterling Heights, Novi, and Ann Arbor.

Experts are predicting that the market will skyrocket in demand, competition, and property prices in the near future, especially if the market follows typical trends that we’ve seen in past years.

In other words, we’re expecting Metro Detroit to become a seller’s market this 2023, where the demand will exceed the supply. There’ll be many interested buyers, but the inventory will be low. That said, buyers will be willing to spend more for a property, and they won’t have that big of a negotiating power. There might even be bidding wars that’ll drive up the property’s price!

For wholesalers, this is both good and bad news. The good news is that buyers will clamor over the deals you get. They’ll have a harder time looking for properties to purchase, so they’ll look to middlemen like you to get the job done. The bad news, of course, is that the sellers will have the upper hand, and you might find it challenging to find below-market-price properties to make a wholesaling profit.

So, what can you do this year to continue reaping profits in 2023?

4 Expert Insights to Successfully Wholesale Real Estate This Year

With everything that’s happening in Metro Detroit, we’ve come up with our top tips you can do to stay profitable amidst the twists and turns. These are based on our own experience, being experts in Metro Detroit real estate for over two decades (and counting!).

#1 Prioritize All-Cash Buyers

There is one type of Metro Detroit buyer that you can’t do without in today’s market: an all-cash buyer.

Because of the rising interest rates, you’ll have a challenging time convincing buyers to purchase homes on credit. Metro Detroit is already one of the lowest mortgaged cities, with only 1,700 mortgages given in a city of 670,000 people in the previous year.

So look for liquid buyers who, when they offer all-cash, will likely win the homes they bid on. All-cash purchases often hasten the homebuying process and make a seller more confident in the transaction.

Cash is king, that’s why platforms like Knock, Opendoor, Divvy, Homeward, and Ribbon Home offer cash guarantees to prospective homebuyers. Prioritize all-cash transactions to turn a faster and easier profit.

#2 Focus on the “Starter Home” Market

Expand your buyer’s list with new audiences. For example, the City of Detroit is identified as one of only four large U.S. cities where renters could recently afford a property. Renters actually make 31% more than the income they need to buy a “starter home”, so there are a bunch of locals seeking to purchase instead of renting a property.

Bar chart about cities where renters could afford a starter home.
Source: Point2homes.

So have your pulse on the market to know which areas are affordable and perfect for entry-level housing, including the ones with distressed properties and foreclosed listings below market value. Having excellent “starter home” deals allows you to potentially capture a large pool of clients—especially since half of the city’s population is currently renting and dreaming of owning a property.

#3 Build a Solid Reputation

Wholesalers often get flak as meddling men. But the reality is that you’re a key middleman. Closing a deal on the market is not just about buying and selling—it’s about the finer details. When equipped with proper knowledge and skills, real estate wholesalers should be seen as expert deal-finders.

So, know your stuff when finding property and dealing with buyers. Don’t fall into the trap of:

  • Overestimating the ARV (After Repair Value): You need the skills and data to properly analyze comps. Avoid overestimating the retail value of the home, or buyers will either overpay (and never work with you again) or simply turn you down (and also never work with you again).
  • Underestimating the ERC (Estimated Repair Costs): You’re not a flipper, which means you might unknowingly work with dishonest contractors. Buyers could end up uncovering hidden property issues they didn’t budget for—staining your reputation.

Apart from brushing up on your technical know-how, get to know people in your industry and keep your name in the game by attending local REIA (Real Estate Investors Association) meetings. Keeping your network active will help you save time and money in the long run, allowing you to seal more deals.

If you have the resources, also build a website, social media presence, have targeted advertising, and keep sellers updated with the latest industry trends—anything to put your name out there and be top-of-mind. You’ll get way more visibility this way, building a good reputation in the scene.

#4 Restrategize Your Marketing Efforts

Following the earlier thought, develop a strong marketing strategy and personal branding for yourself. Nowadays, it takes more than pasting your name on a bus bench to get prospective clients.

General rule is to put effort into high value leads, such as individuals that want to buy or sell actively and aren’t casually browsing. Move your marketing money where you can regain and profit from it, too.

Imagine being a prospective seller who wants to get a property off his hands, and he begins by Googling “selling my home quickly in Metro Detroit”. Chances are, he will land on generic real estate websites. Some businesses might not even be in Metro Detroit. But if you come out with a unique value proposition and get straight to the facts, that’s cost and time savings on one lead. Same goes for buyers.

And don’t stick solely to online channels! Capitalize on your home court advantage.

Call up the Metro Detroit title office and see who has purchased or sold homes, preferably in cash in the last 5-10 years. Also attend foreclosed property auctions to scout investors that need guidance on the legwork involved, and keep an eye out for sellers that are renovating or flipping their properties.

Real Estate Wholesaling in Metro Detroit: Go Big or Go Home

We’ll likely see the market increase in demand, competition, and property prices this year. With Metro Detroit becoming a seller’s market soon, you’ll find an influx of interested buyers clamoring over deals, but you’ll also have to deal with sellers that have the upperhand.

So prioritize all-cash buyers, focus on starter home areas, build a solid reputation, and restrategize your marketing monies to ensure that you’re more than profitable this year.

Join us as a REIA member and attend our upcoming REIA meeting, and sign up for our newsletter and stay informed with the latest news—it’ll help you be successful in your wholesaling endeavor.

Categories
Short Term Rentals

Should You Invest in Airbnbs? 2023 Short-Term Rental Real Estate Forecast in Detroit, MI

Beautifully decorated short-term rental studio unit
Source: Andrea Davis on Unsplash

What accommodation did you book for your last vacation?

We’ll bet $100 that you Googled something like “tiny home” or “farm stay” instead of the usual hotel room!

The US real estate market is filled with short-term rental market opportunities, where people gravitate towards cozy, picturesque rentals instead of cold, clinical hotel rooms. Millions of listings sell an excellent guest experience, and the market for unusual Airbnbs grew tenfold during the pandemic.

Still, some hotspot, short-term housing markets like the City of Detroit remain overlooked. Many investors focus on the likes of San Francisco, California, and miss out on the goldmine that’s largely still untapped in Michigan.

So, in this article, we’ll go through market trends and statistics that prove the potential of the Detroit short-term rental property market in 2023 and beyond.

Short-Term Property Statistics in the City of Detroit

Let’s start with the numbers. How is the Detroit real estate market performing in 2022?

Understanding the data behind the average Detroit property investment will give you an idea of the city’s short-term rental capabilities, so you’ll know what returns to expect. Besides handling renters and maintaining the property, financial viability will always be the driving factor in every good investment.

So, here’s a snapshot:

  • Affordable properties: The median price is $85,000 with 7.6% increases year-over-year, making it an affordable city. And with a price per square foot of $75 (less than half of the $222 national average), you’ll easily find Detroit properties that fit your investment budget.
  • Excellent cash flow: The rent-to-price ratio is roughly 1% to 1.5%, depending on which Detroit neighborhood you choose to invest in. With this range of ratios, you’ll easily generate strong cash flows that’ll help pay off the initial investment and start pocketing returns.
  • Profitability with short-term rentals: The average rental income for short-term rental investing is $2,246, which is a huge difference from the already-profitable traditional Detroit investing where rental income is around $979.
  • High occupancy rate: Average Airbnb occupancy rate is 50%, whereas most US markets have an average of roughly 20% to 40%.
Source: AllTheRooms

Still, be aware that the City of Detroit only allows short-term rentals in your primary residence or owner-occupied properties with two to four units. You can read more about this rule from the local government’s website to ensure that you comply accordingly.

2023 Forecast for Short-Term Rentals in the City of Detroit

As an investor, looking at market forecasts is almost as crucial as checking historical trends. So let’s take a closer look at the forecast for short-term rental properties in the City of Detroit, to help you decide if renting a Detroit home in 2023 is worth your time and money.

According to Zumper, 302 short-term rental properties are currently listed in the city. This figure may seem small compared to the literal thousands of long-term rentals you’ll see on Zillow, but it still indicates a growing short-term rental market in Detroit neighborhoods, as we’ll see in the statistics below.

1. Growing Average Rent Prices

Average rents dipped in major cities across the nation recently. But Metro Detroit as a whole is faring well, where the fastest growing rent year-on-year in the area is in Ann Arbor, where average rent has gone up 23.5% since last year—that’s a 16.1% rent increase.

The chart below shows a 20% rent increase for three-bedroom rentals in the past year:

Source: Zumper

Increasing rent means increasing cash flow for you as the investor. Combine rent increases with the impressive 50% average occupancy rate we mentioned, and you’re looking at excellent returns in the City of Detroit.

2. Increasing Property Values and Appreciation Rates

Detroit properties are increasing in value, which means you’ll get to reap excellent equity gains if you hold onto them for the long haul. Zillow reported that Detroit home values are is at $69,330 (very affordable), and Norada said the values increased by 23.7% in the past year (very valuable):

Source: Zillow

The latest forecast announces that Detroit median home prices will rise by 2.1% from 2022 to 2023.

The city’s real estate also appreciated 89.7% in the past decade, placing it in the top 30% of all cities nationwide for property appreciation. In the last 12 months, its rates have remained among the highest in the country, which explains why short-term rental investors continue to find success in the city.

3. Improving Tourism in the City of Detroit

Michigan’s Motor City has had a unique culture, distinctive architecture, and revitalization renewal efforts for the past years The city is now a prominent tourist destination, called by Time Magazine a “newfound glory,” where travelers are playing a role in its vibrant economic growth.

Eating alone is becoming a real treat in the city, where one can experience Indian cuisine in the Midnight Temple near the Eastern market, immerse themself in Chef Maxel Hardy’s rosemary-filled Rosemary cafe then stray into the adjacent cigar lounge, Byrd. Or, chow down fresh seafood boils straight from the Great Lakes at What’s Crackin’.

The city has dramatically been revitalized from “dangerous” to vibrant and impressive. Today, people are saying, “I didn’t expect the city to be like it is, it’s really amazing!” and “We got the chance to see the city and I really would recommend [coming] here.”

Owner of Multilingual Detroit Motown Tour, Dildora Damisch, shares, “This year, I cannot believe, I am booked every single day! And people coming from all over the world! Unbelievable.” And why wouldn’t she, with more than 2 million international visitors in one year alone?

Accommodations are wildly increasing in the City of Detroit to serve the influx of travelers. There are over 500 new hotel rooms currently in development, including the 158-room Cambria Hotel opening in late 2022 (with golf simulators, Bluetooth mirrors, and the  Detroit Taco Company Bodega), and ROOST Apartment Hotel is set to open in early 2023 in Book Tower, a restored iconic Detroit building.

Your short-term rental could easily leverage the city’s growing tourism industry.

2023 is a Great Year for Detroit Short-Term Rentals

Without a doubt, 2023 is an excellent year to either expand your portfolio or start investing in the City of Detroit’s short-term rental property market. With growing average rent prices, increasing property values, and improving tourism in the city, impressive historical trends will likely continue their upwards direction for years to come.

Want to learn more about Detroit real estate? Join as a member, subscribe to our newsletter, and attend our upcoming meetings! We’re doing everything we can to ensure that you’re prepared, equipped, and confident enough to reap great returns from Metro Detroit.

Categories
Short Term Rentals

STRs: 5 Things to Consider When Turning Your Rental into an Airbnb

In times when rental markets are skyrocketing, landlords can still profit from their rental property by listing it on Airbnb as an alternative to long-term tenancies.

Converting your long-term rental property into a short-term rental (STR) can offer exciting revenue growth opportunities.

For example, a single-bedroom apartment renting for $1,395 in downtown Detroit can fetch $110 to $150 per night as an Airbnb listing. That’s a 200% to 300% bump, assuming it has a high occupancy rate. STRs can generate higher income, because they charge a premium for flexibility and convenience.

But before taking the plunge and converting, it’s important to consider some key factors to ensure you’re making a smart investment decision that aligns with your goals and maximizes your returns.

Here are five things to take note of before switching your rental into an Airbnb.

1. Local Laws and Regulations

When you consider converting your rental unit into an Airbnb, the first step is to familiarize yourself with the local laws and regulations, including tax implications. Different states have specific rules governing short-term rentals, and you don’t want to find yourself on the wrong side of the law—that will cost you money instead of earning money.

For example, short-term rental units in the City of Detroit can only host for no more than 90 days per calendar year, while Los Angeles allows up to 120 days per calendar year.

If operating a short-term rental property in your area is illegal, it’s best to avoid it altogether.

You can learn more about the City of Detroit’s short-term rental laws and regulations here.

2. Risk Tolerance

Short-term rentals come with their own set of risks, including potential damage to your property and financial instability. Of course, a long-term tenant can accidentally burn your property as quickly as a short-term guest. That’s because they’re guests and may not treat your home with the same level of care as an owner does—even with background checks.

What’s important is that you consider how you’ll handle any damages or repairs that may arise and whether you have the financial means to cover these costs. With Airbnb Host Guarantee Program, you can get up to $1 million in protection against theft and damages, but it doesn’t protect valuables like artwork and jewelry.

You can also review your homeowner’s insurance (get one if you don’t have it yet) to see if you have the liability and damage coverage before taking in guests.

3. Net Operating Income & Cashflow

Crunch the numbers and determine whether converting to an STR will increase your property’s profitability. Consider the potential rental income you can generate, factoring in seasonal fluctuations and any expenses associated with running a vacation rental.

Here’s a simple equation to calculate your net operating income:

Gross Monthly Income – Operating Expenses = Net Operating Income (NOI)

If you determine that you’ll get a significant increase in your NOI, then we highly recommend you convert to an STR. That’s because if you have a stronger cash flow, you can reinvest your profits to grow your real estate portfolio and make more money.

Meanwhile, converting to an STR may not be worthwhile if the value is almost the same as your long-term rental income or a trivial increase.

4. Time

Another crucial aspect to consider is your time. Managing a short-term rental can be more time-intensive than a long-term rental. Consider the additional responsibilities involved, such as planning a marketing strategy for your property, handling guest inquiries, cleaning, and maintenance.

Assess whether you have the bandwidth to dedicate the necessary time. Your time is valuable, so ensure the investment aligns with your availability and lifestyle.

5. Management Fees

If you realize you don’t have enough time to manage an STR, you can hire a property manager to do all the heavy lifting. Short-term rental managers do more than collect rent and solve tenant problems. They also do the following on your behalf:

  • Furnish your property
  • Manage online presence
  • Optimize pricing strategies
  • Maintain cleanliness and orderliness of your property
  • Ensure you have a full stock of essential supplies

Hiring property managers makes listing your properties as STR so much easier. They can alleviate some of the crucial workload of an STR, but it’s also essential to understand the associated costs and how they will impact your overall return on investment. To start, you can research multiple property management companies to compare their services and pricing structures.

Of course, you can opt out of outsourcing property managers, but be ready for the challenge of finding reliable cleaners, maintenance technicians, and other maintenance partners you’ll need.

Convert with Confidence and Embrace STR Success

Converting your long-term rental property into a short-term rental is an exciting opportunity that can bring more money into your pockets, but it’s important to proceed with caution. It’s still an investment property that inevitably comes with risks, so it requires careful consideration.

Make sure that you understand and check all the key factors mentioned above to help you make an informed investment decision that maximizes your returns.

Join a REIA of Oakland Country, MI to acquire more insights from fellow investors in Detroit.

Categories
Landlords

How and Why You Should Set Up Recurring Rent Payments for Your Tenants

A mobile phone with an online payment showing on the screen.
Source: Photo by Mika Baumeister on Unsplash.

Collecting rent can be one of the biggest hassles of owning rental property. Not only do you have to keep track of when rent is due, but you also have to chase down tenants who are late on their payments.

Wouldn’t it be nice if there was an easier way to collect rent? Well, there is.

You can set up recurring rent payments so that your tenants’ rent is automatically deducted from their bank account each month. Not only does this make things more convenient for both you and your tenant, but it can also help ensure that you always get paid on time.

In this blog post, we’ll explain how to set up recurring rent payments and the benefits of doing so. By the end, we hope you’ll see just how easy and helpful an automatic rent payment system can be.

Why Set Up Recurring Rent Payments

As a landlord, having a reliable, predictable source of income is essential. That’s why automating recurring rent payments can be so beneficial. Here are a couple of benefits:

  • On-time payments: Your tenants will have their rent deducted from their bank account automatically each month. This means that you won’t have to worry about chasing them down for late payments or collecting checks in person.
  • Electronic processing: All payments are made electronically and on the same day each month, saving you the hassle of manually entering tenant information into your accounting software. Most systems can handle automatic payments for you with just a few clicks.
  • Incentivize recurring payments to encourage sign-up: Some payment processing providers include a discount function so you can offer incentives to your tenants for signing up for recurring payments. This can be a great way to encourage more people to use the system, making rent collection easier for you.

Protect your cash flow, and you’ll protect your investments—isn’t that the only thing that matters?

How to Set Up Recurring Rent Payments

Setting up recurring rent payments is relatively easy, and it’s worth taking the time to do so. Here are the steps you’ll need to follow:

  1. Choose a payment processing provider: Decide which payment processor you’d like to use. Some popular options include PayPal, Stripe, Square, and Apple Pay. Each company has its own set of fees and features, so take some time to compare them before making your decision.
  2. Set up an account: Create an account and link it to your bank. This will allow payments to be transferred directly into your account on the rent due date.
  3. Collect tenant information: Collect some basic information from your tenants, such as their name, address, bank details, and rent payment amount. Ensure that all information is accurate and updated before proceeding with the setup process.
  4. Set up automatic payments: Set up automatic payments for each tenant in your system. This typically involves entering their bank details and setting the payment amount and frequency (e.g., monthly).

Once you’ve completed these four steps, you’re good to go. Sit back and wait for the payments to come flowing in. Your well-deserved cash flow is on its way.

Best Tools for Recurring Rent Payments

We recommend the following payment processing providers for their ease of use and excellent security:

  • Avail: This landlord software is owned by Realtor.com and helps you streamline rent collection (even if you don’t work with a property manager). Avail allows upcoming payment scheduling by automatically reminding tenants before the due date. Tenants who split the rent with their roommates can also divide the bill accordingly.
  • Apartments.com: Previously known as Cozy, this tool automates rent collection and monitors all rental payments from one dashboard. You’ll see everything in one glance. The platform also sends reminders to tenants, just like Avail.
  • Buildium: If you have 50 or more properties in your rental portfolio, Buildium is your best bet. The software can set up recurring and one-time payments for tenants to pay online or offline, where the funds are transferred in a few minutes instead of a few days.

There are others, too, like Zillow Rental Manager, Rentec Direct, TurboTenant, PayRent, and ClearNow. Whichever platform you choose, you can rest assured that rent collection will take care of itself.

Automatic Payments, Automatic Cash Flow

Setting up recurring rent payments is an easy way to make collecting rent more convenient for both the landlord and the tenant. Not only does it help ensure that your rental income is always on time, but it can also save you time and money in the long run.

We hope this blog gives you a better understanding of how to set up recurring rent payments and why it’s a good idea to do so.

If you have any questions or need help getting started, join us as a REIA member today  and attend our upcoming meeting ! We also have a newsletter, so you’re never out of the loop.

Categories
Flipping

Beginner’s Guide to Flipping Apartment Buildings

Top corner of an apartment building.
Anders Holm-Jensen from Unsplash

So, you’ve been flipping single homes and you know the process by heart. Now, you want to take it to the next level—flipping entire apartment buildings. But you don’t know where to start.

Flipping apartments is a whole new ball game—it’s not just about buying low and selling high, it’s about knowing the ins and outs of the market and the property itself and being able to identify areas for improvement that increase the overall value.

Just be aware that flipping apartment buildings usually takes a lot longer than flipping a house—often 1-3 years.  Here’s the ultimate beginner guide to flipping flats like a pro.

Finding a Good Deal

Finding a good deal on apartments for sale might seem overwhelming, but it doesn’t have to be.

To avoid a bad investment, you’ve got to understand your market, so find a good local expert to help you get to grips with the area, if you’re investing somewhere other than your hometown.

Have coffee with a commercial real estate agent to pick their brain about the market, tenant demographics and the demand for apartments in the area by asking questions:

  • Who’s selling apartments and why are they selling them?
  • Who looks at this area to buy properties?
  • Are people flipping apartments here? If so, what do their returns look like?

Keep in mind that finding apartment buildings for sale isn’t as easy as finding a single-family home by scrolling online listings, because more apartment deals are sold off the market compared to single-family units.

The reason? Typically, apartment owners don’t want to put up a for-sale sign, because they don’t want to scare the current tenants or they simply don’t want other people to know that they’re selling.

So, to find apartment buildings for sale, ask a specialized real estate agent, or work on building your own seller’s list of multi-family property owners in your target market.

Understanding the Deal: Rent Rolls

When it comes to underwriting a property deal, it’s crucial to have a sharp eye and a shrewd mindset. Before you seal a deal, close your eyes and take a deep breath: ensure you’ve identified potential obstacles, assessed financial risks, and considered market factors, such as rent roll and rates.

Asking about rent rolls helps you understand what’s going on in the apartment, like a list of units (including size, number of bedrooms and number of bathrooms), the names of tenants, and monthly rents.

Evaluating the Deal

Evaluating apartment buildings is different from analyzing deals on single-family units. Single-family properties use comps, while apartment buildings use cap rates. This means that the single-family properties are valued by how much the last similar property was sold in the same area.

By using the cap rate formula—which involves considering the purchase price plus operating costs—investors can better understand how much they will earn relative to their total expenditure.

Get the cap rate using this formula:

Cap Rate = Annual Net Operating Income divided by Price or Value

In short, the net operating income of the apartment property plays a big factor in determining its value – not the amount that a comparable building recently sold for.

The good news is you can increase the value of an apartment building just by increasing income or lowering expenses!

Inspecting the Deal

It’s not enough that you see the property on screen or paper. You have to go out and actually see the apartment building yourself to find out if there are any differences between the comps and the actual property.

The state of the property will be a big factor during your planning. Get a contractor that can help you understand the costs of renovation before you purchase the property, then factor these into your investment cost.

Once you’ve had a contractor’s inspection, and before you make an offer, get an inspector to thoroughly look at the property to verify its market value.

Setting Up Financing

Now that you’ve found a promising building to purchase, it’s time to talk about financing.

Pro tip: Don’t take the first loan offered to you. Instead, look around and find the best loan offer in terms of time and rate. Personally, we prefer a more extended period of time for the loan, since having a low and fixed rate means you’ll pay less throughout the duration of the loan.

It’s already a lot of work to flip apartments, so lessen the headache by settling the terms of payment terms. At the end of the day, you choose the payment terms that work for you and your situation.

Selling the Property

After all the hard work and effort you’ve put into the property, it’s finally time to sell.

Have a specialized real estate agent get the word out and find potential buyers for you. But don’t rely solely on someone else’s sales skills – you should always be building active buyers lists of your own, just like you should be building relationships with potential sellers.

You can market your apartment building flips directly to your buyer’s list, and even do an off-market deal to avoid additional fees and commissions.

The beauty of flipping apartment buildings is that even if you don’t get an offer right away, you can go back to the bank to refinance or hold onto the property a bit to rent it out yourself.

Know the Property to Sell the Property

Flipping apartment buildings can be a bit different from flipping single-family homes, but if it’s your first time, these pro tips can help when you’re thinking about getting into the venture.

It all starts with planning—finding the right deal and evaluating the property and renovation costs are all important factors to ensure your flipping journey is profitable.

This guide can set you on track to flip an apartment successfully. When you’re ready to start your venture, join us as a REIA member for step-by-step support and ensure your long-term success in the industry!

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