People outside the real estate industry don’t realize how difficult it is to source wholesale deals. They might think this kind of investing is relatively easy, since wholesalers don’t have to do renovations or deal with tenants, but the difficulty of this strategy is actually in sourcing good deals.
So what tools can wholesalers use to source good deals quickly and consistently? Let’s look at 7 ways you can find both buyers and sellers for your wholesale deals:
Find Motivated Sellers – Many wholesale deals are sourced from owners who haven’t even thought about selling before you, the wholesaler, came into the picture – so their properties won’t be listed on the MLS or traditional real estate listing sites. You need to find and directly contact them, and one way of doing this is to build a professional network of deal-hunting “bird dogs” to track down motivated sellers and look for distressed houses to pass along to you.
2. Get Properties Buyers Want – Look for distressed properties, or ones with delinquent taxes–most homeowners of those are eager to sell, and only a little negotiating from you could help secure a deal at a reasonable price. However, you also need to look for properties with desirable features in locations that you know are attractive to investors and other potential buyers, otherwise your contract could expire before you find a suitable purchaser. Find target neighborhoods that fit your criteria and drive around them to find distressed houses, or contact the county records office to get a list of tax-delinquent properties.
3. Promote Yourself Online – If you don’t have an online presence, you’re missing out on perhaps one of the most crucial channels for potential customers to find you. Have a website or page with a Lead Capture Form where visitors can submit their contact details, and keep these for sending out future email blasts with details of your available deals. Then you can increase the reach of your website by promoting it to targeted markets on multiple online platforms, helping passively bring you more potential sellers and buyers.
4. Connect with Hard Money Lenders – Sometimes cash buyers don’t have the total purchase price of a property upfront, so they call up a hard money lender. That means hard money lenders also know a lot of cash buyers that they can refer to you. (Plus, they’re incentivized to connect you to these buyers, in case one of your future deals would require their services to close!
5. Build a Large Network – Having a community of investors at your disposal who are interested in buying wholesale deals makes it faster and easier to market your deals. Network with real estate agents, investors, and landlords in your area – either online, or through in-person groups, like your local REIA.
6. Visit Courthouse Auctions – Since buyers need to have all cash in courthouse auctions, this is a great source for finding cash buyers. Try to drop by courthouse auction sessions early and regularly to network with the people there, and add them to your email mailing lists.
Wholesaling real estate is a great way to get into the property business without any upfront capital. All you need are the tools listed above, persistence, and great negotiating skills to become a successful wholesaler.
Any other tools we missed? Tell us in the comments section below
Last week, we looked at how to plan your flip to target an owner-occupier buyer in Metro Detroit. This week, we’ll take it a step further and consider how to market flipped properties to another kind of buyer, and one which most flippers wouldn’t necessarily consider right off the bat: landlords.
Landlords are probably not going to pay as much as an owner-occupier would, but they could be a consistent buyer for your properties, so building relationships with local buy and hold investors could be a great back-up strategy for marketing your flips.
Especially in the current economic environment, having a consistent buyer for multiple properties could be a serious boon for flippers. More people are choosing to rent long-term rather than buy, and this trend is likely going to continue as we slowly recover from the financial strain caused by coronavirus. But, while first-time buyers could be shying away from buying now, investors are always on the look out for a good deal.
So, here are some points to consider when targeting Metro Detroit landlords as buyers:
Landlords are Investors, Just Like You: This means they won’t be sold purely on light, airy spaces and nice kitchen counters – they want to see the hard numbers when making their decision. Highlight the financial benefits of the property when marketing to them, like whether the area has low vacancy rates, the rent-to-price ratio, and CapEx projections for any maintenance that will be required in the coming years.
Lower Margins: Buy and hold investors will be looking for a deal, and in Metro Detroit they’re unlikely to be looking for a single family home that costs several hundred thousand dollars, meaning your margins on each sale will be lower. However, you may be able to compensate for this in the volume of sales you do, since a landlord could become a guaranteed buyer for multiple flips. If you build relationships with local landlords, you can also do off-market deals with them, saving both of you time and money spent on marketing and agents’ commissions.
Out-of-State Buyers: When you consider the fact that the rental market in Metro Detroit attracts tons of investors from out of state – and even overseas – to the area in search of high rent-to-price ratios, you can see how marketing to this group can significantly widen your pool of buyers. Most of these out-of-area investors look for properties that are fully–rehabbed and ready to rent out, meaning a fresh flip could be the perfect choice for them.
Many of them also look for ‘turnkey’ rental opportunities, meaning properties which have a tenant and property management company in place, so you can find a tenant and then sell your flip as an active rental investment. You can also partner with a local PMC to show landlords that your property comes with the whole package, turning it into a mostly hands-off investment for them.
Invest in Different Markets: Selling to landlords can also widen the pool of areas you can invest in, since a strong rental neighborhood and a strong seller’s market are two different things. This gives you the chance to flip properties in lower-price areas, with less upfront capital. You also won’t need to shell out as much for high-end fixtures and fittings, since these won’t matter to a landlord like they would to an owner-occupier.
Landlords may not be your primary market, but they can account for a healthy secondary market when it comes to finding buyers for your flips. Keep these points in mind when targeting local buy and hold investors with your flip, and you could end up with a lifetime customer for your business.
Home values in Metro Detroit were on the rise at the beginning of 2020, and are expected to continue to increase in the aftermath of coronavirus, making it an attractive market for flippers looking to add value to distressed properties. In this 2-part series, we’re looking at how flippers in the Metro Detroit area can tailor their properties to appeal to different types of local buyers in today’s economy.
The ideal buyer for a flipper is an owner-occupier, since they buy emotionally and thus will usually pay the most for your property. In a perfect world, you’ll even have multiple owner-occupiers vying for your house, leading to a bidding war that drives up the price. The key to generating this kind of demand for your property is to make sure your flip is targeted to appeal to buyers in your area.
So what do owner-occupiers in Metro Detroit look for when purchasing a house?
Location, Location, Location: If you’re just getting started in flipping properties in this area, the most important thing to do is pinpoint the neighborhoods with the strongest demand from buyers. Completing an attractive flip will mean nothing, if it’s not in an area that owner-occupiers actually want to purchase in. In Metro Detroit, the areas with the strongest appeal are cities with vibrant downtown areas, like Ferndale, Royal Oak, Rochester, Plymouth, etc. The cities near these areas are also good places to focus your search. Do as much due-diligence as possible to familiarize yourself with an area before deciding to invest there, since even a few streets over in one direction can make a big difference in terms of desirability.
Floorplans We’ve seen several flippers lose their shirt on a flip they did a great job of renovating, but the property had floorplan issues they didn’t or couldn’t address. Low ceilings in a basement or the upstairs of a bungalow, pass-thru bedrooms, nowhere to dine, inaccessible garages and more. Stay away from these types of projects unless you are really good at calculating an ARV that takes them into account, or your budget includes addressing them.
Amenities: More than ever, homebuyers expect everything to not only be done and done well, but they want all the amenities included. Study what the market wants and include as many as you can in your budget.
Security: People want to feel safe in their homes, but bars on the windows aren’t the most aesthetically pleasing design feature. Consider adding smart security features, like digital keypads and mobile-controlled alarm systems, to give your property a leg up over the competition.
Social Distancing: In the era of the new normal, homeowners are starting to look at properties in a different light. Houses which have large outside spaces, home entertainment features, or are located in less population-dense areas might have a higher appeal than ever before. The same goes for layouts which are conducive to a whole family living and working from home, so think about including a dedicated office space and segmented living areas.
Plan your flip to include these features, and you’ll be in the best position possible to produce a quick sale, so you can get started on your next investment property ASAP!
Keep an eye out for Part 2 of this series, where we’ll be looking at how you can target a different kind of buyer with your Metro Detroit flip: buy and hold investors.
Tenant-proofing your rental properties is kind of like baby-proofing your house–it saves both of you from unnecessary headaches. The key when tenant-proofing is to identify the things that get abused the most, and think about how you can minimize damage to these areas, or eliminate them altogether. This is especially true for properties in low demographic neighborhoods, whereas problems like these rarely occur in higher-demographic areas.
Here are some other things you should avoid if you want to minimize the risk of extra damage costs:
Avoid Garbage Disposal – Have you ever watched a movie, and the characters threaten to drop something meaningful into the garbage disposal by the sink? Yes, it’s true, people love to put all types of things down that drain. It’s handy–but also very easily clogged. It’s a piece of high-failure, time-consuming equipment to fix.
Avoid Air-Conditioning Units – This may seem necessary, especially during the sweltering summers in Michigan, but AC units are not a requirement. Repairs are pricey and window-mounted models often disappear in the hands of thieves. Leave it to your tenants to buy one for themselves!
Forbid Wall-Mounting – People like putting up decorations on their walls, but strictly avoid any nails or screws that put ugly holes in the walls. There are plenty of adhesive hooks in stores that tenants can use as an alternative, and walls with adhesive residue are easier to repair than those with holes. If you do allow nails, plan on deducting repair costs from the security deposit, because most tenants won’t repair the holes themselves (even if it says so in the lease).
Instead, install features that can help keep your rental properties clean and easy to maintain:
Install Durable Flooring – Vinyl flooring is your best bet here, as it’s affordable, durable, simple to install, and it’s easy to remove any stains that a renter would leave. Although having carpet is a preference for some, it gets old and stained easily, with some stains refusing to come out at all, and absorbs odors from pets and smoke. Similarly, hardware floors – while a great feature to have when selling a house – can easily get scratched or damaged, and cost thousands to replace. With vinyl floors, all you need is a mop and bucket of soapy water, and you’re pretty much good to go.
Install Door Stoppers – Doors swing open and close multiple times a day, and many people (especially kids) won’t care if the doorknob puts an indent in the wall. Installing door stoppers is a must-have in rental properties, as it will save both your walls and your doors from unnecessary damage.
There are a surprising variety of door stoppers on the market, from baseboard stoppers and ones affixed to the back of the door itself, to wall-mounted handle stoppers and magnetic stoppers. One of the best options is the hinge pin stopper, since it has less chance of getting overworn through constant use (or played with by children).
Install Window Coverings – Blinds, drapes, or curtains might seem like an added expense (and another thing to replace if damaged by a tenant), but it’s a good idea to install some kind of window covering to avoid giving thieves or squatters a clear view inside the property. Cheap coverings will do the trick, and if they’re damaged when the tenant moves out, you can deduct the replacement cost from their deposit.
Opt for Durable Fittings – Some things, like faucets, can be bought as cheap plastic pieces, costing in the region of $40. While this may seem like a good cost savings in a lower-demographic rental, these cheaper fittings usually break down quickly and will need to be replaced every 2 years, on average. Investing in a more expensive, more durable option, like a $120 metal faucet, will mean that fittings can last for up to a decade before wearing out, saving you more money in the long run.
Keep Pests Out – When doing property turnovers, consider conducting routine checks for pests and take preventative action, if necessary. Pests and insects hide well, and pest control services can add up to a fortune if the problem is left to worsen. So better to discover any potential infestations early, and fight back with rodent traps, chemical-free solutions, and an exhaustive scrub-down between rentals.
Follow these tips, and you should have a property that’s as tenant-proof as it’s possible to be. Of course, there will always be repairs and maintenance that need to be carried out at the end of every lease, but by planning properly, you can minimize the chance of incurring additional expenses for damages that could have been easily avoided.
Do you want to sell your flip as fast as possible?
Flipping has always been a popular investment strategy for those looking to earn some quick-and-dirty profit. You see a property that has great potential to be sold at a much higher price–after some improvements and renovations–so you quickly buy it, flip it, and sell it! And of course, the more properties you flip, the steadier your income becomes.
But how can you ensure that your flip will sell quickly? Each day that passes costs you money–there’s mortgage payments, utilities, taxes, and other expenses that you’d need to pay while the property is in your possession. How can you sell as fast as possible, to minimize the amount of time your capital is at risk?
Here are some tips to help you sell your flips fast:
1. Know Who’ll Buy Your Flip
Before anything else, you should first consider who your potential customers will be. Always keep this ideal buyer in mind, because all your efforts–from renovation to marketing–should be focused on appealing to this buyer. All their demographic details should be considered to rehab and market your flip effectively. What life stage are they at? What do they expect from a property? How can you evoke an emotional response to encourage the sale?
2. Make Your Flip Their Dream Home
Now that you’ve identified your target buyer, rehab the property according to their expectations. When they see the property, they should be impressed and immediately think, “This is it! This is what we’ve been looking for.” For example, people usually like significant upgrades in the kitchen, but be careful not to make your fixes too niche or “trendy”–buyers might not share your taste or style. They want to see their home, and not somebody else’s. So think about what your target market would want in their dream home, and deliver that.
3. Partner with an Expert Agent
This might just be the most important tip on this list. You need an expert real estate agent to ensure you sell your flip fast. They should have proven experience, especially in the specific area you’re selling in. A good agent can help you determine how to tailor a property to the needs of local buyers, and should be great at evoking an emotional response during property viewings. Once you’ve built the dream house, it’s your RE agent who will make that dream come alive in the mind of the buyer, so they form a crucial component of sealing the deal.
4. Price It Competitively
Just like in most industries–pricing is everything. So make sure you price your flipped home at a competitive level, if you’re looking for a quick sale. Your agent should help you figure out the perfect price, though you can already get a good idea from researching the neighborhood yourself. How much did other flips sell for? How long did the property stay on the market?
5. Stage it–Show it Off!
It’s important to stage your flip in the most impressive way you can to help buyers visualize themselves living in the property. Even now, with virtual showings becoming more popular in the era of the new normal, it’s still just as important to stage the property well. But this doesn’t mean you should over-decorate the whole house. Instead, focus on bringing out the best features of the main rooms: the living room, master bedroom, dining room, and kitchen. Set the scene so that your target buyer can imagine their family in the space, making sure that the dream you’re selling is consistent with your audience’s needs and wants.
If you follow these tips, you should be able to generate a lot of interest in your properties amongst local buyers, allowing you not only to sell your flip fast, but put yourself in the best position to receive multiple competing offers, as well. And that’s exactly what every flipper wants to maximize profits and quickly move on to their next project.
Any other tips you’d like to share with your fellow flippers?
Flipping has always been a popular investment strategy for those looking to earn some quick-and-dirty profit. You see a property that has great potential to be sold at a much higher price–after some improvements and renovations–so you quickly buy it, flip it, and sell it! And of course, the more properties you flip, the steadier your income becomes.
But how can you ensure that your flip will sell quickly? Each day that passes costs you money–there’s mortgage payments, utilities, taxes, and other expenses that you’d need to pay while the property is in your possession. How can you sell as fast as possible, to minimize the amount of time your capital is at risk?
Here are some tips to help you sell your flips fast:
1. Know Who’ll Buy Your Flip
Before anything else, you should first consider who your potential customers will be. Always keep this ideal buyer in mind, because all your efforts–from renovation to marketing–should be focused on appealing to this buyer. All their demographic details should be considered to rehab and market your flip effectively. What life stage are they at? What do they expect from a property? How can you evoke an emotional response to encourage the sale?
2. Make Your Flip Their Dream Home
Now that you’ve identified your target buyer, rehab the property according to their expectations. When they see the property, they should be impressed and immediately think, “This is it! This is what we’ve been looking for.” For example, people usually like significant upgrades in the kitchen, but be careful not to make your fixes too niche or “trendy”–buyers might not share your taste or style. They want to see their home, and not somebody else’s. So think about what your target market would want in their dream home, and deliver that.
3. Partner with an Expert Agent
This might just be the most important tip on this list. You need an expert real estate agent to ensure you sell your flip fast. They should have proven experience, especially in the specific area you’re selling in. A good agent can help you determine how to tailor a property to the needs of local buyers, and should be great at evoking an emotional response during property viewings. Once you’ve built the dream house, it’s your RE agent who will make that dream come alive in the mind of the buyer, so they form a crucial component of sealing the deal.
4. Price It Competitively
Just like in most industries–pricing is everything. So make sure you price your flipped home at a competitive level, if you’re looking for a quick sale. Your agent should help you figure out the perfect price, though you can already get a good idea from researching the neighborhood yourself. How much did other flips sell for? How long did the property stay on the market?
5. Stage it–Show it Off!
It’s important to stage your flip in the most impressive way you can to help buyers visualize themselves living in the property. Even now, with virtual showings becoming more popular in the era of the new normal, it’s still just as important to stage the property well. But this doesn’t mean you should over-decorate the whole house. Instead, focus on bringing out the best features of the main rooms: the living room, master bedroom, dining room, and kitchen. Set the scene so that your target buyer can imagine their family in the space, making sure that the dream you’re selling is consistent with your audience’s needs and wants.
If you follow these tips, you should be able to generate a lot of interest in your properties amongst local buyers, allowing you not only to sell your flip fast, but put yourself in the best position to receive multiple competing offers, as well. And that’s exactly what every flipper wants to maximize profits and quickly move on to their next project.
Any other tips you’d like to share with your fellow flippers?
Property investors are attracted to short-term rental properties because they offer an opportunity to make more than long-term leasing, but the short term rental industry has taken a huge hit during the coronavirus pandemic. In Michigan, STRs were banned from operating during the height of the lockdown, and even now that they’ve been allowed to reopen to guests, vacancy rates are still sky-high – hitting as much as 85% in some areas.
Furthermore, the great “Airbnb debate” has been raging in many areas of Metro Detroit for years now, with local city councils seeking heightened regulation and a limit to the number of short term rentals permitted within a given area.
The new proposed ordinance in the City of Detroit, for example, will supposedly eliminate 85% of the nearly 1,000 listings currently active there – something short term rental owners in the area are keen to prevent. This is because, in addition to a rule limiting the number of Airbnbs to roughly 1 per city block, the new regulations would make it so that only owner-occupied properties could be used as a short term rentals.
Yet “private rooms” in a host’s house account for less than 50% of all the short-term rentals currently on Airbnb in the Metro Detroit area. The rest are whole-place stays, where guests have exclusive use of an entire house or apartment, and these types of properties are where most of the demand will lie as we enter the age of the new normal.
This could be an opportunity for STR owners outside the City of Detroit to take advantage of the area’s growing tourism industry in the coming years. If the new ordinance is passed, guests may look further afield to Metro Detroit’s Ring Cities as an alternative to staying in hotels or shared STRs in the city center.
So, if your property is located near to good transport links or local amenities, you should highlight these points in your listing. In places like Hazel Park, Dearborn, and Dearborn Heights, where there are several conference centers catering to private and corporate events, expect a healthy demand from business travelers and out-of-town visitors once we return to normalcy. Whereas, in the shorter term, cities like the Pointes and St Clair Shores might see demand rise as people search for an escape from the more densely-populated metropolitan areas.
Whether you want to target tourists, businesspeople, or city-dwellers looking for a more remote getaway, the way you present your STR should be in line with what your ideal customer wants. For example:
Budget Stays – These could be just a simple, private room in the owner’s house, with basic furnishings, or a no-frills apartment. The target market for these types of stays are budget travelers and businesspeople, looking for an alternative to a 2 or 3-star hotel. This means you won’t need to splash out on fancy interiors or extra amenities, but you will need to make sure the property is in a good location, since budget guests will value convenience and affordable travel costs above all else.
Luxury Stays – These include high-end apartments and lofts or nicely-decorated houses, and should ideally be located in safer, trendier areas with a walkable downtown. Your target market will be the bigger spending guests, looking for an alternative to a 4 or 5-star hotel. This means that you’ll likely have fewer issues regarding the security of your rental, but will almost certainly have to work harder to accommodate guests’ high expectations. Expect to get detailed reviews listing any small thing that your visitors found unsatisfactory, like clutter, dust hiding in corners, or noise from outside the property.
The short-term rental market in Metro Detroit is still not as developed as it is in other cities, like Chicago, but the industry was growing prior to the coronavirus outbreak, and will likely continue to do so once regular travel resumes. If you operate an STR, keep an eye out for new proposed ordinances in your area, voice your opinions to your local city council, and make sure you adjust your strategy accordingly if nearby cities impose their own Airbnb bans – this could be an opportunity for you to capture guests from those markets.
A common question flippers have is: “How much should I reinvest in my next flip out of what I make in profit?”
The usual answer? “However much it takes!”
Instead, let’s try reframing this question in a different way: “How much should you pay yourself from each flip?” Answering this might be a better way to gauge if you need to take out just enough to cover living expenses, or if you need to be giving yourself some kind of salary.
Here are some things to consider, if your goal is to maximize your profits and flip more houses:
For New Flippers:
Flippers usually aim to make about 20-30% ROI for every house flipped, although this figure is dependent on costs and how long it takes for each sale to go through. But here are some guidelines to follow when deciding how much profit you want to reinvest in your business vs. keep for personal use:
What are Your Revenue Streams?
Do you have a full-time job that can cover your daily living expenses? If so, then consider reinvesting all the profits back into your next flip – this is the way to achieve the fastest growth in your portfolio.
If you’re flipping full-time, you could choose to keep 10-30% of the profits for yourself, which is how some flippers choose to operate. Alternatively, you could work out what your living expenses are, just keep that amount back, and reinvest the rest, but keep in mind that this will slow down your growth rate.Imagine you paid yourself 30% of the $60k in profit from the example above – that would leave you with just $42,000 to reinvest. Is this enough to help you move up the property ladder with your next flip?
Consider a Live-In Flip
Alternatively, you could consider live-in house flips as another way to “pay yourself,” by negating your own housing costs and writing off expenses, such as tax deductions and double mortgages.
Experienced Flippers:
If you have a partnership structure, there are more complex issues to think about, like how to divide profits and disperse them in a way that makes sense, tax-wise .
Work Out a Profit-Sharing Agreement
Some calculate profit sharing depending on the number of hours they put in, while others go for an even split (like 50-50, for two partners), regardless of the division of labor. There’s no “one size fits all” formula to this, so you should set clear targets ahead of time for how much you’d be willing to pay someone else for the skills and/or resources they bring to the partnership.
Know the Tax Implications
Find a knowledgeable CPA to work with and discuss your partnership agreement with them, before you decide how to disburse profits. If you pay yourself a salary, any earned income could be subject to self-employment tax at a rate of 15.3%. That being the case, it might make more financial sense if the profits come to you as dividends, instead.
Know Your Value
The terms of your partnership agreement will determine how much you yourself get paid vs. your co-investors or flipping partners. So, when working out this arrangement (whether you go for a limited partnership or an LLC), make sure you’re being valued appropriately, relative to what you bring to the partnership. Again, it’s always best to seek out an attorney and a tax specialist for guidance here.
Ultimately, the decision is yours. But one good model is to flip 4 properties, then keep the 5th as a rental for steady income. This approach lets you diversify between long- and short-term revenue streams, giving you small amounts of income in steady increments (in the form of rents), as well as larger amounts of income in more irregular intervals (from the sale of flipped homes). Having a balance like this can help you to achieve financial stability in the long run – and this is the same way many traditional businesses structure their revenue streams, too.
As the effects of COVID linger on, what everyone hoped would be a quick crisis is turning into a more protracted affair. How is this affecting Oakland County’s rental market?
Home to both economic and industrial growth as well as substantial employment opportunities, Metro Detroit has been one of the country’s more attractive markets where buyers have been able to take advantage of strong rental income opportunities pre-pandemic.
Now, in Michigan alone, over a million workers have filed for unemployment; in areas like Pontiac, the percentage of those seeking temporary financial relief might be even higher than elsewhere in the country. So what can we expect to see in the local rental market over the next few months, as Oaklanders start to bounce back from the shutdown?
The Government’s Response:
Last month, Governor Whitmer announced the Eviction Diversion Program to assist landlords who are struggling to collect rent payments from tenants affected by the pandemic. Under the said program, landlords can get back up to 90% of missed rents.
Separately, Oakland County’s local government has also begun offering a one-time relief from the federal CARES act through the U.S. Department of Housing and Urban Development (HUD), which will allow “residents to pay up to three months of past-due rent, mortgage and utility payments as a result of a temporary job loss, reduction in work hours or other income hardship caused by the COVID-19 pandemic.”
However, as the eviction moratorium is set to be lifted this week, to date, the Detroit Free Press estimates a backlog of about 75,000 evictions, which could turn into an even bigger homelessness crisis. Despite the relief options offered to landlords and renters alike, financial instability will cause a slow burn moving forward.
Near-Future Implications
Rent control and financial instability may prompt landlords and owners to liquidate their assets. On the other hand, financially stable investors may be at a better advantage to close in on new investments, with property prices and mortgage rates at an all-time low. Both of these kinds of scenarios are expected in the short-term, with people becoming more conscious of spending habits and liquidity.
Yet Oakland County comprises a wide range of rental market types, each of which will feel the impact of the shutdown differently.
For example, in high-price cities – like Berkeley, Birmingham, Huntington Woods, Pleasant Ridge, and Bloomfield Hills – prices and demand have remained high throughout the lockdown, and are unlikely to be significantly affected in the future.
In super competitive rental markets, like Ferndale and Royal Oak, the story is the same: tenants are eager to get their hands on properties in these trendy areas, and so are rental investors. This makes it tough to find a good deal on an investment property in these cities but there’s a chance that coronavirus will influence desperate sellers to let their homes go at a bargain price, so it could be a good time to try to enter into this market.
In neighborhoods that are still transitioning from lower to higher demographics, like Hazel Park and Oak Park, the opportunity for picking up a rental property at a depressed price is even greater, but so too are the potential risks. The lower demographic areas in these cities will have been harder hit by the shutdown, and may take longer to recover, meaning it could be a few years before rental demand reaches pre-pandemic levels once more.
What about in cities that were already struggling pre-recession? In Pontiac, for example, economic recovery from the loss of the auto suppliers industry has been a slow process, and one which is likely to be set back even further by the COVID-19 shutdown. This means that employment could be even harder to come by, putting tenants in a difficult situation when it comes to affording their rent.
There are a lot of vacant properties in the southern parts of the city already, and if more businesses are forced to close, it could also exacerbate this problem. In addition to impacting home values, this would also create an even more pronounced unemployment crisis, as more local jobs are lost.
For the rental market, this could mean lower purchase prices – giving investors the opportunity to snag a deal during the current downtrend – but also potentially lower rental incomes. For properties which are already tenanted, it may take longer in these kinds of areas for tenants and landlords to recover, and for cash flow to return to pre-pandemic levels.
Although the market is slow-moving now, Metro Detroit remains to be one of the most highly competitive rental markets with tremendous opportunities for investors, and we’re expecting the market to pick up again in the long-run. Properties are still being rented all throughout Oakland County, even in Pontiac and similar-demographic areas.
For now, only time will tell exactly how long it will take for the rental market to bounce back completely, but landlords and investors would be wise to remain vigilant to spot any opportunities in the market.
Pet-owners are everywhere in the U.S., where roughly 68% of households have a cat or a dog. Yet a recent survey by Avail showed that only 55% of landlords allow pets in their properties.
Even if you’re a pet-lover yourself, you may be hesitant to allow pets into your rental properties. This is understandable – but are there situations in which it’s okay to allow tenants with pets?
First, let’s consider the pros and cons of allowing pets in your rental:
Cons:
Hard-to-eliminate pet odors
Noise from barking, etc.
Pet-related damage to your property
Possible physical injury or accidents involving neighbors, guests or yourself
Remnants of allergens (saliva and fur) that get in the air ducts, carpet, etc.
Fleas and other pests
Pros:
Increase in size of tenant base
Higher rental rates or fees
Possibility of tenants signing longer leases due to limited pet-friendly rental options
If you allow pets, there are fewer chances of tenants smuggling them without permission
At the end of the day, it’s up to you whether you’re willing to accept pets in your rentals. But if you do, here are some guidelines for safeguarding your properties:
Decide What You’ll Allow
Pets come in all shapes and sizes: dogs, cats, birds, fish, rabbits, gerbils, small-scale reptiles, etc., and some have a much higher potential for causing damage than others. So decide which types of animals you’re willing to allow, as well as the number of each and the total number of pets permitted. Will you allow more than one dog? How many cats? Would ten guinea pigs be too much? Put all of this in your lease agreement, as well as:
A statement that allows you to forcibly remove any pet that becomes aggressive or dangerous.
A clause that gives you the power to change your rules on pets, if it’s done with a proper notice period (in case you decide not to allow pets in your properties anymore).
The consequences for violation of these rules, like additional fees or eviction.
Lastly, you should have a “pet addendum” attached to the lease. This includes specific details about the pet that you are allowing in the rental, and states that any other animal that isn’t registered in the lease is considered an illegal occupant and a breach of contract. If they get an additional dog or replace a previous pet that passed away, they need to have their new pet cleared and registered again.
And make sure it’s clear what you expect from the pet owner in terms of responsibility for taking care of their animal. So also consider adding these provisions to the lease or pet addendum:
They must keep up with the required shots, licenses, and tags for the pet.
They must register any pet with you, the landlord, prior to taking them in.
They must resolve and pay for any harm done to anybody or anything by the pet.
They must take care for and clean up after the pet on a daily basis.
When outside, they must keep the pets on a leash or in a cage (depending on the animal).
They must acquire insurance with liability coverage for their animal.
Check Your Insurance and Liability
Check the coverage of your insurance policy before considering tenants with pets. What is the amount of liability coverage in the policy? Are there any limitations, exclusions, or requirements for this coverage? Will they use the list of “dangerous breeds” as a basis for breeds that aren’t included in the insurance?
Charge Additional Fees
Since there is more risk involved when renting to pet owners, you can either add a pet fee on top of the monthly rent, or simply increase the monthly rental fee. Some landlords charge anywhere from $25-$100 per month, per pet, on top of the rent, and they also sometimes charge a pet processing fee (up to $500) when screening applicants with furry friends. Just be careful not to charge anything for emotional support animals.
Some states also allow you to collect a separate security deposit, called a “pet deposit.” In some states, there is the option to make the pet deposit non-refundable. However, there are states, like Michigan, where the maximum security deposit is only two months’ rent. You need to know the maximum allowable amount of your state and evaluate if this will be enough to cover for pet-related damages which could occur in your property.
Decide Case-by-Case
Just like any other tenant, make sure you screen the tenant’s background thoroughly. Apart from their financial and credit history, also check their references and ask about their experience with how the tenant managed their pet. Not all pet owners are equally well-trained and equipped to look after their pets!
When interviewing them, make sure you ask:
Does the pet have the proper vaccinations and licenses? Is it neutered or spayed?
What breed and how old is the pet?
Has the pet ever caused damage to items or bitten anyone?
Who will be responsible for caring for the pet?
How do they plan to take care of the pet on a daily basis?
What is their occupation? (A doctor would have to leave their pets unattended for longer hours than a stay-at-home mom would)
Who will care for the pet when they’re not home?
You should also request a recent photo of the animal to keep for your records, and can even ask to meet the pet in person prior to approving their application.
So, now that the risks, benefits, and processes for allowing tenants with pets have been laid out, it’s your time to make the decision. Will you open your doors to the pet-loving community?
As a final thought, be mindful that a Fair Housing Law protects disabled people who need an animal for their emotional wellbeing and/or physical safety. The term “disabled” now includes not only the blind or paralyzed, but also those with clinical depression and post-traumatic stress. You can request a note from their physician to verify their condition and need for animal assistance to keep things documented.
Do you allow pets in your rentals? Why or why not?
The coronavirus pandemic has had a serious impact on real estate investors, even if (this time) the economic downturn isn’t tied to the housing market.
Already-low inventory has been thinned even further by sellers choosing to wait out the crisis, buyers are reluctant to invest amidst this economic uncertainty, and many have taken a hit to their liquid assets (and are now prioritizing liquidity more than ever before).
So, what does all of this mean for wholesalers in the current market? Here are some points to consider when brokering wholesale deals during the coronavirus pandemic:
Focus on Inbound Marketing
Wholesalers traditionally rely on outbound marketing methods to source new deals and secure buyers – things like sending email blasts, making cold calls, and attending networking events. All of these strategies involve a lot of time and energy on the wholesaler’s part to track down new leads.
However, with people stuck at home and spending more time on the internet than ever before, wholesalers should consider optimizing their inbound marketing to enhance their sales funnel during this crisis. Having your own website, blog, or YouTube channel, running digital ads, and boosting your social media presence are all ways you can get noticed by buyers and sellers who are actively searching for properties in your area. It takes a considerable initial time investment to get these up and running, but if you’re stuck at home now, too, then what better way to spend your time than building funnels which will bring leads to you passively?
More Conservative Offers
Panic in the markets, combined with desperate sellers, creates an opportunity to get good wholesale deals, which means you can and should be more conservative with your offers in the current environment. Buyers will also be looking for a deal, so 70% of ARV minus repairs might not leave you with enough room to make a decent profit wholesaling in this market.
COVID Extension Clause
To protect their contracts against extenuating circumstances due to the pandemic, many wholesalers are now including an option to extend their agreements with the seller if necessary. If your contract stipulates that you need to find a buyer within 60 days, add a two-week extension that can be triggered to give you more time to close deals during the crisis.
Wholesaler Collaboration
Inventory was already at an all-time low in most parts of the country prior to the outbreak, and now it can be even harder to find enough suitable properties to keep your wholesaling business running consistently.
We’ve seen wholesalers respond to this by reaching out to the competition – other wholesalers – in order to work together, rather than against one another. Wholesalers operating in the same area put together a shared spreadsheet of all of their current deals, and offer a finder’s fee to anyone who’s able to bring them a buyer for it. This can help you both fast-track deals in this uncertain market, and generate a steady stream of income from the finder’s fees you receive on other wholesalers’ deals.
Real estate wholesaling is still alive and well in the era of COVID-19, but wholesalers have had to adapt and innovate in order to keep turning a profit during these unprecedented times.
Many of these trends will likely continue in the age of the new normal, so if you want your wholesaling business to thrive both during and after the pandemic, consider incorporating these areas into your strategy now.
