Oakland County Investors is a website dedicated to real estate investing in the Southeast Michigan area, specifically Oakland County.

Flipping Houses: Investors Flipping At The Highest Level in A Decade

If you’ve been hunting for deals for any amount of time, you already know that the game has changed quite a bit in the last couple years. The competition for deals has skyrocketed, while inventory has remained relatively low.

This has created pressure on owner-occupants, as investors show up with cash to get REO and distressed properties. A recent report from Trulia and Bloomberg state that flipping (officially defined as a house selling twice in a twelve month period) is happening at the highest rate since 2006.

In 2016, 6.1% of US home sales met the criteria of a ‘flip’, as opposed to 2006, when that number was 7.3%.

We’ve definitely seen an uptick in the southeast Michigan market. The numbers were even stronger in markets that were even more crushed by the foreclosure crisis, with Las Vegas and Florida leading the pack.

Ralph McLaughlin, chief economist at Trulia has indicated that even though this metric is high, there still isn’t enough data to indicate the market will flip out again. Time will tell.

You can read the original article here at Bloomberg: Americans Are Flipping Houses Like It’s 2006

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Source: TommyDesmond.com

Every Episode of This Old House, ever.

So, This Old House is practically a religion at my house. My wife refers to Norm Abram as “Uncle Norm”. You could imagine how excited we were when we found out they released the entire catalog of shows as part of a paid ‘insider’ deal. It’s in beta at the moment, so that means it doesn’t cost anything. It doesn’t even require a credit card to register for it, and you get a free Silva Construction T-shirt.

It includes all the past episodes dating back to 1979 and all the This Old House magazines, too. After the program gets going, it’s apparently $6.95 a month. When I registered, I got the message that I got a year free for registering during the beta period.

Both Kate and I registered last night separately, so we’ll see if we get two shirts.

I’ve been trying to locate the older episodes for years, with little success. I found a few of them from the 80s, but the quality was pretty brutal. Considering it’s a show about construction details, quality that was near unwatchable was kind of a downer.

I watched the premier episode last night from 1979. I was born in 1979, no doubt just so I could watch this show. They must have remastered them or something, because the quality is probably better than when it originally aired. You can see every flake of lead based paint AND Bob Vila’s luxurious hair. Talk about a win.

I haven’t checked out any of the magazines yet, because I was getting technical errors when I tried (hey, it IS in beta). When they get that sorted though, I am willing to get a dedicated tablet to load them into and permanently install in my bathroom. I’ll have reading material until I die.

If you’re into this rehab classic, definitely check it out.

PS – This isn’t an affiliate link, I’m not selling this. I just think it’s awesome and I’m sharing it. 

http://stage.thisoldhouse.com/insider/home

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Source: TommyDesmond.com

Custom Displays In REALCOMP MLS

REALCOMP rolled out its RCO3 platform a couple years ago now, and I have to admit it’s rapidly become my favorite of the MLS platforms. It’s fast, powerful, and can do some very interesting things that you might not be aware of.

In this video, I go over how you can set up custom displays when you’re searching for property.

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Source: TommyDesmond.com

50% Off The Top

As I grow my portfolio, I’m seeing some of the “rules” I’ve studied about real estate investing come to life more and more. When I first started adding rentals, I read about the “50% Rule” on several blogs, books, and courses. It always seemed high to me, and clearly, because I was so intrinsically awesome, could manage MY properties much better than that and could easily make FAR more cash flow than the rest of the peasant hoard… well, peasant…landlord…hoard…
…whatever.

Point is, I was wrong, and the 50% rule proved to be pretty accurate in my portfolio.

The rule is pretty simple, take 50% of your gross rent for a property and throw it away.

Huh?

Yeah, chuck it… and by “chuck it”, I mean “assume it’s spoken for”.

That first 50% should cover operating costs like taxes, insurance, property management, capital expenses, and any random extras that may come up specific to the property (landscaping, sewer treatments, assessments, etc).

50% isn’t an exact number, it’s a general range, and it’s proving to be more or less accurate for me, at least in my market.

When I rehab a property, even to hold as a rental, I tend to bring it up to a pretty high standard. As a result, when I initially put a property into the portfolio, I usually have low CAPX costs. This can lead to lower costs, giving me a number more like 40% as operating costs, but over time, I’m assuming that will be equalized by higher ticket replacements, like a furnace or a roof.

50% makes me comfortable.

I’ve also heard this reinforced by other local investors I’m close with. Josh Sterling, the owner of Epic Property Management, has (at the time of this writing) 169 units in his portfolio. His numbers across the entire portfolio average out to around 50%, supporting the assumptions of the 50% rule.

The remaining 50% is split between (taxless) debt service and your cashflow.

After accounting for that 50% and your debt service, that sexy rent check might start to look a little wimpy, but it’s better to be realistic about your actual total cost of ownership from the beginning instead of robbing peter to pay paul later down the line.

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Source: TommyDesmond.com

Love the FDIC Website.

I’ve recently been doing a lot of REO work and building relationships with asset managers from troubled banks to find investment properties for myself and my clients. 

There are a ton of tricks I’ve learned as far as accessing these key assets, and one of the most powerful tools I’ve come across is free and convenient. It’s the FDIC’s website (http://www.fdic.gov).

The bank search feature of the site lets you not only find banks by name in your area that have troubles, but it also give you 

Estimating Capital Expenses

Capital expenses are the big budget items that you have to consider when you’re analyzing a potential rental. These heavy ticket items can dramatically alter your great deal and turn it into a dud really quickly. 

Capital expenses (or improvements) can be:

  • New Roof
  • Replacing Boilers, Furnaces, or AC units
  • Major Electrical or Plumbing Work
  • Repaving or Concrete Work
  • Replacing or Repairing Sewer Lines or Mains
  • Appliance Replacements

These big ticket items might not necessarily be repairs that you’re intending to make when you purchase the property. They’re not recurring, but with their large sticker prices, they effectively raise your cost of acquisition, even if they occur a couple years after you buy the property. 

Holding property to rent is a completely different animal than flipping property short term, so consider your initial purchase price to extend into the future for as long as you are planning to keep the property.

It’s always best to overestimate the cost of these repairs, and underestimate the amount of time it will take before they’re necessary. 

If you plan to hold onto a property for 10 years before you sell it, and you assume it will need a new roof in 12 years, cut that estimation in half. If it was me, I would adjust that roof’s life expectancy to 6 years. That would put it right in the middle of my ownership, and therefore it’d be my problem. I would add that into my analysis before putting an offer in.

It won’t always be that things end up worst case scenario, but when you’re making serious investments, I’m always most comfortable erring on the side of caution. Why not?

Count All Your Expenses

When you’re looking at a potential rental property, one of the biggest variables to effectively analyze are the costs of ownership. If you get those wrong, you could find yourself trapped in a negative cash flow situation. 

If the listing agent or seller of a property gives you a P&L, that’s a good starting point, but take it with a grain of salt. On top of the vanilla expenses that show up everywhere, like taxes and landscaping, consider some other potentially hidden costs.

  • Taxes
  • Property Management Fees
  • Agent Fees
  • Special Assessments
  • Water 
  • Sewer
  • Utilities (including common areas)
  • Trash & Recycling Pickup
  • Snow Removal
  • Capital Improvements/Expenses
  • Insurance
  • Vacancy Allowances
  • Homeowner’s Association Fees

This is only some of the potential modifiers that could affect your cash flow, and you need to keep them in mind when you’re running your numbers. 

I realize a lot of people are going to say “What about appreciation?”, and I do acknowledge there are other variables that can affect your decision. Personally, I don’t really factor appreciation into my process when I’m looking at a property to hold. If you’re banking on a future payout, you’re speculating, and I’ve seen many an investor get burned all the way to the bank on this kind of gambling. 

There are cases where you want to see negative cash flow from a property… like if you have expenses from elsewhere in your portfolio you have to offset, but those situations are specific strategies, and outside the scope of what I’m talking about.

For majority of investors I deal with, especially new investors, the goal is to start the passive cash flow coming in. Missing hidden expenses can turn off that faucet quicker than you think, so be careful. 

Shipping Container Homes

I’ve been interested in shipping containers as a structural building material for years. They are strong, cheap, weatherproof, and abundant. We have a surplus of the things. 

Recently, these containers have been appearing more and more in the public eye as a viable building option. Now a new project has arrived right in Royal Oak. 

http://www.wxyz.com/news/shipping-containers-for-houses

Michigan Landlord-Tenant Guide

I was combing through the State of Michigan site the other day and I came across this great little PDF that covers a ton of information concerning Michigan’s laws relative to Landlord-Tenant relationships. Since state sites are notorious for information moving around, I just reposted it here so it won’t disappear into the lost vault of state documents.

It includes some sample leases, subleases, disclosures and other stuff. It’s worth having in your research folder.

MI Landlord-Tenant Guide