Month: July 2023

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.

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