After a tenuous start in the real estate business in California, we took our success on the road. A job promotion forced us to pack up our things in sunny California and move to the not so sunny Detroit, MI. A lot of people have a lot of bad things to say about Detroit, but not I. I think the city gets a bad rap. The people were great and there were a lot of things to do beside visit the casinos.
Despite the rocky start in California, the wife and I were eager to get back on the saddle. This time around we had real money and were much smarter. The real estate agent interviews were a huge surprise. Due to our age many agents didn’t take us seriously. A lot of them were unwilling to talk about what they had done in the past or even sit down for the interviews. Additionally, very few agents had good experience working with investors. Of course there were a few good agents out there. We selected a great one, Tamara Smith, who had great experience working with investors and strictly worked with buyers (very important).
A brief aside on buyers’ agents. Buyers’ agents only work with home buyers and investors, who are on the buying side of transactions. Their plus is the fact that they have a lot of great experience negotiating from the buyers’ side. They also build a relationship with a lot of buyers and can typically be counted on to find a buyer for almost any property; great people to know if you buy a lot of properties. If you recall from yesterday we decided to start the business with $30,000. For those of you who many not know the Detroit real estate market probably falls in the lowest 5% of all real estate markets in the US. This being the case we found it imperative to choose very wisely in the properties we selected. After some market research we found a great arbitrage opportunity. The average price of investment homes ranged from $20,000-$50,000. In addition, many of the homes were owned by the City, State, or local banks. This meant they could easily be purchased for $10,000-$30,000 below market value. With the average rental price of these units being $650-$800, there was a great opportunity to get mortgages of $200-$300 with these rents.
The opportunities for good investment were everywhere; unfortunately there was also a lot of opportunity for failure. Many buildings were actually worth less than $0 (that is not a misprint). Some houses were literally falling over or had so much internal work that needed to be done it just wasn’t worth it. When looking at houses with a finished value of at most $50,000, we could only accept houses that were in need of cosmetic repairs. After looking at over 1000 houses in person and on line, we settled on our first investment; a great house that appraised for almost double what we purchased it for. After several hundred dollars of cosmetic repairs we were up and running. Amazingly, the rental market was so hot, in one day of working on the house six people came by asking if they could rent the house. After some credit and reference checks we settled on our first tenant. Thus began Cook Squared Enterprises. Key Learnings…
- Great opportunities are everywhere
- Be selective. Even good opportunities may not be the right opportunities to start with
- Go where no else wants to go, there is less competition and often a lot of money to be had