Understanding the Eviction Risk

Announcer: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Greg: Hi, I’m Greg White from Imagine Home Realty in Detroit. I’ll be your host on the REI Classroom today. Today, we’re going to go over understanding the eviction risk in investments.

Announcer: This REI Classroom real estate lesson is sponsored by UglyOpportunities.com.

Greg: Eviction risk is a high possibility in distressed markets. It’s something that you have to consider whenever you are plotting your numbers on paper to determine whether an investment is solid or not. You can have an investment that looks on paper to be 20% or 30% cash on cash return. However, the risk of eviction can completely change your number. It can go from a profitable investment to a negative investment very quickly if you get stuck with an eviction.
This is why having a great property manager that spends a good amount of time vetting the potential tenants, he can make all the difference in the world. They need to be pulling credit history. They definitely need to reach out to previous landlords. Eviction history is the most important thing. Checking income levels to make sure that they can afford the house and not just rent it out.
There’s a lot of managers out there that if somebody walks in with cash, they’re happy that they’re going to be able to make their commission, and they’ll just lease the property right there. Odds are high that you’re going to end up in an eviction, which can completely ruin your investment.
Each state is a little bit different when it comes to evictions, but you definitely should look into the laws in your particular state where you’re going to invest in. In the Detroit market or Michigan, generally speaking, is about 45 to 60 days. The process can cost up to $1,500, and sometimes, even $2,000.
The court process usually starts with a seven-day notice, followed by filing a 30-day notice in court, then ultimately getting a court date and the judge gives them a certain amount of time to leave. If they don’t, then you have to hire a bailiff, which is a court officer, to come out and physically evict them and throw them out of the house. You also have to rent a dumpster in Michigan if they don’t leave at any point, can be as high as $1,500 to $2,000 and again, take 45 to 60 days.
Making sure that you have a property manager in place that is going to truly bet and do the best that they can to make sure that you’re getting high quality tenants, even if that takes longer. One of the most important things that I can tell people is when we’re managing properties, when we’re taking care of our clients and our investors here. We work with investors from all over the world and they’re sometimes so concerned with how long it’s taking to rent, “It’s been two weeks, it’s been three weeks, and we haven’t got this rented yet.” That is often times because there’s been so many applications, but none of them work out.
I tell the people all the time, and it’s hard for them to understand and believe, but it is much better if a property sits on the market for rent for a month, a month and a half to find a great tenant, as opposed to renting at day one and having to evict that tenant, two weeks later. Now your entire investment has just went awry and you’re throwing good money after bad.
Do your due diligence. Understand and find out what your state’s laws are regarding evictions. In distressed markets, you really need to do even more due diligence where eviction rights are higher. If you have any questions, look to your nearest property manager. Do a lot of research on them. Read reviews. Reach out to other clients that have use them before and reach out to your local municipality or state to find out their laws on evictions.

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