80k in repairs, what would you do?

Question

Hello BPocketers!

I am newbie in real estate investments in the Detroit area. I made some quick flips that made me some money and recently acquired a two family (Paid cash 57k) in a nice upcoming area of the city. I plan to keep it, but like everything in Detroit needs a lot of work (2 1/2 new bathrooms, 2 kitchens, re-wire electric, new plumbing, concrete driveway, boilers, and on and on). My estimates is that it will take approximately additional 80k to fix it (Using some savings cause I don't plan on taking any loan) Rent in this area are around $900-1,000 monthly per unit. It will take 10 years to make the numbers work, unless I hold on to it and flip it, but God knows whats coming our way in the Real Estate market.

I would like to hear from everyone, please help with any advice.

Good health and big success to all!

Roy Gutierrez · Answer

@Joe Silva, do they have an ordinance that doesn't allow it? There are different cities that don't particularly like it but there's nothing prohibiting it, basically they say something like this "Technically you can't do it, but there's no ordinance prohibiting it", so some of this cities just don't like it, so they say you can't do it when in reality it's a grey area.

Joe Silva · Answer

@Roy Gutierrez Thats my intention. Theres no way I will be renting montly and making it work. This property is backing Grosse Pointe Park so that's always good since they don't allow Airbnb yet.

@Jim Goebel There are no properties in the good areas in Detroit anymore, very rare to come by. Mind you when property were in record low lots of investors poured in and now they are eager to find others. There are a lot  of properties in areas that are not worth investing. I guess that was the reason that I jumped into this one. Lesson learned.

Jim Goebel · Answer

@Joe Silva

Aren't there better properties to focus your time on up in Detroit?

Sure there's countless complete remodels to do that'd be 60k+ for the cost, but I bet there's quite a few that only need 30k and would be much better on the rent side, too?

Roy Gutierrez · Answer

Hi @Joe Silva,

Airbnbs near downtown Detroit are in demand so if want to put in the work you can get a very good return.

Joe Silva · Answer

@Christian Hutchinson I agree, perhaps I can do airbnb since GPP dont allow Airbnb in the cabbage patch area. I am going to fix it and hold until I get a sense of the market, it can always be sold. I got better quotes, lets see what happens. Thanks for all the great advice guys!

Sam Shueh · Answer

I suggested you actually clean out and try to get a stack of quotes and put it back on the market. The $900-1000 x2 is not worth the trouble.

Christian Hutchinson · Answer

@Joe Silva

Okay, so in Jefferson-Chalmers you bought a duplex for $57K.  IDK the condition of the property but $80K sounds pretty steep, as most of the homes are in decent shape over there.  I know those places are fairly large 3000-4000 sq ft and if your just going to gut the whole thing (windows, HVAC, and all) I could see the price.

All that being said, I have a difficult time understanding the $900 or $1000/mo price tag per unit.  Units in GPP don't fetch for that much right on the other side of Alter, and they have great schools, parks, police services, road services, etc, 2 bedrooms fetch for $800-$900 over there and are about 700-900 sq ft.

I get the units maybe are 1500 sq ft each. So your market is someone who doesn't need schools, who was considering the eastside of Alter, but you charge them an equal price for an extra bedroom and double the sq footage.

IF you can get the $1800/mo this investment looks much better in year 3 or 5 versus 18 months from now, because rents would be at $2000-$2400/mo by then.

Thomas S. · Answer

The numbers can work quite well all in at 137K with rent at 2K/month but only if you can refinance with maximum leverage on a 30 years mortgage.

Flip if the ARV numbers work otherwise only option to ever see cash flow will be refinance with max leverage.

Paying cash for rentals over 50K simply does not make money in most cases. Cash is far to valuable to a investor to leave it dead and buried in a property. High risk with lowest possible ROI.

Dave Ramirez · Answer

This sounds like a good deal. After you get it all fixed up and with tenants I would refinance it to get some cash back out of the property and leverage all of the equity you gained by fixing up the property. You won't have to wait ten years to break even if you refinance.

Joe Silva · Answer

I know, trying to get reasonable pricing contractors who knows what they are doing in Detroit is nightmare I constantly run into. I jumped into this deal cause I was having a hard time finding anything with decent bones in the areas I am interested on and needed a project. This is backing Grosse Pointe Park close to the water.