$128,000 profit without flipping....

Buying & Selling Real Estate
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$128,000 profit without flipping....

Marisa R.
Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes

Hi All

Just wanted to share another little sweet deal, this is a buy and hold, access equity, rinse and repeat.

Advantages are that I get to continue growing my capital as this neighbourhood is hot. Problem is trying to find another at this price.... just keep searching I guess.

This property was purchased in July 2017 for $72,000 in July 2018 I had a bank valuation of $200,000. 

Today, I expect it to be worth over $200,000. As we know bank valuations can be a tad conservative. 

So why flip this one when I can enjoy ongoing growth, I access equity, continue holding a solid property, with a solid tenant and solid rent.

I know many will poo poo Detroit market, but as you can see there are deals to be had if you know how to find them.

Here are the numbers

Rent- $1250 (100% Section 8 voucher)

Bank Valued - 200K (2018 July)

Rehab - $10,500

Purchase - $72,000 (mid 2017)

Address: 17385 Warrington - University District

https://www.estately.com/listings/info/17385-warri...

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y

yes banks has a value.. but landlords in that or many markets will pay no more than the 1% rule especially with a section 8 tenant. so value  is probably realistically 120k ish.. unless you can find owner occs that will live in a renter dominated street which is rare.

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  • Austin M Margarida
    Flipper/Rehabber · Jacksonville, FL · Member since 2018 · 56 posts · 38 votes
    7y

    a little 300% ain't hurt nobody! I hope the tenant wants to stay and wish you luck with your market. Sounds like great cash flow with less than 100k put in, congrats and keep goin! 

    1Reply
  • Lashon Ene
    Upper Marlboro, MD · Member since 2017 · 12 posts · 4 votes
    7y

    And I also like your plan. I plan to buy properties that barely cash flow but will appreciate and a mixture of properties that cash flow. Keep going!! 

    1Reply
  • Marisa R.
    OP
    Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes
    7y

    @Lashon Ene

    Thanks Lashon.....accessing $125,000 equity is very much a win....

    Onto the next deal

    0Reply
  • Marisa R.
    OP
    Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes
    7y

    @Dejan Popovic

    OK, I see what you mean

    Happy to change the heading, but not sure how to do this, I am technically challenged

    However, I have made it crystal clear a numbers of times  in this thread that it is equity. 

    1Reply
  • Jabari Long
    Real Estate Broker · Detroit, MI · Member since 2014 · 384 posts · 149 votes
    7y

    @Marisa Rowe That's a great deal in a premier area of the city!  The University District is highly sought after and should continue to appreciate.

    3Reply
  • Marisa R.
    OP
    Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes
    7y

    @Jabari Long

    Thanks Jabari

    I hope I am opening some eyes here......there are most certainly opportunities outside your backyard.

    It will come down to research and risk appetite I guess.

    University District is taking off for sure, but it is not the only area in Detroit that is starting to move north.

    1Reply
  • Londell Reedman
    Pinole, CA · Member since 2017 · 49 posts · 15 votes
    7y

    Congratulation good job on your deal, the goal is to profit as your buying property. just be careful the banks are known to give high appraisals give yourself some cushion in equity

    0Reply
  • Ed Hong
    Member since 2018 · 1 post · 1 vote
    7y
    Originally posted by @Marisa R.:

    @Derek V.

    Thanks Derek, appreciate this... and thanks for your kind words.

    As they say..... there are many ways to skin a cat.......

    What the bank has determined as its true value for me it what matters, I am not selling. 

    Accessing the equity is a good option, it has allowed me to move on and buy more properties.  

    The idea is to continue growing a portfolio of properties with strong cash flow.

    I am focusing on increasing capital at the same time.

    Congrats on the success.

    1Reply
  • Ron Rhaburn
    Rental Property Investor · Culver City, CA · Member since 2015 · 3 posts · 4 votes
    7y
    @Marisa Rowe I agree 100%! “The proof is in the pudding.” You’ve already mentioned the banks view on valuation and have posted comps as proof. As you also mentioned, let’s see what happens in 6 months and come back to this thread. Hopefully, there won’t be **Crickets* I hope you receive the same amount of energy when everyone’s proven wrong. Good job Marisa! Hope you find another one.😎
    1Reply
  • Marisa R.
    OP
    Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes
    7y

    @Leo Poon

    University District = North of W McNichols, South of 7 Mile, East f Livernois Ave, West of Detroit Golf

    Anything outside these Boundaries will be significantly less in value, ie for example some are stating Bagley streets which is not University District address, much less in value...…. 

    Here is a map and the boundaries

    1Reply
  • John-David Hails
    Houston, TX · Member since 2017 · 25 posts · 3 votes
    7y
    @Andrew Flora So I’m guessing some of the people, like you said, aren’t paying mind to the fact that this is a BRRRR. I’m new to investing, so no offense to anyone reading, but is it common that even experienced investors can’t see how this can work out simply because of not knowing the BRRRR method? I’m asking for future references— to see how many grains of salt to take from “experienced investors” who may overlook possible strategies.
    0Reply
  • John-David Hails
    Houston, TX · Member since 2017 · 25 posts · 3 votes
    7y
    @Marisa Rowe So you purchased for 72k.. rehabbed for 10,500 making the value 200k. My questions as a newbie trying to figure this out: #1-how much was your down payment to get the 72k loan? #2--- WAS THE REASON YOU ACCESSED EQUITY DUE TO THE ARV THE BANK CAME UP WITH? (200K) #3--- 72k-200K=128K. IS THAT THE RIGHT MATH FOR CALCULATING YOUR EAUITY AMOUNT?
    0Reply
  • Leo Poon
    Rental Property Investor · Queens, NY · Member since 2018 · 99 posts · 70 votes
    7y

    @Marisa R. Yeah I see. Thanks for clarifying, but I see it is very close to the district's border, I guess the zipcode is driving the price up, so a property next block with a different zipcode will probably not benefit much from university district. 

    Are you going to cash out refinance and pull equity from this buy and hold and invest the equity in another property?  

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Marisa R.:

    @Leo Poon

    Hi Leo

    Thanks for sharing this information.

    I guess as investors we need to compare apples with apples, are the properties you mentioned cheaper because they need more extensive rehab? on  a micro level,  location not necessarily as desirable ?Are these warranty deeds or quit deeds? Do they have back taxes etc.

    As you can see there are many moving parts here.

    As far as crime rates goes, yes I understand the stats, but I also understand that there are many neighborhoods in Detroit that are gentrifying and its matter of finding the gems in the rough and firing the trigger..... pardon the pun

    I did this in Atlanta, I purchased in neighborhoods that were considered rough and undesirable at the time for around $35,000 today this SFH are worth $185,000 each and renting at on average $1400 pm. still hold these for income

    I am not going to argue with the bank and their valuation, if they value it at $200,000 there must be evidence of sales, as they are looking at recent sales comps including sq ft, land component etc.

    I am a simple person, I target markets that are rising, and look at value. If it makes sense then I am in.

    I cant predict the future, however I would love to review this thread in 6 months time to see what has happened and where the values/sales sit including the rental returns. 

    I am Not here to convince anyone to jump into this market, I am just sharing my experience and I think its great to have a constructive conversation, worts and all.

    Marisa, you made genius moves in ATL there is no denying that fact I myself bought 54 homes in Atl. During the same years you were buying and remember talking to you on the Aussie forums. . but being the serial buy add value exit guy when I could double my money we sold them all.. However having started my HML career literally in Detroit in 2001.. and having done 250 plus loans there.. there simply is no comparison with the two cities.. Granted there are some pockets of Detroit coming back however there were are far more distressed assets in Detroit Metro than ATL.. So while we hope the trend works there.. I suspect its not going to be the homerun that ATL was and how your genius moves worked there.. But as long as your buying these were they cash flow its just like any other cash flow market.. But in my mind if your in it 75k and you really think you can get a retail price of 200k in that scenario I am a seller every day of the week. plenty more were those came from.

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  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    I'll have to be in the "poop on your parade" brigade this morning, Marisa. I've briefly looked at sold comps in that neighborhood and this house was the highest sold in the nearby vicinity (a little over $100/sq. ft):

    https://www.redfin.com/MI/Detroit/17377-Birchcrest...

    Map of homes sold in the last year <1500 sq. ft:

    https://www.redfin.com/city/5665/MI/Detroit/filter...

    Homes <1500 sq. ft sold for min price of $175k. Total 3 homes, all have no pics, and one looks bogus ($500k is probably $50k):

    https://www.redfin.com/city/5665/MI/Detroit/filter...

    Let's say you can command $100/sq. ft, that puts you right at $130-140k, which is still a great BRRRR candidate.

    1Reply
  • David Zheng
    Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    7y

    Theres two camps commenting on this thread, Those with 1000+ posts/votes and those with less than 50.

    The ones with more are a lot more critical and I echo what they're saying (because of personal experience too).

    However, if the bank is valuing it at 200k, you need to take that cashout value and run even if it makes you barely break even. I just don't think you'll get that same valuation again when you actually need it.
    Even if you don't cashout refi, where you have it right now is a good cashflow property. So youre a winner either way. Congrats!

    3Reply
  • David Zheng
    Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    7y

    also I would be weary of taking the banks appraisals at face value. Some will do an appraisal and then still won't lend to you. or just totally be off

    I have a bunch of triplexs in the same neighborhood. about the same size and same rent. I've had 4 banks appraise each of them and values were wild. from 380k up to 680k even among the same appraisers.

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    @Marisa R.

    All said and done $1250 rent on a $82K investment is not bad. There is no actual profit but there could be when you finance which as I have already stated should be done immediately. If there actually is $125K sitting dead in this property you are losing out on about $1000 per month in lost opportunity income on that money.

    Presently you have cash flow but no profit. Equity in a property like this can be extremely fleeting and is highly volatile. You can change that and should change that asap before you lose it. Pull it out asap if you have not already done so.

    2Reply
  • Jameson Sullivan
    Real Estate Broker · Tacoma, WA · Member since 2016 · 545 posts · 252 votes
    7y

    I think you all are missing the point. She isn't going to sell it so the value to an investor doesn't matter, she can refinance with her bank up to 75% the assessed value, pull out double her cash and do another. Likely a mortgage of 150k will push your payments too close to 1000k a month which is a little tight with 1250 cash coming in, so you likely wont be able to refi out all the bank would allow you to, but nonetheless, infinite return on cash isn't too bad a deal.

    2Reply
  • Darnell J.
    Investor · Atlanta, GA · Member since 2016 · 31 posts · 28 votes
    7y
    @Marisa Rowe Congrats on finding a great deal. After reviewing the comps and that area I don’t have much confidence in that $200k bank valuation; low to mid $100k seems more aligned with the other homes in that area. However, if the bank valued that property at $200k you should cash out refinance ASAP if you have not already done so. Normally the window on appraisals are 30 - 120 days. If you’re still inside that window I would highly recommend a cash out refinance ASAP. If you financed and put down 20% of $72k for downpayment, you should have a loan value of about $58,000. Normally banks lend anywhere between 65 - 75% CLTV on an investment property. So you should get about $72k to $92k in cash out. Thats great capital to go purchase you next deal. That’s a pretty good outcome to me. The property won’t cash flow after you pull out the equity in it, but that’s the other side of the brrrr coin. Congrats and I wish you continual success. I would be interested to know how the market trends in 6 months to a year play out and how your cash out refinance goes so please do post an update. Thanks for sharing.
    1Reply
  • John Woodrich
    Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Marisa R. you keep mentioning "bank valuation".  In my experience this could be many things.  Is this value a "bank valuation" or was an appraisal completed?

    0Reply
  • Buckner Toney
    Rental Property Investor · Denver, CO · Member since 2018 · 21 posts · 12 votes
    7y

    How much are you planning on cashing out? If the bank appraised the value at $200K sounds like you should be taking advantage of their appraisal and pulling quite a bit out asap. P&I on 150K is likely to come in around $900 a month before taxes, insurance, and any accruals for repairs, capex, etc, leaving that pretty thin on a monthly cashflow basis (at least for my risk tolerance but everyone is different on that.) I'd be somewhat hesitant to pull too much out and not leave a sufficient cushion on a monthly basis, especially considering the crime stats and other comps posted for that area. I wouldn't want to be stuck in a situation where I'm underwater because I pulled out too much or are negatively cashflowing after a big repair, higher than expected vacancy, etc.

    0Reply
  • Jonathan Schoap
    New Bern, NC · Member since 2018 · 6 posts · 3 votes
    7y
    @Marisa Rowe Great deal and awesome opportunity to BRRRR. If there was a way to profit on a deal and not sell anything, you’ve done it. Congrats and find another.
    1Reply
  • Jeff C.
    Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
    7y
    Originally posted by @Jameson Sullivan:

    I think you all are missing the point. She isn't going to sell it so the value to an investor doesn't matter, she can refinance with her bank up to 75% the assessed value, pull out double her cash and do another. Likely a mortgage of 150k will push your payments too close to 1000k a month which is a little tight with 1250 cash coming in, so you likely wont be able to refi out all the bank would allow you to, but nonetheless, infinite return on cash isn't too bad a deal.

    I don't think anyone is missing the point. The title of the post is literally "$128,000 profit...". No profit has been made until the property sells. Borrowed money is not "profit".

    3Reply
  • Leland S.
    Developer · LA, Nashville TN · Member since 2015 · 295 posts · 75 votes
    7y

    I'd be hesitant to pull out any more than the tenant is paying for. I did some research in Detroit and it was too scary to me to invest there. Any kind of market softness, I'm not sure how it would respond, but I would want to know what valuation downside is and make sure I had a capital expense budget.

    0Reply
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