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

    @Jay Hinrichs

    Thanks Jay for your kind words

    I have no idea whether I would achieve $200,000 today,  but I am going to hold this one for now.

    I am going to flag this thread and 6 months review, lets see this market is at

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

    Hi Everyone

    This one just got listed, of course much larger home.... But look at listing price on Warrington Drive

    $279,900

    https://www.redfin.com/MI/Detroit/17568-Warrington...

    https://www.berkshirehathawayhs.com/homes-for-sale...

    early days, lets see what this sells for 

    0Reply
  • Tchaka Owen
    Real Estate Agent · Merritt Island, FL · Member since 2017 · 974 posts · 1k+ votes
    7y

    @Marisa R. - the general consensus is 1) you did a great job getting that property at that price, and 2) we don't necessarily agree with the valuation. Based on our way of valuing, the place is probably closer to $120k. Here's my recommendation: if you can get $200k or even close to it, sell it immediately. Use that money to leverage other homes. You might not get the same deal, but so what? If you walk away with $100k, you can leverage it on 3 or 4 Detroit homes. They might not increase in value however you'll get much more cashflow than this one is giving you. 

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

    @Tchaka Owen

    Thanks Tchaka good points here.

    However, I am already loading up in Detroit I have 11 properties now and they are cash flowing at around 12-15% net returns. 

    The plan for me is to buy a mixture of cash cows and some that are in gentrifying neighborhoods, perhaps look at flipping a few.

    I get the feeling from this thread that no one likes Detroit and expecting a crash.... that already happened..... and now on the move.

    I dont need to fall in love with a particular State, neighborhood etc.   I just need the numbers to stack up and understand what is happening in the market in terms of the trend. If its rising, I am in.

    Mitigating the risk for me is always about loading on a rise and offloading close to peak.

    No one has a crystal ball, but you have to pay attention to the indicators along the way.

    1Reply
  • Jason D.
    Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    7y
    @Marisa Rowe I think it's a solid purchase, but if it's worth $200k, you need to sell it immediately! The problem you'll run into is that you cant access that equity and still have positive cashflow. If you BRRRR is and refinance at 70%, the rent wont cover the mortgage. If your valuation is correct, you did a great job adding value, but not all great flips are great long term investments.
    1Reply
  • Tchaka Owen
    Real Estate Agent · Merritt Island, FL · Member since 2017 · 974 posts · 1k+ votes
    7y

    @Marisa R. - I'm not sure that people dislike Detroit. If there's money to be made, there's money to be made. People here focus more on success and regardless of which route one takes, as long as it can build wealth, BP peeps will support. For example, I'm from the Wash DC area and love it there. But I am 90% sure I can make more money faster in Detroit than I can back home. And 99% sure I can cashflow better out of Detroit. It's the numbers on the deal above that has people pessimistic, not Detroit. If you have 11 properties cashflowing, that's fantastic! Keep it going. Better yet, study more BP and move up to multi-units. Best of luck!!

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

    @Tchaka Owen

    Thanks Tchaka..... your talking my language.

    I am not too interested in multi units in Detroit, I have not been looking at multi units as I may be buying into major headaches with this product in Detroit... 

    Perhaps I need to do more research on this.

    1Reply
  • Account Closed
    Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
    7y
    Originally posted by @Jeff C.:
    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".

       Your Comment: , "Borrowed money is not "profit". However, Borrowed money is not TAXED, "profit" IS. It is Better to have access to  untaxed money.

    2Reply
  • Jason D.
    Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    7y
    @Mike M. Borrowed money isnt taxed, but you still have to pay to access it.
    0Reply
  • Marisa R.
    OP
    Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes
    7y

    Its what you do with the borrowed money that matters the most?

    If you can double that money.... happy days

    1Reply
  • Account Closed
    Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
    7y
    Originally posted by @Jason D.:
    @Mike M. Borrowed money isnt taxed, but you still have to pay to access it.

     And along with that comes write offs and velocity.

    0Reply
  • Jeff C.
    Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
    7y
    Originally posted by @Account Closed:
    Originally posted by @Jeff C.:
    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".

       Your Comment: , "Borrowed money is not "profit". However, Borrowed money is not TAXED, "profit" IS. It is Better to have access to  untaxed money.

    Yeah, profit that you never made isn't taxed. Get it? ; ) Also, the title of this thread isn't "I borrowed a bunch of money against a property in a BRRR".

    0Reply
  • Jonathan Wildy
    Investor · Atchison, KS · Member since 2015 · 46 posts · 6 votes
    7y
    @Marisa Rowe color me naive but you rent at 1250/month and refi our 200k... isn’t your loan 1600-2000/month? This seems like you are losing money each month?
    0Reply
  • Marisa R.
    OP
    Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes
    7y

    @Jonathan Wildy

    Hi Jonathan

    It would be leveraged at 80%. I am about $1000  in front pa if I refinanced, I mentioned this in another post.  Peanuts really, but for me its about growing the portfolio.

    I have a mixture of growth properties that I may flip similar to this property and I have cash cows at around 12-15% net rental income. 

    Its about strategizing there is a bigger picture here other than just one property and for me its not just about cash flowing properties. 

    Whats more important cash flowing properties or appreciating properties..... well its a catch 22... you need both..... if you don't grow capital how do you create income streams??

    0Reply
  • Costa Deir
    Watertown, NY · Member since 2016 · 34 posts · 9 votes
    7y
    @Marisa Rowe Obviously, if you were planning to sell the house the most important number would be what other investors would pay for it. However, if your strategy is to BRRRR the property, then the bank valuation is all that matters!
    1Reply
  • Marisa R.
    OP
    Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes
    7y

    @Costa Deir

    Hey Costa, that is exactly right.

    BRRR strategy is mentioned many times on BP, however it seems perhaps many on this thread are understanding this concept.

    I can not wait to review this thread in 6 months so I share the comps. My gut tells  me it will continue to rise, because guess work is not required if it is already rising and there are more buyers and stock....boom

    0Reply
  • Jason D.
    Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    7y
    @Marisa Rowe but if it's a BRRRR, comps in 6 months dont matter, just as the valuation doesnt matter now. What matters in a BRRRR is can the rent comfortably cover the expenses. And in your case it doesnt. This property could be worth $600k, but if it can only generate $1200/month in rent, its equity is inaccessible, and therefore, useless. The highest and best use for this property is as a flip, then use that money to invest in better BRRRR properties, if that's your strategy.
    0Reply
  • Marisa R.
    OP
    Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes
    7y

    @Jason D.

    Hi Jason, Right.

    So how did you determine the numbers? I come in at $1000 pa income.

    Certainly that is one option, but  the market is rising and I can comfortably hold this property, I would prefer to hold as in 12 months time I expect it will worth more. I guess different ways to skin a cat.

    0Reply
  • Jason D.
    Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    7y
    @Marisa Rowe I used $1250 as income, a $150k refi (75% of the $200k value) at 6% is a $900 P&I payment. $100 for insurance, $100 for taxes, your at $1100 before any expenses. So you're cashflow negative each month and you have $50k in equity that you can touch. It's my opinion that you bought a great flip, but not a good BRRRR. Sure you can hold it for a year, it'll cost you a few thousand in holding costs, and if it appreciated a lot, you could sell and do even better. But what's the opportunity cost? How much could you have made in the year you were losing money? That's the beauty of real estate investing, there are so many great options to consider, and any that make money are good answers 😁
    1Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Jason D.:
    @Marisa Rowe I used $1250 as income, a $150k refi (75% of the $200k value) at 6% is a $900 P&I payment. $100 for insurance, $100 for taxes, your at $1100 before any expenses. So you're cashflow negative each month and you have $50k in equity that you can touch. It's my opinion that you bought a great flip, but not a good BRRRR. Sure you can hold it for a year, it'll cost you a few thousand in holding costs, and if it appreciated a lot, you could sell and do even better. But what's the opportunity cost? How much could you have made in the year you were losing money? That's the beauty of real estate investing, there are so many great options to consider, and any that make money are good answers 😁

     she'd have to lower the refi ltv, but then the title of the thread won't be as sexy. 

    0Reply
  • Christian Hutchinson
    Investor · Detroit, MI · Member since 2014 · 360 posts · 354 votes
    7y

    So a little background on this area...
    The Detroit Golf Club just scored a PGA Event (The National, Title sponsor is Rocket Mortgage) starting in Late June/ Early July 2019.

    Also, its pretty much local knowledge that The Detroit Grand Prix will align a week prior or after to the Golf Tournament (talks underway).

    Lastly, in 2020 The Auto Show is moving to June.  There is a major lack of hotel space anyway and it was held in January when hotel occupancy was horrific. Well this was a bigger problem for crews assembling displays who arrive 12 weeks out to begin the build-out and stay 4 weeks after to tear down.  Properties like this could cater to this market and at premium.

    The Bank, whoever that is, might realize how effective this property could be as a short-term rental because its challenge long-term, and based on comps people won't pay $200K especially with higher interest rates.  The University District is full of Judges, Business Owners, High level City Employees, etc. The house listed at $279K that looks like University District Property, its also 2x the size, more stately, has walk-in closets, multiple bathrooms.  The subject property not so much. IF the bank is saying this property is valued at $200K, I want their number because I have stuff in Brush Park, North End, and Islandview, I'll take my equity out and run.

    The Owner is doing Section 8 because a Market Rate Tenant could get much more house or better locations at that price point.  There is no disadvantage being on the other side of Livernois or a few streets south of 6 mile.  I would imagine the rentals in the University District the landlords don't take Section 8.

    similar size properties :

    Home 1

    Home 2

    Anything approaching $200K is approaching 3000 sq ft.

    This a perfect example why investment is difficult in Detroit its more profitable to rent to Section 8 Tenants than Market-Rate.

    Rental 1

    Rental 2

    Rental 3

    Being in the University District you do NOT get better schools, services, less crime than the immediate surrounding neighborhoods.  None of those neighborhoods surrounding the UD are like 4820-die, Blightmore, Joy Rd, or Puritan and Greenfield.  I believe some parts of the University District, The Block Club pays for private security patrols, thats mostly along the 7 Mile section I'm familiar with that.

    This property though in the University District meets the characteristics  of the census tracks to the south and west than its own neighborhood, or the more exclusive 7 Mile neighborhoods.

    Subject Census Track - $38,333 MHHI, 13.4% UE, $447 Median Rent, 31.8 Median Age, 19.9% below poverty

    UD Census Tract 2 (east of subject, runs along DGC) - $57,419 MHHI, 13.4% UE, $921 Median Rent, 41.9 Median Age, 8.95% below poverty

    UD Census Tract 3 (North of subject)  - $94,153 MHHI, 13.4% UE, $393 Median Rent, 48.6 Median Age, 3.94% below poverty

    UD Census Track 4  (North of Curtis) - $67,181 MHHI, 13.4% UE, $940 Median Rent, 47.1 Median Age, .81% below poverty

    UD Census Track 5 (North of Margareta) - $92,663 MHHI, 13.4% UE, 38.5 Median Age, .45% below the poverty line 

    3Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Christian Hutchinson:

    So a little background on this area...
    The Detroit Golf Club just scored a PGA Event (The National, Title sponsor is Rocket Mortgage) starting in Late June/ Early July 2019.

    Also, its pretty much local knowledge that The Detroit Grand Prix will align a week prior or after to the Golf Tournament (talks underway).

    Lastly, in 2020 The Auto Show is moving to June.  There is a major lack of hotel space anyway and it was held in January when hotel occupancy was horrific. Well this was a bigger problem for crews assembling displays who arrive 12 weeks out to begin the build-out and stay 4 weeks after to tear down.  Properties like this could cater to this market and at premium.

    The Bank, whoever that is, might realize how effective this property could be as a short-term rental because its challenge long-term, and based on comps people won't pay $200K especially with higher interest rates.  The University District is full of Judges, Business Owners, High level City Employees, etc. The house listed at $279K that looks like University District Property, its also 2x the size, more stately, has walk-in closets, multiple bathrooms.  The subject property not so much. IF the bank is saying this property is valued at $200K, I want their number because I have stuff in Brush Park, North End, and Islandview, I'll take my equity out and run.

    The Owner is doing Section 8 because a Market Rate Tenant could get much more house or better locations at that price point.  There is no disadvantage being on the other side of Livernois or a few streets south of 6 mile.  I would imagine the rentals in the University District the landlords don't take Section 8.

    similar size properties :

    Home 1

    Home 2

    Anything approaching $200K is approaching 3000 sq ft.

    This a perfect example why investment is difficult in Detroit its more profitable to rent to Section 8 Tenants than Market-Rate.

    Rental 1

    Rental 2

    Rental 3

    Being in the University District you do NOT get better schools, services, less crime than the immediate surrounding neighborhoods.  None of those neighborhoods surrounding the UD are like 4820-die, Blightmore, Joy Rd, or Puritan and Greenfield.  I believe some parts of the University District, The Block Club pays for private security patrols, thats mostly along the 7 Mile section I'm familiar with that.

    This property though in the University District meets the characteristics  of the census tracks to the south and west than its own neighborhood, or the more exclusive 7 Mile neighborhoods.

    Subject Census Track - $38,333 MHHI, 13.4% UE, $447 Median Rent, 31.8 Median Age, 19.9% below poverty

    UD Census Tract 2 (east of subject, runs along DGC) - $57,419 MHHI, 13.4% UE, $921 Median Rent, 41.9 Median Age, 8.95% below poverty

    UD Census Tract 3 (North of subject)  - $94,153 MHHI, 13.4% UE, $393 Median Rent, 48.6 Median Age, 3.94% below poverty

    UD Census Track 4  (North of Curtis) - $67,181 MHHI, 13.4% UE, $940 Median Rent, 47.1 Median Age, .81% below poverty

    UD Census Track 5 (North of Margareta) - $92,663 MHHI, 13.4% UE, 38.5 Median Age, .45% below the poverty line 

    now that is a comprehensive reply from someone that I suspect is a real expert in that market.. 

    my experience in many of the cash flow areas is HUD rent is higher than market rent.. And one thing I learned over the years a bank refi appraisal has NO bearing on what the property will bring on the open market. it could be off by 20 to 50% .. in real world to a real homeowner.

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

    @Christian Hutchinson

    Thanks Christian for such a comprehensive reply on University District.

    Would be interested on your take on how the market is going in this precinct 

    0Reply
  • Danny N.
    FLL · Member since 2016 · 98 posts · 20 votes
    7y

    Meh I think alot of real estate professionals are not understanding what is going on with interest rates. Im a trader for a living, interest rates are up 20%+ in a short time frame. The reality is these nominal cap rates we've seen in real estate for the last 6-8 years are gone. Mortgages are 5% now and Us treasuries yield over 3%, anyone who doesn't understand what those are and how treasuries affect all assets has no business discussing home valuations.

    An appraisal means nothing, I had to get an appraisal to insure my exotic car a few months I, I wanted a $140k valuation, which is what I paid, they gave me $200k, how/what/why I don't know and I don't care. The entire appraisal industry in all assets is a joke.

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

    I apologize if this is a naive question... but why would banks over value a property? This is more risk surely.

    I have always experienced the opposite where banks generally under value a property

    0Reply
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