Critique my analyses of This multi family

Rental Property Investor · Dearborn, MI · Member since 2016 · 7 posts · 1 vote

I am practicing my ability to find and analyze local multi families in the Detroit area. I would appreciate input on this property and my analysis of the investment . Thanks ,

Dan

https://www.redfin.com/MI/Hamtramck/11471-Mitchell-St-48212/home/61307959?600390594=copy_variant&231528114=control&1778901559=variant&utm_source=ios_share&utm_medium=share&utm_nooverride=1&utm_content=link&utm_campaign=share_sheet

https://docs.google.com/spreadsheets/d/12CWzouCDWDUHCj_I6dKu2upjopAucZUacRSKgCwJUhY/edit

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Mike Smith

Boise, ID · Member since 2018 · 203 posts · 188 votes

@Daniel Hinojosa Your expense ratio is $806/$3300 = 24.4%

Most single family and duplex homes run expense ratios very near 50%. Even large scale multifamily that is 20+ years old will typically run expense ratios 35-45%. I don't think I've ever seen a pro-forma on a brand new large scale multifamily that was as low as 24%.

So, my quick analysis is that your expense ratio is about half of what it will actually end up being. I would recommend re-running your numbers with a more realistic expense ratio.

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Brandon Plombon
Banker · Minneapolis, MN · Member since 2017 · 257 posts · 143 votes
4y
Your spreadsheet is locked and requires permission to access.
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Daniel Hinojosa
OP
Rental Property Investor · Dearborn, MI · Member since 2016 · 7 posts · 1 vote
4y
@Brandon Plombon thanks for letting me know , I changed the access to anyone who has the link
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Alicia MarksPro Member
Fort Worth, TX · Member since 2020 · 1k+ posts · 2k+ votes
4y
You can also run this through our calculator and share directly here. Most of us are very familiar with the format and can quickly spot possible issues.
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Daniel Hinojosa
OP
Rental Property Investor · Dearborn, MI · Member since 2016 · 7 posts · 1 vote
4y
@Alicia Marks great point , I will do that from now on
1 Reply
Mike Smith
Boise, ID · Member since 2018 · 203 posts · 188 votes
4y
@Daniel Hinojosa Your expense ratio is $806/$3300 = 24.4%
Most single family and duplex homes run expense ratios very near 50%. Even large scale multifamily that is 20+ years old will typically run expense ratios 35-45%. I don't think I've ever seen a pro-forma on a brand new large scale multifamily that was as low as 24%.
So, my quick analysis is that your expense ratio is about half of what it will actually end up being. I would recommend re-running your numbers with a more realistic expense ratio.
3 Reply
Zach Scherschel
Member since 2022 · 33 posts · 44 votes
4y
@Daniel Hinojosa aligned with what @Mike Smith mentioned.
Additionally, these closing costs are incredibly high, are you buying down points or is there another factor in there? For a 2-unit, I wouldn't expect appraisal/inspection to cost more than ~$1,000-1,500 total, Loan Origination Fee somewhere between .6 - .7% of loan value, and lender legal expenses ~$400 - 600. So without further information, I'd be looking vetting some other lenders.
As an example, I'm closing on an 8-unit complex in WI currently, where the all up closing costs are $5k total.
Also, is the Leasing Fee something that the Property Management company handles at a fixed cost? Most will build it into overall monthly expense or charge a % of Gross Monthly rent for the unit their leasing. Maybe yours has a different set up, which might be good but if they're charging you $130/mo for a leasing fee and you're generating $1,650/unit, you might want to look at the math on that and negotiate, ie if you have a tenant living in both units for 2 years, you've now paid $3,120 in Leasing fee for them doing no work vs potentially paying a 1-time Gross Rent multiple for a leasing fee when they need to find a new tenant.
Hope some of this helps! The rest of the analysis looks good!
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
4y
@Daniel Hinojosa
There is NO way the taxes will be only $2,000 annually!
You can use this tool to estimate future property taxes: https://treas-secure.state.mi.us/ptestimator/ptestimator.asp (note the SEV = 50% of purchase price)
Are you including prorate property taxes in your closing costs?
Why is # units only 2, when property description shows 3?
Insurance is probably a bit low also.
This a Class B prroperty, so a 5% vacancy rate is low. It should be 10-15% to also cover nonpayments by tenants.
Where did you get a 7% management fee? A little low for a Class B area.
Maintenance costs should also be at least 10-15%
Guessing your Leasing Fee is one-time, but you're spreading it out annually for calculations?
We know Hamtramck well, so let us know if you have other questions.
[email protected]248-209-6824
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Russ Kitzberger
Realtor · Cincinnati, OH · Member since 2022 · 81 posts · 58 votes
4y
Just pointing out that 5% vacancy means that you will only have one turnover loss month every year for two units with minor collections expense.
Correlating that to 7% management means that you are either not paying one months rent leasing commissions on one turnover or are not paying any additional management expense.
One turnover loss month is 8% vacancy per one unit and 8% leasing commission, plus management commissions/fee. If you have repairs are you being upcharge fees on repairs by management.
As Zach indicated;
If you are not paying for each additional item the manager does; it might not be reasonable to have such a low management fee.
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Daniel Hinojosa
OP
Rental Property Investor · Dearborn, MI · Member since 2016 · 7 posts · 1 vote
4y
@Drew Sygit thank you for all this insight , especially the tax website . Using the numbers and website I got 14,289 for property taxes . Is that right ? Is the number of Redfin so different because it’s based off an extremely lower value from a buy decades ago? The 2 unit was a mistype but the income is correct . Is 10-15% what you see in that market area ? Thanks for your time
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Daniel Hinojosa
OP
Rental Property Investor · Dearborn, MI · Member since 2016 · 7 posts · 1 vote
4y
@Russ Kitzberger thanks for the details on vacancy rate . I will be using the bigger pockets analyses from this point forward , which as pointed out above will make it easier for people to help me more easily
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Daniel Hinojosa
OP
Rental Property Investor · Dearborn, MI · Member since 2016 · 7 posts · 1 vote
4y
@Russ Kitzberger thanks for the details on vacancy rate . I will be using the bigger pockets analyses from this point forward , which as pointed out above will make it easier for people to help me more easily
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
4y
@Daniel Hinojosa see below message template about MI taxes:
Michigan has some of the most complicated property taxes in the USA. Here’s what to know.

State Equalized Value versus Taxable Value

Back in 1994 Michigan passed the Headlee Amendment:

(http://www.legislature.mi.gov/(S(k5m2va1uyfgwtbyjf4nqb1bx))/mileg.aspx?page=LoadVirtualDoc&BookmarkID=6536)

that capped annual increases to the Taxable Value of a property to the lower of 5% or Michigan's Cost of Living increase. This was done to protect senior citizens on fixed incomes from being forced to sell their homes due to unaffordable property tax increases.

Since the passing of this amendment, all properties in Michigan have two property tax values associated with them:
1. State Equalized Value (SEV): supposedly equal to 50% of the market value of a property, not based on recent sales price.
2. Taxable Value: the SEV annually capped as long as there is not a transfer of ownership.
City Assessors are charged with determining how much property values have changed each year. Since they can't do each property individually, they use comparable sales to make broad generalizations to determine percent changes. Then these are applied to all properties in that area of the city.

Property owners get an annual update on their SEV & Taxable Values with their city property tax bill, typically sent in December.

So now, the city assessor tracks the SEV, but homeowners are taxed based upon the capped Taxable Value. These two numbers diverge over time as the SEV increases with property value, but the Taxable Value is capped. The Taxable Value is uncapped and equated to the SEV upon a sale or other transfer of property ownership, with limited exceptions.

Homestead versus Non-Homestead Millage Rates

Counties & cities in Michigan are allowed to set their own millage rates, with one restriction – a primary residence (Homestead) is exempt from up to 18 mills of school taxes on their Homestead property. A property qualifies as Homestead for this exemption if an eligible owner files a Principal Residence Exemption (PRE): https://www.michigan.gov/taxes/0,4676,7-238-43535_43539-210891--,00.html#:~:text=Section%20211.7cc%20and%20211.7,purposes%20up%20to%2018%20mills.

Many investors have gotten an ugly surprise when they bought a property that was a primary residence of the seller for the last 20 years. The removal of the Taxable Value cap and the switch to Non-Homestead millage rates can double, even triple, the property taxes. By the way, the cutoff date is June 1 of each year for these changes.

City & County Tax Bills

Most Michigan properties receive TWO annual tax bills - one from the city and one from the county. Many banks handling tax escrow accounts for mortgages have mistakenly thought there was one tax due twice/year or totally missed one of the taxes.

Investors should research the SEV and the Non-Homestead property tax millage rates to project what the property taxes will be after adjustment.
[email protected]248-209-6824
Logical Property Management4.9459 Reviews
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Alicia MarksPro Member
Fort Worth, TX · Member since 2020 · 1k+ posts · 2k+ votes
4y
@Drew Sygit does Hammatrack also have county taxes like Detroit does? That's always a missed calculation for people who aren't familiar with the market.
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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
4y
- Do you have the appraisal and inspection report for the property ? For MF run not just one but two inspection reports
- Your repair cost seems too low
- What's the quality appraisal of the building ? C1/C2/C4 ?
- What's the age of the building ? roof ? electric ? HVAC ? plumbing ? Is there AC in every unit ? is there recent upgrades ?
These days I care more about repair than anything else.
Have you calculated scheduled maintenance like snow removal,etc ?
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
4y
@Alicia Marks yes, all Metro Detroit cities charge city & county.
The link we provided covers both:)
[email protected]248-209-6824
Logical Property Management4.9459 Reviews
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