Detroit. Detroit. Detroit
Member since 2021 · 13 posts · 10 votes
Detroit. Detroit. Detroit
Most Popular Reply
Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votesHonestly, property in the city comes with a whole different level of complication due to government bureaucracy, government incompetence, and government corruption. There are plenty of Detroit suburbs that offer similar value with less headaches. Relative to other cities, Detroit is quite small compared to the entire Metro, due to a 1950s law that halted its expansion. So, look beyond the city borders.
Not trying to be a downer, just a realist. I'd encourage you to look at Oak Park, Redford, Dearborn Heights, Allen Park, Melvindale, Warren to name a few.
43 Replies
Originally posted by @Kimberly Johnson:
Wow! The wisdom you've shared is priceless. Thank you both so much the real scenarios and crunching the numbers. I NOW have a new longer term perspective on the BRRR method. Cashflow for the first year or so is realistic, but it sounds like the location and quality of renter is super important to "lower" the risk of being sued, cost of evictions, and having my appliances stolen!!! I may look at the suburbs of Detroit, as suggested by someone earlier in this convo. This means I may pay a little more for the property but the area may mean higher cashflow. Another take away is to do minimum updates to make the property liveable. Does anyone add a "clause" in their lease related to the first $100/200 of repairs being the responsibility of the tenant? Has it worked/not worked? Also, I considered condos downtown for Airbnb. I just hate not owning the land and structure and of course paying HOAs. Are either of you doing short term rentals? @Paul S. @Christian Hutchinson
You can add that stipulation in their lease but this is still Detroiters we're talking about... When a repair comes up and they have to pay you are going to have a huge fight on your hands - you won't want to lose the tenant over $200 so you'll relent. The stipulation is now worthless and they'll never pay a penny for any repair.
- Investor · Detroit, MI · Member since 2014 · 360 posts · 354 votes5y
Originally posted by @Kimberly Johnson:
Wow! The wisdom you've shared is priceless. Thank you both so much the real scenarios and crunching the numbers. I NOW have a new longer term perspective on the BRRR method. Cashflow for the first year or so is realistic, but it sounds like the location and quality of renter is super important to "lower" the risk of being sued, cost of evictions, and having my appliances stolen!!! I may look at the suburbs of Detroit, as suggested by someone earlier in this convo. This means I may pay a little more for the property but the area may mean higher cashflow. Another take away is to do minimum updates to make the property liveable. Does anyone add a "clause" in their lease related to the first $100/200 of repairs being the responsibility of the tenant? Has it worked/not worked? Also, I considered condos downtown for Airbnb. I just hate not owning the land and structure and of course paying HOAs. Are either of you doing short term rentals? @Paul S. @Christian Hutchinson
@Kimberly Johnson
I tried that short-term rental game twice. My first one was on North End studio, it was $50/day. I got 20 bookings in 3 days. But I started looking at the profiles of the renters they were all local. 90% of them were female, and 2 days or less. 2 of the people booking booked weekly, for 2 days each week. I got a really nervous. Something felt off. I pulled the property cancelled the listing and kept it long-term.
Then I posted another property in Brush Park at $90/day. But then on weekdays is would be between $65-$75 per day. Again, same sort of bookings. Right before Covid hit, we decided we were going to go back to long-term rental, because the short-term crowd, drew a certain type clientele. That frankly, I don't want to associate with.
If you can do a property thats over $100/day, its worth it. But if you have 2+ bedrooms watch out. If you can't get more than $75/bedroom/day you attract a certain type of crowd.
Thats what I experienced. - Member since 2021 · 13 posts · 10 votes5y
@Drew Sygit Thanks for the great blog. I am now looking in the Hazel Park area. Lots of single family homes at 100k or so. Here is an example: https://www.realtor.com/reales... Could I go with $1325 per month for this home with an expectation $400 cashflow after mortgate, PM and repair savings fees?
- 5yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
@Kimberly Johnson
Hazel Park rental rates are going up fast, so maybe youy could get $1325.
Logical Property Management4.9465 Reviews - Indianapolis, IN · Member since 2021 · 193 posts · 150 votes5y
@Kimberly Johnson have you ever thought about Indianapolis, IN? or a market like Columbus, OH?
- Member since 2021 · 13 posts · 10 votes5y
@William Costello Hi William. I had thought about OH but don't know the area... I don't even know Detroit, MI yet, but I am certainly learning on BP. I don't know anything about IN but would consider it since I have family very close to that area... thinking of moving out that way. Can you recommend certain areas and the type of property I should look into as a newbie? Just to note, there is a team in Chicago that is eager to work with me as a graduate of their real estate class.
- Indianapolis, IN · Member since 2021 · 193 posts · 150 votes5y
@Kimberly Johnson anything on the Old Northside, Mass Ave, Bates Hendricks, Irvington neighborhoods are great places to look in Indianapolis, IN. Alot of people from Chicago are migrating to the state of Indiana with great employment opportunities and cheaper living. Have you thought about syndication at all as well?
- Member since 2021 · 13 posts · 10 votes5y
@William Costello I have family living in Stevensvill, MI which is right next to Indiana. They said plenty of people are moving into her area as well. I will definitely look into that. Thanks for the cities. You are so helpful. :-) I would imagine it's competitive with everyone flooding in.
Kimberly
- Member since 2021 · 13 posts · 10 votes5y
Hey everyone! It's been awhile since I've been on the forum. I've been bus leaving a stressful job, starting a new one and finally selling my home. The market is changing a bit out here for sellers. More homes on the market and fewer buyes... I have the appraisal this week and I feel pretty confident it will go smoothly. Meanwhile, my bf and I found a home in Farmington. I think it's overpriced and won't appraise for their asking price. But we gave them their asking price just to beat the other offers. The comps say it's worth about 100k less. Fingers are crossed the appraiser is a good one. I have two questions:
1) I am debating on being added to the new mortgage because I worry it will impact my debt to income ratio and I want to invest in other things like rentals. One lender already told me he wouldn't work with me if I was on our new mortgage. My bf is approved without me so it's not a requirement. Any thoughts on this?
2) Lastly, this property just came on the market (link below). I can buy it straight out for 10k + the DLBA tax fees but wondered what the experienced Detroit investors thought about the cost for renovation and the area. The home values in the area, though not apples to apples, are in the low to mid 100s.
https://www.realtor.com/reales...
(2088 Virginia Park St, Detroit, MI 48206)
I appreciate you all's wisdom.
Kimberly
- 5yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
1) Adding Yourself to Mortgage: why? It will then count against both you and your boyfriend. Guessing you are putting in some money for the purchase and want to protect your investment. So, just have your name added to the deed at closing.
A word about non-married partners:
When partnering with anyone, but especially family & friends, you want everything in writing. Otherwise, you may not be welcome at family events!
Too many investors want to partner with “handshake agreements”, which they would never do with a tenant or property management company.
Things to think about:
1) What happens if one of you is suddenly incapacitated or dies? Do the surviving partners get that investors shares or do they have to deal with relatives that may be ignorant and/or greedy?
2) What happens if one of the partners wants to terminate the business relationship and wants their investment out now?
3) What happens if one of you drinks & drives, killing someone and getting sued by the victim's family? How would the other partner(s) be protected from that?
So, why wouldn't you want to hire an attorney to create a partnership agreement and perhaps an LLC to cover as much of the above as possible?
2) 2088 Virginia Park - you have at least $250k to rennovate this? There's a reason this 5 unit is so cheap!
Logical Property Management4.9465 Reviews - Investor · Oak Park, MI · Member since 2014 · 299 posts · 47 votes5y
Rehabs in Detroit now are astronomical expensive! If you don't have a crew then prepare to suffer and spend a good amount of money. That rehab $250K is at the minimum, most likely closer to 300K if you rehab the right way.
- 5yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
@Roy Gutierrez Detroit rehabs aren't expensive if you already have a crew or two,like we do:)
Logical Property Management4.9465 Reviews - Member since 2021 · 1 post · 1 vote5y
Consider investing using classifications A,B,C,D. Where class A may hit the 1% rule i.e $200,000=$2,000/mo but C/D areas are riskier and more of a cash flow play you may see: $65,000 rent for $1,250/$1,300 mo. The lower the class, the higher the risk, the more careful and calculated you and your team need to be.
One great example of class B/C properties (as illustrated by my good friend Drew above) would be to consider Detroits "Ring Cities" as a good middle of the road option. We've had quite a few investors that consider that the best of both worlds, (some risk but also good cash flow) i.e $90,000 -$100,000 rents for $1,100-$1,200mo.
- Member since 2021 · 13 posts · 10 votes5y
@Carlo Gobba @Drew Sygit Thank you both for all of your advice. I will add myself to the deed eventually as things progress in a good direction. I am not tied to any debt here and I think that left my options for investing way more positive. I've been looking at lake houses for Airbnb in Dexter, White Lake, and Lexington. For longer term I would prefer the ring cities. The ABCD 1% breakdown is helpful. I am terrified of renovations bc I don't have a hard money lender and have limited funds closer to 60k to start. I'm ready to get my feet wet with a turnkey for long or short term rental. The BRRR in 6 months would be ideal to keep things moving along. I hear that isn't so likely - maybe closer to 2 years with this market.
Originally posted by @Christian Hutchinson:
Originally posted by @Paul S.:
Originally posted by @Christian Hutchinson:
Originally posted by @Kimberly Johnson:
@Christian Hutchinson. I've lived in MI all my life but I am not so familiar with Detroit and learning more about real estate investing every day. Like @Drew Sygit and @Paul S. mentioned, I would have to do the math to know if it would be worth an attempt at a BRRR. My guess is it needs more than paint. The ARV is pretty low based on the local properties.
You are worried about the wrong thing, when you are playing at the end of the market you are...
You want to minimize risk (theft), and generate cash. If they want $50K offer $40K, spend $12-15K get the property together. 2 bed rents for $800/mo thats $1600 for two units on a cake walk. Which means you are putting $1100/mo in your pocket every month. Thats $13K a year in your pocket. Then you cash out the stabilized asset in 3-4 years for $80K-$90K because there is enough meat on the bone for a turnkey investor. If values improve great borrow against the asset.
The methodology you are attempting to apply you will struggle finding a deal. Not to mention, banks are not kind in Detroit regarding appraisals.
Attempting to create capital via debt is a tough strategy in Metro Detroit. its hard in Detroit. Its even harder on the low end of the market. All these courses and blogs talk BRRRR and do in in under 6 months. It just doesn't happen that way in reality. Maybe 18-24 months. For instance last year from March to October lending was effectively shutdown for the types of properties you are talking about
The only way for you to make money on a purchase is buying a distressed asset or purchasing from a buyer who has little to no knowledge of market conditions.
You want a property, where you throw some paint on the wall, put in some stock Home Depot Cabinets, replace a HWT or Furnace and start renting. Esp on your first go around. This platform is littered with people who believed they could do this textbook play. it can be done, but extend your horizon to two years for the cashout. This region doesn't appreciate like that historically.
OK, Let me unpack this... I like the game plan but this is for a seasoned hands on Investor. Buying cheap and renovating the MINIMUM to get these pigs rented is the way to go! Start creating cash flow ASAP and worry about appreciation later (if ever).
No offense Christian but this is my opinion. The 48205 property listed is a loser - worst area of the city, $725 max for a 2 bed there and worth probably 20k if you are desperate to pick something up. We can add numbers all day but a hands off OOS investor is going to lose in Detroit. Lets say $725mo X 2 is $1450mo gross is $17,400yr. Water $1200 - taxes $2000 - Insurance $2000 - PM Fee $1,740 leaves you $10,460.
Lets tackle PM first: Most OOS investors (or hands off locals) think a PM is just the 10% - WRONG! They do not care about your 10% - they care what they can soak you in repairs! Leaky sink, loose toilet, poor water pressure, cracked windows, broken doors... these things all happen amongst others on a regular basis - this will eat up your profits. Lets say you average a LOW $200mo in repairs - now you've made $8,000yr
Evictions: This is Detroit... there is a reason we have the highest eviction rates in the country! We have the worst tenant base in the country LOL. Bob decides not to pay in June. Let's say your PM is on the job and files a 30 day on the 10th.(if any of you are smart you'll NEVER do a 7 day). July 11th comes around and PM's lawyer is able to file with 36th district.(this is a pre-covid example). July 25th is court, tenant gets 10 days to vacate. August 4th you are waiting for your writ - judge decides to let it sit on his/her desk for a week you get the writ on August 15th and call your bailiff. August 17th comes around and Bob gets his dumpster relocation. Then the turn of the unit starts. Lets break down the costs:
PM to serve 30 day - $50
Lawyer to handle the eviction $300
Bailiff to evict - $600
Dumpster for eviction $325
Loss rent June,July, August - $2175
Total - $3,450
If Bob walks off with your stove, Refrigerator, Furnace and Hot water heater as he goes you can add another $2500 (I never supply appliances btw)
PM has to turn the place now - Paint, minor repairs you're probably looking at $2,000
If Bob didn't steal all your stuff you've made $2500 on this property now for the year - if he did you are even. If you have debt service you have lost.
Detroit is a HIGH risk HIGH reward city. I'm not saying this scenario is going to happen EVERY year, but the numbers show it is more likely than not. THIS is the reason properties are so cheap here. If Bob stays for 2 years and pays on time you will do well... but the chances are slim. And lets not even get into the scenario of Jim upstairs saying if Bob ain't paying I'm not paying.
@Paul S
"I mean its not sexy, but thats an easy win on the low-end of the scale, and a couple buckets of paint.
People who are local know the play...but like all investments proceed at your own risk."
I can appreciate your analysis. Hence why I said what I said. I have things I do to a property, that raises the tenant pool a little bit. Lighting, and security systems(Cameras which I can remote monitor). I'm local and self-manage. Yes, the risk tolerance is higher being local. Its all high-risks. But I view it I'll be ever present at a property. I mean Detroit tenants are bold, but I've haven't had the 'steal on camera' bold happen. If a tenant decides to cut the security wires (thats inside of steel tubes) cut the dusk to dawn lighting wires (inside steel tubes) so that way they can walk off with appliances, and I have their name, cellphone number, driver's license, SSN, and place of employment. They are a determined criminal. Frankly, someone with that mindset would fail the screening.
If someone does all that to get the appliances they better hope they leave no evidence and they beat the cloud backup, because they literally would be caught. lets be honest most criminals are extremely lazy. I do my setups that makes them have to try. Oh and they have to do all that with another tenant in the property. So that means the tenant has to side with person stealing their washer and dryer.
WOW that’s a lot of trouble you go through to raise the rents on a tenant don’t you think ? I guarantee you I still have a much easier way of solving this problem🤠🚁🇺🇸🪝
Originally posted by @Kimberly Johnson:
Hey! I am new on BP. I've been watching the YT channel forever. Just watched Ashley show and it was great. I just finished a real estate couse with a group in IL. I am not horribly interested in using the IL team of lawyers, accountants, hard money lenders, etc., but would rather buy in MI. I've been getting MLS alerts for multi family homes under 100k in certain areas of Detroit. I'm checking the comps and what I think the ARV could be. I could really use a Detroit expert to help me not overpay. I have a good amount of capital to start but may need some additional help with financing. I am all ears to anyone in the area. Thanks! This home really peaks my interest. https://matrix.realcomponline....
Detroit and Metro Detroit is still one of the greatest places to make Something out of nothing. This is a revolution on the rise. Feel free to reach out sometime.
Originally posted by @Alex Khan:
Originally posted by @Christian Hutchinson:
Originally posted by @Paul S.:
Originally posted by @Christian Hutchinson:
Originally posted by @Kimberly Johnson:
@Christian Hutchinson. I've lived in MI all my life but I am not so familiar with Detroit and learning more about real estate investing every day. Like @Drew Sygit and @Paul S. mentioned, I would have to do the math to know if it would be worth an attempt at a BRRR. My guess is it needs more than paint. The ARV is pretty low based on the local properties.
You are worried about the wrong thing, when you are playing at the end of the market you are...
You want to minimize risk (theft), and generate cash. If they want $50K offer $40K, spend $12-15K get the property together. 2 bed rents for $800/mo thats $1600 for two units on a cake walk. Which means you are putting $1100/mo in your pocket every month. Thats $13K a year in your pocket. Then you cash out the stabilized asset in 3-4 years for $80K-$90K because there is enough meat on the bone for a turnkey investor. If values improve great borrow against the asset.
The methodology you are attempting to apply you will struggle finding a deal. Not to mention, banks are not kind in Detroit regarding appraisals.
Attempting to create capital via debt is a tough strategy in Metro Detroit. its hard in Detroit. Its even harder on the low end of the market. All these courses and blogs talk BRRRR and do in in under 6 months. It just doesn't happen that way in reality. Maybe 18-24 months. For instance last year from March to October lending was effectively shutdown for the types of properties you are talking about
The only way for you to make money on a purchase is buying a distressed asset or purchasing from a buyer who has little to no knowledge of market conditions.
You want a property, where you throw some paint on the wall, put in some stock Home Depot Cabinets, replace a HWT or Furnace and start renting. Esp on your first go around. This platform is littered with people who believed they could do this textbook play. it can be done, but extend your horizon to two years for the cashout. This region doesn't appreciate like that historically.
OK, Let me unpack this... I like the game plan but this is for a seasoned hands on Investor. Buying cheap and renovating the MINIMUM to get these pigs rented is the way to go! Start creating cash flow ASAP and worry about appreciation later (if ever).
No offense Christian but this is my opinion. The 48205 property listed is a loser - worst area of the city, $725 max for a 2 bed there and worth probably 20k if you are desperate to pick something up. We can add numbers all day but a hands off OOS investor is going to lose in Detroit. Lets say $725mo X 2 is $1450mo gross is $17,400yr. Water $1200 - taxes $2000 - Insurance $2000 - PM Fee $1,740 leaves you $10,460.
Lets tackle PM first: Most OOS investors (or hands off locals) think a PM is just the 10% - WRONG! They do not care about your 10% - they care what they can soak you in repairs! Leaky sink, loose toilet, poor water pressure, cracked windows, broken doors... these things all happen amongst others on a regular basis - this will eat up your profits. Lets say you average a LOW $200mo in repairs - now you've made $8,000yr
Evictions: This is Detroit... there is a reason we have the highest eviction rates in the country! We have the worst tenant base in the country LOL. Bob decides not to pay in June. Let's say your PM is on the job and files a 30 day on the 10th.(if any of you are smart you'll NEVER do a 7 day). July 11th comes around and PM's lawyer is able to file with 36th district.(this is a pre-covid example). July 25th is court, tenant gets 10 days to vacate. August 4th you are waiting for your writ - judge decides to let it sit on his/her desk for a week you get the writ on August 15th and call your bailiff. August 17th comes around and Bob gets his dumpster relocation. Then the turn of the unit starts. Lets break down the costs:
PM to serve 30 day - $50
Lawyer to handle the eviction $300
Bailiff to evict - $600
Dumpster for eviction $325
Loss rent June,July, August - $2175
Total - $3,450
If Bob walks off with your stove, Refrigerator, Furnace and Hot water heater as he goes you can add another $2500 (I never supply appliances btw)
PM has to turn the place now - Paint, minor repairs you're probably looking at $2,000
If Bob didn't steal all your stuff you've made $2500 on this property now for the year - if he did you are even. If you have debt service you have lost.
Detroit is a HIGH risk HIGH reward city. I'm not saying this scenario is going to happen EVERY year, but the numbers show it is more likely than not. THIS is the reason properties are so cheap here. If Bob stays for 2 years and pays on time you will do well... but the chances are slim. And lets not even get into the scenario of Jim upstairs saying if Bob ain't paying I'm not paying.
@Paul S
"I mean its not sexy, but thats an easy win on the low-end of the scale, and a couple buckets of paint.
People who are local know the play...but like all investments proceed at your own risk."
I can appreciate your analysis. Hence why I said what I said. I have things I do to a property, that raises the tenant pool a little bit. Lighting, and security systems(Cameras which I can remote monitor). I'm local and self-manage. Yes, the risk tolerance is higher being local. Its all high-risks. But I view it I'll be ever present at a property. I mean Detroit tenants are bold, but I've haven't had the 'steal on camera' bold happen. If a tenant decides to cut the security wires (thats inside of steel tubes) cut the dusk to dawn lighting wires (inside steel tubes) so that way they can walk off with appliances, and I have their name, cellphone number, driver's license, SSN, and place of employment. They are a determined criminal. Frankly, someone with that mindset would fail the screening.
If someone does all that to get the appliances they better hope they leave no evidence and they beat the cloud backup, because they literally would be caught. lets be honest most criminals are extremely lazy. I do my setups that makes them have to try. Oh and they have to do all that with another tenant in the property. So that means the tenant has to side with person stealing their washer and dryer.
WOW that’s a lot of trouble you go through to raise the rents on a tenant don’t you think ? I guarantee you I still have a much easier way of solving this problem🤠🚁🇺🇸🪝
Join the conversationCreate a free account to reply, vote on answers and follow this thread.