Multi-Family Properties in Metro Detroit, Michigan

10 Replies

Looking to purchase my first multi-family property in the metro Detroit area.  As a first time home buyer, I'm trying to determine the best market to shop for a duplex.  Does anyone have suggestions/experience with multi-family properties in metro Detroit?

So far I've been looking in the Ferndale/Royal Oak area...

I guess it depends on where you are at and where you want to be and how much you have to spend. There are plenty of locations. I've looked at multi-families in Eastpointe, Roseville, Mt. Clemens, Port Huron, and New Baltimore. I have yet to purchase one, but those are the locations I've been focusing on. Best of luck on your search. 

Hey @Andrew Abbott !

@Sam Ball is right except that the deals seem to be drying up if you're looking on the MLS. What might look good will probably stop being a deal when you readjust for taxes. Properties are reassed when they change hands and done so at the sales price. You're looking at roughly $4500 in annual taxes for every $70k in purchase price for non-owner occupant. So a $140k 2 flat that brings in $2000 in net rent has $800 of that going back out in taxes. Brutal! So you need to find something that is off market, a pocket listing or maybe partner with someone who has deals happening. Have you been to the local REIA yet?

I've heard there are decent deals downriver. I know nothing of the area there but keep my eyes glued to the MLS in the Ferndale vicinity.

It all depends on budget and your goals, @Andrew Abbott . RO isn't going to give any cash flow right now. I have been looking for multiple clients in RO, new builds are the only thing turning decent profits. Ferndale is doable, look for high DOM properties and make low offers if you are not direct marketing. 

Also look into Madison Heights, Clawson, maybe Berkley. Any area down the 75 or Woodward corridor has good MF potential. I started in Pontiac/Auburn Hills and am working my way south...

Thank you everyone for the feedback

@Bill Bodziak I was getting the feeling RO was dried up...  and Ferndale may be approaching a peak.  I'll expand my search a little further north along 75.

Does anyone have advice for searching outside of the MLS other than just pounding the pavement... don't really have any $ for marketing and still trying to save for a downpayment.

Persistence and a good grasp on the knowledge it takes to get rolling with little money. Check out OREIA and/or MREIA. There are plenty of great people at both investor associations that will share knowledge.  PM me if you would like to grab a cup of coffee and talk real estate. I'm in the RO area often.

Originally posted by @Eric La Pratt :

Hey @Andrew Abbott !

Sam Ball is right except that the deals seem to be drying up if you're looking on the MLS. What might look good will probably stop being a deal when you readjust for taxes. Properties are reassed when they change hands and done so at the sales price. You're looking at roughly $4500 in annual taxes for every $70k in purchase price for non-owner occupant. So a $140k 2 flat that brings in $2000 in net rent has $800 of that going back out in taxes. Brutal! So you need to find something that is off market, a pocket listing or maybe partner with someone who has deals happening. Have you been to the local REIA yet?

I've heard there are decent deals downriver. I know nothing of the area there but keep my eyes glued to the MLS in the Ferndale vicinity.

I agree with your comment regarding deals drying up on the MLS. The sourcing has definitely shifted to off-market deals obtained through direct mail and other direct-to-seller methods.

@Andrew Abbott , if you aren't going to be marketing for deals yourself, you can leverage local wholesalers who do the marketing and offer a property to investors. You'll run across them at your local REIAs and meetups as well as online.

As you look at rentals, keep in mind that communities like Ferndale with high millage rates do hit a landlord's bottom line pretty severely. There's a comprehensive list of tax millage rates for Michigan communities at http://www.michigan.gov/documents/taxes/2014_Total_Rates_Report_-_Entire_State_480472_7.pdf

It's a common misconception that property taxes in Michigan are based on the sales price. While they do re-set (go up if they were capped) upon sale, the sales price is explicitly not used to compute the value of the property for property tax purposes. The assessing municipality is required to use comparable sales and disregard the subject property's sales price.

They take 1/2 the assessed value and call that the State Equalized Value. That's multiplied by the tax rate to determine the annual property tax. If you know the SEV you can go to https://treas-secure.state.mi.us/ptestimator/PTEstimator.asp to determine the tax. 

You have to know the county, city/village/township and school district. It will give you property taxes for both homestead (owner-occupied) and non-homestead (investor) properties. For example, in Ferndale, a property assessed at $100K (SEV = $50K) will have a non-homestead tax of $4,007 in the Hazel Park school district or $3,681 in the Ferndale school district.

Originally posted by @Tom A. :
Originally posted by @Eric La Pratt:

Hey Andrew Abbott !

Sam Ball is right except that the deals seem to be drying up if you're looking on the MLS. What might look good will probably stop being a deal when you readjust for taxes. Properties are reassed when they change hands and done so at the sales price. You're looking at roughly $4500 in annual taxes for every $70k in purchase price for non-owner occupant. So a $140k 2 flat that brings in $2000 in net rent has $800 of that going back out in taxes. Brutal! So you need to find something that is off market, a pocket listing or maybe partner with someone who has deals happening. Have you been to the local REIA yet?

I've heard there are decent deals downriver. I know nothing of the area there but keep my eyes glued to the MLS in the Ferndale vicinity.

I agree with your comment regarding deals drying up on the MLS. The sourcing has definitely shifted to off-market deals obtained through direct mail and other direct-to-seller methods.

@Andrew Abbott , if you aren't going to be marketing for deals yourself, you can leverage local wholesalers who do the marketing and offer a property to investors. You'll run across them at your local REIAs and meetups as well as online.

As you look at rentals, keep in mind that communities like Ferndale with high millage rates do hit a landlord's bottom line pretty severely. There's a comprehensive list of tax millage rates for Michigan communities at http://www.michigan.gov/documents/taxes/2014_Total_Rates_Report_-_Entire_State_480472_7.pdf

It's a common misconception that property taxes in Michigan are based on the sales price. While they do re-set (go up if they were capped) upon sale, the sales price is explicitly not used to compute the value of the property for property tax purposes. The assessing municipality is required to use comparable sales and disregard the subject property's sales price.

They take 1/2 the assessed value and call that the State Equalized Value. That's multiplied by the tax rate to determine the annual property tax. If you know the SEV you can go to https://treas-secure.state.mi.us/ptestimator/PTEstimator.asp to determine the tax. 

You have to know the county, city/village/township and school district. It will give you property taxes for both homestead (owner-occupied) and non-homestead (investor) properties. For example, in Ferndale, a property assessed at $100K (SEV = $50K) will have a non-homestead tax of $4,007 in the Hazel Park school district or $3,681 in the Ferndale school district.

All good points.  I use the property tax estimator all the time.  I would point out that is uses prior years millage rates which are usually the same as current year.  

Another worthwhile point about taxes.  During the downturn property values took a big hit.  I saw some of my properties in Hazel Park which were valued in the range of $80K pre-crash fall to prices in the $20K range.  The good thing is the SEV kind of reflected that although challenging my assessments helped reduce it even more.  My Ferndale properties didn't fall quite as hard.

The point here is that I got some of those SEV's down to $10K - $12K for properties that were at $35K - $40K.  Hazel Park went out and jacked up the millage rate to over 80 which is almost as high as Detroit.  But 80 mills on $12K taxable value is a lot less than 80 mills on $35K.  And because the SEV came way down the SEV increases today are a lot smaller.  For example if assessment studies show that property values in Hazel Park increased by 10% last year then an SEV increase of 10% on $12K prior years SEV means the SEV only goes up to $13,200.  Even at 80+mills it is not that big of a differential when the uncapped amount hits.  In other words your cash flow should not be that badly affected.  Ferndale is a totally different ballgame.

There still are good deals out there. I picked up a HUD house over the Summer that was pretty cheap in my view. And I picked it up below the SEV based valuation. Truth is, many of those previously mentioned properties are now selling in the $40K - $50K range although the SEV says they are worth $25K. Even better, the Taxable Value is still down around $10K because its growth is limited under the Headlee Amendment.

@Brian Sullivan , the recession definitely trimmed the property taxes for many properties. Nice examples with your Hazel Park properties. Since Headlee limits the increase in Taxable Value to inflation or 5%, whichever is less, you'll benefit for years to come.

I'm actually surprised that more municipalities didn't try to raise their millage rates. Their budgets really got hit hard during the downturn. I guess they found more cuts than they would have admitted were feasible a few years earlier. And they likely knew the public wouldn't approve most increases anyway.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you