First investment property - Royal Oak, MI

12 Replies

Hi, I am new to REI and to BP. I would like to share my recent (and ongoing) purchase and get feedback from others who are experienced on here. I plan to use this as a rental income property.

The property I decided on was listed for $69,900, a little over 600sqft, and needed no major repairs after home inspection. 

The rental market in the area appears to be large. Comparable units were renting for $950 that were within a half-mile radius over the past year. 

I was able to get the property for $63,000, with 15% down and 5.25% interest rate. 

Looking at the unit I see several positives and negatives.  This is a loft style unit, which I believe makes the place feel much larger due to the layout.  On the other hand, it doesn't technically have a separate room which isn't preferable to some renters.  I do think the candidates for this style place will be single professionals, hopefully keeping the potential tenants as "good" tenants.  Because it probably won't be shared by two people, I believe the tenant to be better due to having a decent salary to afford this alone.  Long term, I feel it may be more difficult to sell a loft as opposed to a typical property with separate rooms, etc.

I am new to this and did about 3-4 weeks hard research and looking at many places with my realtor, looking at comps, surrounding areas, etc.  I figured it was time to just do it and give it a try and the learning experience would be worth it either way. 

I am just looking for any feedback on this situation, good or bad, things I didn't see, etc.  Thanks for reading and I hope to hear some feedback soon!

-Will

Welcome to the forum Will. It’s great here, a ton of information and you’ll make quite a few local connections - like me!

Props for not suffering from paralysis analysis and just jumping in! It seems like a pretty low-risk property to do it with, and from your numbers it looks like it could be a decent deal as well. 

I agree with your assumption that having a smaller place in a high rent area will probably lead to a more stabile tenant. I don’t think the loft part will hurt you too bad on the prospective tenants. Mainly because as you mentioned your target tenants are going to be bachelor/ettes with decent jobs, and from first hand experience I feel those type of people aren’t too terribly picky as long as the property is half decent. 

For a better analysis post up what your taxes and insurance are on the property. Are you doing the property management yourself? Are there any repairs needed in the near-term?

Originally posted by @Garett H. :

Welcome to the forum Will. It’s great here, a ton of information and you’ll make quite a few local connections - like me!

Props for not suffering from paralysis analysis and just jumping in! It seems like a pretty low-risk property to do it with, and from your numbers it looks like it could be a decent deal as well. 

I agree with your assumption that having a smaller place in a high rent area will probably lead to a more stabile tenant. I don’t think the loft part will hurt you too bad on the prospective tenants. Mainly because as you mentioned your target tenants are going to be bachelor/ettes with decent jobs, and from first hand experience I feel those type of people aren’t too terribly picky as long as the property is half decent. 

For a better analysis post up what your taxes and insurance are on the property. Are you doing the property management yourself? Are there any repairs needed in the near-term?

Garrett, thanks for the reply! 

Yes, I forgot to mention some numbers. The taxes are $1142/year, insurance is $600/year (will most likely change to a little higher), HOA is $145/month + gas/water. I will have PMI of $29/month initially due to putting 15% down.

The unit is very simple and part of a small complex so I do intend to do the management myself to start. Thing like the hot water heater are common equipment and therefore any replacement expenses come from HOA. It appears to be a low maintenance unit...at least as of now. Only repairs initially are cosmetic, including a little caulk and paint, and a few things to freshen it up.

Thanks!

Originally posted by @Will Koederitz :
Originally posted by @Garett H.:

Welcome to the forum Will. It’s great here, a ton of information and you’ll make quite a few local connections - like me!

Props for not suffering from paralysis analysis and just jumping in! It seems like a pretty low-risk property to do it with, and from your numbers it looks like it could be a decent deal as well. 

I agree with your assumption that having a smaller place in a high rent area will probably lead to a more stabile tenant. I don’t think the loft part will hurt you too bad on the prospective tenants. Mainly because as you mentioned your target tenants are going to be bachelor/ettes with decent jobs, and from first hand experience I feel those type of people aren’t too terribly picky as long as the property is half decent. 

For a better analysis post up what your taxes and insurance are on the property. Are you doing the property management yourself? Are there any repairs needed in the near-term?

Garrett, thanks for the reply! 

Yes, I forgot to mention some numbers. The taxes are $1142/year, insurance is $600/year (will most likely change to a little higher), HOA is $145/month + gas/water. I will have PMI of $29/month initially due to putting 15% down.

The unit is very simple and part of a small complex so I do intend to do the management myself to start. Thing like the hot water heater are common equipment and therefore any replacement expenses come from HOA. It appears to be a low maintenance unit...at least as of now. Only repairs initially are cosmetic, including a little caulk and paint, and a few things to freshen it up.

Thanks!

 I’m coming up with an 11% cap rate and around $6900 yearly Net Operating Income. Now just subtract your mortgage and interest payment from that and you’ll have your yearly cash flow. Then divide your yearly cash flow by your cash out of pocket to get your cash on cash return.

Looks like a decent deal! Normally I don’t like properties in HOAs, but the numbers seem to work out with this out.

And I'll add, monthly note is estimated to be ~ $650 after all required expenses. 

Originally posted by @Garett H. :
Originally posted by @Will Koederitz:
Originally posted by @Garett H.:

Welcome to the forum Will. It’s great here, a ton of information and you’ll make quite a few local connections - like me!

Props for not suffering from paralysis analysis and just jumping in! It seems like a pretty low-risk property to do it with, and from your numbers it looks like it could be a decent deal as well. 

I agree with your assumption that having a smaller place in a high rent area will probably lead to a more stabile tenant. I don’t think the loft part will hurt you too bad on the prospective tenants. Mainly because as you mentioned your target tenants are going to be bachelor/ettes with decent jobs, and from first hand experience I feel those type of people aren’t too terribly picky as long as the property is half decent. 

For a better analysis post up what your taxes and insurance are on the property. Are you doing the property management yourself? Are there any repairs needed in the near-term?

Garrett, thanks for the reply! 

Yes, I forgot to mention some numbers. The taxes are $1142/year, insurance is $600/year (will most likely change to a little higher), HOA is $145/month + gas/water. I will have PMI of $29/month initially due to putting 15% down.

The unit is very simple and part of a small complex so I do intend to do the management myself to start. Thing like the hot water heater are common equipment and therefore any replacement expenses come from HOA. It appears to be a low maintenance unit...at least as of now. Only repairs initially are cosmetic, including a little caulk and paint, and a few things to freshen it up.

Thanks!

 I’m coming up with an 11% cap rate and around $6900 yearly Net Operating Income. Now just subtract your mortgage and interest payment from that and you’ll have your yearly cash flow. Then divide your yearly cash flow by your cash out of pocket to get your cash on cash return.

Looks like a decent deal! Normally I don’t like properties in HOAs, but the numbers seem to work out with this out.

Yes, I had done that calculation several times. Depending on down payment and fees needed up front the cash on cash ROI was ~25-30%. Thanks for your feedback!

Just wanted to post an update on this purchase.  I closed on the property April 10th and everything went smooth.  When I first saw the kitchen area, I thought only the garbage disposal needed to be replaced.  After working on it, I noticed several other plumbing issues (faucet leaking out the back very slowly, drain basket leaking under sink, pipes leaking, etc.).  I decided to replace these components to ensure there would be less future problems.  I did the labor myself. 

After a few other minor fix-ups, I listed the place for rent using Postlets.  I almost outsourced listing the property (cost 1 months rent) thinking I wasn't going to have time to show the palce, make phone calls, etc.  Within 4 days I had received 10-15 inquiries.  Last wednesday (April 29th), I was able to get a signed lease for 2 years at my asking price of $975/month.  

Best case scenario, the cash on cash return will be ~ 25% (taking into account low vacancy rate and minimal repairs).  I am able to assume this because most of the expensive repairs (other than appliances) such as hot water heater and the heating system are common equipment that are not repaired by the individual owners.  Taking normal vacancy and repairs into account, the cash on cash return is still around 12-15%.  

So far, everything seems pretty good to me.  I would love to hear some feedback now that I have made more progress on this property! Thanks for reading!

Will, you will do good with that.  we just sold ours last year, due to living on the west side of the state.  full price in 3 days.  3 bed 2 bath.   prior to that we would get a lineup of young professionals, and that made it hard to choose. 

  

Do you have any visuals of the interior and exterior?

Will,

I like the looks of the property.

Generally, people prefer SFH, so do your research as to why, and consider it for your next investment.

Your interest rate seems to be a little high, IMO. Did you shop around?

The loft style has pros and cons, and this will depend on the location of your property.  Hopefully your in an area where lofts are desired.  

I will say, 3-4 weeks isn't a very long time to wait. Only time will tell if you made the right decision in your purchase, and you can chalk up losses as lessons learned!

Royal Oaks is hometown to Jack Kevorkian who is an idol of mine.

Best of luck!

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