Help me decide if I should invest in Alpena (Northeast MI)

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Help me decide if I should invest in Alpena (Northeast MI)

Kurt Hines
Investor · MI · Member since 2016 · 102 posts · 44 votes

Hi Everyone.  I'm trying to decide on what market to invest in for buy and hold residential rentals. My closest city is Alpena, MI, in northeast Michigan. From all the numbers I have pulled, I don't think it fits my needs. I'm hoping for some more experienced eyes (especially anyone familiar with small town investing) to look at these numbers, and let me know if I am missing anything. (I'll be analyzing vacation rentals separately, since that might fit here.) 

According to a Rentometer Pro report, the Average Rent is $692, with the Median at $650. When I look at the numbers, it looks like rent is $500-$600 for a 1 bed, $600-$700 for a 2 bed, and $700-$800 for a 3 bed. (I realize I'm running numbers in Winter, so it might be better come summer). With those rents, even looking at duplex or triplexes, I'm not generating a lot of cash flow. (A lot of duplexes I look at seem to be a 2/1 and a 1/1) The best case I've seen so far is on a 55k triplex (listed for 80k) with a cash purchase is about $150 a door.  There are just too many costs to make much money with these low rents, especially considering it seems that heat (Natural gas) is generally not separately metered.

When it comes to the real estate market, the average time on market in the summer is 2+ months, in the winter is 4+ months. This seems long. The average home price is $70k or so. I'm interested in multifamily, and there are duplexes on the market for 40k-70k (that I think need a lot of work). 

I used (https://www.neighborhoodscout.com/mi/alpena/rates/...) to look at appreciation, and in the last 5 years, it is 2.48% total ( .49% annualized). So accounting for inflation, it is actually a negative appreciation rate. This compares to 25% growth at markets I've looked at in the Metro Detroit area.  There is also a 10% vacant home rate, which seems rather high. This makes sense to me, as the population seems to be on a long, slow decline (currently about 10k).

With the cash flow it looks like I would get, and little or negative appreciation, it looks like a market to skip. Have I missed anything?

Thanks for the help!

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Jason D.
Investor · Rockford, MI · Member since 2013 · 116 posts · 54 votes
9y

Understand your reasoning. Hard part is everyone wants CF, little rehab, high rents, decent property AND appreciation to top it off. In my opinion very hard to find all of those in one deal but not impossible. 

I do not invest in Detroit so can't speak to that but if your looking for high rents, growing population with a higher chance of appreciation I would suggest west Michigan. I invest in Grand Rapids but severa of the sourounding communities also offer great buy and hold options. I'm sure you've seen all the Forbes reports and such stating the same, and even with my bias I think it's the best area in the state to look. 

Best of luck! 

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  • Brent Maxwell
    Real Estate Agent · Detroit, MI · Member since 2016 · 82 posts · 52 votes
    9y

    Sounds like Detroit is your answer, not Alpena.

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  • Kurt Hines
    OP
    Investor · MI · Member since 2016 · 102 posts · 44 votes
    9y

    @Brent Maxwell That is what I have been thinking, but I don't want to write off my local market without being certain. I'm from the Metro Detroit area (Commerce), and have family down there, and plan on investing down there regardless.

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  • Keri Middaugh
    Rental Property Investor · Ypsilanti, MI · Member since 2016 · 230 posts · 86 votes
    9y

    what about vacation rentals? I know that is a whole different beast, but the place really seems to be jumping in the summer.

    Or, have you considered Rogers City? Cheboygan?

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  • Kurt Hines
    OP
    Investor · MI · Member since 2016 · 102 posts · 44 votes
    9y

    @Keri Middaugh I have considered vacation rentals, but haven't done a in depth analysis of the opportunity yet.  (The biggest problem I see is that summer is so short. I've been told you count on a 10 week season.)  I'm taking it step by step, with residential rentals first.

    I do need to look at other cities in the area next.  From an initial look, Rogers city doesn't seem to have any better numbers than Alpena. I haven't looked at Cheboygan yet, but will. Do you have any experience with rentals in any of the markets up here?

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  • Keri Middaugh
    Rental Property Investor · Ypsilanti, MI · Member since 2016 · 230 posts · 86 votes
    9y

    @Kurt Hines, not as an owner, just as a vacationer. I suspect you could get a few die hard winter vacationers as well. Perhaps a wholesaler could get you a better purchase price?  Good luck!

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  • Jason D.
    Investor · Rockford, MI · Member since 2013 · 116 posts · 54 votes
    9y
    If you can get a 3 unit for 55k and get $1,500-1,800 gross per month, even with a 25% down mortgage I'd estimate you'd cash flow over $450/month (depending on condition of building). People do well investing in Detroit but those same people would probably admit it's very neighborhood and even street specific as far as where you want to be investing. What CF per month would you deem worthy of pursuing out of curiosity? Everyone has different criteria.
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  • Kurt Hines
    OP
    Investor · MI · Member since 2016 · 102 posts · 44 votes
    9y

    Thanks for the reply @Jason D.

    I'd be happy with $150 a door, but i'm concerned about the flat or negative appreciation, and declining population. I want to plan for long term buy and hold. If rents don't go up over time, but costs increase, and you don't make any appreciation (and have a hard time selling if you want to), it doesn't seem to make sense.

    Also keep in mind that that triplex was the best case I've seen(and assumes it doesn't need much rehab, which is far from certain, and I can get it for 25k less than asking). The city seems to be mostly SFR (High rent seems to be about $800/month), and some duplexes. With SFR's, i get rid of some costs (heat, trash, water), but the overall rent is lower.

    It seems that lower rents really boxes you in. No matter what you can get a unit for, you can't get higher rent than the market will bear, and long term, CAPEX will eat into that. If you have appreciation, you balance it out, but without that, seems better to drive somewhere else.

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  • Jason D.
    Investor · Rockford, MI · Member since 2013 · 116 posts · 54 votes
    9y

    Understand your reasoning. Hard part is everyone wants CF, little rehab, high rents, decent property AND appreciation to top it off. In my opinion very hard to find all of those in one deal but not impossible. 

    I do not invest in Detroit so can't speak to that but if your looking for high rents, growing population with a higher chance of appreciation I would suggest west Michigan. I invest in Grand Rapids but severa of the sourounding communities also offer great buy and hold options. I'm sure you've seen all the Forbes reports and such stating the same, and even with my bias I think it's the best area in the state to look. 

    Best of luck! 

    1Reply
  • Kati Ross
    Real Estate Agent · Grand Rapids, MI · Member since 2016 · 28 posts · 5 votes
    9y

    have you considered small cities just outside of Grand Rapids?

    0Reply
  • Charles Kao
    Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes
    9y
    Kurt Hines My two cents is that its much easier to invest in one market than both especially learning both markets at same time. Largest loss I took investing and pretty much my only loss was investing in a new market where the previous 15 flips prior I averaged over 30k a flip. I know plenty of successful investors up North. For example right now all I hear is how few rentals there are in Petoskey right now. Have two colleagues that moves up there for work and can't find a rental at all. I also have another friend that invests from Hart to Pentwater which is one of poorest counties in state. Alot of good points on this thread to think about but I think its better to get really good at one strategy versus dabbling in multiple. Your analysis was good, maybe a little too much but 150 a door on a triplex with that little all in sounds good.
    1Reply
  • Charles Kao
    Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes
    9y
    Jason D. I am in agreement that GR is a great market but I generally think like stocks when Fortune says that something is a good investment it becomes overbought immediately. With that being said I think Grand Rapids has alot of things that will help sustain growth and the market but I do think their is a market correction coming while small because it was undervalued to begin with. We have done a ton of marketing in Grand Rapids and there are a ton of international investors that we used to never see before. I trust the local guy that has been investing in Grand Rapids with a grasp on all variables, not the Fortune 500 company who has 30 people analyzing 2000 cities on a computer. With that being said every market is investable.
    0Reply
  • Kurt Hines
    OP
    Investor · MI · Member since 2016 · 102 posts · 44 votes
    9y

    @Jason D. @Kati Ross I know very little about the Grand Rapids area. I've spent my life on the east side of Michigan, South and North (when I haven't been outside the state entirely). I'm not opposed to GR, but I have a network in Detroit Metro, and Alpena to a lesser extent already, which should make things easier as I ramp up. If I don't invest in northeast Michigan, my biggest likelihood of success will likely be SE Michigan

    @Charles Kao I do need to look more wider afield in North East Michigan, and I will do so. What you say about not being able to find rentals in Petoskey is interesting. I wonder if it is because the inventory is taken up with vacation rentals.

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  • Sarah Lorenz
    Specialist · Ann Arbor, MI · Member since 2016 · 356 posts · 191 votes
    9y

     I know that lake properties, both sales and rentals, on the west side are pretty astronomical, in Harbor Springs, Charlevoix, Traverse City, etc. It looks like pretty much all of TC is going that way.  Any chance that will spread to Alpena as people get priced out of the west side? Are there pockets of appreciation in Alpena? Maybe you could analyze how it has worked in those other areas and talk to agents and investors there for the specifics.  And shopping for vacation rentals myself, I've noticed that the ones decorated really beautifully command a significantly higher price. That is something to think about.  Do people ever rent by the week in the summer and then do a nine month school year rental at a lower rate with vacation properties? You'll also notice in general that people with money like to cluster together, and appreciation follows.  Start watching every single sale in your target market and do lots of digging around on Zillow. You might find some surprises. 

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  • Kurt Hines
    OP
    Investor · MI · Member since 2016 · 102 posts · 44 votes
    9y

    Hi @Sarah Lorenz I think it is likely to be a long time before Alpena becomes Traverse City 2.0.

    There is appreciation outside of Alpena, but I'm not sure of the rental ability there. There is a divide here, with most houses in Alpena under 100k, and lake houses outside of Alpena many multiples of that. Most of the rentals on the market now are in core Alpena, in rent ranges above.  I do want to look in the rural areas outside Alpena, once I figure out how to gauge rental demand.

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