Royal Oak, Michigan SFH Rentals

15 Replies

Hello Michigan BP Members!

I am a new investor in the Royal Oak area. 

Does anyone have any experience in this area, could be surrounding cities as well? (Berkley, Clawson, Huntington Woods, etc.)

I am interested to hear about how the market is finding tenants, current rent expectations for smaller single family homes, (800-1200 square ft.) , 2-3 bedroom, 1-2 baths, what is the competition like in the area, what are some of the local challenges facing landlords, etc. 

I am looking for any advice, comments, recommendations. 

Thank you and have a great day!

Ethan

Ethan:

If you have a property in good shape at the right price, you will never have a problem finding renters in any of those areas.

I can't give you good triangulation on rents across that whole area because it will vary by community, neighborhood and street.   In Oakland county, Zillow is directionally accurate.  If you need more precise data RentRange is a good place to go.

Good luck.

@Ethan Nowak

To get accurate rental data, I would ask a real estate agent to send you previous SOLD rental transactions in a specific area and specific time frame. You can always see the amount of rent landlords are asking for right now, but it's the final price that represents what rates are at any given time. Zillow's "Price/Tax History" can help as well but may not be correct, although it will provide data for rentals that weren't listed on the MLS. You can also cross check these rentals with the sale (purchase) of the property to determine the average return investors are getting.

Make sure you cover your expenses.  With all the recent tax millage increases over the years, it's not uncommon to pay b/w 6,000-7,000 for annual non homestead property taxes based on a 100 Taxable value, or a 200k market home. And in RO and Ferndale for example they also have to be licensed w the cities as a rental. 

This area is very hot I have a property in RO I had 20 showings in 4 days for a 3/1 at $1600. You can rent it out quickly and to good tenants usually a younger people in this area with very high demand. The hardest thing to do is to find a deal that makes sense. 

I have rentals in Royal Oak.  I find the best way to track the market is to sign up for alerts on zillow and trulia to email all new rentals every morning.  If I see a property similar to mine, I glance through the photos and note the location. It keeps me up to speed on what's going on.

The inspectors only look at the outside of the property.  

With a fairly standard 30 year mortgage, I find that if the rent is above 1% of the purchase price, we do all right.  That depends on the amount of work the house needed up front.  Right now, it's uncommon to find a place that makes sense.  That being said, rents have gone up very nicely over the last couple of years.  We started out just above 1%, but now we're well above that.  We're also at $1600 for a 3/1 with a garage and a basement.  

It's competitive.  You need to move fast for most properties. If it's priced right, you'll need to have your offer in the day that it is listed.  Sometimes properties are priced too high and so they sit.  We put in an low offer on New Year's eve on a great place on Hudson that had been on the market for 6 months.  They had started out way too high and didn't get in the right price range until the winter slump.  That was a win for us!  Everybody else was finishing their Christmas cookies :-)

Rentals are in high demand.  It will be easy to find tenants.  If you screen well, you should have no difficulty finding good tenants.  Our properties aren't fancy, but they're clean and comfortable.  

If you ever want to talk further, let me know.

@Brian

Good point. Just realizing that the taxes on the property i am evaluating will be significantly higher than anticipated. Thank you for sharing. 

Also, do you know what it entails to license a property as a rental with the city of RO?

I am looking on the city website but dont see any information related to this.

@Rob

Thank you for your feedback. 

All indications point to RO as a strong rental market. I appreciate your comments though. Just confirms what I am seeing between RO market reports and the online listings. 

@Ethan Nowak

To license a property you need to submit a rental registration application with the city. The form can be found online or physically at city hall. I believe it is ~ $100-125 for a SFH (different price for condos and multifamily) and that will be good for a 2 year period.

@Jennifer

Thank you very much for your feedback about the RO market! Its seems like you already have experience with SFHs in the area.  I would be interested to speak with you more on some of your experiences and thoughts about the following. 

The real estate market has rebounded again and is fairly high, especially in the RO area. Have you purchased any properties this year? How do you look for/assess value in the area?

Do you have monthly cash flow requirements? 

What do you expect to get regarding cash on cash return and cap rate locally? 

I see that you mentioned getting 1% of the value or better via rent. That makes sense. We are evaluating a property on 13Mile that is 170k (3 bed, 1.5 bath) pretty good condition, think it could rent for around 1500-1700 a month. The non-homestead taxes in RO are very expensive though, which was something I had not considered initially.   Seems to be throwing off my cash flow numbers. 

Finally, do you make the tenant pay water/sewer/garbage and utilities? 

Sorry for all the questions! 

Ethan

@Ethan Nowak   The tax is a big deal.  It's really hard right now to find something that will positive cash flow.  I would agree with the others that 1600-1700+ for an "average" RO rental is possible, but you are talking around $600 I would say conservative minimum to cover prop tax and insurance.  So that basically leaves you with 1100 to cover your mortgage.  A 30 year mort @5.5% investor on $136,000 balance is around $772 a mo; putting you at $1,372.  In this you would positive cashflow.  COULD you get $1,600 for a rental on Thirteen mile road?  And more importantly, when you go to sell, can you dump it quickly say if prices go down?  #1 rule, never be stuck with something that can't be sold quickly.  Not to mention you are committing $36,000 as a 20% (if you decide to go that route).  If I have a client who can get a 3 bd bungalow moderately updated that is $1,600 a month, vs one on 13 mile, I would tell that client to get into the stable neighborhood.  But without knowing more about the property other than it is on 13 mile, there are variations that do go into the equation. 

Ethan, 

Royal Oak returns on rentals are less than modest. I have seen a couple rentals perform well on the main roads (Lincoln, Campbell, and the Mile Roads) because you can buy these for a little cheaper and still price fairly high. I would say the same of late in Berkley.

Clawson Is going to perform better, but I think that Oak Park / Madison Heights / Ferndale have the best equity upside and cash flow. There are opportunities to turnkey flip as well in these areas. 

3/1's $100-135k ($1200-1500 per month in rent)

Good luck!

Hi Ethan,

We have not gotten anything in Royal Oak in 2017.  We've bought in the Lamphere schools section for Madison Heights, just before the prices jumped up this spring.  We have a couple in that area and they've worked out well.  I don't know if Royal Oak will be able to appreciate as quickly as some of the lower priced areas - but the tenant quality and rent amount are much higher.  We're looking in Royal Oak again.  Our amazing realtor, Nancy Robinson, helps us choose.  She has never steered us wrong :-)

We like to bring in a minimum of $400 above PITI from day 1.  We like to get around 14-15% ROI, including any initial updates and repairs.  I want to have all my money back out in <7 years from the date of purchase (on paper).  We've done some Refi's and things, but in my initial evaluation I look for that.

Tenant pays water/sewage/utilities.  

$1700 seems a little high on a mile road unless the place is super nice - granite, etc.  I find rents go down a little the further you are from downtown unless you are on a particularly nice street.  So your numbers would be a little tight, for me.  But you have to start somewhere!  It's usually easier to find deals after labor day and as you move toward the holiday season.

The Royal Oak Non-homestead taxes are actually the lowest in the area.  For an identically priced home, you'd pay nearly double the taxes if you were in Hazel Park, for instance.  Ferndale is very high, too.  I don't have the link to the online calculator that the state provides, but it sounds like you may have found it?  Play around by changing the city but leaving he purchase price the same.  You'll see what I mean.



Originally posted by @Ethan Nowak :

@Jennifer

Thank you very much for your feedback about the RO market! Its seems like you already have experience with SFHs in the area.  I would be interested to speak with you more on some of your experiences and thoughts about the following. 

The real estate market has rebounded again and is fairly high, especially in the RO area. Have you purchased any properties this year? How do you look for/assess value in the area?

Do you have monthly cash flow requirements? 

What do you expect to get regarding cash on cash return and cap rate locally? 

I see that you mentioned getting 1% of the value or better via rent. That makes sense. We are evaluating a property on 13Mile that is 170k (3 bed, 1.5 bath) pretty good condition, think it could rent for around 1500-1700 a month. The non-homestead taxes in RO are very expensive though, which was something I had not considered initially.   Seems to be throwing off my cash flow numbers. 

Finally, do you make the tenant pay water/sewer/garbage and utilities? 

Sorry for all the questions! 

Ethan

Have you had good luck in Clawson?  I've looked at a number of houses there and it seems like with the lower rents (compared to Royal Oak), it's hard to find a rental that cash flows well.  Clawson is small though, and their aren't many data points, so I may not be calculating the rent correctly.  What do you get?

Originally posted by @Anthony Venturini :

Ethan, 

Royal Oak returns on rentals are less than modest. I have seen a couple rentals perform well on the main roads (Lincoln, Campbell, and the Mile Roads) because you can buy these for a little cheaper and still price fairly high. I would say the same of late in Berkley.

Clawson Is going to perform better, but I think that Oak Park / Madison Heights / Ferndale have the best equity upside and cash flow. There are opportunities to turnkey flip as well in these areas. 

3/1's $100-135k ($1200-1500 per month in rent)

Good luck!