real estate investment in Ann Arbor

Ann Arbor, Michigan
Ann Arbor
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real estate investment in Ann Arbor

Jim Huang
Member since 2022 · 3 posts · 1 vote

Hi everyone,

I am an out of town Michigan alum that's contemplating buying a SFR/Duplex as an real estate investment in Ann Arbor, preferably close to central campus and/or close to one of the University bus stops.

There are a couple opportunities thats on MLS currently, and I am crunching through my math and it seems to work out well (positive cash flow, decent cap rate).

Some key assumptions I hope still holds true today:  low vacancy rate in general. ~1000-1200/month for a room in a single family house / duplex. Year long lease typically, with subletting allowed to offset summer months cost to tenant.

I worked out some high-level math: Assuming there is a 6 bedroom single family house for sale for 800k, and I can rent for 6k/month.

Financing: 350k cash, 450k loan @30yr, 3.8%.

Assumptions: 7% vacancy/yr, $4000/yr repairs, $10k/yr property tax, $4k/yr insurance, 8% management fee+50% first month rent on new lease

Month-to-month breakdown: 

Income: $6000

Vacancy, Mgmt fee, repair, taxes, insurance: $2300

Loan PI: $2650

I'd take home ~$1000/month. 

It's not super amazing returns, but at the same time - it seems like a fairly low risk investment with Ann Arbor's large student body and continued demand for off campus living. 

My budget is up to ~$2M for the property. So while the example above is for a 800k property. I think the math should scale (i.e. for ~$2M I should be getting >12 bedrooms minimum).

Does anyone have experiencing owning investment properties near UofM central campus, and/or as a property manager, that can comment on how the rental market has been for the past decade plus (stability, concerns, etc.)? 

Thanks!

Jim

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Eric WilkinsonPro Member
Chelsea, MI · Member since 2019 · 50 posts · 52 votes
4y
Jim

Go to the city’s assessor’s website and look up the property record.  Find the SEV.  This is what the assessed tax value will reset to after you purchase.  You can put the SEV value in this website for a tax estimate.  https://treas-secure.state.mi....

some things to keep in mind:

-Non owner occupied properties pay 18 mils more in taxes in Michigan 
- Even with the SEV you should plan that the SEV will go up. Ypsilanti township has increases from 10-20% YOY in assessed values.  I don’t know about A2 specifically.  
-A2 also has rental registration and inspection.  There is a cost to that and the potential for having to spend more to fix things up.  



Quote from @Jim Huang:

I realized I may be way off on property tax here in AA. =)

Some internet search yielded the following formula to estimate tax:

For a house that I purchase at $800k. My property tax would be: 

$800k * 0.5 * 0.06954 = ~$28k. 

Is this... true? This would imply AA has an effective tax rate of ~3.5% for an investment property


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  • Jim Huang
    OP
    Member since 2022 · 3 posts · 1 vote
    4y

    I realized I may be way off on property tax here in AA. =)

    Some internet search yielded the following formula to estimate tax:

    For a house that I purchase at $800k. My property tax would be: 

    $800k * 0.5 * 0.06954 = ~$28k. 

    Is this... true? This would imply AA has an effective tax rate of ~3.5% for an investment property

    0Reply
  • William TaylorPro Member
    Member since 2022 · 15 posts · 2 votes
    4y

    Hey Jim! 

    I'm currently a leasing professional at a luxury high rise complex in downtown Ann Arbor. I can tell you first hand that the demand for student housing is at an all-time high. 

    With the new landlord/tenant ordinance that allows the tenant and extended amount of time to renew, this has encouraged prospective tenants to lock in leases for Fall 2022 term starting as early as last November. The demand has seen a spark given the rising student body, with U of M having their largest student body this year. Total enrollment of 2021 was upwards near 50,000 students. Given that 60% live on campus, that's 30,000 students in potential need for housing. Even at 30%, that's still 15,000 potential prospects.

    What you want to focus on is a competitive market rent. If you can offer a nice unit that is updated for slightly lower than market value, it is going to keep your vacancy rate at a near 2% per year. 

    Jim, please reach out to me! I'm a local real estate agent and would love to help you out on making this deal work. Ann Arbor is my bread and butter, and is an evolving market with many potential opportunities. Give me a shout when you get a chance! 

    1Reply
  • Eric WilkinsonPro Member
    Chelsea, MI · Member since 2019 · 50 posts · 52 votes
    4y
    Jim

    Go to the city’s assessor’s website and look up the property record.  Find the SEV.  This is what the assessed tax value will reset to after you purchase.  You can put the SEV value in this website for a tax estimate.  https://treas-secure.state.mi....

    some things to keep in mind:

    -Non owner occupied properties pay 18 mils more in taxes in Michigan 
    - Even with the SEV you should plan that the SEV will go up. Ypsilanti township has increases from 10-20% YOY in assessed values.  I don’t know about A2 specifically.  
    -A2 also has rental registration and inspection.  There is a cost to that and the potential for having to spend more to fix things up.  



    Quote from @Jim Huang:

    I realized I may be way off on property tax here in AA. =)

    Some internet search yielded the following formula to estimate tax:

    For a house that I purchase at $800k. My property tax would be: 

    $800k * 0.5 * 0.06954 = ~$28k. 

    Is this... true? This would imply AA has an effective tax rate of ~3.5% for an investment property


    2Reply
  • Jim Huang
    OP
    Member since 2022 · 3 posts · 1 vote
    4y

    Thanks for your responses! 

    It looks like after reading through this: https://www.a2gov.org/departme... The AA property tax picture is fairly ... convoluted. 

    My current understanding: Let's say a house is on the market for $800k, and it has an SEV of $200k. Once I purchase the place, I will trigger a new tax assessment. 

    My prior assumption was, the taxable value of this house will be set to $800k. And doing a back of envelope math of 50% down to SEV, then ~69 mills rate (18 mills added for investment property) means ~$28k in tax footprint.

    My current understanding is: The Taxable value of the house will be subjected to re-assessment. But it does not mean it'll re-assess to the sales price. The assessor has to assess it based on other similar properties with their SEV. So it is unlikely the $800k-bought house will come close to $400k SEV. It'll likely be much lower.

    Of course - on subsequent years the property tax footprint can rise by no more than 5% YoY.

    I'm trying to dial in my P&L here, so if I do find a decent investment property option, the math can be done quickly and I can get moving quickly. Thanks for your feedback and information again!

    Jim

    0Reply
  • Sam Kim
    Member since 2022 · 1 post · 0 votes
    1y

    So what happened afterwards? Did you find a good one and did it make a good gain?

    0Reply
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