Real Data for Foreign Investor in C Class Assets in Metro Detroit
I thought it may be useful to some of those in the bigger pockets community who are new to investing in RE to share some actual data from “C” class properties.Given all the discussion around projecting returns from buy & hold real estate (eg 50% rule, how much to allow for vacancy and maintenance etc), sharing hard data may prove helpful for some investors.
First some background. My wife and I are small scale foreign national investors from Australia. We started investing in the Metro Detroit market in 2011 given the strength of the $A at the time and weakness of the US housing market. Our aim was to build up a level of passive income for financial independence / security. For those who don’t know, the Australian residential property market generally offers very low rent ratios (say around 0.3% or 0.4% per month), making it difficult to build up passive income.
We have built the portfolio up to 5 houses since then, having bought 6 houses and sold 1. Our 5 properties are as follows:
Eastpointe 1 – Bought and rehabbed in 2012 for about $US36,000
Royal Oak CC – Bought and rehabbed in 2013 for about $US44,000
Eastpointe 2 through 4 – bought in one line at the end of 2016 for $US 165,000. They were purchased having been rehabbed in the prior years and with no major deferred maintenance.
Essentially going into the 2017 year the portfolio represents a group of houses that have 3 or 4 years of “wear” on them after a rehab process.
The results were as follows (by Property)
| PROPERTY INCOME | |
| Eastpointe 2 | $10,838 |
| Royal Oak CT | $10,800 |
| Eastpointe 3 | $12,660 |
| Eastpointe 4 | $11,401 |
| Eastpointe 1 | $10,620 |
| Total Property Income | $56,319 |
| PROPERTY EXPENSES | |
| Eastpointe 2 | $6,366 |
| Royal Oak CT | $6,475 |
| Eastpointe 3 | $6,867 |
| Eastpointe 4 | $7,061 |
| Eastpointe 1 | $5,587 |
| Total Property Expenses | $32,357 |
| NET PROPERTY INCOME | |
| Eastpointe 2 | $4,472 |
| Royal Oak CT | $4,325 |
| Eastpointe 3 | $5,793 |
| Eastpointe 4 | $4,340 |
| Eastpointe 1 | $5,033 |
| Net Property Income | $23,962 |
Alternatively here is the result by expense type (and compared to budget):
| Budget | Actual | Actual to budget | |
| Net Revenue | $48,400 | $56,319 | $7,919 |
| Management Fees | $5,280 | $6,636 | -$1,356 |
| Insurance | $2,958 | $3,939 | -$981 |
| Taxes | $9,486 | $12,092 | -$2,605 |
| Repairs, inspections | $9,000 | $7,255 | $1,745 |
| Utilities, Legal Fees, Other | $- | $2,435 | -$2,435 |
| Profit | $21,676 | $23,962 | $2,286 |
Finally, here is an average breakdown per dwelling:
| Per Annum | Per Month | |
| Management fees | $1,327 | $111 |
| Insurance | $788 | $66 |
| Taxes | $2,418 | $202 |
| Repairs, inspections | $1,451 | $121 |
| Utilities, Legal Fees, Other | $487 | $41 |
| Profit | $4,792 | $399 |
A couple of points re the above numbers:
-We had nil vacancy over the 2017 year.We also had some back rent which got paid. The result was that we actually received above 100% of potential rent.Our total maximum rent should be $4,420 / month or about $53k pa. Needless to say this is an amazing result and will not be repeated.
-There was a mix up on taxes between us and our property manager, meaning that we had to pay some of the prior year’s taxes in 2017 – this pushed the tax expense line up.
-The Royal Oak Charter Township property had a very bad year in 2016 with tenant issues. Some of this bled across into 2017 as utility bills had to be paid from the vacant period. Also one of the Eastpoint properties has us paying about $60 / month for water under the lease, which we hadn’t budgeted for.
-I think we have a very good property manager.
Please note that this likely represents an above average year – due to no vacancy / turnover. If one house had gone vacant (say average rent of $900 / month) then the impact may have been:
-Lost rent $900 (assuming can get tenanted in one month, which would be a great result)
-Re-letting fee $900
-Utilities, mowing / snow clearing during vacant period – say $300
-Repairs prior to re-let – say $1000 (could easily be much more)
-Total cost, say $3,000.Could be more, especially if the tenant turning over was because of delinquency. By way of example, when the Royal Oak CT went delinquent there was nearly $5,000 in repair, utility and legal costs, before consideration of lost rent.
I hope new investors find this data useful in their deliberations.