[Calc Review] Help me analyze this deal for a Detroit duplex
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Would you guys do this deal? Located in the Russel Woods neighborhood of Detroit. The rehab could be anywhere from $50k-$75k.
*This link comes directly from our calculators, based on information input by the member who posted.
Detroit investor here! A few things I need to know. Do you have a crew or are you building one currently? Do you have other investments there? Russell Woods is turning a corner a bit, but definitely not there yet.
Your rents say $1800, but I didn't see bed/ba per unit to see if you could get more. I have a 3/1 duplex and the lower is pulling $1150 and the upper is $1475. These are both Section 8 tenants, but the lower unit had a 2 bed voucher. She's great so I'm happy to take a little less.
I see your ARV is $180k. I just had a property near there (the one above mentioned) only appraise for $108k with a full finish out. They would not use any off market comps. That number is very likely WAY over your actual ARV. You'll ned to buy lower, lower your rehab significantly, or keep more cash in the deal.
The good news is that even at $1800 for both units you'll have good cash flow if that is what you are aiming for, which most people choosing that area are. I'm happy to look at any additional specifics you have as well.
Hey @Alicia Marks thanks so much for responding!
Here are a couple of answers to your questions. I have no crew in Detroit and I don't have any other investments there. I would be starting a new boots-on-the-ground team. This was a property I'm thinking of getting from a wholesaler. I don't know much about Russell Woods but was hoping that it was somewhere in the path of progress. The property I'm looking at is a 3/1 duplex (similar to yours) and it would need quite a bit of work. There's someone upstairs currently on a M-2-M but paying $650 and it looks like it's in bad shape. Really interesting to hear that your ARV appraised SOOO low... that's a little scary. I would want to try and pull my money back out of this deal. The wholesaler is saying that the ARV is actually $200k. But i'm just not sure. Doesn't sound like that would be possible even after I dropped so much into it from what you are telling me here!
@Ben Layman Russell Woods is one of the better areas in Detroit.
I agree with @Jamiel Strickland that it is a decent area, but not the high value I feel the wholesaler is telling you it will be. I don't think you are going to get anywhere close to $200k at this point. If you can keep cash in the deal and hold out it still has great cash flow, but my slow down your progress towards your next purchase.
Great advice, thank you so much @Alicia Marks I think I'll hold off on this one knowing that it won't appraise for anywhere close to $200k. My goal is to find a true BRRRR and unless i can get this one for less... doesn't seem like it works.
Always due you due diligence. It's not about what I find to be a deal, it's what fits your needs. Definitely check out sold comps through realtor.com, zillow etc to see for yourself. If the wholesaler is claiming a $200k ARV then ask to see his comps, especially if they were MLS listings they should have the data sheet. Then assess from there. Don't forget about rehab and carrying costs in the meantime. Those can change the "value" of the deal significantly sometimes.
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@Ben Layman some of your assumptions are also off.
Would NOT recommend using 5% vacancy factor anywhere but a Class A market. Depending on where this property is in Russell Woods, it's either Class C or low Class B (at best). Your vacancy should also encompass nonpaying tenants and evictions. So, at least 10% should be used, if not 15-20%.
$100/monthly for insurance is also low. If this is your only property in Metro Detroit, you won't qualify for a blanket policy and will most likely have to use Foremost. Will be at least $1800 annually or $150/month, probably closer to $2400 annually.
Where did you get the property tax numbers? Michigan has a unique property tax structure that you should know to avoid bad assumptions.
Overall, if you're buying this and willing to believe a wholesaler's claims about ARV and such, then you probably shouldn't be investing out-of-state because you're setting yourself up to be screwed.
Either:
1) Cut your teeth investing in your backyard
2) Start building your OOS team BEFORE you buy anything
3) Buy in the Ring Cities of Metro Detroit, which have less risk than the City of Detroit.
You might want to follow our blog here on BP as we write extensively about the Metro Detroit market.
https://www.biggerpockets.com/member-blogs/3094-royal-rose-properties
Some SUPER helpful advice here @Drew Sygit Thank you so much! I hadn't even considered that I should be running my numbers for vacancy, evictions, non paying tenants at 10-20% rather than 5%. Thank you for the info.