2 family deal metro Detroit area
Investor · Holly, MI · Member since 2009 · 95 posts · 23 votes
OK here we go. Looking for advice, comments or deal or no deal. As a new investor I think I may have found a good deal on my first multi family property. I've taken the advice of this board and others to look at owning brick/dirt instead of condos/T-houses (my first two deals are t-houses :D )
Here's the details
two family
first floor - one bedroom (needs work to create 2nd bedroom)
2nd floor - three bedroom
full basement
has separate utilities (2 water heaters, 2 elec boxes, 2 gas meters
2008 taxes $2000 (love Michigan and taxes)
house mortgages in 2003 $120,000 and 2006 $125000
Should rent for $1600/month (both units)
best guess..needs $10-$15000 in improvements
most work will be done by self and family (brother is a carpenter)
great area (single families homes)
Sale Price $25000.00
This would be a cash deal
Look forward to your comments
Bill W
I will never turn down a free lunch - look at my photo!
So I was correct about the homestead taxes - trust me when I say those taxes will more then double - it isn't just a homestead VS non-homestead - in Detroit you will pay 18% more for non-homestead the problem is the difference between the TV and the SEV.
In most states (Michigan is one of them) the TV can only go up X amount per year - in Michigan it is 5% or the rate of inflation or whatever is less. So each year the SEV can go up (or down) as much as the assessor says.
However that is uncapped the year of a sale – so the year of a sale the TV will always become equal to the SEV….in this case your TV will jump from $35K to $60K (technically not really $60K as assessed values in most counties in the country – wayne included have come down – so your 60K may be 52K or something – so your new TV will be say $52K meaning your new taxes will be approx. $4,000 plus the 300 or 400 for garbage and your tax bill will be around $4,300……WAY different from the $2,000 you thought it would be.
So that is what I mean by the TV will be the SEV – that is the same in most places around the country but since tax levels are way less – like this very same property in OH or MS or AL may be $1,200 taxes for the year – so if your off your only off by a few hundy a year – in places like Detroit if you don’t understand how the tax system works you could be off a few hundy a month – not a year.
The reason your other property has the same TV and SEV is because the year you bought it they were brought to equal – if you look back in the tax records you will find the year prior to you buying it they were different (unless someone else bought it that year) etc…..
From a straight numbers game since this is cash on cash you need to figure out what return you want / need but I think $30K for a duplex is way overpaying in today’s market – not just in Detroit / Michigan but in a lot of markets – I wouldn’t pay that in most of the markets I work in.
Not sure if your property is really in the city or in the burbs or whatnot but there are better deals to be had in the city for sure – just my opinion and this really depends on the type of hood you buy in.
But – I would examine three things….when you started this thread:
- You were going to pay $25k – now your going to pay $30k
- The rent was $1,600 now the rent is $1,300
- Your taxes were $2,000 now they are $4,300
How sure are you right now about your other numbers and assumptions?
- Is this in Detroit or in the burbs?
- 2008 taxes are meaningless (sort of) what is the taxable value VS The SEV. In fact - just call the city the 2009 taxes are out call and find out for yourslef the 2009 taxes - never base the tax number on last year in Michigan - in other states with lower taxes sure - your off by a few hundy - in MI you can be off by a few thousand.
- 1,600 seems very aggressive for a multifamily - whos says it will rent for that - you or the person selling you the homes? The 2 bedrrom will never go for 8 and the 3 bedroom will never go for more then 8 (I would doubt)....not sure how you get there
Since your paying cash this is really a cash on cash return question....your going to put $40K down and if we assume your numbers are right it will take you 2+ years to get your $$ back and that doesn't' include any expenses / maintenance / vacancy etc....so your looking at a 2.5-3 year return on your cash - then your back to ground 0.......
Question is how do you feel about that?
Oh - and really check on the taxes and rental rates.......
Scott..here are the answers
-SEV- $60,000 TV- $35,000
- Taxes for the last 4 years avg $1900
- revised monthly rental income $ 1300
$600 1(2) bedroom
$700 3 bedroom
- 3 offers on property as of today..thinking I may need to increase bid to $30,000
- Cash is currently earning 3-4% in stocks and funds...who knows what will happen there. 3-5 years Michigan RE has only one way to go...up. To answer your question..I'm comfortable with the cash on cash return. I do have an investor that is looking to invest in RE..not sure I want the partner although I could do something with a loan and save my cash for another deal.
Current taxes are no way $2,000 based on a $35K TV - you have to be rounding down or they are homsteaded?
When your TV beccomes the SEV which it will - actually it already is - call the city - your taxes will approx. double (35K to $60K)......but a $60K SEV will normally be in the high 4 to low 5K range per year.
So - I think your numbers are wrong to be honest - tax/rent/cash flow and your going in the wrong direction on the price :)
Not saying it isn't a great deal but I don't think you are using the right numbers based off of what I know about Detroit
Scott
Your absolutely correct. I double checked the tax and it looks like it was homesteaded over the last 4-5 years. So with no homestead exemption..I would expect the tax to double?? Do you think this would still be a good deal at a purchase price of 25-30k? What do you mean "When your TV becomes the SEV which it will - actually it already is - call the city - your taxes will approx. double (35K to $60K)......but a $60K SEV will normally be in the high 4 to low 5K range per year." I just looked at my other rental and they are both the same values (SEV and TV).
I greatly appreciate your help and would like to buy lunch the next time your in the downriver area or I head 75 north.
Bill W
I will never turn down a free lunch - look at my photo!
So I was correct about the homestead taxes - trust me when I say those taxes will more then double - it isn't just a homestead VS non-homestead - in Detroit you will pay 18% more for non-homestead the problem is the difference between the TV and the SEV.
In most states (Michigan is one of them) the TV can only go up X amount per year - in Michigan it is 5% or the rate of inflation or whatever is less. So each year the SEV can go up (or down) as much as the assessor says.
However that is uncapped the year of a sale – so the year of a sale the TV will always become equal to the SEV….in this case your TV will jump from $35K to $60K (technically not really $60K as assessed values in most counties in the country – wayne included have come down – so your 60K may be 52K or something – so your new TV will be say $52K meaning your new taxes will be approx. $4,000 plus the 300 or 400 for garbage and your tax bill will be around $4,300……WAY different from the $2,000 you thought it would be.
So that is what I mean by the TV will be the SEV – that is the same in most places around the country but since tax levels are way less – like this very same property in OH or MS or AL may be $1,200 taxes for the year – so if your off your only off by a few hundy a year – in places like Detroit if you don’t understand how the tax system works you could be off a few hundy a month – not a year.
The reason your other property has the same TV and SEV is because the year you bought it they were brought to equal – if you look back in the tax records you will find the year prior to you buying it they were different (unless someone else bought it that year) etc…..
From a straight numbers game since this is cash on cash you need to figure out what return you want / need but I think $30K for a duplex is way overpaying in today’s market – not just in Detroit / Michigan but in a lot of markets – I wouldn’t pay that in most of the markets I work in.
Not sure if your property is really in the city or in the burbs or whatnot but there are better deals to be had in the city for sure – just my opinion and this really depends on the type of hood you buy in.
But – I would examine three things….when you started this thread:
- You were going to pay $25k – now your going to pay $30k
- The rent was $1,600 now the rent is $1,300
- Your taxes were $2,000 now they are $4,300
How sure are you right now about your other numbers and assumptions?
Red flags seem to be flying!
Great information on taxes Scott, just pointing out the complexity alone is worth noting, especially considering how much it can throw your cashflow off. Or how much it can add to your holding costs.