Looking for feedback on deal in Lansing, Mi

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Looking for feedback on deal in Lansing, Mi

Paul Lucas
New to Real Estate · MI · Member since 2016 · 9 posts · 4 votes

Hello,

I have been looking to make my first deal and wanted to get some feedback on what others think of what i have found. First off, i am located in San Francisco so I am looking out of state, and I grew up in the Lansing area and have family there so i visit often. That is what let me toward getting real estate in lansing.

For the deal: it is a duplex with 5 beds and 2 baths (a 3 bedroom and 2 bedroom). No garages but each has their own driveway. They also have basements so they are pretty spacious. Also, both currently have tenants and i would be taking over the leases.  I have seen the leases and the 3 bedroom is paying $975/month and the other is paying $850 a month.

The duplex is listed at 160000k and my thinking is to put in an offer closer to 130/140k. With the 140k i would be paying $524 per month for the base mortgage, $392 per month taxes, and $105 per month on insurance. These are all numbers coming from actual companies i talked to which puts me at $1021 / month out of pocket for me with an income of $1825/month. I know this doesn't meet the 50% rule or the 2% rule but at least it meets the 1.x% rule :D.

For me the positives are that i would take over the leases and until april have some cashflow before having to do cleaning or anything like that to pocket some money for the renovations and cleaning at the end of the lease. Also the person who is paying $850 has been there for 3 years so it seems like a steady area. The cons are that the taxes are very high and im a little nervous since it doesnt meet the 50% criteria. As someone who is looking to get small passive gains and just dip my foot in, it doesnt seem like a bad option though.

Would love to hear concerns, feedback or things i may be not thinking about.  Thanks!

Paul

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Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
9y

Hi Paul,

Based on the numbers you will be paying 22% each month in taxes alone plus another approx 30% in mortgage and insurance will be around $100/mo which is another 6% or so. Property Management will be another 10%. Before you take home anything, you are paying approx 70% in expenses. The numbers don't include any vacancy, repairs and maintenance, etc.

The fact that one of the units has been rented for 3 years or so could mean some decent expense when the tenant moves out. So be sure to factor in those numbers in your calculations.

Have you visited the area? Is it B/C area?

Sharad

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  • Sharad M.Pro Member
    Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
    9y

    Hi Paul,

    Based on the numbers you will be paying 22% each month in taxes alone plus another approx 30% in mortgage and insurance will be around $100/mo which is another 6% or so. Property Management will be another 10%. Before you take home anything, you are paying approx 70% in expenses. The numbers don't include any vacancy, repairs and maintenance, etc.

    The fact that one of the units has been rented for 3 years or so could mean some decent expense when the tenant moves out. So be sure to factor in those numbers in your calculations.

    Have you visited the area? Is it B/C area?

    Sharad

    Podcast Guest on Show #155
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  • Paul Lucas
    OP
    New to Real Estate · MI · Member since 2016 · 9 posts · 4 votes
    9y

    Thats true, i didn't think about the 3 years meaning more expenses at the point they move out. 

    On the property management, with my parents there being and already agreeing to help and having some contractors they are in touch with means i think i can reduce the 10% cost. But that still does put me at 60%. 

    I have visited the area and it is a couple miles from where I grew up. It is a decent neighborhood and i would put it on the low end of B high end of C. The area has post graduate students from the schools close by and also state of Michigan workers and hospital workers. 

    It does seem like property taxes are very high in the area though and id have to work on increasing rent a bit following the leases. From your experience, is 22% really high for the property tax to income ratio?

    Thanks for the insights though @Sharad M. they were very useful!

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  • Sharad M.Pro Member
    Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
    9y

    Hi Paul,

    You have your parents to help you for now, but unless you have someone helping you with property management free of charge forever, I would still factor in the cost. In my area, my property taxes run about 15% or so on average.

    Taxes are just one part, but if the property hasn't been rehabbed recently, the deferred maintenance is going to be expensive. Small stuff like the age of furnace, plumbing, electric, HVAC will add up once tenants move out or in terms of on going maintenance cost.

    Sharad

    Podcast Guest on Show #155
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  • David Hicks
    Investor · Detroit, MI · Member since 2016 · 33 posts · 4 votes
    9y
    Paul Lucas I might be possibly interested in partnering or at least I can give you some good advice about the current state of the area. I lived there for about 8yrs and travel to the area about 3-4 times a year for football season and to visit friends. PM me with the address or the neighborhood and I can tell you if the rents can go any higher or if the neighborhood has gone up or down. Also, I have a friend that works very closely with one of the more prominent PM companies in the area and can plug you in if you'd like. Just let me know how I can help man.
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  • William SaintAmour
    Investor · Charlotte, MI · Member since 2016 · 37 posts · 21 votes
    9y

    The deal sounds like a good one to practice running the numbers, but my gut says no.  There are better deals out there, and two single families may give you better returns than the duplex.  I'm from the Lansing area, and I know the City of Lansing and the City of East Lansing are now pretty regulated, so you'll want to factor in fees and inspections and the headache factors.  Holt does require registration every couple of years, but it's a pretty good school district and the neighborhoods are good south of Holt Road.  If your're more on the east side of town, then Williamston is worth a look.  In my opinion, it is starting to evolve into a Capitol area version of Chelsea.  Mason is good too, but a little taxy in the City of.  If you go further east, Howell, Picney, and South Lion are in commuter range of both Ann Arbor as well as Lansing.  

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  • Paul Lucas
    OP
    New to Real Estate · MI · Member since 2016 · 9 posts · 4 votes
    9y

    Thanks for the help @David Hicks, being from the area i have a fairly good idea of rents and think i could bump it up a bit. I will be in touch depending how this property goes and see if we want to partner around some other deals in the area. Its the east side of Groesbeck which is a nice area so I think the tenants will be of decent quality.

    @William SaintAmour I did look at single families around 50-60k but most seemed to be in worse areas where quality of tenant would not be guaranteed.

    After looking at the numbers i decided to put in an offer at 120k and see where that settles. I think everyone was right here that at 140k it is most likely not going to be a winning property. We will see what the sellers motivations are and now i can get my first experience putting in an offer :). Thanks for all of the advice!

    Paul

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  • Samson C.
    East Lansing, MI · Member since 2013 · 7 posts · 2 votes
    9y

    Hope everything goes well with you.

    Do you mind sharing if you bought the duplex or not?

    Thank you.

    0Reply
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