Poke holes in this deal please!

9 Replies

Hi Fuchi, assuming all the inputs are accurate, your cashflow at ~$50/door is very poor, especially for the Detroit area. What part of Detroit is this? I lived in the area for almost 20yrs. You at the very minimum want to cashflow $100/door on MFR and have double digit cash on cash returns in 90% of the markets.

North of Dearborn- aviation sub area, thoughts in that? I have conservative numbers in based on the rent roll, about $50 less per door than reported. Currently occupied by about 60% sec 8 tenants as well.

Originally posted by @Wendell Fong :

I don't understand your expenses. Page 1 lists monthly at $12,127

Page 2 you just use 50% rule and $6500/m.  Can you break down your monthly expenses. More detail is better.


That was the bigger pockets calculator which I used high estimates for. I ran my own calculator and had expenses at just under $9,500 with the mortgage.

 

#1 - You are paying WAAAYYYY too much for the property - there is nothing in that zone worth more than 20k a door... and for 20k it better be full of long term tenants and coated in gold.

#2 - Why are people so hung up on Sec 8?  I actually hate them!  They are the worst tenants - you are getting sec 8 so they think you should be honored to have them... cousin TT and Uncle Junebug will be living with them and causing you tons of problems.

3. - You will NEVER be full - factor your numbers on 80% occupancy.  There is always someone moving, getting killed, getting locked up ect.  You need to factor in when someone decides not to pay the 60 days it will take you to evict them, the $1000+ it will take to evict them, the 30 days and countless $ to rehab the apartment just to start the process over again.

4. - And the biggest reason not to buy - YOU ARE OOS. If you are not on the ground at least 4-5 times a week to manage your property I PROMISE you will fail.  It saddens me to see these OOS buyers think they are going to hire a management co to run their properties!  This is the hood - any MC is either going to rob you blind or run up your repair costs so you make 0 profit.

I have been buying properties in the city for 12 years now - I have never paid more than 5k a door.  What people need to realize in Detroit is you have to make a HIGH profit margin to be able to absorb the losses from the incredibly poor tenant base.  But to make my biggest point again - there have been thousands of investors in Detroit over the last 2 decades... MOST fail - if you are OOS you have virtually no chance.

@Fuchi Obioha Recommend negotiating a better price or passing on this "deal".

There's a lot of truth in Paul's negativity. 

Section 8 is NOT a cure all. Yes you get your rent every month, but a large percentage of the tenants are hard on the home and because they have nothing but time on their hands, they have a lot of drama that is not fun to deal with.

You could keep 90% occupancy/paying tenants, but that will depend on the upkeep on the property.

We disagree with Paul about out-of-state investors not being able to be profitable in Detroit. Yes, there are a LOT of PMC's that screw OOS in Detroit and there are a lot of maintenance issues on C Class properties with the corresponding C Class tenants. 

Paul is correct about buying at a price that allows you to absorb the inevitable losses associated with C Class properties.

@Fuchi Obioha ,

Hey, I cannot see the documents you have but I saw that you're in Aviation sub-area. I have a flip going on there and I like the area for the most part (depending on which exact street). If you are only cash flowing $50-$150 in Detroit I wouldn't consider even doing the deal based on that, what makes Detroit market awesome is the fact you can cash flow high so if your not able to be above $200 I am already leaning toward it is not a good buy. I can help recommend contractors etc if you like just message me if you need any help.

Originally posted by @Fuchi Obioha :

Thanks everyone, really helpful thoughts. I have decided to pass as the seller is being firm with their price. Will check back on this in a few months and see

Excellent decision