Detroit advert shows 17.6%. I get about 4% for a faraway buyer. What did I miss?

Question

I work in risk for a living and got curious about the cheap Detroit rentals that get marketed to buyers abroad. So I took one real advert and worked through it the way I would any other stress test.

The house: brick three-bedroom in 48205, asking $85,000 cash, rented at $1,250 a month with a housing agency paying the full rent.

On paper that is $15,000 a year, or 17.6% of the price.

Here is what I get for a buyer who lives far away and needs a manager, for one normal year:

Rent collected, one empty month: $13,750
Manager at 10%: minus $1,375
Property tax after it resets on sale: minus $3,190
Insurance: minus $3,000
Repairs: minus $2,500
City rental fee: minus $150
Kept: $3,535, about 4% on $88,000 all in

A good year gets to about 7%. A bad year (tenant leaves, three empty months, one big repair) loses about $4,200.

Two things stood out. The rent itself looks honest, since it is below the government benchmark for that postal code. And the advert only allows a viewing after an offer is accepted, sold as is.

For those of you who own in Detroit from a distance: which of my lines is too harsh, and which is too kind? I'm most unsure about insurance and the tax reset.

Simon W. · Answer

This is the right way to look at those ads — rebuild the spreadsheet yourself.

The yield on the flyer almost never includes a real vacancy factor, a turnover/leasing cost, insurance at today's quote, or a CapEx reserve for roof, furnace, and plumbing. Remote buyers also miss property management and the trip costs when something needs eyes on site. Stack those and 17% turning into low-single-digits is pretty common.

I'd also ask for trailing twelve months of actual rent collected and expenses, not a pro forma. If they can't produce bank activity or a simple P&L for that unit, the advert number is a marketing number, not an operating one.

James Jones · Answer

Your math is honest — the advert showed gross, you ran net. That 17.6% was never real.

Here's my screen: I buy Memphis single-family under $100K and nothing touches my portfolio if it misses the 1% rule. At $85K I'd need ~$1,250 in rent just to be in the conversation — you're right at the line.

The Section 8 angle is what would move this for me. My 3BR+ Section 8 rents run $1,395–$1,950 — the voucher, not market rent, is what makes the Midwest math work. Section 8 inspectors check the panel, GFCI outlets, and paint, so budget for those.

Your blind spot: capex. $2,500/year on an $85K Detroit brick is light — run $4K and see if you still like it. Line-item the rehab before you close (roof $6.5K, HVAC $5K, LVP $5.5K is my template), and if the walkthrough can't hit the number, renegotiate or walk.

Jimmy Lieu · Answer

Welcome, Jay, and thanks for putting real numbers on one actual advert. That is a useful way to look at it.

Your lines read like a realistic stress test to me. The ones I'd add are a leasing or re-tenanting cost whenever the unit turns, a capex reserve for roof, furnace and plumbing on older brick (your repairs line covers upkeep, not the big stuff), and buyer closing costs. Insurance on older stock in tougher postal codes often surprises people, so I'd get a real quote before trusting any seller's figure. I can't speak to the tax reset from firsthand experience, so I'd confirm it with the local assessor.

For comparison, in Columbus I'm still finding deals that hit the 1% rule and cash flow after expenses, though that depends heavily on condition and area, and it is never guaranteed.

I enjoy networking with investors working through this, so feel free to connect and I'll see where I can help.

Detroit advert shows 17.6%. I get about 4% for a faraway buyer. What did I miss?

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