I bought 1.5M worth of property in Detroit... Here are the numbers.

[Jonathan Weinberger]

Hey BP community, 

Every so often I enjoy writing about my investing experience here. It helps me build connections with other investors, and it helps me expand my network of capital partners. 

None the less, I come from a background of training people for a living and it comes naturally to me to help others get started on this amazing journey called "Real Estate Investing"

I started my cash flow real estate investing journey In January of 2023. I spent the prior 18 months obsessing over the markets, reading every book, diving into a massive rabbit hole with mobile home parks, and ultimately decided that in 2023, I had done the research that would suggest this journey is an absolute certainty. 

I came to the conclusion that there is an affordable housing crises. I became obsessed. Toledo, Akron, Cincinnati, Cleveland, Birmingham, Memphis, Milwaukee, St louis...the list goes on. 

These cities are the well known, sub 100k markets in the US. I've talked with people who own hundreds, even THOUSANDS of these units and they all shared the same intuition. There is an affordable housing crisis here in America. There is a perfect recipe brewing where inventory is at an all time low, with interest rates significantly higher than we're use to, capitalized by the insane economic struggles that are going on in our every day lives.... 

That list of areas, it's what everyone talks about...

Nobody raves or brags about the Detroit opportunity...

I think I'll save my story for choosing Detroit for another time, but the long story short version is this: 

I believe Detroit is the greatest economic opportunity standing in front of us all today, and those who know how to navigate it will get stupid rich.

Below is a snapshot of my Detroit portfolio. 

(You may need to right click and open image in new tab to blow it up) 

But I'll provide written information for what you're looking at: 

I'm a 100% section 8 Investor. I don't **** with cash payers. 4 Units are currently vacant, being screened for tenants. The numbers calculated assume 0% vacancy (but I reserve 5% for it) . The 4 vacant are new rehabs I just completed.

Total Rents Collected: $23,025/mo 
Debt Service: $12,358/mo (sad for me. 8% interest rates lol) 
Property Management 10%: $2,303/mo
Reserves (Vacancy 5%, Maintenance 10%): $3,454/mo
Phantom Cash Flow: $8,365/mo
True Cash Flow: $4,911/mo (Money I can legit burn) 

Total Purchase Price: $1.573M
Total Rehab Cost: $122,617
Total Cash In Deals: $539k 
Total Appraised Values: 1.81M


Hope this inspires someone. If you have questions about getting started in Detroit, post your comments below, or feel free to send me a DM!

My plan moving forward is to acquire another 20 doors before years end and I'll provide another Portfolio update around then.


Happy Investing!

Jonathan

[Marcus Auerbach]

@Jonathan Weinberger that has been a lot of work, really impressive pace! Most investors start with 1 unit a year or so. Before you press on, maybe take a break and consolidate. 

You have 22 properties that are probably at least 60 years old. 15% maintenance of $1000 rent does not get you very far when you start looking at big-ticket items like roofs, windows, plumbing, HVAC, driveway, tree-removal etc.

I am doing this long enough here in Milwaukee that I own some properties I have rehabed twice. First when I bought them and "fixed them up" and then 10 years later when I had a little better understanding and started doing things the right way. We are now at the point where we replace 3 driveways every year, starting with the worst ones. On average we have spent about $60k to reset the clock on a 1960's single family home. And in a severe duty application like renting to section 8, you probably have to do that every 30 years.

In other words, your portfolio carries a $1,320,000 future liability ($60k x 22), which equals about 22 years of present-day cash flow. And cost is not coming down. In 2024 I can't do roofs anymore for 8k, so adjusting for inflation the 60k is probably going to be more like 80k.

So how do you make this work long term? First of all, do not take any money out of the business, because you will need it. Second: cash-flow get's dwarfed by capex over time, so the only equally strong force you can set against capex is appreciation. If you have appreciation, you will create enough equity over 30 years to reset the clock on all your capex items. If you don't have appreciation capex will wipe out your cash flow. 

WARNING: if you do not prepare for this, you can enter a death spiral: deteriorating properties lead to lower rents, worse tenants, more wear and tear, even less cash flow to fund repairs and ultimately erode asset value.

I do not mean to rain on your parade, hopefully, this is a helpful long term perspective. You can be proud of what you have achieved in a short amount of time, this is really impressive!