real estate investment in Ann Arbor

[Jim Huang]

Hi everyone,

I am an out of town Michigan alum that's contemplating buying a SFR/Duplex as an real estate investment in Ann Arbor, preferably close to central campus and/or close to one of the University bus stops.

There are a couple opportunities thats on MLS currently, and I am crunching through my math and it seems to work out well (positive cash flow, decent cap rate).

Some key assumptions I hope still holds true today:  low vacancy rate in general. ~1000-1200/month for a room in a single family house / duplex. Year long lease typically, with subletting allowed to offset summer months cost to tenant.

I worked out some high-level math: Assuming there is a 6 bedroom single family house for sale for 800k, and I can rent for 6k/month.

Financing: 350k cash, 450k loan @30yr, 3.8%.

Assumptions: 7% vacancy/yr, $4000/yr repairs, $10k/yr property tax, $4k/yr insurance, 8% management fee+50% first month rent on new lease

Month-to-month breakdown: 

Income: $6000

Vacancy, Mgmt fee, repair, taxes, insurance: $2300

Loan PI: $2650

I'd take home ~$1000/month. 

It's not super amazing returns, but at the same time - it seems like a fairly low risk investment with Ann Arbor's large student body and continued demand for off campus living. 

My budget is up to ~$2M for the property. So while the example above is for a 800k property. I think the math should scale (i.e. for ~$2M I should be getting >12 bedrooms minimum).

Does anyone have experiencing owning investment properties near UofM central campus, and/or as a property manager, that can comment on how the rental market has been for the past decade plus (stability, concerns, etc.)? 

Thanks!

Jim

[Eric Wilkinson]

Jim

Go to the city’s assessor’s website and look up the property record.  Find the SEV.  This is what the assessed tax value will reset to after you purchase.  You can put the SEV value in this website for a tax estimate.  https://treas-secure.state.mi....

some things to keep in mind:

-Non owner occupied properties pay 18 mils more in taxes in Michigan 
- Even with the SEV you should plan that the SEV will go up. Ypsilanti township has increases from 10-20% YOY in assessed values.  I don’t know about A2 specifically.  
-A2 also has rental registration and inspection.  There is a cost to that and the potential for having to spend more to fix things up.  



Quote from @Jim Huang:

I realized I may be way off on property tax here in AA. =)

Some internet search yielded the following formula to estimate tax:

For a house that I purchase at $800k. My property tax would be: 

$800k * 0.5 * 0.06954 = ~$28k. 

Is this... true? This would imply AA has an effective tax rate of ~3.5% for an investment property