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