Flip & Hold strategy in Detroit

[Michael Evans]

Investment Info:

Single-family residence other investment in Warrington.

Purchase price: $50,000
Cash invested: $50,000

I represent an investment group based in Southern California that is acquiring properties in Detroit using a "Flip & Hold" investment strategy that involves three related companies (flip company, buy and hold company, and lending company) as part of a "closed sales system", where every house we buy has a guaranteed buyer.

Our target project cost is $50,000 all in, with ARV of at least $60,000 that rents for a minimum of $1,000 per month, targeting section 8 tenants. We are raising funds for our "proof-of-concept" project to purchase 1st property by the end of the year.

What made you interested in investing in this type of deal?

We are able to get a higher cap rate in Detroit compared to California while simultaneously spreading risk over multiple properties.

How did you find this deal and how did you negotiate it?

I developed a Real Estate Deal Management System (REDMS) in 2016 as a risk management tool for flipping properties. It works in areas that have a minimum monthly rent to price ratio of at least 1.5%. You can't find that in California, but you can in the Midwest.

How did you finance this deal?

We are initially looking to use 3rd party funding, but we are establishing a lending company that will use private money to fund 1st and 2nd mortgages to our flip and buy and hold companies.

How did you add value to the deal?

We will buy distressed properties, rehab them, and flip them, preferably as owner occupied homes. If we can't flip them within 2 months, we will place a tenant in them, preferably a section 8 tenant, and sell the property as a turnkey rental to out of state investors. If after a total of 3 months we still haven't sold the property, the flip company will sell the property to the buy and hold company at a predetermined price, thereby guaranteeing the flip company a minimum profit.

What was the outcome?

We are raising capital for our "proof-of-concept" project as we speak to buy our first property by the end of the year.