Ann Arbor Michigan Buy-and-Hold Success

[Joshua B.]

Since becoming an avid follower of BiggerPockets about a year ago, I've done two fix and flips (links below). However, with little kids and a FT job, that was getting a bit taxing so I decided to shift over to a buy-and-hold, long-term strategy in Class A/B areas. Plus, going the buy-and-hold route provides the type of passive income that I'd like to generate in order to be financially independent by the time I'm 40 (7 years to make it there).

This deal came via a reminder from @Sarah Lorenz about an expired listing in the area. I'd seen it back when it was listed (over a year ago), but didn't think much of it since I wasn't educated about the Ann Arbor market at the time. It was listed for about a month in the dead of winter last year, then pulled off the market. This summer I did a flip in Ann Arbor, became more familiar with pricing in the area, and immediately wanted another in the city. When she reminded me about it, I dug into the numbers and realized the potential.

I tracked down the owner via assessors records, and asked if he was still interested in selling. He said he was, so I asked to meet him for lunch. We met, I made an offer, he countered and I accepted.

I paid $415,000 for it. Got conventional financing with 25% down. It's two duplexes on one tax parcel, so 4 units total at 3,220 sq ft (each unit is about 800 sq ft). The zoning is R2A, so it's a multi-family area, but only duplexes are allowed. It's existing non-conforming which means you can't materially alter the existing footprint. Neighborhood is an A (A+ may be a bit strong, although they did just build the HGTV Urban Oasis around the corner). The area has shot up in popularity recently and is rapidly gentrifying.

Rents are below market as most of the units are in rough shape ($950 each, on average). I walked through with @George P. and estimated that a full gut will be about $20-25k per unit (includes new windows, new electrical, new appliances, all new kitchen/bath, etc). If I do that, the neighborhood will support $1,500/month rents for each unit, probably more. Ann Arbor occupancy is currently at 99%+ and everything is insanely competitive.

http://www.mlive.com/news/ann-arbor/index.ssf/2017...

However, one of the neighbors approached me about the place and was interested in purchasing as-is for $550,000. Additionally, an 8-unit building on the south side of campus went under contract for over $1.55 million in less than 8 hours, so those movements have made me rethink my BRRR approach. Selling right away would create a bit tax liability, so as of now, I'm probably going to sit tight and not make any repairs. I may just wait until I've owned it for a year (for cap gains purposes) and list it. Or, if rents keep going crazy, I may do the reno and keep it long-term as I had originally intended. Regardless, it cash flows about $1,000/month as-is, so there's no harm in biding my time and picking the best option.

https://www.biggerpockets.com/forums/223/topics/47...

https://www.biggerpockets.com/forums/223/topics/39...

I've also got a lead on a nice little triplex in another A/B area, so hope to make that deal #1 of 2018 and get up to 7 units in a little over a year.