Originally posted by @Christian Hutchinson:
Originally posted by @Kimberly Johnson:
@Christian Hutchinson. I've lived in MI all my life but I am not so familiar with Detroit and learning more about real estate investing every day. Like @Drew Sygit and @Paul S. mentioned, I would have to do the math to know if it would be worth an attempt at a BRRR. My guess is it needs more than paint. The ARV is pretty low based on the local properties.
You are worried about the wrong thing, when you are playing at the end of the market you are...
You want to minimize risk (theft), and generate cash. If they want $50K offer $40K, spend $12-15K get the property together. 2 bed rents for $800/mo thats $1600 for two units on a cake walk. Which means you are putting $1100/mo in your pocket every month. Thats $13K a year in your pocket. Then you cash out the stabilized asset in 3-4 years for $80K-$90K because there is enough meat on the bone for a turnkey investor. If values improve great borrow against the asset.
The methodology you are attempting to apply you will struggle finding a deal. Not to mention, banks are not kind in Detroit regarding appraisals.
Attempting to create capital via debt is a tough strategy in Metro Detroit. its hard in Detroit. Its even harder on the low end of the market. All these courses and blogs talk BRRRR and do in in under 6 months. It just doesn't happen that way in reality. Maybe 18-24 months. For instance last year from March to October lending was effectively shutdown for the types of properties you are talking about
The only way for you to make money on a purchase is buying a distressed asset or purchasing from a buyer who has little to no knowledge of market conditions.
You want a property, where you throw some paint on the wall, put in some stock Home Depot Cabinets, replace a HWT or Furnace and start renting. Esp on your first go around. This platform is littered with people who believed they could do this textbook play. it can be done, but extend your horizon to two years for the cashout. This region doesn't appreciate like that historically.
OK, Let me unpack this... I like the game plan but this is for a seasoned hands on Investor. Buying cheap and renovating the MINIMUM to get these pigs rented is the way to go! Start creating cash flow ASAP and worry about appreciation later (if ever).
No offense Christian but this is my opinion. The 48205 property listed is a loser - worst area of the city, $725 max for a 2 bed there and worth probably 20k if you are desperate to pick something up. We can add numbers all day but a hands off OOS investor is going to lose in Detroit. Lets say $725mo X 2 is $1450mo gross is $17,400yr. Water $1200 - taxes $2000 - Insurance $2000 - PM Fee $1,740 leaves you $10,460.
Lets tackle PM first: Most OOS investors (or hands off locals) think a PM is just the 10% - WRONG! They do not care about your 10% - they care what they can soak you in repairs! Leaky sink, loose toilet, poor water pressure, cracked windows, broken doors... these things all happen amongst others on a regular basis - this will eat up your profits. Lets say you average a LOW $200mo in repairs - now you've made $8,000yr
Evictions: This is Detroit... there is a reason we have the highest eviction rates in the country! We have the worst tenant base in the country LOL. Bob decides not to pay in June. Let's say your PM is on the job and files a 30 day on the 10th.(if any of you are smart you'll NEVER do a 7 day). July 11th comes around and PM's lawyer is able to file with 36th district.(this is a pre-covid example). July 25th is court, tenant gets 10 days to vacate. August 4th you are waiting for your writ - judge decides to let it sit on his/her desk for a week you get the writ on August 15th and call your bailiff. August 17th comes around and Bob gets his dumpster relocation. Then the turn of the unit starts. Lets break down the costs:
PM to serve 30 day - $50
Lawyer to handle the eviction $300
Bailiff to evict - $600
Dumpster for eviction $325
Loss rent June,July, August - $2175
Total - $3,450
If Bob walks off with your stove, Refrigerator, Furnace and Hot water heater as he goes you can add another $2500 (I never supply appliances btw)
PM has to turn the place now - Paint, minor repairs you're probably looking at $2,000
If Bob didn't steal all your stuff you've made $2500 on this property now for the year - if he did you are even. If you have debt service you have lost.
Detroit is a HIGH risk HIGH reward city. I'm not saying this scenario is going to happen EVERY year, but the numbers show it is more likely than not. THIS is the reason properties are so cheap here. If Bob stays for 2 years and pays on time you will do well... but the chances are slim. And lets not even get into the scenario of Jim upstairs saying if Bob ain't paying I'm not paying.
