Investment Info: My plan for this property was to BRRRR, but decided to put my own spin on it. At the time, I didn't see why it's best to pay cash up front so I ended up only putting 5% down payment and financing it through a conventional bank loan.
Because of this, I am living here until I'm legally allowed to turn it into a rental.
Deal Facts
- Built 1954
- 831sq ft
- 2 bed, 1 bath
- 1.5 car Garage, central air
- Half acre lot
- Dead end street, near freeway
- 1/2 mile away from GM/Chrysler plants
- Worst house on the street
Purchase Price: $57,000
Down Payment: $2850
Financing: 5% Conventional Bank Loan
Rehab Costs: $15,000
Closing Costs: ~$3000
All In: $75,000
Market Rent: $1000/m
Cash out of my Pocket: ~$21,000
RESULTS AT THE END
What made you interested in investing in this type of deal?
My goal was to find a property in an area with strong economic development, rental demand, and that would both cash flow and likely appreciate in value over the next ~5 years.
I read the Master Plan of every city surrounding Detroit and determined this was one of the strongest areas prepped for growth going forward. It's the 3rd largest city in Michigan, borders Detroit, and has a high tenant population. I grew up in the neighboring city, so I was already familiar with the areas to avoid and the exact locations to look for a property.
How did you find this deal and how did you negotiate it?
I spent 3 months looking on the MLS to find this deal. I went and saw around 30 houses, both small Multi-Family and SFH. I put out around 5 offers, had 2 accepted, and this is the one I actually closed on. It was listed for $55,000 and had another offer for full price, so I told my agent $57,000 and they accepted. I actually paid slightly more than it was listed for...but this is the competitive market we are in!
How did you add value?
- Paint throughout
- Added closet to make an official 2 bedroom
- Removed 1 tree out front that was ruining driveway
- Added dishwasher
- Poured back patio
- Added storage to laundry room
- New flooring throughout
- Remodeled Bathroom
- New doors, fixtures
- New GE Slate Appliances
- Poured new sidewalk out front, sealed foundation, fixed front patio
What was the Outcome?
Since I put 5% down payment and $15,000 of my own money into the deal and it's been about 6 months since we purchased, I wanted to see if we could move PMI and extract some of the equity.
I called up Chase and they sent someone out here to do an Appraisal on the property.
I got my Appraisal back for $115,000!!
They ended up removing my PMI, dropping my PITI to $471/m and I'm able to extract just over $38,000 from this property!
It cost me around $21,000, but even if you factor in my living expenses while living here the past 6 months (utilities, mortgage payments) that would maybe add another $4000 to my 'all in' and put me around $25,000 overall cash out of my pocket. I'm now able to extract an additional $13,000 on top of that...pretty crazy!
Lessons Learned? Challenges?
My biggest lesson learned here is that you can save a LOT of up front costs by paying with all cash. I didn't have $57,000 to put into this deal, nor did I have a private investor, but I see tremendous value in being able to avoid generating 2 bank loans (one up front, one on the refinance).
The biggest challenge was actually finding a deal. It took a LONG time (and many declined offers) to find this deal. I went to see it with my agent the day it was listed on the MLS and it already had a full price offer. I didn't want to FOMO, but I figured $2000 wasn't going to effect my bottom line too much.
Another challenge I had was putting the deal together. I don't have a regular job or W2 income. I had to bring on a credit partner for this deal (thanks Mom) in order to close!
Future Goals? What's next?
About 2 weeks after I closed this property, I closed on a duplex about 2 miles away. While it was a turnkey investment, I was able to creatively add an additional $255/m in Cash Flow through raising the rents and putting the internet in my name, while charging both tenants individually to use it.
I've had a lot of difficulties finding more deals on the MLS due to the crazy market surrounding Detroit, so I've started doing some direct mail campaigns and marketing to find off market deals.
I recently put a property under contract for $42,500 from my mail campaign in an even better area than my first deal and it's a bigger house. I'm starting to network more with other investors and forming strategic partnerships to scale up my business focused on the markets surrounding Detroit.
I want to connect with more investors and acquire 5 more buy and hold SFH or small multi-family properties before 2020.
I'm extremely grateful for Bigger Pockets!
I've met a ton of great people here & it's helped me a ton. I've listened to every podcast, I read every book recommendation, and try to soak up all the knowledge I can from here!
Thank you all for reading!
- Matthew
