Detroit Investment Property Analysis – Snowden

Today I’m analyzing a two-family Detroit investment property located in the 48227 zip code.  This property is one of twelve homes that I recently purchased within the city of Detroit at an auction.  Take a look at my analysis of this property and let me know if you agree.  You can also send me an email with additional questions or to learn more about this property.  My plan is to sell 2-4 of the properties to other investors (either as-is or with rehab included) while the remaining units will be rehabbed and rented or sold to individuals.

Detroit Investment Property Overview

  • Market: Metro Detroit Area
  • My Valuation: $14,185
  • Rehab Estimate: $12,000
  • Address: Snowden, Detroit, MI 48227
  • Beds / Baths / Sq Ft: 4 beds / 2 bath / 1,944 sqft
  • Property Description: Two-family flat with 2 bedrooms in each unit.  The property is vacant and in need of a several repairs prior to moving a tenant in.

Neighborhood Grade: D

  • Median Income: $28,994
  • Poverty Rate: 35.8%
  • Unemployment Rate: 23.9%
  • % with Bachelor’s Degree: 11.2%
  • % of Renters: 39%

The zip code 48227 is a below average area on all key economic factors including the median income and poverty rate.  However, it is a slightly above average area for the city of Detroit, which has well-documented issues with poverty and unemployment.

Rental Price Expectations: $1,100/mo

This is a two-family home with two bedrooms in each unit.  For that reason I looked at comparable 2-bedroom homes in the area.  I found several comps ranging from $495-725 per month.  The average price was $650 per month, with most of those homes being single units.  Two-family homes typically go for a modest discount so I have assumed $550/mo although $600/mo is likely achievable.   

$550/mo compares favorably with the area’s median income at over 52x the monthly rent.  There should be a large group of area residents who can comfortably afford the proposed price.  

Annual Expense Expectations: $6,763 (51% of gross rent)

  • Property Taxes: $438
  • Insurance: $1,100
  • Property Management: $1,925 (assumes 1.75x monthly rent)
  • Vacancy: $1,100
  • Maintenance: $1,100
  • Other: $1,100

The expenses for this property are generally in-line with industry standards with the exception of two items.  Property taxes are absurdly low at only $438/yr.  That is less than one-half month’s rent vs. the typical 2x rent.  You will also see a massive “Other” category of two months rent.  From my experience this type of expense cushion is necessary when investing in Detroit.  This extra buffer will help absorb vacancies, vacancy related repairs, and potential eviction expenses. 

I have assumed that an investor pays all cash for this property.   Property management is set at ~1.75 months rent.  This factors in regular monthly management fees along with various other new tenant and lease renewal fees that companies may charge.

Financial Summary

Low Rehab Cost

  • Recommended Price: $14,185
  • Rehab: $12,000
  • Closing Costs: $426
  • Total Investment: $26,611
  • Financed Amount: N/A
  • Cash Investment: $26,611
  • Annual Revenue: $13,200
  • Annual Expenses: $6,763
  • Net Income: $6,437
  • Annual Return: 24%
High Rehab Cost

  • Recommended Price: $14,185
  • Rehab: $18,000
  • Closing Costs: $426
  • Total Investment: $32,611
  • Financed Amount: N/A
  • Cash Investment: $32,611
  • Annual Revenue: $13,200
  • Annual Expenses: $6,763
  • Net Income: $6,437
  • Annual Return: 20%

My Recommendation

I have analyzed this Detroit investment property assuming an all-cash purchase.  With a neighborhood grade of D, I would normally target a minimum annual return of 15% with an additional 5% margin of safety.  Within the city of Detroit, I typically do not factor in long-term appreciation although it is certainly possible.  I would target a price of $14,185 assuming rehab expenses as high as $18,000.

Want to place an offer or learn more about this property?

2 thoughts on “Detroit Investment Property Analysis – Snowden

  1. John Geldert Reply

    Great breakdown analysis Isaac. Does this example assume that tenants pay All utilities including water/sewer?

    • Isaac Post authorReply

      Thanks John. Yes, that’s correct. In my experience, it is standard for the single-family renters in Detroit to pay all utilities including water/sewer. I’m curious how consistent that is across other markets?

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