Detroit Investment Property – Oakfield

Today I’m analyzing a 3 bedroom Detroit investment property. 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.

DETROIT INVESTMENT PROPERTY OVERVIEW

  • Market: Metro Detroit AreaDetroit investment property
  • Listing Price: $14,500
  • Rehab Estimate: N/A
  • Address: Oakfield, Detroit, MI
  • Beds / Baths / Sq Ft: 3 beds / 1 bath / 1,433 sq ft
  • Property Description: Everything in the house is new and beautiful it has a nice large front and backyard and there is a playground across the street for the kids. The kitchen and bathroom are newly renovated. The basement is big and spacious with a new furnace and hot water tank. The renovations to the bathroom include: new ceramic and marble tiles, sink, tub, and toilet. 

NEIGHBORHOOD GRADE: D

  • Median Income: $28,897
  • Poverty Rate: 33.6%
  • Unemployment Rate: 24.4%
  • % with Bachelor’s Degree: 14.5%
  • % of Renters: 36%

The zip code 48235 is below average for the Detroit metro area on key economic factors including median annual income and the poverty rate.

RENTAL PRICE EXPECTATIONS: $700/MO

The vast majority of rental properties in this area are 3 bedrooms. These homes generally rent for $750 – $850 per month with a median of $800.  This investment property is a bit less than the average size and the rent assumption reflects that.

$700/mo is affordable when compared to the area’s median income which is 41x the monthly rent. Thus, we have assumed a reasonable supply of qualified tenants. 

ANNUAL EXPENSE EXPECTATIONS: $5,256 (63% OF GROSS RENT)

  • Property Taxes: $1,231
  • Insurance: $700
  • Property Management: $1,225 (assumes 1.75x monthly rent)
  • Vacancy: $700
  • Maintenance: $700
  • Other: $700

The expenses for this property are generally in-line with industry standards with the exception of property taxes, which are below the typical 2x rent.  Since this is a – D level neighborhood I have a assumed one month of vacancy every 12 months and one month of cushion for unexpected expenses.

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

At Listing Price

  • Purchase Price: $14,500
  • Rehab: N/A
  • Closing Costs: $4,435
  • Total Investment: $18,935
  • Financed Amount: 
  • Cash Investment: $18,395
  • Annual Revenue: $8,400
  • Annual Expenses: $5,256
  • Interest:
  • Net Income: $3,144
  • Annual Return: 17%
  • Annual Appreciation: $145
  • Total Return Potential: 17%
At Recommended Price

  • Purchase Price: $13,000
  • Rehab: N/A
  • Closing Costs: $4,390
  • Total Investment: $17,390
  • Financed Amount: 
  • Cash Investment: $17,390
  • Annual Revenue: $8,400
  • Annual Expenses: $5,256
  • Interest:
  • Net Income: $3,144
  • Annual Return: 18%
  • Annual Appreciation: $145
  • Total Return Potential: 19%

MY RECOMMENDATION

I have analyzed this Detroit investment property assuming a cash purchase.  With a neighborhood grade of D, I would normally target a minimum annual return of 15% with an additional 3% margin of safety.  I think 1% annual appreciation of ~$145 is a reasonable expectation.  Here the listing price of $14,500 seems high.  I would recommend a $13,000 purchase price to boost the total annual return potential to 19%.

Note that this property will also benefit from deducting annual depreciation of $610/yr.

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