Detroit Investment Property – Woodside

Today I’m analyzing a 3 bedroom Detroit investment property located in Dearborn, MI.  Dearborn is a suburb of the Detroit metro area.  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 Area
  • Listing Price: $109,000                               Detroit investment property
  • Rehab Estimate: N/A
  • Address: Woodside, Dearborn, MI
  • Beds / Baths / Sq Ft: 3 beds / 2 bath / 1,400 sq ft
  • Property Description: A great home with many updates. This home has an updated kitchen with ample cabinet space,many built-ins and granite countertops. The kitchen opens to a spacious family room. The living room features hardwood flooring and the home has an updated main floor bath, a full basement and a newer furnace, water heater, windows and roof.

NEIGHBORHOOD GRADE: B

  • Median Income: $58,074
  • Poverty Rate: 8%
  • Unemployment Rate: 10%
  • % with Bachelor’s Degree: 35%
  • % of Renters: 19%

The zip code 48124 is above average for the Detroit metro area based on key economic factors including median annual income and the poverty rate.

RENTAL PRICE EXPECTATIONS: $1,200/MO

The vast majority of rental properties in this area are 3 bedrooms. These homes generally rent for $1,100- $1,350 per month with a median of $1,175.  This investment property is at the high end of the average size so we have assumed rent of $1,200 per month. 

$1,200/mo is very affordable when compared to the area’s median income which is over 48x the monthly rent.  There should be a large group of area residents who can comfortably afford the proposed price.  

ANNUAL EXPENSE EXPECTATIONS: $8,057 (56% OF GROSS RENT)

  • Property Taxes: $2,357
  • Insurance: $1,200
  • Property Management: $2,100 (assumes 1.75x monthly rent)
  • Vacancy: $600
  • Maintenance: $1,200
  • Other: $600

The expenses for this property are generally in-line with industry standards including property taxes, which are just below the typical 2x rent.  Since this is a B-level neighborhood I have assumed one month of vacancy every 24 months and one-half 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: $109,900
  • Rehab: $0
  • Closing Costs: $3,297
  • Total Investment: $113,197
  • Financed Amount: $84,898
  • Cash Investment: $28,299
  • Annual Revenue: $14,400
  • Annual Expenses: $8,057
  • Interest: $4,245
  • Net Income: $2,098
  • Annual Return: 7%
  • Annual Appreciation: $2,198
  • Total Return Potential: 15%
At Recommended Price

  • Purchase Price: $105,000
  • Rehab: $0
  • Closing Costs: $3,150
  • Total Investment: $108,150
  • Financed Amount: $81,113
  • Cash Investment: $27,038
  • Annual Revenue: $14,400
  • Annual Expenses: $8,057
  • Interest: $4,056
  • Net Income: $2,287
  • Annual Return: 8%
  • Annual Appreciation: $2,198
  • Total Return Potential: 17%

MY RECOMMENDATION

I have analyzed this Detroit investment property assuming a financed purchase.  With a neighborhood grade of B , I would normally target a minimum annual return of 10% with an additional 2% margin of safety.  I think 2% annual appreciation of ~$2,198 is a reasonable expectation.  Here the listing price of $109,900 is fairly attractive although I would prefer a $105,000 purchase price to boost the annual return to 8% before adding appreciation.

Note that this property will also benefit significantly from deducting annual depreciation of $3,795/yr.

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

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