Today I’m analyzing a 3 bedroom Redford investment property. Redford is a working-class suburb located west of the city of Detroit. 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.
Redford Investment Property Overview
- Market: Metro Detroit Area
- Listing Price: $79,900
- Rehab Estimate: $3,000
- Address: Berwyn St., Redford, MI 48239
- Beds / Baths / Sq Ft: 3 beds / 1 bath / 1,064 sqft
- Property Description: Nice ranch home with fenced in yard and shed. Newer windows, siding and roof. Finished basement. Across from elementary school.
Neighborhood Grade: C
- Median Income: $50,113
- Poverty Rate: 14.1%
- Unemployment Rate: 14.5%
- % with Bachelor’s Degree: 18.7%
- % of Renters: 18%
The zip code 48239 is in-line with the average for the metro area on key economic factors and the median annual income is higher than average at $50k.
Rental Price Expectations: $900/mo
The vast majority of rental properties in this area are 3 bedrooms and typically range in size from 1,100-1,250 sq feet. These homes generally rent for $950-1,200 per month with a median of $1,100. This investment property is slightly smaller than average so we have assumed rent of $900 per month.
$900/mo is very affordable when compared to the area’s median income which is over 55x the monthly rent. There should be a large group of area residents who can comfortably afford the proposed price.
Annual Expense Expectations: $5,855 (54% of gross rent)
- Property Taxes: $1,430
- Insurance: $900
- Property Management: $1,575 (assumes 1.75x monthly rent)
- Vacancy: $600
- Maintenance: $900
- Other: $450
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 C-level neighborhood I have a assumed one month of vacancy every 18 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.
|At Listing Price
||At Recommended Price
I have analyzed this Redford investment property assuming a financed purchase. With a neighborhood grade of C, I would normally target a minimum annual return of 12% with an additional 3% margin of safety. I think 2% annual appreciation of ~$1,600 is a reasonable expectation. Here the listing price of $79,900 is fairly attractive although I would prefer a $75,000 purchase price to boost the annual return to 10% before adding appreciation.
Note that this property will also benefit significantly from deducting annual depreciation of more than $2,800/yr. As a result, your annual net income will be tax-free.