Redford Investment Property Analysis – Sumner St

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 AreaRedford Investment Property
  • Listing Price: $79,900
  • Rehab Estimate: $8,000
  • Address: Sumner St., Redford, MI 48239
  • Beds / Baths / Sq Ft: 3 beds / 1 bath / 1,473 sqft
  • Property Description: This large bungalow is situated on a large double fenced in lot.  The master bedroom features a huge walk-in closet with more than enough space for his and hers. 

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: $1,150/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 larger than average so we have assumed rent of $1,150 per month. 

$1,150/mo is in-line with the area’s median income which is over 43x the monthly rent.  There should be a large group of area residents who can comfortably afford the proposed price.  

Annual Expense Expectations: $6,894 (50% of gross rent)

  • Property Taxes: $1,240
  • Insurance: $1,150
  • Property Management: $2,013 (assumes 1.75x monthly rent)
  • Vacancy: $767
  • Maintenance: $1,150
  • Other: $575

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.

Financial Summary

At Listing Price

  • Purchase Price: $79,900
  • Rehab: $8,000
  • Total Investment: $90,297
  • Financed Amount: $63,920
  • Cash Investment: $26,377
  • Annual Revenue: $13,800
  • Annual Expenses: $6,894
  • Interest: $3,196
  • Net Income: $3,710
  • Annual Return: 14%
  • Annual Appreciation: $600
  • Total Return Potential: 20%
At Recommended Price

  • Purchase Price: $79,900
  • Rehab: $8,000
  • Total Investment: $90,297
  • Financed Amount: $63,920
  • Cash Investment: $26,377
  • Annual Revenue: $13,800
  • Annual Expenses: $6,894
  • Interest: $3,196
  • Net Income: $3,710
  • Annual Return: 14%
  • Annual Appreciation: $600
  • Total Return Potential: 20%

My Recommendation

I have analyzed this Redford investment property assuming ~$64k of the purchase is financed at a 5% interest rate. 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 $600 is a reasonable expectation.  Here the listing price of $79,900 is attractive assuming rehab expenses of $8,000.

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

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