If you found a 20+ unit apartment building in Detroit Michigan that…
-has a positive cash flow
-is rented at below market rent
-has a cap rate greater than 10%
-relatively good shape
-Occupancy is above 90%
-Price/unit is below $30,000
…would you buy it if you had the funds/financing to do so?
<<…would you buy it if you had the funds/financing to do so?>>
Nope…
(1) I sold my snow shovel…
(2) My wife is a ‘donkey’ and the inventor of the internet told her that handguns are bad…
(3) I NEVER invest out-of-town…
The Detroit makert is in the toilet right now because of a variety of factors, most of them “BLUE”…
My two cents.
Keith
I hear ya. however, would it be safe to say that even though Michigan’s economy is in bad shape, would past homeowners be driven into the rental market because of foreclosures on their properties, bad credit, etc…?
What is the NOI and DSCR?
You are correct in your trend spotting; as rates increase and affordability is still out of reach, the resulting see saw effect is that the rental market blooms (commercial finance applications rose 24% last month nationwide as a result).
Another plausible alternative to a buy and hold (if you think the floor is going to drop in MI) is to buy and condo convert.
Regards,
What exactly do you mean by “if you think the floor is going to drop in MI”?
If you think property values are going to depreciate.
Regards,[
quote author=The DC Group link=board=32;threadid=20103;start=0#msg95820 date=1161113635]
What exactly do you mean by “if you think the floor is going to drop in MI”?
Ok that’s what I thought you meant.
See that’s the whole purpose of the quesiton. Michigan’s housing market is being destroyed by the auto industry and other factors, thus causing property values to depreciate.
With that being said, please critique my reasoning to buy in Detroit.
First, Detroit’s economy depends largely on the auto industry which is undergowing a complete restructure right now. After this restructuring I beleive Detroit will bounce back because it can’t get much worse than it is right now and in the very near future.
Second, I believe that with all the foreclusures, climbing interest rates, now is a good time to purchase rental buildings due to the fact alot of people can’t afford to purchase homes or find financing.
Third, since the real estate market is cyclical, I’m sure MI will bounce back and when it does, convert to condos.
Would you still see value in an apartment building with the characteristics mentioned in my first post and above?
If you let me know the specific numbers (purchase price, appraised value, NOI, current rent roll and current market rents for similar properties), I crunch the numbers and give you my opinion on the same.
On the surface, it appears to be a good deal; property is fully tenanted at below market rents (you could raise rents to improve cash flow), it appears to cash flow and the demand for rentals in your area seems to support the investment.
Regards,
EZloans, do mind if I send you a review of the property to your email?
The numbers get all staggered when I try to post it in here.
Sure…
What else can you tell us?
Ok here’s the basic info on the property…
No. Units: 36
Building Size: 26,812 SF
Lot Size: 0.30 Acres
Occupancy: 95.00%
Price: $720,000
Price/Unit: $20,000.00
Cap Rate: 16.50%
Year Built: 1927
2005 (actual)
NOI: $116,282
UNIT MIX AND CURRENT: 12 Studios @ $350.00, 21 One bedrms @ $430.00, 2 Two bdrms @ 450.00
MEDAIN RENT FOR THE AREA: studios @ $350, one bedrms @ $500, two bedrms @ $600
I HAVE NOT INSPECTED THE PROPERTY YET, HOWEVER, THE OWNER SAYS IT IS IN GREAT CONDITION (but of course he will say that)
MY MAIN CONCERNS ARE THE AGE OF THE BUILDING (1927) AND THE FACT THAT IT’S IN DETROIT CITY ( ABOUT 3-5MIN NORTH OF HENRY FORD HOSPITAL)
So what do you think?