I am considering buying a property in Detroit, renovating it and renting it out.
I was wondering if I have a good chance of renting the property out in this part of Detroit, what vacancy I should expect, how much rent is reasonable per living unit and what the return percentage is I can expect.
The property listing: http://www.loopnet.com/Listing/9609-Dexter-Ave-Detroit-MI/13331638/#
The asking price is 50000USD. I plan to buy it without a mortgage. The property consists of 6 apartments. The total area is 7000 square foot. Assuming each unit is approximately the same size this gives us approx 1166 square foot per unit (=108 square meters). The property needs total renovation, my estimated cost for renovation is 100000USD.
I asked the real estate agent about the property taxes for this property and got the following info:
The property taxes are pretty low. The taxes are as follows: 2017 - $35.01. 2016 - $909.35 2015 - $929.52 Cities in Michigan has a process of appealing your tax amount each year, starting in February
Location (google maps): https://www.google.com/maps/place/9609+Dexter+Ave,+Detroit,+MI+48206,+Verenigde+Statenfirstname.lastname@example.org,-83.1218757,17z/data=!3m1!4b1!4m5!3m4!1s0x8824cd1d18d61557:0xd3cae28f166e8539!8m2!3d42.372746!4d-83.119687
Property history (what I could find):
04/21/2005: SOLD for $52000 12/20/2017: SOLD for $18000 07/30/2018: LISTED for $50000 asking price
I've compared rental prices in the area and I think $500 per unit per month is acceptable.
Return Rate calculation :
purchase + renovation: $150000 gross rental income: $500*6*12 = $36000 Other costs (annually): Property manager cost ≈ 14% of rent = 0.14*$36000 = $5014 Property tax ≈ 3% of property value ≈ $150000*0.03 ≈ $4500 Maintenance cost ≈ $2100 Additional costs (Vacancy and such) ≈ $1500 Total costs (annually): $13114 Cash flow = $36000 - $13114 = $22886 Return Rate = 22886/150000 ≈ 15%
Are my estimated costs too high or too low? If so please let me know. Is my 15% return rate a realistic assessment? What would you personally say the property is worth in its current condition, is it worth the asking price in your opinion.
Thank you very much!