Low vacancy rate for apartments in Midtown and Downtown

[Hermod]

Low vacancy = higher rents
Higher rents = new construction
[[Law of Supply and Demand)

[campbellsimon]

Low vacancy = higher rents

That is true. A low vacancy indicates a higher than average demand. This can be a good indicator to investors that buying rental properties [[single family residences or multi-family apartments) is a good idea. Another avenue is to convert buildings into a multi-family building. With the low cost of real estate and the high rent demands, it can be a win-win for investors.

[Zozo]

That is true. A low vacancy indicates a higher than average demand. This can be a good indicator to investors that buying rental properties [[single family residences or multi-family apartments) is a good idea. Another avenue is to convert buildings into a multi-family building. With the low cost of real estate and the high rent demands, it can be a win-win for investors.

Naturally one would think so, but look a little deeper at the numbers. Even with the low cost of Detroit real estate, investing in rental properties in Detroit is not very profitable, due to high property taxes and insurance rates.

[corktownyuppie]

Naturally one would think so, but look a little deeper at the numbers. Even with the low cost of Detroit real estate, investing in rental properties in Detroit is not very profitable, due to high property taxes and insurance rates.

Don't know about that. Investing in rental properties in Detroit is very profitable, depending on where you're at. There are places in the rougher areas of the city where 12 months gross rent would cover 1/3 of the asking price.

That said, I'm open to your argument. When you say "look a little deeper" at the numbers....which numbers are you looking at?

[JVB]

There are places in the rougher areas of the city where 12 months gross rent would cover 1/3 of the asking price.

Good luck collecting that rent.

[Hermod]

Good luck collecting that rent.

Dwayne and LeRoy cradling their AKs makes effective collection back up [[and security once you get the money in hand)

[Zozo]

That said, I'm open to your argument. When you say "look a little deeper" at the numbers....which numbers are you looking at?

Most condos and lofts in the desirable areas of the city have an SEV in-between $35-45K. That's $3K a year in summer/winter taxes, and about $900 for insurance. HOA fees are about $175. That doesn't leave much after tax, insurance, HOA and maintenance fees.

[corktownyuppie]

Most condos and lofts in the desirable areas of the city have an SEV in-between $35-45K. That's $3K a year in summer/winter taxes, and about $900 for insurance. HOA fees are about $175. That doesn't leave much after tax, insurance, HOA and maintenance fees.

$130,000 Loft
20% Down

-500 Mortgage
-250 Taxes
-75 Insurance
-175 HOA
=========

Monthly expenses 996.51
Monthly rent $1400 [[1700 sq ft condo nearby just rented to two people for $1400).

Net monthly profit $400
Annual profit $4800

Profit / Down Payment = $4,800/$26,000 = 18%

Looks good to me.

[Zozo]

$130,000 Loft
20% Down

-500 Mortgage
-250 Taxes
-75 Insurance
-175 HOA
=========

Monthly expenses 996.51
Monthly rent $1400 [[1700 sq ft condo nearby just rented to two people for $1400).

Net monthly profit $400
Annual profit $4800

Profit / Down Payment = $4,800/$26,000 = 18%

Looks good to me.

Your profits are even smaller because you are financing. But I understand your model, it produces a little extra income, and I hope it works for you.

But one item you did not factor into your equation is maintenance, which at a minimum should be $50 a month. That leaves $ 350. Also, your model assumes that the condo/loft comes with appliances, which is usually not the case with the condos and lofts that are on the market now in Detroit. If you have a note on the appliances, that $350 profit decreases even more.

Essentially the landlord is left with a $275-$350 a month ROI on a $180K+ investment [[since you are financing). That's not that great. And that's why there's not a flood of investors stampeding into the Detroit condo/loft market.

Long term it seems even more risky when you consider the fact that the condo/loft owner may never get close to $180K+ if they were to sell.