Detroit is a depressed market right now. Residential SFH values have droped 15-20%. The population of the city itself has been declining since the late 70’s. I have been told the city population was above 2 mil in the late 60’s. Vacancy for registered rental properties for the city was recently anounced at 6% which is a slight improvement from the previous year.
I have been looking at this property for a while, It is a 28 unit apartment building, has historically strong occupancy (90%+). The building construction is 100% brick w/rubber roof and well maintained. The asking price is $550,000. The gross income is listed at 154,000, the NOI is listed at 92,000. That’s a 17% cap.
I contacted Comercial Direct and they quoted me a 30 yr fixed at 8.25%. Thats with 10 percent down. I am planning to use my HELOC for the down payment. I am also able to get a 3% commision split.
I keep asking myself, why is this place so cheap? The area the property is located, is a lower income area. The area is not the highest crime area, its about average for a major city (population 950000+). There are ALOT of foreclosures in the area causing the rental market to increase over the last two years, but even in average market conditions I am told the property has maintained its occupancy level because it is in the lower income area.
It has an onsite manager (7+ years)that lives there free of rent, and performs minor repairs. The full extent of all of his duties is something I am currently investigating.
Any thoughts or insight would be greatly appreciated. Is there any thing I am missing? Not thinking of? Anything?
If you can’t tell this would be my first commercial purchase. I have done alot of single family homes, just never any multi.
Never trust numbers provides by sellers or their brokers. NEVER!!
Ask to see about three years worth of tax returns for the seller, or the portion of the returns that deals with this property. Take a close look at the rent collections. Are they really 90% of max possible rents? I seriously doubt it. Then look at the expenses. If the seller refuses, you know he/she has something to hide.
Have you toured the property and EACH unit with a contractor? Know what you are stepping into. Check the age and function of the HVAC systems. These can cost you big money.
If this property really is craning out a 90% occupancy, and the expense informaiton is accurate, and its not a major rehab project, it could be a good deal. But if you have 150K in rehab work in your near future, negotiate harder.
You might want to check due diligence by Ray. You want to verify everything and not simply take seller’s words especially financials. NOI looks good if all numbers verified including occupancy but need to do more due diligence on market, building infrastructure, deferred maintenance(big expense potential), why seller is selling. Good luck
Is the area growing or recovering? What is market vacancy rate, basically can you fill units easily, are there a lot of similar apartments competing, can market absorb, basically are there strong demand?
Isn’t detroit a depressed market right now…maybe a good time to buy. The numbers look fantastic. Where do these people work…hopefully not at GM. As long as there are no signs of the area turning into a ghost town or a crime ridden area, i say go for it.