digest
Short Summary
Main recommendation: The host treats this Detroit duplex as a potential value-add deal, suggesting it could be worth exploring further if the price drops toward about $165,000, the interest rate comes down to around 7% or 6.9%, and a renovated unit can command roughly $2,200 to $2,300 per month in rent total, not confirmed facts. The host's model shows the deal moving from about 3.5% to roughly 8% cash-on-cash return once these assumptions are adjusted, though he stresses he would not buy it as is. The neighborhood's weak appreciation forecast keeps the margin for error thin.
Key Points
- The listing already shows long-term tenants paying $1,200 and $900, totaling $2,100 per month, which exceeds the buyer's $2,000 rent assumption and already meets the 1% rule at the roughly $180,000 asking price.
- Visible condition problems, including vertical wall cracks, roof water damage, deteriorated doors, and a 1911 construction date, suggest a rehab budget well above the buyer's $30,000 estimate; the host uses $50,000.
- At the original terms (7.7% loan, $50,000 rehab, $2,100 rent), cash flow is only about $264 per month, a 3.5% cash-on-cash return, which he calls too thin.
- The neighborhood's appreciation forecast is flat near Indian Village, with stronger growth in suburbs such as East Point and Dearborn, so the host discounts appreciation assumptions.
- Crime data looks moderate, mostly property crime rather than violent crime, which the host does not view as the main risk.
Details Worth Noting
- Concrete instructions:
- Run the numbers with a realistic rehab estimate: the host assumes $50,000 rather than $30,000 because of visible damage, and says a real scope of work should be written before buying.
- Check the interest rate: the 7.7% quote seems high; the host uses about 7% (the average he cited) and recommends rerunning at 6.9%, which he says is closer to current rates.
- Negotiate the price: the host models a $165,000 offer, which raises cash flow to about 5.6%, noting the listing has been on the market 28 days as a possible sign the seller might accept less.
- Verify post-renovation rent: call local property managers to confirm what a nicely renovated two-bed, one-bath unit rents for; the host notes the 75th percentile rent estimator shows about $1,500 per unit and ultimately assumes $2,200 to $2,300 total for the duplex if renovated.
- Use the same assumptions for expenses: taxes and insurance at about $2,000 each, 5% vacancy, 8% property management, and tenant-paid utilities, which he says is typical for duplexes.
- Expect lower ongoing repairs after the rehab, since major items like electrical, HVAC, possibly the roof, and paneling would be addressed up front.
- Model outputs cited: about $264 per month (3.5% cash-on-cash) at the original terms, rising to about 4.5% when the rate drops to 7%, about 5.6% at a $165,000 price, and about 8% cash-on-cash with the higher rent, with a stated annualized return of 133% that includes value appreciation from the improvements.
- Benchmark: the host compares the 8% cash-on-cash return favorably to stock market index funds, which he says average 8 to 9%.
- Caveat: the host says he would not buy as is, and that the decision depends on confidence in the neighborhood and the buyer's ability to manage a property there.
- Context: the buyer is a first-time investor expecting $30,000 to $40,000 in yearly cash flow, which the host considers unlikely; the 100% cash-on-cash implied by that goal is described as improbable.
Bottom Line
The deal only works if the price drops, the financing improves, and renovation lifts rents substantially, so it should be verified with local data and a written scope of work before any offer.
