Our Strategy to Provide Turnkey Rental Properties at Michigan Turnkey
As many of you know, we have been actively working at putting together our new company Michigan Turnkey, LLC. We have been receiving a lot of questions about what exactly we are doing, so today we are going to dedicate this blog post to explaining our strategy with Michigan Turnkey.
So here goes…
In August of this year Kelly and I kind of stumbled into the Pontiac real estate market when we found a deal on a condo that we later ended up purchasing. The numbers on this property were phenomenal compared to what we were accustomed to looking at on other rental properties. Specifically, we saw the following:
- The cashflow on the property comes out at $442 per month which is about $300 per month higher than what we had been looking at in other areas.
- The purchase price was $17,500 which is less than 50% of what we had been looking at in other markets.
- The area we bought in was actually a really nice neighborhood (so nice, Kelly and I have seriously considered moving into the neighborhood).
- If we had purchased for cash, our return would have been 30%…we leveraged financing on the property, and our return has skyrocketed to 68%.
So, we began to look at this and we are truly in love with this deal, and we want to find more. So we began to look at the Pontiac market a little closer. By evaluating more deals in Pontiac, we were able to figure out pretty quickly that we had gotten a pretty sweet deal on the condo we purchased. However, we also found out that while most of the deals were not quite as good as the one we purchased, they were not that bad either. We are finding that putting together a profitable deal with the following numbers is not too difficult at all to find:
- Purchase price $25,000 – $40,000
- Return on Investment 10% – 20% for a cash sale (leveraging financing nets higher return)
- 3 bed / 1 bath with basement in nice areas of Pontiac
After looking at these deals, we decided that Pontiac was truly the place for us to be. As we talked about in out article Getting to Know the Pontiac Real Estate Market, we started studying the market. We wanted to find what areas of Pontiac were areas we should be investing in, and what areas we should be staying away from. So, over a weekend we set out driving around Pontiac and we got a real good idea of where the nice neighborhoods were, and where the not-so-nice neighborhoods were. We developed a “Green Zone” map in Google Earth and this serves as our first layer of evaluation for any property we look at in Pontiac.
Now, our strategy is quite simple. We will take any property that we find in the green zone and apply the following process to it:
- Purchase the “Green Zone” property
- Rehab the property
- Conduct comprehensive tenant screening and place tenant into the property
- Place management company with property
- Sell property as a performing asset with tenant and property management in place
It is really that simple. Now, we’re really not picky as to the status of the property when we purchase it. If the property is vacant and in need of repair, we will buy it. If the property is rented and in no need of repairs we will buy that one too. In fact, if a property is in any state between these two scenarios, we will buy them. The only thing that is going to vary is the purchase price we offer. Obviously the more work we have to do to the property, the lower the price we are going to be able to offer. It is really just a numbers game because in the end we have a targeted profit we’re looking to make on each property, and we want to be able to sell the property and provide our end buyers with a return on their investment of between 10% – 20%.
So, if you have properties to sell in the Pontiac market, please contact us. We ARE buying. Likewise, if you are looking for cashflowing investment properties that net between 10%-20% ROI and will cost you less than $40k to purchase, please call us. We have properties that will make great investments for you.
Hi, enjoyed looking through your blog. You might want to advertise a targeted ROI of 15-20% net (and limit your buying on that basis), rather than 10-20%. I believe that most would consider less than 15% to be inadequate in the <= $40K per unit housing sector anywhere in Detroit or other cities in the mid regions of the country. At least that's my experience and expectations.
Best of luck!
David, first off thank you very much for taking a peek at our blog.
I agree 100% with you about the ROI. For any property we purchase with the intent to resell as a turnkey, we are targeting 16% ROI. However, we are also wholesaling properties owned by other investors, and I will not turn one of these away if it only makes 14% ROI because it costs me nothing to try to market the property on my website. This is why we are advertising 10% – 20%. Most properties will come in at 16% but we do have some on the site at the lower ROI threshold.
Thanks for your feedback!
I like it! Sounds like you have found a good market. How long does it take for the properties to re-sell once you have finished the rehab. Also you said your leveraging by getting financing, is this private financing cause I didn’t think banks were loaning at those small amounts?
We’re just really getting started in this strategy, and we’ve only sold a couple properties so far, so it’s a bit tough to say how quickly we’re going to be able to sell the properties after the rehab is complete. However, the beauty of this strategy is that after the property is rehabbed we will immediatly try to rent it. Generally obtaining a good tenant within 1 month of finishing the rehab should not be a problem. At this point, the property will be a performing asset, and it will not be a “drain” on your finances. This is a key part of our strategy.
With regard to financing, yes you are correct that we are using private investors. Conventional finanincing is going to be difficult to obtain, but we’re not ruling it out. After we establish a track record with this strategy we plan to start speaking with banks to show them what we’re doing and potentially gain financing by showing them we’ve been successful in what we’re doing.