The Capital Stack
Our most recent addition to the portfolio, Milford Village Flats, was officially acquired on March 29th for $1,450,000. Situated in Milford, MI, this sixteen-unit apartment complex resides in an affluent suburb of Detroit, boasting a median household income of $99,000 and average home values surpassing $400,000. Constructed in 1975, the property consists exclusively of one-bedroom units.
How We Found It
In November 2023, I cold-emailed the owner of Milford Village Flats after finding their contact on Costar. They responded, indicating they weren’t actively selling but would consider offers. The next day, I sent an LOI of $1.1 million. This was a “starter price” as I didn’t have financials, but knew it’d work barring major issues. There was no response to my offer. I was mid-DD on another deal and forgot about it for a bit. A month later, when writing my year-in-review newsletter, I noticed the email went unanswered. I followed up, reiterating my interest. The owner agreed to discuss it with their partner but ultimately declined without a counteroffer. When I asked for what would be a number that would get them motivated to sell, they said $1.45m. I hadn’t seen the financials yet, so I requested those to see if the price aligned with reality. After reviewing the financials, I was happy to pay their price of $1.45m. We finalized the Purchase Agreement (PA) details over a call, and the document was fully executed on January 2nd.
What We Like About It
Location:
Milford, with a median household income of $99,000 and average home values over $400,000, has always been on our radar. Not only does the property exceed our income and home value thresholds, but the property also has a prime location and sits on Main St, just a short stroll from the heart of downtown.
Price:
We purchased Milford Village Flats for $1.45 million, or $91,000 per unit. Finding anything in Class A suburbs of Detroit over the past 4 years under $100k/unit has been very hard to come by.
Untapped Value Add:
Milford Village Flats has real potential for improvement. It’s a lower-grade property in a top-tier market, creating the ideal value add opportunity. Currently, the average rent is $815 per unit, we estimate renovated units could get $1,275-$1,400, showing a big opportunity for higher rental income.
Our Business Plan
Milford Village has a renovation budget of $550,000 covering essential replacements such as roofs and parking lots, along with cosmetic upgrades to the interior and more. We aim to make these apartments feel brand new without major mechanical alterations. Electrical, plumbing, etc., will remain untouched. Our plan includes new flooring, fixtures, cabinets, paint, stainless appliances, and granite countertops. We may replace a few windows and update the exterior doors as needed. External improvements include a new parking lot, roof, landscaping, and updated railings on each deck. We estimate market rent to range from $1,275 to $1,400 upon completion. With one unit vacant, we’ll start renovations and test our “top target” pricing to determine our true market rent.
The Capital Stack
Equity funding for the project was secured with $650,000 raised from limited partners (LPs) in just 32 minutes, with a single email. As for the debt terms, we received a $977,500 loan at purchase, with an additional $550,000 set aside for renovations on a draw basis. The terms include a fixed interest rate of 7.79% for the initial 18 months, with interest-only payments during this period. Following the interest-only phase, the rate will reset at the greater of 4.75% or FHLB 5-year plus 300 basis points. The loan has a 25-year amortization period and a 5-year term after the interest-only period, totaling 6.5 years. Additionally, there is a 0.5% lender fee associated with the loan. The debt source was a regional bank.
How It’s Going Today
Now that we’ve closed on the property, we’re ready to dive into the real work. We’ve already secured contracts with our property management team and met with several contractors to gather quotes for both exterior and interior updates. We expect the renovation on the first unit to take a bit longer as we finalize contractors and finishes. We aim to streamline the process and renovate units within a 2-4 week timeframe thereafter. Stay tuned for regular updates as we navigate through our business plan.
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Major Market News
Summit View Development
Just behind Milford Village Flats lies the Summit View development, stretching across 8 acres. This development comprises 44 single-family homes and 49 condominiums, totaling 93 housing units. The homes are priced starting at $650,000, here’s a link to one listing. This development project has been underway since 2016. As stated in an article by Hometown Life, “The new units would add about 300 residents to a village that currently has about 6,000.” You can find the full article linked here.
Tips and Tricks
Terms-
Costar: Costar is a comprehensive real estate information platform that provides data, analytics, and market insights to professionals in the commercial real estate industry. It offers a wide range of services, including property listings, market research, investment analysis, and tenant information. Costar is widely used by brokers, investors, lenders, and other industry professionals to make informed decisions and stay competitive in the real estate market. It’s expensive, but we’ve found them to have the most accurate data.
