Detroit Short Term Rental Performance

In August 2020 we purchased our 8th Detroit rental for $48,000—The Mansion, which is now our only Detroit short-term rental.

It took a lot of work to get this deal to the closing table and even more work to get it renovated. At the time of purchase, I knew it would be our most ambitious project to date.

Note: This is the eighth rental property performance update. You can view the entire page of updates here.

As a 2,300 sq ft duplex, the property is a beast by Detroit standards, hence the nickname The Mansion. I’ll get into all the detail in a minute, but here’s a quick look at the home’s historical performance:

As you can see, this property had a rocky start. But it’s now performing pretty well for us.

There’s a lot to unpack in that innocent looking chart, and I’m going to tell you the entire background, challenges, setbacks, and wins we’ve had along the way.

Our Detroit Short Term Rental’s History

The Mansion didn’t initially start as a short-term rental. And even converting this duplex to a single family home was a decision I went back-and-forth on for months.

The one thing I knew was that we were going to fully gut the home down to the studs and make it amazing. The area justified it, and I was excited to tackle a large project.

But, like with all of our properties, there were plenty of challenges and bumps along the way. In fact, this is the project that largely inspired my article Why You Should Never Do A Full Gut Renovation 😬

Sourcing & Closing The Deal

The turbulence started nearly immediately with this purchase. In fact, the deal fell through when I got into a heated argument with the owner.

But let me back up a moment.

If you’ve read my articles you probably know I fell in love with Detroit’s Morningside neighborhood in 2019. The First Buy Bungalow is located there as well as The McCarty House and Crown Jewel.

(I know… so many links!)

I was determined to continue buying in this pocket because I had high conviction it was going to continue to improve.

And The Mansion caught my eye as a project that really needed some love. Just check out this old photo:

So I tracked down the owner and cold-called her, an eccentric woman in her 50’s who had purchased the property at a tax auction years prior.

She was emotionally attached to it, having tinkered on renovations for years but making little progress.

I promised her I would do the house justice, and we initially agreed on a purchase price contingent on her removing a massive tree less than a foot from the foundation.

She eventually realized how expensive the tree removal would be and killed the deal. We had a pretty heated argument and all looked to be lost.

But a few days later, I put my tail between my legs, called her back and told her I’d take the house with the tree.

She agreed.

We closed, in person in August 2020 and the seller literally broke down in tears at the closing table. She truly loved the home and assuring her that I would take good care of it was a big part of the sale.

There’s a lesson there.

Full Gut Renovation To SFH

We didn’t start work on The Mansion until December 2020.

My wife Kaitlin joined me for a walkthrough shortly after closing, helping to decide whether we should continue converting it to a single-family home or keep it as a duplex.

Ultimately, we opted to convert it from a duplex to a single-family home, and at over 2,300 square feet, it certainly earns its name as most Detroit houses are much smaller.

Converting to a single-family home seems counterintuitive to most people.

But our goal was to get as much of our capital back out of the deal after the renovation as possible (the BRRRR method).

Given comps in the area for duplexes, and given how much we planned to spend on the rehab (at least $80,000), we knew a duplex ultimately wouldn’t work for that goal.

But single-family comps were stronger and we knew that would be our best shot at a full BRRRR situation.

We took The Mansion down to the studs, rearranged the floor plan, rebuilt the porch, redid the roof, added all new HVAC, opened up a wall, and lots of other things.

All said and done, we ended up spending about $110,000 on the rehab when we had initially budgeted about $80,000 – $85,000 😬

Here are some before and after photos:

We focused on creating a spacious and attractive layout, converting the original two-family structure into a large five-bedroom home with three full baths.

Our plan was to make a higher end home, achieve a very strong appraisal, and appeal to a higher quality tenant.

Our First Tenant

We started marketing The Mansion for rent at $2,400 per month.

This was well over twice the average rental rate for the area, but we believed we had something special. The house’s high-end renovation and size gave it unique appeal compared to typical rentals nearby.

The Crown Jewel, for instance, had rented for $1,700 per month. This gave us confidence that nicer homes in Morningside could command higher rents.

While we received some applicants, none of them were solid. Then, we got lucky.

A woman and her friend were moving from Oklahoma and looking for a high-quality rental. She came to see it and loved it immediately. We signed a lease, took a security deposit and were all ready for them to move in starting October 2021.

But before their move in we had a major issue with the neighboring property.

The house next door had been sitting vacant for awhile. Suddenly, it had squatters and became a hotspot for drug activity.

Just three days before our tenants were scheduled to move in, The Mansion was broken into.

Thankfully, they only took some of our contractor’s tools that had been left behind. But they came back a second time and stole the AC unit.

I ended up sleeping in the house on a blow-up mattress for a couple of nights until I could get the police involved. We were able to have the squatters kicked out just in time for the tenants to move in.

It was a stressful time!

Finally having tenants in place felt like a huge milestone after all the work we’d put in.

However, the smooth sailing didn’t last long. In December, we had a major sewage backup in the basement. It was a mess—an expensive one too.

We ended up spending about $8,000 to replace the sewer line to the city tap. Older Detroit homes are notorious for issues like this, but it was still a tough pill to swallow.

I would love to tell you with all these headaches our tenants stayed in the home for years. But it was the exact opposite.

Higher end tenants tend to have higher ambition as well.

Our tenant ended up breaking their lease at ten months to buy a house in the suburbs.

We struggled to find qualified tenants at $2,400 per month, which led us to make a big decision…

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Conversion to a Short-Term Rental

Unable to find a qualified tenant at $2,400/mo and with our imminent move to California coming up in just two more months, we decided it would be logical to convert The Mansion to a short-term rental.

I had always believed The Mansion would make a great short-term rental some day.

The area is strong and there was slated development for the E Warren commercial corridor, a short 1.5 blocks from the home.

That’s why I planned the renovation to maximize bedroom and bathroom counts so we would be able to host larger groups if/when we did make the transition to a short-term rental.

Here’s the thing… we didn’t plan on converting The Mansion to a short-term rental nearly this soon. But given our move, we had a ton of furniture in our home we weren’t going to need and didn’t want to haul across the country.

So, as inconvenient as it was to plan a cross country move with two little kids (and dog), we decided to pull the trigger on this experiment much earlier than we’d ever planned.

If you look at the graph at the beginning of the post, you can clearly see where we were spending on items for the house.

Even though we had a lot of items already, we still spent about $13,000 getting the home fully ready for guests.

Ouch!

We hosted our first few guests in July of 2021 right before our move. This was great because we were able to work out any kinks before being 2,000+ miles away in California.

And while we’ve had some ups and downs, we’ve had a pretty good run with The Mansion ever since. We still operate it as a short term rental in Detroit.

Here’s how it’s performed overall…

Performance Metrics

We had $162,000 invested in the home right before our cash out refinance. That includes the $48,000 purchase price.

The house appraised for $240,000, which was a huge win.

In fact, this ended up being a full BRRRR! We were pretty nervous about this after going well over our initial budget so it was a massive relief.

But from September 2021 through August 2022, we ended up “losing” another $24,000 (yikes!).

While this did include the sewer line issue ($8,000) and the money spent on prepping the home to be a short-term rental (~$13,000), it’s still worth noting that we collected about $24,000 in rent payments during that time.

I know we had some final payments to our contractor that we made and I’m sure the A/C replacement was in there as well. It was just a lot of expensive things that went wrong—pretty brutal!

But since operating as a short-term rental, the home has generated about $52,000 in net income since August 2022.

That’s about 27 months or just shy of $2,000 per month.

Honestly, that’s better than I thought it was doing. We’ve largely looked at this home as an appreciation play.

In fact, if we chose to sell The Mansion today, I believe it would trade anywhere between $300,000 and $350,000.

Still, given the activity in the area and development, I think we’re far from what this home will be worth in the coming years.

Conclusion

The Mansion has been a rollercoaster investment for us, full of ups and downs.

We faced unexpected tenant issues, break-ins, and expensive repairs, but the switch to a short-term rental model has finally turned it into a cash-flowing asset.

The decision to convert to a STR was sooner than we’d planned, but it’s been a great move overall.

We’ve been able to achieve strong cash flow and position ourselves in an appreciating market, all while navigating the challenges that come with running a rental property remotely.

Given the ongoing development and momentum in the Morningside area, we’re optimistic about the future value of The Mansion.

For now, we’re enjoying the cash flow and seeing where this journey takes us.

Whether we hold onto it or eventually sell, The Mansion’s story is far from over, and we’re excited to see what happens next.