Investing in Detroit Real Estate: Would You Invest There?
Detroit sure seems to be an on-going hot topic. The “hot” part of it being- the debate on whether investing there is a good idea or not. Different than most markets, I think Detroit is definitely a love or hate market. I’ve never heard anyone claim to be in the middle of the road on this one. Investors are either avidly against buying property there or they are so gung-ho about buying there that they will shout from the rooftop defending the opportunity.
Me personally? I have had no interest in investing in Detroit. Why? Two major reasons:
- I’ve heard too many horror stories from big name investors I know personally about how (and why) they have lost so much money there.
- Detroit has been much too unstable in terms of industry and population for my liking.
With that said, I do understand there are a lot of investors who swear they are making great money in Detroit and they also defend the industry growth there which suggests Detroit is bouncing back.
So? Buy There or Don’t?
I won’t tell you what to do, because quite frankly where you buy or don’t buy has no effect on me. All you can do is decide on your goals and what you are comfortable with and what you aren’t comfortable with. I can’t give the reasons as to why you should buy in Detroit because I don’t know them. I will leave that to the readers to comment and give their reasons why Detroit is excellent for investing. I have no worry that there won’t be quite a few defenders ready and willing to tell you why you should buy there!
All I can do is elaborate on my personal opinions on Detroit as a buying market. I consider myself a very high-level (not high-level as in status, but high-level as in viewpoint), big-picture person. The 10,000-foot view, if you will. My opinions are mostly based on buy-and-hold investing, not so much on flipping specifically. But the points can go towards either in some way at least. Here are my 10,000-foot view thoughts on Detroit, which you could also consider to be a “cons” list.
- Population Decline. Detroit has had a constant decline in population since at least 1970. One of biggest things I look for in any market I’m evaluating is population trends. I only want to buy where there has been constant population growth because it means people want to move there, which means there will be people either wanting to rent or buy my property. It also means a market is much more likely to appreciate, again because people want to move there. Growth is a huge factor in investing of any kind. Maybe Detroit will have a steady population increase from here on out, and if that’s the case, great! But I want to invest in a market with a more solid history of growth than one that may or may not happen, starting today.
Potential counterargument- With all the money being allocated to rebuilding Detroit and some industry jobs coming back, population may only go up from here! It certainly can’t get worse, can it?
- Tenant quality. Yes, it’s true, all cities have tenants who build meth labs, destroy properties, and don’t pay their rent. No doubt about it. However, Detroit seems to really rank up there in terms of bad tenant quality. Not every neighborhood in Detroit is a ghetto, I totally agree. But it continuously seems like there are more ghetto areas in Detroit than not versus most cities where the ghettos are not the majority. Just because you buy a property in Detroit doesn’t mean you will definitely have bad tenants, but the chance of bad tenants is higher than the majority of big cities. Bad tenants are the fastest way to lose money on a buy-and-hold investment. Relating this to the population decline, the question comes down to who wants to move to Detroit? Are those people tenants you will want?
Potential counterargument- There are plenty of great, high-quality people moving to Detroit! Screen tenants like you would in any other city and you will be fine.
- Michigan is a tenant-friendly state. I hesitate to mention this one because there are ways now to deal with tenant-friendly states, and I do promote a lot of tenant-friendly states, but in this case it is just another checkmark in the “cons” column for me. The deals in Detroit are not so fabulous that I want to consider dealing with the tenant-friendly issue. For anyone not familiar with the term, a tenant-friendly state’s laws heavily support tenant rights, more than landlord rights. What this causes for landlords is difficulty in getting rid of tenants from their properties. If a landlord has a bad tenant, these laws prevent the landlord from getting rid of the tenant in an efficient timeframe. Likely during that time, the bad tenant is possibly not paying rent and could be causing damage to the property which is just costing the owner more and more in expenses.
Potential counterargument- Get rental insurance like you would in any other tenant-friendly state and you’ll be fine.
- Industry shakiness. I get that a lot of people are preaching about how well business is picking up in Detroit and industry growth is back, but I prefer markets that are and have been much steadier with industry and jobs. Same with population, immediate numbers aren’t my interest… long-term trends are.
Potential counterargument- We have every reason to believe Detroit is on the up & up for jobs! Look at the statistics!
Funny enough, I started writing this article last night and I got to the gym this morning only to see “Detroit Woes” being blasted on CNN. It was talking about all of Detroit’s hardships and the money that is now being allocated towards rebuilding the city. If you are an appreciation investor, maybe Detroit is the perfect buy? The news blip was talking about $3M getting dumped into the city to help rebuild it. Appreciation investors’ paradise? Who knows.
I won’t say I will never buy in Detroit. Who knows what could happen. But now you know my reasons why I haven’t bought there so far. One last thought about Detroit investing, and we’ll see if it pans out when the comments start it- Detroit is the only market where it seems like the investors there get extremely defensive if anyone has a bad word to say about the city. My thought is, even if no one wants to touch the market I’m buying in with a 10-foot pole, I could seriously care less because whether anyone else buys there or not has no effect on me, as I mentioned before. So I would love to know why pro-Detroit investors feel so inclined to get so outwardly defensive when someone says they don’t want to buy there? You can’t really contest the history of Detroit (just Google Image “Detroit” and see what comes up!), so it shouldn’t be such sticker shock to here that someone doesn’t want to buy there. Even if it is, what do you care where people buy or don’t want to buy?
So, what are your reasons for buying or not buying in Detroit?
Photo Credit: ifmuth