What's the problem with Detroit? Why Do Josh and Brandon rag o it so much?
Rental Property Investor · Long Beach, CA · Member since 2015 · 623 posts · 155 votes
What's the problem with Detroit? Why Do Josh and Brandon rag o it so much?
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Investor · Arlington, TX · Member since 2015 · 104 posts · 47 votes
11yHere's my 2 cents on Detroit (or maybe it's worth more). I am from Texas and several years ago I wanted to move away from the hot, dry summers and try to clear up allergies. After talking it over with other family members (I am single - so I didn't have to consider schools, etc.) they suggested Fannie Mae's Homepath and looking in Ohio (other family members living there), Indiana, and Michigan due to lower housing costs. I was TOTALLY confused when looking at housing prices in Detroit on Fannie Mae's website. I thought those prices might have been down payments or monthly mortgage payments. WRONG!
I put in an offer under the First Look program which was so absolutely ridiculous I expected to hear my Realtor laughing from 1,200 miles away. Instead, he called to congratulate me on my accepted offer. My offer of $600 for a 2 family 5/2/2 built in 1909 was accepted even with the conditions of all back taxes and water bill be paid. Fannie Mae spent $10,000 to sell me an entire house for what I was paying for a 1 bedroom apartment in DFW.
I packed up and moved to Detroit with plan to completely gut the house, insulate, new wiring, plumbing, etc. Here I was in my early 40's and had a mortgage free home. When I arrived, I found that employees from the cleaning company that were contracted by Fannie Mae had stolen the water heater, air conditioner, and the furnace. Neighbors had called the police - but they refused to respond.
I did A LOT of research as I started my remodeling. After all, there are many factors to consider when moving from a hot weather climate to cold weather.
Some of the bigger issues that I ran into are that EVERYONE is a plumber, electrician, painter, or whatever you're looking for at the time. You definitely need to get a lot of good referrals. Another issue is that Detroit is "Union" and you will either pay outrageous prices for the work or find a company from outside of the city willing to do the work. My first quote to have 2 water meter cutoff valves installed (one on each side of the meter in the basement) was over $500. I had already priced the valves at about $8 each at the big box stores. Thieve also watch carefully to see what you improvements you are making. I had an idiot trying to cut my LIVE 200 amp wiring that I had just had installed the previous day.
I think a lot of potential investors see the low housing prices and then their mind just starts seeing dollar signs. The year I spent in Detroit, I looked at 100's of other potential properties - some that were priced as low as $100. I even got into a bidding war on a 3,000 sq ft. house in a VERY nice neighborhood. The home across the street from it was on the market for $385,000. The house I was bidding on needed about $50,000 in repairs and sold for a whopping $2,000.
As a potential investor in Detroit properties - don't expect to pay low for move in ready. In my year there - I didn't see one property that didn't need SOMETHING to make it move in ready. At the very least you should budget for replacing multiple windows, electrical, HVAC, water heater, and plumbing (fixtures and lines). Many properties also will need a new roof. Siding is also popular among thieves - so don't be surprised when you find that needs to be replaced.
If you find some properties you are interested in as potential investments - due diligence is a necessity. I would recommend having someone trustworthy in the area that can physically go by the each property, take current pictures of the property AND neighborhood. Some shady sellers post old pictures of the property and you later find it has been vandalized or burned down. Also, check the Wayne County website for back property taxes and contact the Water Dept. to see if there are any delinquent water bills for the property (Wayne County will foreclose on a property for unpaid water bills).
I moved back to Texas after a year for family medical issues. Overall, I really liked the area. I was just cautious and attentive to my surroundings and didn't put myself in dangerous situations. I did pull up to check on a property one time and saw thieves breaking into the house next door...that's when you keep driving and mark that one off your list.
I could probably write a book based on just my year there. The bottom line in my opinion is that Detroit is a good potential for investors - but be the kind of investor that goes in and does a proper rehab and not just "put lipstick on a pig".
40 Replies
- Investor · Dallas TX, United States · Member since 2014 · 1k+ posts · 1k+ votes11y
I dont know why they do it, but I will take a stab at it. Detroit is one of the poorest and most crime ridden cities in America. They have a failing school system, and a high murder rate. Lots of that city is in pure war zone, where most investors dont want to be.
that being said, there is great cash flow in war zones, you can make a pile of money if you have the stomach for dealing with war zone tenants. I know Wendy Patton has been making a pile of money in Detroit for years, and I suspect that she will keep on doing that.
to your success
Josh
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
They read the press clippings, and have never been there. I was born there, but I wouldn't invest there...right now. I know a number of big players that do though...very successfully. Anyway, ignorance must really be bliss.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
this is a very easy answer.
virtually any big city in the mid west rust belt.. you can buy 20k houses and they are interchangeable. Be it Chicago, Philly, Indy, Memphis, Cleveland, Trenton , Atlanta Birmingham, St. Luis , Kansas city, Dallas, Houston.. Orlando
you name it ... its the asset class.. these are areas that have the very highest risk.. the worse tenants.. and are truly not appropriate for out of area investors to buy.. Unless they buy 100 to 200 or more of them and set up a company to run them.
Locals who live it breath it manage it as their JOB can make these work but its a job and a constant merry go round ...
However its small dollars give one a try and see how it works... just be prepared to lose your money and be frustrated as SFR 's by and large in that price point in a big city are in the hood and war zones... bottom line ..
Detroit fell so hard and so fast.. that you can get out of the inner city to much better areas and be in the 50 to 60k range I believe and stand half a chance.
I personally did about 200 HML I Detroit before it melted down in 08.. I go stuck with 2 OREO's ... I spent 20k each rehabbing them with the thought of putting new tenant in and reselling.. did the rehab PM put what was to be a good.. tenant.. within 6 months both stopped paying or they got kicked off of hud..by the time I got the asset back it was trashed every thing stripped. I let them go to tax's ... lost well over 100k personally on that one.
Were do you think these homes come from.. they come from abandoned streets and failed landlords... and Detroit has some very good players but there are also some very very bad ones
- Rental Property Investor · Long Beach, CA · Member since 2015 · 623 posts · 155 votes11y
Thanks @Josh Caldwell @Joe Villeneuve and @Jay Hinrichs. I suspect red it was a wartime but boy you guys paint an ugly picture.
Funny thing, I am native to Los Angeles and when I flew out to Indy to see some properties and get a feel for the city I drove through the "war zones" during the day and at night and boy oh boy was it a cute little area in comparison to Compton of the 90's. I'm not saying it's a great area but I expected overturned shopping carts on proes front lawns with weeds growing through it. I expected small groups of hoodlums congregating on porches. All I saw were mothers with their kids playing out front.
This isn't directed at you guys or anyone in particular but just an observation.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
ah I remember you were going to or did buy the 22k rental in Indy.. did you pull the trigger on it.
and there is no questions that the war zones of CA rival anything in the mid west. look at East Palo Alto 20 years ago... Oakland and Richmond today... Parts of each of those cities.
the difference with these areas is that E PA houses sell for 500k... and Oakland and Richmond 200 to 500k in the bad areas..
The locals in each of these areas understand and know were the low end houses are.. and these as you say end up being rented to HUD mothers as last line of where they can go.
I owend over 300 of these types of homes ( I sold out 24 months ago) 95% of the tenants were single mothers with 80% of them having some sort of HUD assistance.
the ONLY way I made it work is to partner with locals.. I was the money they did the work.
to do this remotely and own one or two is not going to give you financial freedom in RE that you seek.. there is no upside and cash flow will not be what you think it is. Much better things to do with your money... IMHO
- Rental Property Investor · Long Beach, CA · Member since 2015 · 623 posts · 155 votes11y
Hi @Jay Hinrichs I wanted to learn so I walked through that particular house with the inspector as well as the PM I'm going to use. The tenant was disgusting, there was raw meat on the counter and congealed food in a frypan. By flying out and spending hours driving around (daytime and at night around 10pm) I learned a great deal about Indy.
I didn't get that house but I plan to put an offer in Tuesday morning on another similar propert. I understand what you're saying about just buying 1 so I'm planning to buy 6 before years end. Depending on what I come across I might get a duplex along the way. I like the PM I'm going to use and checke out their operation. We talked extensively and I believe they're the right company for these neighborhoods.
The safety and profit is in the numbers but when you start counting from zero properties you always start at 1.
By the way, I appreciate all the input you any many others have shared with me. I don't ignore any of it.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
best of luck to you.... once you go in... go in big... try to get to 100 or more... even if you need to pull in some partners.. that's only 2 million in cash... and if rents are 600 to 700 in these areas that's 60 to 70k a month gross. you should net around 30 K or so or about a 15% Net return on these assets...
one thing to consider though exit is dog tough with these resale is hard.. as there are not a lot of folks that want to buy these unless they steal them. you read about the locals you know what there thought process is.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
lastly that house you walked through that as disgusting. that is what 50% or better of your portfolio will look like at all times... remember that... you not going to get ms suzzy homemaker to live in these areas... LOL
- Investor · Arlington, TX · Member since 2015 · 104 posts · 47 votes11y
Here's my 2 cents on Detroit (or maybe it's worth more). I am from Texas and several years ago I wanted to move away from the hot, dry summers and try to clear up allergies. After talking it over with other family members (I am single - so I didn't have to consider schools, etc.) they suggested Fannie Mae's Homepath and looking in Ohio (other family members living there), Indiana, and Michigan due to lower housing costs. I was TOTALLY confused when looking at housing prices in Detroit on Fannie Mae's website. I thought those prices might have been down payments or monthly mortgage payments. WRONG!
I put in an offer under the First Look program which was so absolutely ridiculous I expected to hear my Realtor laughing from 1,200 miles away. Instead, he called to congratulate me on my accepted offer. My offer of $600 for a 2 family 5/2/2 built in 1909 was accepted even with the conditions of all back taxes and water bill be paid. Fannie Mae spent $10,000 to sell me an entire house for what I was paying for a 1 bedroom apartment in DFW.
I packed up and moved to Detroit with plan to completely gut the house, insulate, new wiring, plumbing, etc. Here I was in my early 40's and had a mortgage free home. When I arrived, I found that employees from the cleaning company that were contracted by Fannie Mae had stolen the water heater, air conditioner, and the furnace. Neighbors had called the police - but they refused to respond.
I did A LOT of research as I started my remodeling. After all, there are many factors to consider when moving from a hot weather climate to cold weather.
Some of the bigger issues that I ran into are that EVERYONE is a plumber, electrician, painter, or whatever you're looking for at the time. You definitely need to get a lot of good referrals. Another issue is that Detroit is "Union" and you will either pay outrageous prices for the work or find a company from outside of the city willing to do the work. My first quote to have 2 water meter cutoff valves installed (one on each side of the meter in the basement) was over $500. I had already priced the valves at about $8 each at the big box stores. Thieve also watch carefully to see what you improvements you are making. I had an idiot trying to cut my LIVE 200 amp wiring that I had just had installed the previous day.
I think a lot of potential investors see the low housing prices and then their mind just starts seeing dollar signs. The year I spent in Detroit, I looked at 100's of other potential properties - some that were priced as low as $100. I even got into a bidding war on a 3,000 sq ft. house in a VERY nice neighborhood. The home across the street from it was on the market for $385,000. The house I was bidding on needed about $50,000 in repairs and sold for a whopping $2,000.
As a potential investor in Detroit properties - don't expect to pay low for move in ready. In my year there - I didn't see one property that didn't need SOMETHING to make it move in ready. At the very least you should budget for replacing multiple windows, electrical, HVAC, water heater, and plumbing (fixtures and lines). Many properties also will need a new roof. Siding is also popular among thieves - so don't be surprised when you find that needs to be replaced.
If you find some properties you are interested in as potential investments - due diligence is a necessity. I would recommend having someone trustworthy in the area that can physically go by the each property, take current pictures of the property AND neighborhood. Some shady sellers post old pictures of the property and you later find it has been vandalized or burned down. Also, check the Wayne County website for back property taxes and contact the Water Dept. to see if there are any delinquent water bills for the property (Wayne County will foreclose on a property for unpaid water bills).
I moved back to Texas after a year for family medical issues. Overall, I really liked the area. I was just cautious and attentive to my surroundings and didn't put myself in dangerous situations. I did pull up to check on a property one time and saw thieves breaking into the house next door...that's when you keep driving and mark that one off your list.
I could probably write a book based on just my year there. The bottom line in my opinion is that Detroit is a good potential for investors - but be the kind of investor that goes in and does a proper rehab and not just "put lipstick on a pig".
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
interesting story.
there is a famous case ( at least in Australia were US and AU marketers were truly abusing investors from AU) AU investor did exactly what you did.. bought a unit... decided to take his 6 week vacation to Detroit and do the work himself. it was a rental... got it up and running got it rented... then went to collect rent himself got into an argument with the baby daddy and that dude shot him dead... end of his dream of buying low valued US assets..... for most doing what you did in those area's is very very dangerous as to be mortally dangerous.
when I worked Detroit.. the PM's office had bullet proof glass and rent was passed through a draw like food is served in a prison cell... they never went to collect rent in person. iuts just a different world than what many can imagine.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Jeb Brilliant:
Thanks @Josh Caldwell @Joe Villeneuve and @Jay Hinrichs. I suspect red it was a wartime but boy you guys paint an ugly picture.
Funny thing, I am native to Los Angeles and when I flew out to Indy to see some properties and get a feel for the city I drove through the "war zones" during the day and at night and boy oh boy was it a cute little area in comparison to Compton of the 90's. I'm not saying it's a great area but I expected overturned shopping carts on proes front lawns with weeds growing through it. I expected small groups of hoodlums congregating on porches. All I saw were mothers with their kids playing out front.
This isn't directed at you guys or anyone in particular but just an observation.
Don't get me wrong. If you read what I wrote, I said I'm not investing there NOW...and those with big pockets are. That's because you need really big pockets (at least 7 figures) to be able to control an entire neighborhood...which is how you can make those really big profits.
Detroit, thanks mainly to a huge change in politics at both state and city level (FINALLY), is on a very rapid pace to becoming a great city again. If I had to guess, I would say there will be noticeable (by those outside of this area) difference in about 2 years. In the mean time, those that are local, and those outside this area with the big pockets, will be both the early profit makers as well as the catalysts for this development.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Hey @Jay Hinrichs, what year was that you spent in Detroit?
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
I was active in Detroit as a HML in 2004 to 2008... funding deals for LA based turn key operators... and their Radio show marketing folks.... like a real wealth network ,,, maverick or on this site A boone and Marco those were the sales folks.
WE did your model... we provided the HML to put the LA client into title house got rehabbed on with our funds then LA person got a rate term refi... and in those days usually got cash back.. so if they used say 4 of their mortgage slots they would end up with 4 rentals and usually about 30k in refi proceeds back.. so no money down and cash flow 100 a month pre house.. that was the pitch from the LA marketers.
Our average deal... if I can remember right we worked the areas just north of 8 mile. was about 50 to 70k all in loan.. on a 80 to 120k appraisal with 800 to 1000 dollar rents.
As I said when it crashed holy molly did it crash.. and of course I got out of 198 of my loans and got stuck with 2 and lost 100k on those... but I enjoyed my time in Detroit on a travel and fun place to be level.. enjoyed the waterfront .. and liked the assets themselves the nice little brickers... I had some great contacts there and a few that were very poor bordering on , well not even boarding they were criminal intent folks...
Our rehab contractor also was the PM... he was very tight.. he knew how to work Detroit. he had retired cops on payroll as security all workers had to present ID and sign in to work on his jobs. he soon realized when he got into rehab their in Detroit that it was his subs that put the materials in during the day were coming back at night to steal them.
but this is not unique to Detroit by any means.. Chicago on the south side has the exact same issues.. and when you work there you just need to understand that theft is a on going huge issue.. same in Memphis or many other markets...
Here in PDX it can happen but its very very uncommon.. I mean we drop 30k lumber packages in the front yards with no security at all.. out in these areas that lumber would be gone we use flimsly little construction doors with the cheapest locks once we have electrical and plumbing in... etc etc.
- 11yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
@Jay Hinrichs hit the nail on the head. It's not so much Detroit as much as it is the asset class. You can find cheap properties in high crime, blighted areas in most major cities. I think Detroit does have more than it's fair share of these properties however.
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes11y
It's not hating on it so much as just recognizing that Detroit is a dying city with high crime and real estate values that have fallen through the floor; i.e. not a particularly good place to invest.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Those were the dates I thought you mentioned. You're right. Anyone, or at least most, that were invested in this are back then "died on the vine".
However, times have changed dramatically since then. I'm still not comfortable investing in Detroit itself (my model doesn't work), but the immediate suburbs are gold mines.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Andrew Syrios:
It's not hating on it so much as just recognizing that Detroit is a dying city with high crime and real estate values that have fallen through the floor; i.e. not a particularly good place to invest.
Detroit ins't a dying city. It was there for a while, but since the political climate has changed big time in the last few years, there has been a tremendous upswing in the city itself. Now, I'm not saying the entire city, but Detroit new at least has the same varying micro markets you find in other cites. You couldn't say that as few as 3 years ago.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
I am not complaining about my time there at an average of 5k profit per loan we made 198 of them successfully... and lost 100k on the last two.. so we still netted a profit :)
Plus like I said I like the city .. I would stay at the hotel at the airport so I could just walk on my flight.... its all good...
I Agree with @Joe Villeneuve Just outside of Detroit city there is money to be made in the suburbs. These are safe blue collar neighborhoods and you can still make 20% COC returns. And these markets are still appreciating at a decent rate. Although it does take more time now to find the good deals but they are out there if your searching.
Here's what's wrong in a simple, easy to read population chart...
1970 1,514,063 −9.3%1980 1,203,368 −20.5%
1990 1,027,974 −14.6%
2000 951,270 −7.5%
2010 713,777 −25.0%
Est. 2014 680,250 [111] −4.7%
1970 1,514,063 −9.3% 1980 1,203,368 −20.5% 1990 1,027,974 −14.6% 2000 951,270 −7.5% 2010 713,777 −25.0% Est. 2014 680,250 −4.7% - 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @George N.:
Here's what's wrong in a simple, easy to read population chart...
1970 1,514,063 −9.3%1980 1,203,368 −20.5%
1990 1,027,974 −14.6%
2000 951,270 −7.5%
2010 713,777 −25.0%
Est. 2014 680,250 [111] −4.7%
1970 1,514,063 −9.3% 1980 1,203,368 −20.5% 1990 1,027,974 −14.6% 2000 951,270 −7.5% 2010 713,777 −25.0% Est. 2014 680,250 −4.7% What you just described is Detroit hitting the reset button
- Involved In Real Estate · Charlotte, NC · Member since 2014 · 72 posts · 17 votes11y
I can understand the apprehension with Detroit. I have (fortunately) had the experience of living in the outskirts of Detroit and have very happy memories there. Sterling Heights, Warren & Troy are some very decent areas to live and invest. The city of Detroit is very rough and rundown but if you search the surrounding suburbs there are some diamonds in the rough.
Man, that's a half century long reset. I dunno, some people are willing to try and catch a falling knife. In fact, when there are good fundamentals I'm a value investor and love to buy dogs. But in this case I'd at least wait until there were signs of a pulse. Plus the local government is so mired in corruption and mismanagement I don't know that that can ever be turned around.
Not totally sure, but listening to the awesome pod casts (thank you boys) I think the real reason they are down on Detroit is because there are lots of cute guys there and it triggers jealousy that makes the show awkward. Correct me if I'm wrong?
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