I spent a week in Detroit to scope out deals. Here's what I found

12 Replies

Like all other investors, I heard all of the talk about Detroit, and since I needed to scale up my business and acquire large multifamily 20+ units, and because Atlanta deals were becoming tougher to negotiate, I knew that I needed to move into more emerging markets. I combed through a few opportunities in Macon and Birmingham, but didn't find the numbers that I was looking for. 

So I made a 1 day stop in Detroit and was blown away that I returned the following week last week for another 4 days of discovery. Yes, it's all true - good and bad. Cheap deals, lots of vacancies, a lot of investor speculation, wide open market, buyer beware, etc. However, as an investor out of Miami with a base in other top markets like Atlanta, all I saw in Detroit was opportunity. 

I did have a lot of help during my canvassing spending my days with 2 Detroit-based ground up multifamily developers and a realtor that helped me identify pockets of opportunity. However, I'm not blind to the Detroit horror stories and overly optimistic investors that have lost more than they gained. 

Since there's plenty on the BP posts warning investors about Detroit, I thought it would be right to share a few tips for investors still curious or optimistic about the Detroit market.

1) First, it's overwhelming how every block is completely different from the next, and just because you spot a good deal on one block doesn't mean that the next block or parallel streets carry the same energy.

2) Secondly, you have to think placemaking instead of spot investing due to the excessive vacancies and blight. The more energy you can create in a target zone, the stronger it makes your deal.

3) Development costs will be at a premium due to a loss of trades and labor shortage. What I'm accustomed to paying for renovations in South Florida is at least 2.5x the cost in Detroit.

4) There's also a huge labor shortage due to all of the investor demand. I've had headaches with this in Jacksonville and had to bring in a labor team from 2 hrs outside of Jacksonville just to complete the project. Plan ahead for the labor shortages in Detroit. 

5) Don't get too fixed on price. There's a lot of dirt cheap deals (under $10k for a SFH) that can be enticing, but those may be your toughest streets, but there's also huge inventory of higher priced commercial and multifamily deals that's been vacant for a while that you really can drive a hard bargain on.

Detroit isn't for the novice, but don't let it scare you away, and obviously, the more ground network you have, the easier it'll be to navigate. I had a phenomenal time learning the city, and as disheartening as it is to see what the recession did to this thriving historical city, I'm also very optimistic about the social impact that developers will be able to create in the city.

If you've had Detroit experience, been curious, or have been warned against Detroit, I'd love to hear your feedback.

Updated over 2 years ago

As an update, I'm negotiating on 2 multifamily properties (20-65 units) that I've been vetting for a few weeks.

@Fabiola F. For you not to be a Detroit native you have explained it quite well. I'm a local investor from Detroit that invest in and around the surrounding cities.  You hit the nail on the head. It's block by block but there are good pockets for investors you just have to know where or have people that know.  I get contacted by several novice investors that want to get started in Detroit but I always try to get them to see the bigger picture that you have to come and experience it yourself to best know how to invest your money. Most of them never follow-up and try and get a deal. The contractors, workers and labor workers are great but you have to go with a reputable company and don't try and get it down for cheap because that's when you run into scam artist.

For my personal experience it has been great with my properties since I know where to go and what to stay away from. I've run into a few headache realtors, sellers, and investors that try and falsify rental rolls, leases and other documents during transactions but when you have a seasoned realtor an do your due diligence its easy to spot. I had a 6 deal package fall apart over these type of investor. I make sure I don't over rehab for certain areas where I won't get a good return on my investment. I make sure all my properties mechanical are inspected before renting to make sure my capex/repair reserves are properly budgeted for. Many people don't understand that in order to have things move smoothly as an investor you have to lay the groundwork first.

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@Jamiel Strickland One day was the first stop; I returned the following week for 4 days and spent a lot of time on the ground both times. I was with the right people too.

@Keyonte Summers In other markets, I can generally invest from a distance, but not in Detroit. I learned quickly that I really needed to get ingrained. So I spent my time not only discovering the neighborhoods with my developers but also networking and socializing so that I could get acclimated with the local culture. I'll be returning again in a couple of weeks and spending another 4-5 days.

@Javier Gaillard Besides the info I shared in the post above, I would say get with a realtor or someone else from Detroit who can really take you by the hand. 

Originally posted by @Fabiola F. :

@Keyonte Summers In other markets, I can generally invest from a distance, but not in Detroit. I learned quickly that I really needed to get ingrained. So I spent my time not only discovering the neighborhoods with my developers but also networking and socializing so that I could get acclimated with the local culture. I'll be returning again in a couple of weeks and spending another 4-5 days.

great let me know when you are in the city maybe we can meet and can pick eachothers brain.

@Fabiola F. Incredible breakdown on the Detroit market! I have been following from afar for the past 4-5 years, since I have friends and clients that invest in Greater Detroit. One particular friend is a CRE attorney, who has seen it all and his invaluable insight of the market has been enlightening. Another friend who moved to Detroit about 15 years ago, started his hand at fix and flips, and over time created his own development and property management company that is thriving. One thing I can say is that despite all of the troubles the city has, it simultaneously is in the process of revitalization, with many new developments downtown, and large companies (especially tech companies) relocating to Detroit. The land of opportunity, as you said.

Curious to know how your 3rd trip developed...

@Yonah Weiss  Instead of going into Detroit like other out of state investors, I've made 3 trips in the past month and continue to go every 2 weeks to gain local market knowledge and take my time doing so. I also have 2 local ground up developers to mentor me on local market dynamics and have been building up my social & political capital. So I'm going in with a very realistic understanding of the risks and approaching with discernment and research. I've vetted 2 multifamily units between 24-60 units and have begun negotiations.

By the way, I see you're sharp and highly respected in cost seg studies. I have a smaller 5 unit that may or may not be worth it - still exploring - but when I'm successful in acquiring these larger Detroit multifamilies, I will be reaching out to discuss a cost seg study.

Originally posted by @Fabiola F. :

@Yonah Weiss Instead of going into Detroit like other out of state investors, I've made 3 trips in the past month and continue to go every 2 weeks to gain local market knowledge and take my time doing so. I also have 2 local ground up developers to mentor me on local market dynamics and have been building up my social & political capital. So I'm going in with a very realistic understanding of the risks and approaching with discernment and research. I've vetted 2 multifamily units between 24-60 units and have begun negotiations.

By the way, I see you're sharp and highly respected in cost seg studies. I have a smaller 5 unit that may or may not be worth it - still exploring - but when I'm successful in acquiring these larger Detroit multifamilies, I will be reaching out to discuss a cost seg study.

Good for you for taking the high road and the educated way, there is really no other way of getting into that market. 

And thanks for the compliments. :) I'd be happy to set up a time to discuss. shoot me a DM

Originally posted by @Fabiola F. :

3) Development costs will be at a premium due to a loss of trades and labor shortage. What I'm accustomed to paying for renovations in South Florida is at least 2.5x the cost in Detroit.

For clarification, do you mean that it's 2.5x more expensive in Detroit? The way it's written sounds like S.Florida is 2.5x more expensive.

@Tchaka Owen The costs are 2.5x more in Detroit compared to what I'm accustomed to paying for in other markets. As we all know, having the right contractor in this business is key, but it's even more crucial in Detroit due to some of the challenges. 

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