Detroit- Foreign Investor

28 Replies

Hello Fellow BP'ers and especially Detroiters,

I am an architect and an RE investor from Israel.

Although I have been involved in the building industry for around 20 years, (mainly as an architect but also with RE investment experience locally, in the UK and a little in South Africa), I am relatively new to the US market.

I have been following the posts and podcasts on this site for a while, and am really impressed with the length and breadth of the information and networking available.

As you are probably guessing I was tempted into the Detroit market like a lot of others, seeking alternatives to relative low returns elsewhere, and promises of 2 figure ROI with ease.

Well, I now own a small portfolio of 4 homes in Detroit, which has posed a very challenging learning curve for me, and while it has not been a disaster as yet, it is far from what I was hoping.

It has taken a lot of hard work (and obviously more money than expected), but it would appear that I am now beginning to see some light at the end of the tunnel.

Despite my difficult start, I still belong to the school of believers in Metro Detroit and in its future, and am not averse to increasing my portfolio, but am doing it far more carefully now.

I am planning a short visit to Detroit next month to review where I am, and where I am going, and would be more than happy to meet local players with a view to learning, partnering or just sharing insights.

Thanks a lot,

Saul

@Saul L. , Detroit can be a rough place. It is definitely a place where you need boots on the ground or someone you can trust to be your boots on the ground. The neighborhoods can vary street to street.

Plan on spending a lot of time just driving around and actually viewing your properties and other potential properties. Pay close attention to the neighborhoods. It is possible to make money in Detroit, but it isn't as easy as it looks on paper. Good luck!

Originally posted by @Richard Dunlop :

Detroit takes more than just a property manager.

What neighborhood are you invested in?

Cant agree with you more- I have learnt the hard way -it takes far more than a good PM. 

But without a good PM, you cant even start.

I am currently on my third PM,  and it would appear for the better at the moment.

My homes are on the west side- Rosedale park, Grandmont, and another 2 in zip 48235 (cant seem to clarify what the neighbourhood is called.)

Originally posted by @Sid Franklin :

Has Detroit's high property taxes impacted your investments' profitability?

 To tell you the truth Sid- I was really surprised at the high taxes.

When purchasing I didn't look into it enough, not understanding that Tax levels can vary enormously between markets within the US, itself.

In my local market - taxes are pretty standard at around similar levels- 

Not only that taxes are normally paid bi-monthly and  the tenant is liable for their payment like any of the utilities.

So the short answer is yes- the taxes have impacted.However if I can manage other costs/vacancies etc the investments  should still be providing a good return.

Are taxes in Chicago significantly lower ?

Originally posted by @Sid Franklin :

Has Detroit's high property taxes impacted your investments' profitability?

Yes absolutely, but they are easy to get lowered IF you fight them all the way to Michigan Tax Tribunal.

I have on several occasions gotten taxes cut to less than 1/4 of what they were in one years time.  

The value of the property is fairly easy to establish, the problem arises when the assessor is pretending a property is worth $80,000 that today is worth $30,000.    

Saul - taxces in Chicago are significantly lower because they have not been paying on their retirement obligations for public employees.  As a result, I think prices are  in a bubble because the true costs of owning real estate in Chicago have been masked for decades.  When the courts get around to ordering them to pay their bills, property taxes are likely to spike and will likely lead to drops in real estate values.

Here's an interesting story to ponder.  yes, it's on newsmax but it's not all wrong.

http://www.newsmax.com/Finance/PatrickWatson/State...

If you google Chicago and pensions and debt you will get a gist of the problem that's been brewing for almost 40 years.

The definition of insanity is doing the same thing over and over again that is not working and expecting a different result.

Of course tax assessors over charge and of course they make you fight to the end before they do anything because they know most people complain but will quit and not follow through. It's the same with insurance companies. They will deny a claim knowing a certain percentage will give up and then finally take on the persistent people to settle and pay the least amount they can negotiate for. These counties and cities when they are bleeding money and in the negative will try almost anything they can to stay solvent on the backs of property owners whether it is legal or not. Government's solution is to try and get everyone else to pay for something rather than balance the budget of what they have first.

If you are committed to Michigan maybe you meet local investors and get the takes on the good area to invest in that are not in war zones for Detroit. Don't talk yourself into a deal and say if this and this happens then all will be okay and the properties will be a winner. It rarely if ever happens that way.

Originally posted by @Joel Owens :

The definition of insanity is doing the same thing over and over again that is not working and expecting a different result.

Of course tax assessors over charge and of course they make you fight to the end before they do anything because they know most people complain but will quit and not follow through. It's the same with insurance companies. They will deny a claim knowing a certain percentage will give up and then finally take on the persistent people to settle and pay the least amount they can negotiate for. These counties and cities when they are bleeding money and in the negative will try almost anything they can to stay solvent on the backs of property owners whether it is legal or not. Government's solution is to try and get everyone else to pay for something rather than balance the budget of what they have first.

If you are committed to Michigan maybe you meet local investors and get the takes on the good area to invest in that are not in war zones for Detroit. Don't talk yourself into a deal and say if this and this happens then all will be okay and the properties will be a winner. It rarely if ever happens that way.

The situation in Detroit is the assessments are done at the city level then the appeal is done at the city level then the county level. At that level they pretend it's fine; both the city and Wayne county are financially strapped and want to preserve the fake values.  When you get to the state level Michigan as a state is not doing as bad and they try to fairly assess the value of the property. It will be lowered at that level. 

Yeah it's all political gobble degook and all the government mice's chasing the cheese.. : )

When Detroit filed for BK I did hear rumblings that it would have a ripple effect in the state because counties and cities borrowing would get higher interest bond loans. So even though there was not default by other areas ( counties and cities ) surrounding Detroit the state as a whole would get a credit downgrade. I do not know if that ever happened or not. The interest rises minimally but some counties and cities need things down to the penny and any higher loan costs is a big deal to solvency.   

@Saul L. , when you come into town consider attending a REIA meeting--it is a good way to meet a lot of local investors at one time. Southeast Michigan has many REIAs--there is usually at least one meeting every week. They are not as well attended during the Summer months but you can still make some fast connections. You should be able to identify several meetings with a quick web search

Originally posted by @Troy Young :

Detroit can be a hard market as you are learning. It can have a lot of potential but also a lot of risk. I recommend talking to Joe Villeneuve. He'll have some great advice and connections. 

Thanks Troy. Will definitely reach out to him. 

Originally posted by @Jeff Rabinowitz :

@Saul L., when you come into town consider attending a REIA meeting--it is a good way to meet a lot of local investors at one time. Southeast Michigan has many REIAs--there is usually at least one meeting every week. They are not as well attended during the Summer months but you can still make some fast connections. You should be able to identify several meetings with a quick web search

 Appreciate the advice. Will track them down.

Go to look at your properties during the daytime, and if you must go at night, don't go alone.   It's not worth the risk. This is advice from someone that lived in Detroit for years and now owns rental property literally across the street from Detroit. Many of our tenants are former residents of Detroit who've left seeking a safer place to live. 

@Saul L.

 Depending where you are at in 48235 it sounds like you may have houses in a decent area so congratulations on that. I am not sure how much you paid but I fear the worst. What property management companies have you tried and what one are you currently using? There should be a thread just on property management companies in Detroit because they all seem unethical to me.

Originally posted by @Richard Ball :

@Saul L.

 Depending where you are at in 48235 it sounds like you may have houses in a decent 

They are in decent areas for the most part. I bought the placed after as much due diligence as I could do from out if state, but I think I was also a but lucky. Am doing things more carefully now.

As for PMs, you can say that again. Not easy to find. 

In case anyone missed this - more governmental dysfunction in Detroit.  Wayne County is on the verge of declaring a financial emergency.

http://www.detroitnews.com/story/news/local/wayne-county/2015/06/17/wayne-county-financial-emergency/28886293/

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