Pumping the brakes in Detroit?
Scottsdale, AZ · Member since 2014 · 26 posts · 14 votes
So my wife and I were about to submit an offer on a property in a great neighborhood - Morningside/East English - in Detroit. We had two different HMLs lined up to do the deal and we were about to submit an offer when we saw a nearby comp that we were tracking convert from available to sold. It was one of the best remodels in the area (that we could see) and it sold for $1000 less than asking. We though that would go for well over asking and when it didn't, our rehab model was blown up. Is anyone seeing the same?
Also, based on recent news, I'm thinking that Detroit and the market as as whole isn't great for flipping right now:
See the agents BiggerPockets members work with in Detroit, MI.
See agentsI would be cautious with Detroit right now. Dan Gilbert was the force driving a lot of the investment into the downtown area, which then resulted in some of the outlying neighborhoods seeing increased investment. However, his health and the succession plan for his empire appears to be a bit up in the air at this point. If I was one of his commercial lenders getting ready to cut a 9 figure check for work downtown, you'd better believe I'd set the pen down for a minute and have a chat. I'd be surprised if that dynamic doesn't filter down, just like his original investments did.
Folks are constantly looking for reasons not to invest in Detroit. I love it. I'm happy to keep buying as prices continue to increase, neighborhoods continue to improve, and more money flows into rebuilding the city.
Dan Gilbert may have been the catalyst behind Detroit's resurgence, but the reaction is well underway now. Money is coming from far more channels at this point.
But I'll play along... let's pretend Dan & Company are driving everything still. We're all aware that there are nine individuals on the Rockbridge Growth Equity team (Dan's investment fund), right? Assuming Dan is calling every shot, or is micromanaging the entire investment plan is to sell him short as a leader and entrepreneur. The guy didn't get to where he is today by doing those things.
Detroit's fate doesn't lie in Dan Gilbert's hands any more than Berkshire Hathaway's business operations rely on Warren Buffet. A tall comparison, I agree, but not far fetched if you understand the underlying operations of big business.
$1000? thats it? I live and invest in the Detroit market. If $1000 is going to make or break you opportunity to invest here its not for you. I could see if its 5-10k below but 1000$ shouldn't but you in worry mode. I have properties in East english village and it could be 100x reasons why it sold for 1k less. I'm not worried about the Detroit market we have some many good things lined up for the next few years with the many businesses that are bringing jobs, homes, and other projects to the city. I would rather take 1000 less than have the home sit on the market an extra 30-90 days.
It's not that it's only $1000, it's that it's the best remodel I've seen in the area and it's significantly lower than the average price per square foot for that area. Based on comps that are currently asking $160-170K which are nowhere near as good, it should have gone for $5-10K over asking. It should have been one of the anomalies ($110-120) in the chart below but, instead, was much lower. I agree there may have been any number of reasons for this but, I'm looking at the last three years for homes over $100K in a subsection of East English and Morningside and I'm not seeing a strong uptrend - for this area anyway. Maybe I'm wrong?
I'm not worried about Detroit either, it's just that we're likely going to be changing to a BRRRR strategy and not trying to immediately flip. The asking prices for homes that need heavy rehab is putting too much risk into the deal unless we significantly reduce our rehab budget. The number of sales are extremely positive but, there's not a significant uptrend in price per square foot even for a stellar rehab. Going into an election year with a recession looming, we're not going to bank on a flip unless we see better numbers.
@Benjamin Molnar I would argue flipping long distance is a bad idea in any market, during any time. Seems like a great way to lose money
@Caleb Heimsoth I think we missed the boat by about a year. If we had started a year ago, I think we would have been fine with valuations where they were.
Whats your reasoning for a looming recession? I don't buy into the "we are overdue for one" theory. I could see a market that goes sideways for a while, though. this recovery (or bull market) has overall been slower than others in the past. God knows how careful people are being holding a lot of cash. Yes, prices will deflate as interest rates come back up. Tariffs? Temporary.
If you're likely switching to BRRRR i dont see what the big deal is anyway. Shouldn't you be more concerned with rental price trends? Or do you mean you're switching to that strategy because of your above mentioned concerns?
@Benjamin Molnar Detroit is More of a buy and hold market.
You run across good flips in the suburbs neighboring
Detroit.
Flipping in Detroit is Very possible and many people do it but majority of investors active in Detroit Buy and hold.
@Alex Khan Sorry for the late reply, I've been crazy busy. Totally agree. We are looking at a potential flip but, we're ready to pivot to a BRRRR strategy if we can't move the home. We're currently looking at a couple neighborhoods with high home ownership vs. rentals to make sure we're catering to buyers first. If the buyers aren't there, we're still in a neighborhood where people will want to be and we'll be able to get top tier renters.
@Alex Khan Sorry for the late reply, I've been crazy busy. Totally agree. We are looking at a potential flip but, we're ready to pivot to a BRRRR strategy if we can't move the home. We're currently looking at a couple neighborhoods with high home ownership vs. rentals to make sure we're catering to buyers first. If the buyers aren't there, we're still in a neighborhood where people will want to be and we'll be able to get top tier renters.
I would be cautious with Detroit right now. Dan Gilbert was the force driving a lot of the investment into the downtown area, which then resulted in some of the outlying neighborhoods seeing increased investment. However, his health and the succession plan for his empire appears to be a bit up in the air at this point. If I was one of his commercial lenders getting ready to cut a 9 figure check for work downtown, you'd better believe I'd set the pen down for a minute and have a chat. I'd be surprised if that dynamic doesn't filter down, just like his original investments did.
@Benjamin Molnar why flip out of state in a low-priced market? Seems like it better fits the rental property profile, anyway.
I would be cautious with Detroit right now. Dan Gilbert was the force driving a lot of the investment into the downtown area, which then resulted in some of the outlying neighborhoods seeing increased investment. However, his health and the succession plan for his empire appears to be a bit up in the air at this point. If I was one of his commercial lenders getting ready to cut a 9 figure check for work downtown, you'd better believe I'd set the pen down for a minute and have a chat. I'd be surprised if that dynamic doesn't filter down, just like his original investments did.
Folks are constantly looking for reasons not to invest in Detroit. I love it. I'm happy to keep buying as prices continue to increase, neighborhoods continue to improve, and more money flows into rebuilding the city.
Dan Gilbert may have been the catalyst behind Detroit's resurgence, but the reaction is well underway now. Money is coming from far more channels at this point.
But I'll play along... let's pretend Dan & Company are driving everything still. We're all aware that there are nine individuals on the Rockbridge Growth Equity team (Dan's investment fund), right? Assuming Dan is calling every shot, or is micromanaging the entire investment plan is to sell him short as a leader and entrepreneur. The guy didn't get to where he is today by doing those things.
Detroit's fate doesn't lie in Dan Gilbert's hands any more than Berkshire Hathaway's business operations rely on Warren Buffet. A tall comparison, I agree, but not far fetched if you understand the underlying operations of big business.
@Alex Khan Sorry for the late reply, I've been crazy busy. Totally agree. We are looking at a potential flip but, we're ready to pivot to a BRRRR strategy if we can't move the home. We're currently looking at a couple neighborhoods with high home ownership vs. rentals to make sure we're catering to buyers first. If the buyers aren't there, we're still in a neighborhood where people will want to be and we'll be able to get top tier renters.
I would be cautious with Detroit right now. Dan Gilbert was the force driving a lot of the investment into the downtown area, which then resulted in some of the outlying neighborhoods seeing increased investment. However, his health and the succession plan for his empire appears to be a bit up in the air at this point. If I was one of his commercial lenders getting ready to cut a 9 figure check for work downtown, you'd better believe I'd set the pen down for a minute and have a chat. I'd be surprised if that dynamic doesn't filter down, just like his original investments did.
Folks are constantly looking for reasons not to invest in Detroit. I love it. I'm happy to keep buying as prices continue to increase, neighborhoods continue to improve, and more money flows into rebuilding the city.
Dan Gilbert may have been the catalyst behind Detroit's resurgence, but the reaction is well underway now. Money is coming from far more channels at this point.
But I'll play along... let's pretend Dan & Company are driving everything still. We're all aware that there are nine individuals on the Rockbridge Growth Equity team (Dan's investment fund), right? Assuming Dan is calling every shot, or is micromanaging the entire investment plan is to sell him short as a leader and entrepreneur. The guy didn't get to where he is today by doing those things.
Detroit's fate doesn't lie in Dan Gilbert's hands any more than Berkshire Hathaway's business operations rely on Warren Buffet. A tall comparison, I agree, but not far fetched if you understand the underlying operations of big business.
Very well put Travis! You hit every note.
@Alex Khan Sorry for the late reply, I've been crazy busy. Totally agree. We are looking at a potential flip but, we're ready to pivot to a BRRRR strategy if we can't move the home. We're currently looking at a couple neighborhoods with high home ownership vs. rentals to make sure we're catering to buyers first. If the buyers aren't there, we're still in a neighborhood where people will want to be and we'll be able to get top tier renters.
I would be cautious with Detroit right now. Dan Gilbert was the force driving a lot of the investment into the downtown area, which then resulted in some of the outlying neighborhoods seeing increased investment. However, his health and the succession plan for his empire appears to be a bit up in the air at this point. If I was one of his commercial lenders getting ready to cut a 9 figure check for work downtown, you'd better believe I'd set the pen down for a minute and have a chat. I'd be surprised if that dynamic doesn't filter down, just like his original investments did.
Folks are constantly looking for reasons not to invest in Detroit. I love it. I'm happy to keep buying as prices continue to increase, neighborhoods continue to improve, and more money flows into rebuilding the city.
Dan Gilbert may have been the catalyst behind Detroit's resurgence, but the reaction is well underway now. Money is coming from far more channels at this point.
But I'll play along... let's pretend Dan & Company are driving everything still. We're all aware that there are nine individuals on the Rockbridge Growth Equity team (Dan's investment fund), right? Assuming Dan is calling every shot, or is micromanaging the entire investment plan is to sell him short as a leader and entrepreneur. The guy didn't get to where he is today by doing those things.
Detroit's fate doesn't lie in Dan Gilbert's hands any more than Berkshire Hathaway's business operations rely on Warren Buffet. A tall comparison, I agree, but not far fetched if you understand the underlying operations of big business.
I would be cautious with Detroit right now. Dan Gilbert was the force driving a lot of the investment into the downtown area, which then resulted in some of the outlying neighborhoods seeing increased investment. However, his health and the succession plan for his empire appears to be a bit up in the air at this point. If I was one of his commercial lenders getting ready to cut a 9 figure check for work downtown, you'd better believe I'd set the pen down for a minute and have a chat. I'd be surprised if that dynamic doesn't filter down, just like his original investments did.
Folks are constantly looking for reasons not to invest in Detroit. I love it. I'm happy to keep buying as prices continue to increase, neighborhoods continue to improve, and more money flows into rebuilding the city.
Dan Gilbert may have been the catalyst behind Detroit's resurgence, but the reaction is well underway now. Money is coming from far more channels at this point.
But I'll play along... let's pretend Dan & Company are driving everything still. We're all aware that there are nine individuals on the Rockbridge Growth Equity team (Dan's investment fund), right? Assuming Dan is calling every shot, or is micromanaging the entire investment plan is to sell him short as a leader and entrepreneur. The guy didn't get to where he is today by doing those things.
Detroit's fate doesn't lie in Dan Gilbert's hands any more than Berkshire Hathaway's business operations rely on Warren Buffet. A tall comparison, I agree, but not far fetched if you understand the underlying operations of big business.
I guess that's where we disagree. I don't see any company relocating to Detroit simply because Dan calls them up and asks them to. That's a business decision, and owners/CEO's have obligations far beyond those between friends. Companies will relocate when Detroit becomes an increasingly attractive option for a company's headquarters.
Folks have every right to be skeptical, and I think it's warranted. You don't change the sentiment of a multi-decade track record of decline and deterioration overnight. But it does feel like things are taking hold, and it's pretty exciting to watch/be a part of.
Detroit has some of the lowest price/rent ratios anywhere. It also has some of the most beautiful and well built smaller houses. What this means is IF (and that is a big if) you have a system that works to keep quality tenants in house, you will get some of the best returns anywhere. Just keep repeating the same thing on your path to financial freedom.
@Gordon Starr Totally agree - we've been impressed with how solid the houses are. Some of the neighborhoods look like they're out of a story book and the homes are in the low $100K-200Ks. We're looking to rent first now unless the house sells itself before we place a tenant.
@Travis Biziorek@Account Closed We're not banking on what Dan Gilbert does, for all we know he's likely using the new tax law to leverage Detroit's Opportunity Zones to avoid capital gains. There's growth in Detroit but, there's also A LOT of inventory. It's a long term play and I don't care what anyone says about rising prices - it's not happening the way people say it is. I was just there for a REI event and people generally agreed there is a lot of inflated listings making the market look like it's growing but, SOLD comps over the last few years don't support this. The high listings keep dropping in price. The increase in price per square foot are marginal now and I'm happy to show data that supports this. Rentometer shows rents flattening in many areas.
That being said, we do think it's a great rental market if you know where to invest. Big business is taking notice - it's all part of their cyclical, "Let's move operations to X because we can save Y on annual real estate costs."
We think trying to flip at this point is great if you're running a turnkey company that wants to pitch a poorly rehab'd, rental to someone from out of state with dollar signs in their eyes. Those people only want to take value out of Detroit and it's not sustainable. If and when a recession hits - we are heading into a particularly nasty election year - do you want to be holding a bunch of $40-60K houses with - potentially - a non-salaried tenant paying $900 a month? We'll deliver value by providing a great rental property in a strong neighborhood with high home ownership. We'll be happy with the 1% rule delivering a superior product over the long-term and let everyone else chase the high-risk 2%.
Totally agree, we've changed our
@Gordon Starr Totally agree - we've been impressed with how solid the houses are. Some of the neighborhoods look like they're out of a story book and the homes are in the low $100K-200Ks. We're looking to rent first now unless the house sells itself before we place a tenant.
@Travis Biziorek@Account Closed We're not banking on what Dan Gilbert does, for all we know he's likely using the new tax law to leverage Detroit's Opportunity Zones to avoid capital gains. There's growth in Detroit but, there's also A LOT of inventory. It's a long term play and I don't care what anyone says about rising prices - it's not happening the way people say it is. I was just there for a REI event and people generally agreed there is a lot of inflated listings making the market look like it's growing but, SOLD comps over the last few years don't support this. The high listings keep dropping in price. The increase in price per square foot are marginal now and I'm happy to show data that supports this. Rentometer shows rents flattening in many areas.
That being said, we do think it's a great rental market if you know where to invest. Big business is taking notice - it's all part of their cyclical, "Let's move operations to X because we can save Y on annual real estate costs."
We think trying to flip at this point is great if you're running a turnkey company that wants to pitch a poorly rehab'd, rental to someone from out of state with dollar signs in their eyes. Those people only want to take value out of Detroit and it's not sustainable. If and when a recession hits - we are heading into a particularly nasty election year - do you want to be holding a bunch of $40-60K houses with - potentially - a non-salaried tenant paying $900 a month? We'll deliver value by providing a great rental property in a strong neighborhood with high home ownership. We'll be happy with the 1% rule delivering a superior product over the long-term and let everyone else chase the high-risk 2%.
I'd really love to know where you're getting your data. Prices are rising "the way people say" they are. Just take a look at the housing stats from the Michigan Realtors' website. Year-to-date through May, the average sales price is up 16.88% since last year. In 2018 prices finished up 18.31% over 2017. Prices were up 20.10% in 2017 over 2016 prices. I could continue, but I think you get the point.
If you're focused on single family homes, you aren't going to make money in Detroit using the 1% rule assuming you're financing the purchase. Taxes and capex are too high, and property managers are too costly (not to mention terrible).
I've been reading the comments and I remain "neutral" because I don't know the D market. However, I've had several conversations with "successful" investors who cut their teeth AFTER 2008. We have been in a bull market for 10 years and we are do. We don't know when the R will appear. However, there is an opportunity cost question for the author of this post: If you waited 9-12 months what are you really losing?
Very few pundits or "investors" are talking about the biggest factors which WILL lead to the R (consumer debt). I had a client last week who made 250K and got laid off. Credit card debt levels are higher than what they were in 2008 and so is student loan debt. There are over 9 million people who are more than 90 days late on their car payment. Pick any local market and you will see an increasing number of pre-foreclosures. Once you review that information, look at the loan date. These home owners are losing their house when their interest rates are below 4%. What does this mean in my humble opinion, LACK OF AFFORDABILITY. The consumer has too much liability debt and it will impact the housing market