Detroit Cracks Down On City Landlords

Detroit Cracks Down On City Landlords

Real Estate Consultant · Brighton, MI · Member since 2013 · 607 posts · 251 votes

The city of Detroit has declared that tenants need no longer pay rent unless the landlord complies with the city's new stringent inspection & registration regulations. They have identified their enemy and declared them landlords. 

Among the regulations are yearly lead paint inspections are required. I don't know how accurate this is but the word is that inspections include gutters, roofing, chipped or peeling paint, cracked or damaged sidewalk and steps, are among the inspection requirements.

The Buildings, Safety Engineering & Environmental Department has begun a Residential Rental Compliance & Enforcement program. According to the city's new ordinance, all landlords have three months to register their properties with the city and six months to comply with the new stricter code. Then enforcement program is adding new zip codes on a monthly basis.

Properties registered with the city will be listed on a public search website where anyone can look up a property to see if it is listed as "in compliance" or not. After January 2, 2020, landlords will not be permitted to legally collect rent if you have not obtained a certificate of inspection. Rents will be held in an escrow account until you have been issued a certificate of compliance. After 90 days, the rent is to be returned to the tenants and then again every 60 days. On the city's brochure, there's no indication as how these escrow accounts will be set up and who will monitor and control them. 

Landlords who are more than 12 months behind in property taxes will be unable to obtain a certificate. 

On the one hand, I recognize this as an attempt by the city to force landlords to come up to date with their property taxes. On the other, I heard the inspection requirements are considered over the top and difficult to pass without a big expense. Rarely, does anyone pass the first time.

On the other side of the equation, city landlords are weighing the often high cost of compliance every year (or two) added to property taxes (many of whom are on payment plans with the city) and lack of income that would otherwise help offset the costs. I haven't heard if those who are on payment plans will still be considered as "non-compliant" as they do still technically owe the city. 

Property values in Detroit remain extremely low with the exception of new townhomes and luxury apartments in the heart of the city which, contrary to political promises, have not extended very far from the city center. 

Now that tenants are encouraged to refrain from paying rent, there is a growing exodus of landlords as a result. Given the low market values, it seems the solution many landlords have chosen is to offer land contracts for the properties or abandon them altogether.

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Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
6y

@Annette Hibbler thanks for sharing this. Boy am I glad I sold my 20 or so Detroit SFRs back in 2012. Wayne County as well as the city of Detroit is horribly run and very tough to do business in.

$4,000/year property taxes on a $5,000 house which rents for $500. Costs $10,000 to rehab it once your tenant who only paid 3 months rent needs to be evicted and trashed the place. Now one month’s rent just for a lead inspection. I was no slumlord but these houses are 100 years old. Surely there’s lead paint somewhere.

These are the economics for the roughest areas (south of 8mile, north of downtown). I’m sure nicer areas such as Southfield which rents for $1,200+ have much better returns overall.

But I am glad I stopped the OOS thing. I started investing locally in Oakland in 2014 and turned $12,000 into a $11M Multifamily empire.

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y

    @Annette Hibbler allowing tenants to not pay rent sounds harsh, but in some cases it is the only way to get a landlords attention. If they are collecting rent and not paying taxes or taking care of habitability issues, that is a problem. Arguably Detroit has had a lead poisoning issue and from what I have read, it wasn't just the water supply to blame. This sounds like an attempt to take care of their residents.

    I don't have an issue with rules that require registration or inspection. I do have have an issue if people are not registering and if the city isn't forcing compliance on them. That means landlords who play by the rules are penalized. 

    If everyone plays by the same rules, then everyone has the expenses and rents in the city rise accordingly. Ultimately when compliance fees or taxes increase, the expense is passed on to the tenant. This is what people don't understand when they want to increase taxes on landlords or corporations. These taxes pass through and increase the costs of goods and services. 

  • Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    6y

    So I took a virtual tour of some of the rougher areas of Detroit via Google Maps (2019 images).

    During the day the area looks abandoned, (but after dark...), and the housing stock looks decent and reasonably well kept up. Lawns cut, paint in decent shape, most buildings with windows intact and class-C type cars parked in the roads.

    If I were investing in D-Town (and I don't because it doesn't fit my criteria) I would try to get the COUNTIES to TAX Spray Paint at the wholesale level. As in ALL Spray paint imported into D-Town carries a $100 tax per can (to effectively halt sales of it Citywide).

    That would hopefully cut down on the gang graffiti--which plagues the non-gang residents of the area, and might bring the whole area up a little more (over time).

    Which I think is a better thing for the city to focus on than landlords and house paint.

    Many of these homes and apartments look nice, but then there is gang graffiti on the road signs, and surrounding buildings--detracting from the decency of the area.

    Just my 2 cents.

  • Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    6y

    But the streets certainly are not abandoned at night: https://www.youtube.com/watch?v=sgYJ3bqSkN8

    It just seems like it would be a very challenging are to collect the rents on a regular basis.

    But still a lot of housing stock and apartment buildings look decent (not grand, but decent) on the outside based on my virtual tour (and I purposely hit some of the roughest areas).

  • Real Estate Investor · Washington, DC · Member since 2014 · 236 posts · 328 votes
    6y

    I also don't get why a lead paint inspection is required EVERY year.  You either have it or you don't.  If you test your house for lead paint and it doesn't have it, why test again the next year?  If they don't sell lead based paint anymore, how on earth would it get in there?  

  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    6y

    Most metro Detroit cities require some type of city inspection every 2 or 3 years. Detroit has started doing this also. Landlords shouldn't have a problem with this inspection.

    As far as we know, Detroit is the only city in the country that requires lead-based paint TESTING. This is a separate inspection that costs $400-$600 on a SFR, depending on the square footage, beds, etc. The Michigan Lead-Based Paint licensed inspector is required to send multiple paint chips to a Michigan approved lab to be tested for lead.

    If lead-based paint is found, the city gives a landlord two choices:
    1) Scrape & encapsulate (usually with latex paint) by a contractor that has their lead-based paint license to handle lead-based paint. If you choose this route, you have to have the inspection/testing done every year, because tenants are hard on their Detroit rentals and someone has to take care of the lead-based paint their damages re-expose!
    2) Remediation of the lead-based paint in the entire house by:
       a) All new drywall over existing plaster walls. Replacement of all wall, door & window trim.
       b) Demo'ing every surface that could have lead-based paint on it.
    Once the remediation is done, another round of testing is done and if NO lead is found, you get a certificate and do not have to ever have another lead-based paint inspection done.

    Given that many suburban Detroit cities have a decent percentage of houses built the same time as Detroit houses, and have never had remediation of lead-based paint done, why is this only required in Detroit? Why is it not required in any other city in the country

    Another interesting fact: Detroit paid a NY consulting firm for a feasibility study that looked at what it would cost for lead-based paint remediation and modern code compliance for an average Detroit SFR. They actually looked at several different sizes of houses, but the cheapest came in at just over $100k. Are you surprised you can't find this study published anywhere?

    There are many intelligent employees of Detroit that understand the realities of what investors will and won't do, due to the economics. I know of several that would like to at the very least, change the city code and only require LBP testing every 3 years

    How did the code get passed in the first place? City Council proposed, voted on and passed it. Why? Typical political move to pacify constituents and get re-elected by appearing to pass the buck to landlords that either don't live in the city, so they can't vote (and thus have no representation) or only get one vote if they live in the city, no matter how many rentals they own.

    The only way to repeal the LBP code is to buy politicians - I'm sorry, I should have used the politically correct term, "make campaign donations".

  • Alex KhanPro Member
    Specialist · Southeast Michigan · Member since 2015 · 300 posts · 244 votes
    6y

    About 11% Of landlords Comply to this. It was put in for the real slumlords that we’re renting houses that need full rehab. 
    Surprisingly There are people that still pay rent and move into houses in that condition.... especially in the winter.

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