Investing in Detroit
Alex KhanPro Member
Specialist · Southeast Michigan · Member since 2015 · 300 posts · 244 votesMany opportunities in the Metro Detroit area where you can buy a house for pennies on the dollar. Cheapest in the nation.
What are your thoughts ?
I've explored Detroit in detail. I was amazed by the place, probably for the wrong reasons. It was an utterly devastated City. There is a reason why there was so much abandoned housing: No one wants to live there. Yet the suburbs were healthy and booming.
Detroit today is in much better shape. The bankruptcy and a fresh proactive mayor have improved the financial condition of the City. City services are better and abandoned buildings are being torn down. Parts of the city, albeit a small portion, are gentrifying rapidly. Midtown, Corktown area.
In other areas of Detroit, houses are cheap, so some people are trying to re-purpose these properties. It will work only if there is a stable tenant base. Lower income people tend to want to live in the Suburbs, including Southfield.
Map out your area of stable pockets in the city or areas near the gentrification. And make sure you will be able to rent the properties to decent tenants. I think the competent investors will have very high returns.
I've explored Detroit in detail. I was amazed by the place, probably for the wrong reasons. It was an utterly devastated City. There is a reason why there was so much abandoned housing: No one wants to live there. Yet the suburbs were healthy and booming.
Detroit today is in much better shape. The bankruptcy and a fresh proactive mayor have improved the financial condition of the City. City services are better and abandoned buildings are being torn down. Parts of the city, albeit a small portion, are gentrifying rapidly. Midtown, Corktown area.
In other areas of Detroit, houses are cheap, so some people are trying to re-purpose these properties. It will work only if there is a stable tenant base. Lower income people tend to want to live in the Suburbs, including Southfield.
Map out your area of stable pockets in the city or areas near the gentrification. And make sure you will be able to rent the properties to decent tenants. I think the competent investors will have very high returns.
I've explored Detroit in detail. I was amazed by the place, probably for the wrong reasons. It was an utterly devastated City. There is a reason why there was so much abandoned housing: No one wants to live there. Yet the suburbs were healthy and booming.
Detroit today is in much better shape. The bankruptcy and a fresh proactive mayor have improved the financial condition of the City. City services are better and abandoned buildings are being torn down. Parts of the city, albeit a small portion, are gentrifying rapidly. Midtown, Corktown area.
In other areas of Detroit, houses are cheap, so some people are trying to re-purpose these properties. It will work only if there is a stable tenant base. Lower income people tend to want to live in the Suburbs, including Southfield.
Map out your area of stable pockets in the city or areas near the gentrification. And make sure you will be able to rent the properties to decent tenants. I think the competent investors will have very high returns.
Great points, Brian. My family relocated to metro Detroit almost two years ago. The change in even that short time frame has been amazing to watch. But there's still a long way to go and it's easy to make mistakes. After a ton of research, walking neighborhoods, etc. we're putting out offers and have our first accepted on the west side.
I can't imagine trying to invest in Detroit from out of state. I've learned so much going to meetups, talking to folks on-the-ground, and learning the market. I'm sure some more experienced folks could and do do it, but for a newer investor I can see how it'd be very easy to get burned.
There is probably money to be made, but I would want to be there. I think you need your boots on the ground, networking, attending city meetings, neighborhood meetings, investors meetings. I don't think it is a great place for those without intimate knowledge. There is a reason the buildings are pennies on the dollar.
@Bruce Lynn. There is definitely money to be made in Detroit. Great point though on having your boots on the ground or at the very least a working relationship with a knowledgeable Detroit professional. ( one that’s not trying to sell you junk )
For those keen on Detroit, have a close look at Mornington, which is next to the thriving East English Village.
Have a look at areas that are well under median price of surroundings areas, this has worked for me.
The cities core is great. People like Gilbert have taken abandoned buildings and make the core city a place you can feel somewhat safe in. However, if you believe that extends to outside of unique areas like Corktown, you will find out quickly the reason prices are so cheap. The main reason, in my opinion, is the tenant base has not changed. Unless you can find a good section #8 long term renter, the operating costs will be excessive. Factor into your cap expenses- loss of your furnace, water heater, and any thing of value that can be removed easily when it becomes vacant. There are home sitters you can hire that will guard your home- But really do you want to deal with this? Wayne county is huge and Detroits neighborhoods are street by street. Do not attempt to make your riches there unless you have a team in place. I would also factor in little to no long term appreciation. Yes you can look back to the Great Recession and see how everything went up including rents. But those days are over. Michigan in general is a value State not an appreciation State. Don't believe the 15% cap rates they are leaving out vacancy/bad debt/high taxes/high cap expenses.
@Alex Khan Yes I agree. There are great properties and deals to be had here.
For those keen on Detroit, have a close look at Mornington, which is next to the thriving East English Village.
Have a look at areas that are well under median price of surroundings areas, this has worked for me.
If your talking about Morningside I drove through street by street and its hit and miss. I find that the properties closer to Mack by Grosse Pointe are better especially if they are a stone throw away.. there are some streets that have a lot of empty lots..
For those keen on Detroit, have a close look at Mornington, which is next to the thriving East English Village.
Have a look at areas that are well under median price of surroundings areas, this has worked for me.
If your talking about Morningside I drove through street by street and its hit and miss. I find that the properties closer to Mack by Grosse Pointe are better especially if they are a stone throw away.. there are some streets that have a lot of empty lots..
You are absolutely correct.
Its block by block, on a micro level
Many opportunities in the Metro Detroit area where you can buy a house for pennies on the dollar. Cheapest in the nation.
What are your thoughts ?
You have to be careful with your terminology when talking about Detroit. When locals talk about Detroit, they mean the city proper (and even Highland Park and Hamtramck to some extent). When they talk about Metro Detroit, they mean the suburbs outside the city. This is a critically important distinction because there are no houses for "pennies on the dollar" in Metro Detroit but there are plenty in Detroit. Also, some contractors refuse to work in Detroit but have no problem giving you a quote in Metro Detroit. Likewise, some lenders will not lend in Detroit (i.e. they will make the loan terms very unattractive) but will jump to lend in Metro Detroit... and I mean literally across the street from Mack, Alter, 8 Mile, etc.
For those keen on Detroit, have a close look at Mornington, which is next to the thriving East English Village.
Have a look at areas that are well under median price of surroundings areas, this has worked for me.
If your talking about Morningside I drove through street by street and its hit and miss. I find that the properties closer to Mack by Grosse Pointe are better especially if they are a stone throw away.. there are some streets that have a lot of empty lots..
You are absolutely correct.
Its block by block, on a micro level
I bought a house in Morningside in 2016. Only three streets are viable... Outer, Audubon, and Courville. These are the three streets west of EEV. Once you hit 3 Mile, all bets are off. There are pockets of nice homes near Clark Elementary on Chatsworth and Berkshire but the rest of Morningside still has a long way to go. Don't even consider buying anything north of Warren... even on the better streets.
The cities core is great. People like Gilbert have taken abandoned buildings and make the core city a place you can feel somewhat safe in. However, if you believe that extends to outside of unique areas like Corktown, you will find out quickly the reason prices are so cheap. The main reason, in my opinion, is the tenant base has not changed. Unless you can find a good section #8 long term renter, the operating costs will be excessive. Factor into your cap expenses- loss of your furnace, water heater, and any thing of value that can be removed easily when it becomes vacant. There are home sitters you can hire that will guard your home- But really do you want to deal with this? Wayne county is huge and Detroits neighborhoods are street by street. Do not attempt to make your riches there unless you have a team in place. I would also factor in little to no long term appreciation. Yes you can look back to the Great Recession and see how everything went up including rents. But those days are over. Michigan in general is a value State not an appreciation State. Don't believe the 15% cap rates they are leaving out vacancy/bad debt/high taxes/high cap expenses.
You makes some good points here. However, a vacancy doesn't mean an automatic loss of your furnace and water heater... and you don't need a house sitter either. You can have DAWGS put steel covers on your doors and accessible windows if necessary. Or you can install your own polycarbonate covers until you get it occupied.
The cities core is great. People like Gilbert have taken abandoned buildings and make the core city a place you can feel somewhat safe in. However, if you believe that extends to outside of unique areas like Corktown, you will find out quickly the reason prices are so cheap. The main reason, in my opinion, is the tenant base has not changed. Unless you can find a good section #8 long term renter, the operating costs will be excessive. Factor into your cap expenses- loss of your furnace, water heater, and any thing of value that can be removed easily when it becomes vacant. There are home sitters you can hire that will guard your home- But really do you want to deal with this? Wayne county is huge and Detroits neighborhoods are street by street. Do not attempt to make your riches there unless you have a team in place. I would also factor in little to no long term appreciation. Yes you can look back to the Great Recession and see how everything went up including rents. But those days are over. Michigan in general is a value State not an appreciation State. Don't believe the 15% cap rates they are leaving out vacancy/bad debt/high taxes/high cap expenses.
You makes some good points here. However, a vacancy doesn't mean an automatic loss of your furnace and water heater... and you don't need a house sitter either. You can have DAWGS put steel covers on your doors and accessible windows if necessary. Or you can install your own polycarbonate covers until you get it occupied.
I've been considering simply having a security system in place for vacant homes. Any experience doing that, Michael?
The cities core is great. People like Gilbert have taken abandoned buildings and make the core city a place you can feel somewhat safe in. However, if you believe that extends to outside of unique areas like Corktown, you will find out quickly the reason prices are so cheap. The main reason, in my opinion, is the tenant base has not changed. Unless you can find a good section #8 long term renter, the operating costs will be excessive. Factor into your cap expenses- loss of your furnace, water heater, and any thing of value that can be removed easily when it becomes vacant. There are home sitters you can hire that will guard your home- But really do you want to deal with this? Wayne county is huge and Detroits neighborhoods are street by street. Do not attempt to make your riches there unless you have a team in place. I would also factor in little to no long term appreciation. Yes you can look back to the Great Recession and see how everything went up including rents. But those days are over. Michigan in general is a value State not an appreciation State. Don't believe the 15% cap rates they are leaving out vacancy/bad debt/high taxes/high cap expenses.
You makes some good points here. However, a vacancy doesn't mean an automatic loss of your furnace and water heater... and you don't need a house sitter either. You can have DAWGS put steel covers on your doors and accessible windows if necessary. Or you can install your own polycarbonate covers until you get it occupied.
I've been considering simply having a security system in place for vacant homes. Any experience doing that, Michael?
This has been working well for me. Paid $189, monitoring service around $29 per month
Also used a home sitter twice now, also worked well as long as the property is rented within a short time frame, otherwise its a killer.
Better still.... get a long term, excellent tenant, perhaps rent slightly under market so you have choice. I would rather have this scenario, at least its a win/win... cash flow and less headaches.
Detroit is such a weird market..... its like this... the streets are littered with gold if you get it right ie property management, location, produce, tenant selection, get it wrong and you will be in a world of pain.
Its not a passive investment, I work hard at making this market work. So I am after appreciation and cashflow, otherwise no point to it
I don't need to do this in Atlanta market, however this market is now close to peak and you wont be cash flowing today.
@Marisa R. Hi Marisa I’m in Atlanta I’m a new investor I flipped two houses now, do you recommend Detroit to me or just stay in Atlanta?
@Alex Detroit
I agree that detroit is very much a block by block city. You need to know the neighborhoods well. I was able to consistently rent out a townhouse in midtown for several years to high quality tenants who could afford to pay on the higher end. If you want upscale tenants aim for midtown, downtown and cork town. It would typically take me a week to release the unit once I listed it. My property manager was mbs property Mgmt based In Southfield and they were good.
Morningside, Sherwood Forest, east English village and rose dale park are other good neighborhoods.
I owned a home in morningside that was vacant for over a year while I tried to sell, unsuccessfully, and then rehab it. I only had one attempted break in. The perp threw a rock in the window. I did have a security alarm though. Breakins wouldn’t be my concern. Once I marketed the property for rent it took 3-4 wks to get it leased but I was going on the higher side for rent.
I wouldn’t even think of trying to flip in detroit b/c buyers can’t get mortgages. I read an article that a little over 1000 mortgages were originated in 2018- an abysmally small number.
cons:
I agree with the other poster who said it’s hard to find contractors and even landscapers who will do work in the city.
Another challenge is that the city passed an ordinance requiring landlords to complete lead remediation. The ordinance even went as far as giving tenants the right to put their rent money in escrow with the court if their landlord didn’t get the property remediate. Then on top of that the city sent out workers to homes in the city alerting tenants of their rights under the ordinance. This ordinance is currently being challenged in court but it sent a signal to me that the city doesn’t want small business landlords. For these reasons I’m hesitant to do more deals in detroit.
Pros: lots of cheaper properties to buy.
City is projected to become more rental occupied over time so more people to rent to. However the tenant base is projected to become older- think more senior citizens on a fixed income. This will limit potential rent increases.
@Michael Harris must have been a while since you have been to the neighborhood. It’s changed and improved since 2016.
@Michael Harris Metro Detroit is “Proper” Detroit and surrounding suburbs. Some people say tamata some people say tomato. To each their own.
@Tiffany Perry I agree with you it is neighborhood by neighborhood in Detroit. Just need to know where to Buy. Properties in Desirable neighborhoods usually don’t last too long. If you were to flip that Morningside house in today’s date you wouldn’t have a problem.
The city is making substantial progress week by week month by month and year by year.
As far as contractors and subcontractors etc. I have somewhat of an advantage being a builder/ General Contractor prior to getting into real estate.
As far as The lead based paint I usually have one of my subcontractors that has his certification do the scraping and skim coating and prImer just to be on the safe sIde. I’m considering just getting my cert for it as well. Its only like 32 hours but have been procrastinating. 😑
A wise man once also told me that senior citizens are not that bad of tenants because there’s no drama in their life anymore. They take care of their things and more than likely will not be moving and jumping around from property to property which made sense to me.
I personally don’t have any seniors as tenants myself but wouldn’t mind taking a 50-75 dollar cut on the rent to have a piece of mind.
I also have loan officers will give you a loan on your Detroit property all day no problem.
@Alex Detroit
Please send me the names of your loan officers. You say that I could easily flip the house. Who do you recommend as a broker?
@Tiffany Perry I just sent you a connection request.
@Marisa R. Hi Marisa I’m in Atlanta I’m a new investor I flipped two houses now, do you recommend Detroit to me or just stay in Atlanta?
Its chalk and cheese
I know inventory is tight in Atlanta and hard to get the deals to flip. If you can source properties to flip in Atlanta then as they say... if it aint broken don't fix it
Detroit is a cash flow play and appreciation if you buy in the right locations. I think it makes sense to buy, hold and rent in this market.
@Alex Detroit
I think it’s great to find good deals all the time. I would only suggest that you make sure that those deals align with your goals and are part of your strategy as to why you’re buying I made the mistake of buying good deals because I thought they were good deals. Unfortunately they were good deals but just not for me because I had a different goal in mind but I never put the two together
The lesson I learned was don’t buy just to buy... Buywith purpose buy with strategy and buy to achieve your goal