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.
great thank you
@Travis Biziorek I actually have out of state/overseas buyers who purchase the product that I come across. Most have been in the game for a while so that makes it a smooth process, but if something goes wrong or a piece of the puzzle is missing and holding up closings, the time difference can be a big pain.
@Marisa R. Morningside is growing indeed. I am anticipating the growth of the surrounding areas right outside of both neighborhoods values are still tremendously low(Chandler Park Dr, etc.) My buyers are hesitant when it comes to purchasing in those areas.
@Michael Harris must have been a while since you have been to the neighborhood. It’s changed and improved since 2016.
Actually, I'm in the neighborhood every three months. So, unless something dramatic has happened since last month, my point stands.
@Michael Harris Metro Detroit is “Proper” Detroit and surrounding suburbs. Some people say tamata some people say tomato. To each their own.
It seems you missed my point.
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?
I have security systems in both my homes in Islandview. It consists of exterior cameras (purposely visible) and interior cameras, motion detectors, and alarm systems that have 4g back up and private security service when triggered. Since the installation, I've noticed no incidents... other than a young couple having sex in an SUV in my driveway. It keeps the contractors honest as well. That said, you should also have steel or polycarbonate covers just to be safe.
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.
Agreed 100%.
@Marisa R. Morningside is growing indeed. I am anticipating the growth of the surrounding areas right outside of both neighborhoods values are still tremendously low(Chandler Park Dr, etc.) My buyers are hesitant when it comes to purchasing in those areas.
I spent about an hour driving Morningside last night. The area is a lot rougher than I expected. Lots of boarded up homes and vacant land. There are only a handful of streets I'd buy on right now.
It really surprised me because I didn't get the same vibe researching online at all and it really readjusted my view on that neighborhood. I think there's potential there but it's a ways out yet.
@Marisa R. Morningside is growing indeed. I am anticipating the growth of the surrounding areas right outside of both neighborhoods values are still tremendously low(Chandler Park Dr, etc.) My buyers are hesitant when it comes to purchasing in those areas.
I spent about an hour driving Morningside last night. The area is a lot rougher than I expected. Lots of boarded up homes and vacant land. There are only a handful of streets I'd buy on right now.
It really surprised me because I didn't get the same vibe researching online at all and it really readjusted my view on that neighborhood. I think there's potential there but it's a ways out yet.
Interesting.
I have had a long term tenant in my property, she pays first day of every month $800 and house cost me $32,000. According to comps its worth around $50,000, according to Zillow over $50,000 with 10% expected growth in next 12 months?
Time will tell, but I am pretty happy with my purchase, but I get your point. Most areas in Detroit can be hit and miss, as they vary from block to block.
@Marisa R. Morningside is growing indeed. I am anticipating the growth of the surrounding areas right outside of both neighborhoods values are still tremendously low(Chandler Park Dr, etc.) My buyers are hesitant when it comes to purchasing in those areas.
I spent about an hour driving Morningside last night. The area is a lot rougher than I expected. Lots of boarded up homes and vacant land. There are only a handful of streets I'd buy on right now.
It really surprised me because I didn't get the same vibe researching online at all and it really readjusted my view on that neighborhood. I think there's potential there but it's a ways out yet.
Interesting.
I have had a long term tenant in my property, she pays first day of every month $800 and house cost me $32,000. According to comps its worth around $50,000, according to Zillow over $50,000 with 10% expected growth in next 12 months?
Time will tell, but I am pretty happy with my purchase, but I get your point. Most areas in Detroit can be hit and miss, as they vary from block to block.
Yeah, it's definitely not all bad and there are spots I'd be willing to buy into. In fact, I am. We've got an accepted offer on a home in Morningside as of today.
@Marisa R. Morningside is growing indeed. I am anticipating the growth of the surrounding areas right outside of both neighborhoods values are still tremendously low(Chandler Park Dr, etc.) My buyers are hesitant when it comes to purchasing in those areas.
I think this is called the ripple effect. Something has to give, its a bit like University District where prices are over $200,000 and there is high demand, neighbouring areas such as Bagley benefit from this as it is a lower price point where buyers who cant afford University D will just into the next suburb/area.. the ripple effect.
.
@Marisa R. Morningside is growing indeed. I am anticipating the growth of the surrounding areas right outside of both neighborhoods values are still tremendously low(Chandler Park Dr, etc.) My buyers are hesitant when it comes to purchasing in those areas.
I think this is called the ripple effect. Something has to give, its a bit like University District where prices are over $200,000 and there is high demand, neighbouring areas such as Bagley benefit from this as it is a lower price point where buyers who cant afford University D will just into the next suburb/area.. the ripple effect.
.
Absolutely. I talk about this with friends all the time. You can look at it from a micro level (neighborhoods) or macro one (cities). From a macro perspective you see it in the suburbs with folks getting priced out of certain areas (like Troy), moving to places like Royal Oak and Ferndale until those get too pricey, and now moving to areas like Hazel park and Hamtramck.
On the other side you have downtown seeing massive corporate investment, and rents/housing prices are rising quickly. IMO this creates an interesting effect where people who want to live closer to downtown are getting pushed increasingly further out to other Detroit neighborhoods while you have people who want to be in the suburbs who will (again, IMO) eventually start buying into Detroit neighborhoods.
I believe it's not a matter of if this will happen but when.
That said, there are many areas in Detroit that are going to require serious investment, likely from the corporate or government side of things. There's still a lot that needs to be done. But right now there seems to be a mental barrier at the $1,000/month rent price unless you're downtown or in a niche area like the University District. I think we're going to see this change soon and the $1,000+ monthly rents are going to be common.
Is there a free source for public info to check on ownership/deed, taxes owed, L&I violations? We have easy free access to all info where I work in Philly and was wondering what there is in Detroit. I could not find anything.
@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.
So you dont think there are margins to make in fixing and flipping at all?
Aren't people able to get mortgages over a certain amount?
@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.
Are you still contracting now?
What would you say to someone in California that wants to buy a cheaper out of state duplex, would Detroit be a place to consider?
@Nigel Ford it all depends on what your end goal and strategy Is?
Detroit can be great. Just watch your numbers, Contractors, Property Management and location and you’ll be alright 🤠👍🏼
What would you say to someone in California that wants to buy a cheaper out of state duplex, would Detroit be a place to consider?
If your specific to duplexes Detroit is not known for that. Mostly singles..
I'm seeing lots of small multis for sale so it doesn't look like that's a problem. I don't want to buy mass quantities of them like I hear people are doing, this would be my first property. If big budget investors are buying large quantities of houses in one area, I understand how that would have a big enough effect to change the market. But wouldn't a small investor that buys a house close by only benefit from that change? Are the towns outside of Detroit like Warren, Southfield and Redford generally safer higher grade areas? Please let me know what I'm not seeing because the price compared to the rent there is definitely something special.
Thank you and I appreciate the info from all your posts.
@Marisa R. Morningside is growing indeed. I am anticipating the growth of the surrounding areas right outside of both neighborhoods values are still tremendously low(Chandler Park Dr, etc.) My buyers are hesitant when it comes to purchasing in those areas.
I think this is called the ripple effect. Something has to give, its a bit like University District where prices are over $200,000 and there is high demand, neighbouring areas such as Bagley benefit from this as it is a lower price point where buyers who cant afford University D will just into the next suburb/area.. the ripple effect.
.
Absolutely. I talk about this with friends all the time. You can look at it from a micro level (neighborhoods) or macro one (cities). From a macro perspective you see it in the suburbs with folks getting priced out of certain areas (like Troy), moving to places like Royal Oak and Ferndale until those get too pricey, and now moving to areas like Hazel park and Hamtramck.
On the other side you have downtown seeing massive corporate investment, and rents/housing prices are rising quickly. IMO this creates an interesting effect where people who want to live closer to downtown are getting pushed increasingly further out to other Detroit neighborhoods while you have people who want to be in the suburbs who will (again, IMO) eventually start buying into Detroit neighborhoods.
I believe it's not a matter of if this will happen but when.
That said, there are many areas in Detroit that are going to require serious investment, likely from the corporate or government side of things. There's still a lot that needs to be done. But right now there seems to be a mental barrier at the $1,000/month rent price unless you're downtown or in a niche area like the University District. I think we're going to see this change soon and the $1,000+ monthly rents are going to be common.
If you know what I mean your "average" Detroiter isn't isolated to just a few areas. Most people relocating to Detroit, won't consider many neighborhoods.
I had "Detroiters" turning their nose up at living in Brush Park in a 2 bedroom for $1000/mo in 2014. Today, that price is $800 under market. Right now in the North End non-Detroiters are buying homes, or renters are moving into renovated places. price tag for a 2bedroom is $1100, sounds pricey but if you are South of I-94 that number is about 1300+ and increases more south of Ferry, Warren, Forest, Canfield, Alexedrine, and Mack about a $100 at each street. Then "Detroiters" are priced out.
Detroiters view when a neighborhood is transitioning that they could rent a house in a place off 7 Mile for under $1000. So why would they pay double that for an apartment. Or a house. They view it its a 1200 sq ft house in Detroit and its all the same basically. New-comers or relocaters, they view it as the closer you are to the action bars, universities, jobs, etc the property is worth more.
@Marisa R. Morningside is growing indeed. I am anticipating the growth of the surrounding areas right outside of both neighborhoods values are still tremendously low(Chandler Park Dr, etc.) My buyers are hesitant when it comes to purchasing in those areas.
I think this is called the ripple effect. Something has to give, its a bit like University District where prices are over $200,000 and there is high demand, neighbouring areas such as Bagley benefit from this as it is a lower price point where buyers who cant afford University D will just into the next suburb/area.. the ripple effect.
.
Absolutely. I talk about this with friends all the time. You can look at it from a micro level (neighborhoods) or macro one (cities). From a macro perspective you see it in the suburbs with folks getting priced out of certain areas (like Troy), moving to places like Royal Oak and Ferndale until those get too pricey, and now moving to areas like Hazel park and Hamtramck.
On the other side you have downtown seeing massive corporate investment, and rents/housing prices are rising quickly. IMO this creates an interesting effect where people who want to live closer to downtown are getting pushed increasingly further out to other Detroit neighborhoods while you have people who want to be in the suburbs who will (again, IMO) eventually start buying into Detroit neighborhoods.
I believe it's not a matter of if this will happen but when.
That said, there are many areas in Detroit that are going to require serious investment, likely from the corporate or government side of things. There's still a lot that needs to be done. But right now there seems to be a mental barrier at the $1,000/month rent price unless you're downtown or in a niche area like the University District. I think we're going to see this change soon and the $1,000+ monthly rents are going to be common.
If you know what I mean your "average" Detroiter isn't isolated to just a few areas. Most people relocating to Detroit, won't consider many neighborhoods.
I had "Detroiters" turning their nose up at living in Brush Park in a 2 bedroom for $1000/mo in 2014. Today, that price is $800 under market. Right now in the North End non-Detroiters are buying homes, or renters are moving into renovated places. price tag for a 2bedroom is $1100, sounds pricey but if you are South of I-94 that number is about 1300+ and increases more south of Ferry, Warren, Forest, Canfield, Alexedrine, and Mack about a $100 at each street. Then "Detroiters" are priced out.
Detroiters view when a neighborhood is transitioning that they could rent a house in a place off 7 Mile for under $1000. So why would they pay double that for an apartment. Or a house. They view it its a 1200 sq ft house in Detroit and its all the same basically. New-comers or relocaters, they view it as the closer you are to the action bars, universities, jobs, etc the property is worth more.
This is what I was getting at. True Detroiters are getting squeezed by both sides. Downtown continues to get pricier and those higher prices are pushing outward. Detroit suburbs continue to get pricier and those prices are pushing inward.
There seems to be a psychological barrier at the $1,000/mo mark for SFHs near 7 and 8 Mile. I think we'll see that break in the next year or two.
My question is: what happens to true Detroiters as it becomes increasingly difficult to find the rent figures they've been accustomed to for years?
@Marisa R. Morningside is growing indeed. I am anticipating the growth of the surrounding areas right outside of both neighborhoods values are still tremendously low(Chandler Park Dr, etc.) My buyers are hesitant when it comes to purchasing in those areas.
I think this is called the ripple effect. Something has to give, its a bit like University District where prices are over $200,000 and there is high demand, neighbouring areas such as Bagley benefit from this as it is a lower price point where buyers who cant afford University D will just into the next suburb/area.. the ripple effect.
.
Absolutely. I talk about this with friends all the time. You can look at it from a micro level (neighborhoods) or macro one (cities). From a macro perspective you see it in the suburbs with folks getting priced out of certain areas (like Troy), moving to places like Royal Oak and Ferndale until those get too pricey, and now moving to areas like Hazel park and Hamtramck.
On the other side you have downtown seeing massive corporate investment, and rents/housing prices are rising quickly. IMO this creates an interesting effect where people who want to live closer to downtown are getting pushed increasingly further out to other Detroit neighborhoods while you have people who want to be in the suburbs who will (again, IMO) eventually start buying into Detroit neighborhoods.
I believe it's not a matter of if this will happen but when.
That said, there are many areas in Detroit that are going to require serious investment, likely from the corporate or government side of things. There's still a lot that needs to be done. But right now there seems to be a mental barrier at the $1,000/month rent price unless you're downtown or in a niche area like the University District. I think we're going to see this change soon and the $1,000+ monthly rents are going to be common.
If you know what I mean your "average" Detroiter isn't isolated to just a few areas. Most people relocating to Detroit, won't consider many neighborhoods.
I had "Detroiters" turning their nose up at living in Brush Park in a 2 bedroom for $1000/mo in 2014. Today, that price is $800 under market. Right now in the North End non-Detroiters are buying homes, or renters are moving into renovated places. price tag for a 2bedroom is $1100, sounds pricey but if you are South of I-94 that number is about 1300+ and increases more south of Ferry, Warren, Forest, Canfield, Alexedrine, and Mack about a $100 at each street. Then "Detroiters" are priced out.
Detroiters view when a neighborhood is transitioning that they could rent a house in a place off 7 Mile for under $1000. So why would they pay double that for an apartment. Or a house. They view it its a 1200 sq ft house in Detroit and its all the same basically. New-comers or relocaters, they view it as the closer you are to the action bars, universities, jobs, etc the property is worth more.
This is what I was getting at. True Detroiters are getting squeezed by both sides. Downtown continues to get pricier and those higher prices are pushing outward. Detroit suburbs continue to get pricier and those prices are pushing inward.
There seems to be a psychological barrier at the $1,000/mo mark for SFHs near 7 and 8 Mile. I think we'll see that break in the next year or two.
My question is: what happens to true Detroiters as it becomes increasingly difficult to find the rent figures they've been accustomed to for years?
Good point.
How long is a piece of string?
It will be dependent on many factors. For me I am following this market closely and there is pots of money coming into this State. Big players are throwing money this way, manufacturing is on the up and up...billions
What does this mean? more jobs, prosperity? If rents increase I expect that this will also happen to wages?
You will also see people from other States move into Detroit because they can see opportunity for affordable housing and perhaps a better lifestyle for families
People can live in the past and poo poo Detroit till the cows come home, but those paying attention can make money riding the new wave.
I have said it before Detroit is on the cusp of a comeback and I wish I had jumped in earlier as many of the markets I like are already too expensive now. Just have to find the next best area that is gentrifying.
Good point.
How long is a piece of string?
It will be dependent on many factors. For me I am following this market closely and there is pots of money coming into this State. Big players are throwing money this way, manufacturing is on the up and up...billions
What does this mean? more jobs, prosperity? If rents increase I expect that this will also happen to wages?
You will also see people from other States move into Detroit because they can see opportunity for affordable housing and perhaps a better lifestyle for families
People can live in the past and poo poo Detroit till the cows come home, but those paying attention can make money riding the new wave.
I have said it before Detroit is on the cusp of a comeback and I wish I had jumped in earlier as many of the markets I like are already too expensive now. Just have to find the next best area that is gentrifying.
Yep. My hope is wages go up as well. But yes, I'm grabbing the next best thing too. I think it will be that way for years yet. As new areas gentrify and prices climb investors will be pushed to rougher areas, etc. Plenty of opportunity for years yet IMO.
@Marisa R. I agree if you're investing in a C neighborhood then you definitely what to go after cash flow. But in better areas like 48221 and other sub divisions, flipping is viable exit strategy. The key is to know the market and build a solid network of contractors, loan officers and realtors.