Would you recommend buying & holding in Michigan ?

Question

I have investor in residential property in different parts of the country however, never Michigan. I was presented with some deals that I think I shouldn't pass up. There are over 20 properties being offered all for less than 10k each. They are located in Detroit but I am not sure the layout of that area and what I should stay away from. I was considering buying them and doing basic renovations and renting them. Any advice on the Michigan market?

Brandon Krieg · Answer

@Chris Clothier   I think that your friend is quite likely finding good success, and that's excellent!  However, you mentioned Flint, which is a different environment than Detroit, both of which are different than Ann Arbor or West Bloomfield.  The sub-regions are important to pay attention to!

@Joe Delia  and @Tom A.  were both speaking about the city of Detroit.  There are plenty of great areas to invest in Michigan, but Detroit is a city that requires special care for investors.  These two guys live and work and invest in SE Michigan every day, and I think their advice is good.

I just recently moved to the West part of the state, and have looked at several of these Detroit deals.  I will echo what they said - you can feasibly make money investing in Detroit, and you can certainly make money in many of the surrounding areas.  But if you're going to invest within the city of Detroit, do your homework and work with someone who knows it on a street by street basis.

Zaid R. · Answer

There might be some opportunity in Detroit put proceed with caution. The city is bankrupt, has high unemployment & crime rates and the population is declining. Teaming up with a seasoned investor in that city could be very beneficial to you.

Aaron Montague · Answer

@Joe Delia

Well that's no fun at all.

@Yolanda Smith

If gambling in Detroit isn't your thing, I would look into Grand Rapids.  It is a city going through a renaissance backed by wealthy locals.  The city has been growing and promoting its "Medical Mile" area as well.  Plus it's fair cheap.

Joe Delia · Answer

Detroit hasn't even payed its contractors to remove all the dead dogs they have piling up at the living hell that is detroit animal control, they're not going to pay you a dime.

Aaron Montague · Answer

Taking this in a completely different direction:

Could you make any money from tearing down the houses in Detroit?  If you can buy a bunch at the end of one of their service (sewer/road/electric) lines, maybe they would pay you to lighten the infrastructure burden on the city.  Offer 7.5k for a section of 10 houses.  Spend 10k removing the houses and get the city to pay 25k each for their removal.  You are up 75k and the city has 10 less sewer mains to pay for next year.

Chris Clothier · Answer

Not a knock on the Michigan investors...

Just saying that Jake is an out of towner investing from a long way and finding success.  As an out of towner that is where I would go first and then reach out to locals that you will need on your team if you like what you hear from Jake.

Chris Clothier · Answer

@Yolanda Smith - seek out @Jake Kucheck .  He is a seasoned investor who like you, lives a long way away from Michigan.  He does a lot of investing in Michigan, I think Flint is his preferred area.  Here is his blog:

http://welcometoflint.wordpress.com/

Plus he is very active here on BP.  He would be the first person I would talk to about buying and holding in Michigan from out of area.

Tom A. · Answer

@Yolanda Smith, there are always lists of cheap Detroit properties floating around.  The problem is that as the city of Detroit has lost population, its found itself with excess homes.

Think of the game musical chairs, except that instead of chairs (houses) being taken away, people go away.  You're left with only 4 families for every 5 houses.  The worst of the five houses gets abandoned.  No one wants to live there, and no one has to, due to the oversupply of houses.

So what's the value of the 5th house?  Zero.  There's no income stream.  Some people think there is, perhaps, what you might call an option value as with stocks, in that maybe some day it will be capable of producing income.

Outweighing that however is the cost of paying taxes, insurance, utilities, mowing the lawn and such on the vacant house until that day comes (and it will probably never come).  In the mean time, that vacant house will be scrapped, vandalized and possibly set on fire by a squatter crackhead.

So you have a small chance of that 5th house producing income someday, and a very large chance that the house will consume cash to maintain and require tens of thousands of dollars in rehab to undo the damage done to it.

There are thousands and thousands of houses in Detroit like this 5th house.  This is usually what's on the lists that get passed around.  The dregs, the rejects, the losers from some bulk tape six links up the chain.

People who aren't familiar with housing markets like Detroit where you have more properties than people to occupy them don't understand how a list of houses can have zero value (if not negative value).  Sometimes they buy and cry.

I'm not saying no one should invest in Detroit.  I actually like the city.  There are good investments to be made, in both the better and in the marginal neighborhoods, but you really, really have to know what you're doing.  If anyone finds themselves thinking "it's so cheap, how can it go wrong?", be aware that you're probably about to lose your investment.

Joe Delia · Answer

Your best bet is to partner with an experienced detroit investor on this deal.

Jon W. · Answer

@Yolanda Smith , If you really want to go after these you should talk extensively with a property manager familiar with Detroit...and proceed with caution.