Best Market to Invest - Metro Detroit

[Joe Hammel]

It seems like many are struggling to find cash flow. We are not. So just figured I'd share my portfolio. This portfolio makes me a lot of money each month and they really just aren't that hard to find. Buy $90-$135k, rent $1100-$1500, ROI double digit, cash flow triple digit. Keep buying.

Everything is in Metro Detroit Suburbs. 

All 1-1.5% deals.

Almost ALL of these were bought on the MLS

I completely avoid the purchase price of $10k-$40k disaster of houses that look like the 3% rules on paper. That's where the "Detroit" reputation comes from and the horror stories. I don't buy those lol. What I do buy is in solid, blue collar cities, landlord friendly (close enough), with crazy good price/rent ratios. Of course, you need to know what you're looking for, but we have that pretty refined at this point.

I'm still buying. That's why that last warren one is *. It's under contract right now. 

Obviously, these were bought during a time of 10-20% appreciation. So my ARVs are significantly higher and pricing today for a buy is closer towards the bottom such as a sfh for $120k. BUT*** Rents are also higher so the numbers work just as well. I also have my rehabs pretty refined, executing high roi items for low costs.

Still actively looking to buy the 2nd half of this year. This "buyer hesitation" has created great opportunity in the market for deals. Market rents are only going to go up in the future.

[Drew Sygit]

@Joe Hammel these are great examples of why Metro Detroit is a great market!

[Anthony L Amos Jr]

Nice! I'm looking to start investing in the area soon as well! 

[Gary Carver]

@Joe Hammel. Yes I agree with some of the things that you say about the metro Detroit area. But some of those disaster stories that speak about “Detroit” I believe mainly it is dealing with realtors who are not familiar with Detroit area itself .I think Buyers Need to get connected with realtors who are more familiar with the city that can guide them .they can be successful like a lot of the Out of state/country investors that are doing well here

[Drew Sygit]

@Gary Carver what do you think of this info?

You might want to follow the "Deep Dive" series we're doing on our BiggerPockets blog about Metro Detroit cities, City of Detroit Neighborhoods and comparing Metro Detroit to other hotspots investors usually consider:

https://www.biggerpockets.com/...

Many OOS investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

[Shirley Cheung]

Hi Joe! I'm looking to buy my first investment property in Detroit and I live out of state. Do you have any recommendations on good property managers?

[Marshall Leipprandt]

@Joe Hammel What has your cap-ex and maintenance been on these properties? Do your tenants pay for ALL utilities? What about landscaping and snow removal? What are your vacancy rates? Do you self-manage or do you have a property manager? How old are these homes? Do you do all of the rehab, subcontract, or do you hire a GC? 

You should be providing more info here. Detroit (even the areas you mention) is not all sunshine and rainbows as an investor/landlord. I'm saying this not to be a cynic, but because I'm from MI, am very familiar with Detroit, and have looked extensively into similar types of properties in Mid-Michigan where I'm from and no matter how hard I tried convincing myself to pull the trigger, the deals never seemed to pencil out. A whole year of cash flow and cap-ex reserve account can be wiped out with one repair that is $1,500-$1,800. 

Don't get me wrong, I wish everyone investing in Detroit well as it is a city I really hope can continue its come-back, but making it seem like there are no struggles to finding cash flow on quality investment properties is misleading, particularly for new investors who don't have much experience.

[Joe Hammel]

@Shirley Cheung

Hi Shirley, yes, I seen you reached out on our website, we will be in touch in the morning!

[Joe Hammel]

@Marshall Leipprandt

Hi Marshall,

Happy to provide “more” info, but I disagree that I “should have” done so, as you claim.

I was summarizing and being concise. I can talk all day about the specifics of these deals, just didn’t feel like typing all day and I don’t think most people feel like reading all day.

There’s definitely a degree of skill that goes into investing..so I agree, not everyone is able to execute this.

We have hundreds of clients succeeding with a similar formula and I think it’s likely because of the guidance we provide and how we have narrowed down our criteria and markets.

My deals provide a ton of cash flow, high ROI, and relatively low maint. Period. They work. You can't deny me that. Yes, I budget for maint, capex, vacancy, and all projected expenses and I do not count that towards cash flow. I personally subcontract my work and recently started a handyman business to help myself and clients with rehabs. That has been one of the best decisions I've ever made. Depends on the property for landscaping. Most* SFH the tenant does all, and most* MF properties I/owner takes cares of landscaping and snow. Again, always budgeted and not counted as cash flow.

Not sure what to tell you if you just haven’t been able to execute it. I guess I’m probably taking for granted how refined our process is.

If you’re looking to buy in the market, happy to share more details of these deals and how we analyze them and how they look after a few years.

[Eliott Elias]

Killeen Texas is a killer market. ARV's and rents allow for BRRRR and it's proximity to Austin is great

[Marshall Leipprandt]

@Joe Hammel I get it, you're a Realtor and trying to buy/sell properties. So am I. Buyers are hesitant and are looking for experienced professionals to tell them why it's still a great time to buy. I make that case to prospective buy and hold buyers all the time but I still tell them the obvious risks and give them my honest thoughts on rates, the economy, real estate trends, etc. At the end of the day, it is their choice to make but we as Realtors should still present to them the facts, both good and bad.

You can summarize and be concise yet still give a more accurate representation. Let's be honest, using phrases like "many are struggling to find cash flow. We are not.", "this portfolio makes me a lot of money each month", "they really just aren't that hard to find" and "market rents are only going to go up in the future" make things sound so much simpler than they are and make these deals sound like there is a 0% chance of losing money. That's my point. If you're trying to pitch the easy breezy investment, then I think it is contextually relevant for you to include some elaborative detail. Cash flow in quality markets is difficult to find ANYWHERE right now even for the most experienced investors. Your post makes that not seem the case, and that's my concern. 

I'm not undermining your processes or success, but this is arguably the most difficult time in our careers to make $ in real estate as investors nationwide. So I think it is fair for those new members perusing BiggerPockets who have never been to Detroit to understand the reality of the situation. 

I wish you well and best of luck in your future efforts. I really do hope that Detroit can continue its turnaround!

[Mica Moore]

Would you say that the maintenance and repair costs and vacancy rate is higher than average in Detroit (compared to cities of similar size but stronger economy/higher medium income)?

it would seem that would be the case because there tends to be more tenant caused property damage and wear and tear where there is lower income. Do you find this to be true?

[Joe Hammel]

@Marshall Leipprandt

Thanks Marshall. This post was about my portfolio and I KNOW this market has what many are looking for and this IS the platform to share such and it’s encouraged to do so. (Many people thank me for sharing such intimate details when many other would hide/hoard such)

Since it sounds like you’re referencing my real estate team - We’ve closed 275 deals so far this year and we’ve had 100% 5 star reviews (many repeat clients who have built entire portfolios and even quit their full time W2 jobs because they’ve experienced the same thing that I’ve referenced above).

The Detroit area has been ranked as the #1 cash flowing market in the nation by multiple sources multiple times. So YES, it is easier and the “easiest” place to find “good deals” in the perspective of what most investors would consider such.

We don’t buy the cheapest properties and we do SO MUCH to talk to clients about DO’s and DONT’S for investing. Perhaps its the insane amount of support and resources we supply clients with that helps them find similar success.

I don’t find it right the assumptions and accusations you’re making of what I/we do and don’t do and that is why I’m standing so firm.

When you have the #1 (ranked by sources other than me) cash flowing market in the country, and someone who has refined the formula of success within - I stand behind it being fair to say that compared to everywhere else, it is much easier to find a “good deal”.

[Joe Hammel]

@Mica Moore

Hi Mica,

That’s a great question. Since it’s really hard to nail down data on something such as that, I would have to reference theory and experience.

I’ve had a few recent tenant turnovers. The most recent one I went in for my post move out and inspection and the house was perfect. This occupant was there for 2 years (moved out because they bought a house) and it looked almost the same as it did the day I rented it to them 2 years ago. Literally the only thing I did was caulk around the kitchen sink and trim some shrubs in the front.

I’ve had others recently that I would rank as pretty “normal” turnovers..a few repairs, paint that, replace that carpet etc. For the most part it seems to be a balance of the property you buy initially (buy a good solid house, get a professional inspection, and do the necessary repairs prior to renting) and then selecting a good quality tenant.

For the most part I can’t think of anything that would be outlandish in terms of maint. When I have a tenant that moves out that’s been in there for a long time (10+ years) I expect to do a solid amount of work, which I think would be normal.

Once rented, so far (fingers crossed) my occupied properties are just your normal repairs and the occasional old furnace or such that is due to be replaced and finally breaks.

I think a big factor is, personally I/we aren’t buying in locations where the median income is super low as you’re referencing. I personally buy in markets where that is higher and I also do pretty nice updates after purchase to try to “bullet proof” the home for longevity as much as possible - so I think that could be why I haven’t noticed anything that feels “above average” in terms of maint/cap ex.

I DO think there are many properties in the area that if bought would have above average maint/capex because of the condition of the property and quality of tenant. We hear about a lot of people experiencing that. I try to buy better houses in my preferred markets. For example, I paid almost $120k for my last couple houses…there are plenty of houses for $20k-$40k that might pencil out even better on paper but I would never buy. I prefer to pay a little more to hopefully get a property with lower maint/capex and a higher probability of the tenant paying.

[Drew Sygit]

@Marshall Leipprandt jumping in to support the Metro Detroit market:)

Years ago, we created the term "Ring Cities" on our website & BiggerPocket blogs, to reference all the suburban cities that touch Detroit. These cities, except the Grosse Pte's, could all be purchased at relatively low prices, yet were renting at relatively high rents. 

Despite prices more than doubling since we started using that term, Metro Detroit's Ring Cities are still one of the best places in the country to buy rentals because rents have also spiked.

Unfortunately, many locals are too "blind" to see the opportunity, but out-of-state and out-of-country investors don't have that problem.