Looking into Detroit but SO scared

[Michael Oliver]

Hello.  I have been lookin into pulling the trigger on deals in Detroit that are already occupied.  Seems like automatic cash flow.  But seems too good to be true.  And super risky.  Anyone in Detroit with any info?

[Scott Mac]

Pulling the Trigger and Detroit in the same sentence....with ....Scared....

Know your areas, but if you are from around there, you know all of D-Town is Dangerous.

And I doubt your cash flow will be "Auto-matic" you will need to screen carefully.

If you are afraid, maybe look outside of D-Town.

Just my 2 cents.

[Travis Timmons]

Properties are cheap for a reason. It doesn't mean that it is a bad place to invest, but you are right to be scared and proceed with caution if you are an out of town investor with no knowledge of the area. 

[Kerry Noble Jr]

Everything is cyclical and i think detroit is on its way back

[Travis B.]

Hey Michael, looks like you've got a few uninformed responses here so I'll provide you one from someone that actually invests in Detroit.

I live in California now and have 12-doors in Detroit. I'm still actively investing but I help others get started there as well.

The city has been insanely good to me and my family, but yes... you do need to do a lot of due diligence and/or work with someone that REALLY understands the intricacies of the market. Happy to connect and see if I can be helpful.

[Stefani Mokris]

Different markets have different strengths, and as I understand Detroit is a strong market for cash flow. 

Doing research on the Detroit market and connecting with locals will increase your knowledge and decrease your fear.

Good luck on your REI journey!

[Kevin Truong]

I currently have 2 long term rentals, looking to add more cashflows. I'm also looking at states like Michigan, Ohio, Tenn and Alabama if there's any expert out there with extensive knowledge please share it with me I'll greatly appreciate it. 

[Michelle Bateman]

Quote from @Michael Oliver:

Hello.  I have been lookin into pulling the trigger on deals in Detroit that are already occupied.  Seems like automatic cash flow.  But seems too good to be true.  And super risky.  Anyone in Detroit with any info?

 Find yourself a good investor friendly agent and you will be fine! 

[Alex Bekeza]

@Michael Oliver I started investing in Saint Louis a few years ago with the same excitement tempered by fear of the unknown.  I can say without a doubt that I would have totally taken the wrong deals if I hadn't physically visited the area to get a feel and built a team of professional boots on the ground who weren't afraid to be blunt with me.  You really need a realtor, PM, and GC who are all willing to tell you when you're on the wrong street.  Like Detroit, Saint Louis is incredibly "block by block" where one area is experiencing gentrification or at least just a stable middle class feel and that might only be 100 yards away from a street that will be un rentable, un managemeable, and honestly a bad place to get out of your car.  

I only have 6 properties in STL now but I can also tell you that the huge cash flow numbers ARE indeed a bit too good to be true (but that doesn't stop me from continuing to buy there).  What I mean is that properties with extremely high cash flow on paper will TEND to have more costly capex issues, more maintenance issues, and higher rates of turnover and delinquency. (You just need to be really good at spotting the big capex stuff up front and accounting for it in your purchase price.)  I mitigate some of this risk by relying on section 8 exclusively going forward.  I love section 8 because it guarantees a certain % of rent, the tenants really value that housing voucher and won't do things to risk losing it, and section 8 has strict criteria for condition of the unit which adds a layer of accountability on my property manager.  I had the same apprehension about section 8 that many people might have but my experience has been the opposite of any negative stereotypes.  My section 8 tenants were the first tenants I had which possessed linkedin accounts and also had among the best FICOs compared to my tenants who were not on housing assistance.  

[Michael Oliver]

Quote from @Alex Bekeza:

@Michael Oliver I started investing in Saint Louis a few years ago with the same excitement tempered by fear of the unknown.  I can say without a doubt that I would have totally taken the wrong deals if I hadn't physically visited the area to get a feel and built a team of professional boots on the ground who weren't afraid to be blunt with me.  You really need a realtor, PM, and GC who are all willing to tell you when you're on the wrong street.  Like Detroit, Saint Louis is incredibly "block by block" where one area is experiencing gentrification or at least just a stable middle class feel and that might only be 100 yards away from a street that will be un rentable, un managemeable, and honestly a bad place to get out of your car.  

I only have 6 properties in STL now but I can also tell you that the huge cash flow numbers ARE indeed a bit too good to be true (but that doesn't stop me from continuing to buy there).  What I mean is that properties with extremely high cash flow on paper will TEND to have more costly capex issues, more maintenance issues, and higher rates of turnover and delinquency. (You just need to be really good at spotting the big capex stuff up front and accounting for it in your purchase price.)  I mitigate some of this risk by relying on section 8 exclusively going forward.  I love section 8 because it guarantees a certain % of rent, the tenants really value that housing voucher and won't do things to risk losing it, and section 8 has strict criteria for condition of the unit which adds a layer of accountability on my property manager.  I had the same apprehension about section 8 that many people might have but my experience has been the opposite of any negative stereotypes.  My section 8 tenants were the first tenants I had which possessed linkedin accounts and also had among the best FICOs compared to my tenants who were not on housing assistance.  

 Amazing info here!  Thank you very much for your insight! 

[Nathan Harden]

You acknowledged that you were scared of the Detroit market, therefore as the old saying goes "Trust your gut" and there is your answer.

[David Pollard]

Quote from @Travis B.:

Hey Michael, looks like you've got a few uninformed responses here so I'll provide you one from someone that actually invests in Detroit.

I live in California now and have 12-doors in Detroit. I'm still actively investing but I help others get started there as well.

The city has been insanely good to me and my family, but yes... you do need to do a lot of due diligence and/or work with someone that REALLY understands the intricacies of the market. Happy to connect and see if I can be helpful.

 Would like to connect and learn more about investing in Detroit.

Let me know if you have some time to connect.

[Travis B.]

Quote from @David Pollard:

Quote from @Travis B.:

Hey Michael, looks like you've got a few uninformed responses here so I'll provide you one from someone that actually invests in Detroit.

I live in California now and have 12-doors in Detroit. I'm still actively investing but I help others get started there as well.

The city has been insanely good to me and my family, but yes... you do need to do a lot of due diligence and/or work with someone that REALLY understands the intricacies of the market. Happy to connect and see if I can be helpful.

 Would like to connect and learn more about investing in Detroit.

Let me know if you have some time to connect.

 Sure, David. Shoot me a message any time!

[Mo Maktari]

I am a born and raised product of Detroit but I've now lived in Tampa, FL for 18 years. I still have most of my family in MI and visit at least once a year. Detroit's rental market appreciation is very good. Like everyone has said, do your research and take advantage of the real estate agent tool here on BP. I've hooked up with Matt Bahoura with FIRE Realty Team in the area and currently under contract with a sfh in the area. They are investor friendly and know their stuff. I get the scared aspect of it, but the appreciation doesn't lie!

 

[Eric Fernwood]

Hello @Michael Oliver,

There is good reason to be scared. The population of Detroit has declined significantly since 1990. In 1990, the city had a population of 1,027,974. As of 2022, the population of Detroit is estimated to be 673,104. This represents a decline of 354,870 people or 34.5%. Also, Detroit is #6 on Neighborhood Scout’s list of the 100 most dangerous cities. If your goal is financial independence, your financial future is tied to the long-term economic outlook of the city where your investments are located. There are many other potential investment locations that do not carry the high risk of Detroit.

There is a strong belief that buying a property that already has a tenant is a great way to go. This is rarely the case for the following reasons:

• In 15 years of doing residential and commercial real estate, I have never seen an investor sell a performing asset. 100% of the time of the investigated properties, they were losing money. The problem was either the tenant or deferred maintenance.
• In many cases, the existing rent has not kept pace with market rents. For example, there's a property on the MLS that stated how wonderful their tenant is. The statement is that the tenant has been in the property for five years and always pays the rent on schedule. The tenant is paying $1300/Mo, the market rent is $2200 a month. You have no ability to increase the rent by $900/Mo and keep the tenant.
• I was investigating a four-plex. The agent stated that all of the units were rented for $900 per month. During my due diligence, I interviewed the tenants, but I found their answers to be suspicious. I offered one tenant $50 for the truth, and he told me that the options were to pay $900 per month with a check or $600 per month in cash. It's your responsibility to perform proper due diligence and don't be surprised if the reality doesn't match what the agent has stated.
• Time to rent and length of stay - I was checking out an apartment building. I talked with a property manager who handles properties in that area and she warned me that the typical time to rent was 2 to 3 months and the average length of stay was less than one year. What appeared to be a cash cow if all the units stayed rented all the time was in reality of money pit due to vacancy cost.

My point with all of this is that you need to do your own due diligence. Do not believe what you are told. Additionally, work with a highly experienced realtor who is familiar with similar properties.

[Joe Hammel]

@Michael Oliver

Metro Detroit has what nearly every single investor wants.

Couple hundred bucks a door (after PITI and budget expenses) , double digit ROI, and yes, the prices appreciate and you build equity.

You just have to know how to recognize it.

I cash flow $100k a year off 20 doors. Happy to send a screen shot of the break down to anyone who reaches out. It won’t allow me to attach a pic here.

[Kass Farran]

@Joe Hammel I would love to see the break down. I just started in Detroit so it's motivating to see what's possible.

[Joe Hammel]

@Kass Farran

Yep I can send it. I’ll send a message

[Jarrad Chabria]

Quote from @Joe Hammel:

@Kass Farran

Yep I can send it. I’ll send a message

 Hey Joe I would also love to see that breakdown if you wouldnt mind sharing with me as well!

[Joe Hammel]

@Jarrad Chabria

Will do Jarrad, I’ll send a message

[Paul Kociara]

Quote from @Joe Hammel:

@Jarrad Chabria

Will do Jarrad, I’ll send a message

 Also sent you a message. thank you,

[Tk Dugan]

Quote from @Joe Hammel:

@Michael Oliver

Metro Detroit has what nearly every single investor wants.

Couple hundred bucks a door (after PITI and budget expenses) , double digit ROI, and yes, the prices appreciate and you build equity.

You just have to know how to recognize it.

I cash flow $100k a year off 20 doors. Happy to send a screen shot of the break down to anyone who reaches out. It won’t allow me to attach a pic here.

 @Joe Hammel - an MI native partner and I have also been watching Detroit (and its resurgence) along with surrounding areas for a while - would love it if you would send that breakdown my way as well! 

[Joe Hammel]

Quote from @Tk Dugan:

Quote from @Joe Hammel:

@Michael Oliver

Metro Detroit has what nearly every single investor wants.

Couple hundred bucks a door (after PITI and budget expenses) , double digit ROI, and yes, the prices appreciate and you build equity.

You just have to know how to recognize it.

I cash flow $100k a year off 20 doors. Happy to send a screen shot of the break down to anyone who reaches out. It won’t allow me to attach a pic here.

 @Joe Hammel - an MI native partner and I have also been watching Detroit (and its resurgence) along with surrounding areas for a while - would love it if you would send that breakdown my way as well! 

 Sure thing TK, sending a message.

[Shannon Verrett]

@Joe Hammel  Yes, I would also love to see the breakdown

[Henry Lazerow]

I second what Eric says. No one sells an actual performing asset at a real life high cap rate. You get what you pay for. 

[Joe Hammel]

Quote from @Shannon Verrett:

@Joe Hammel  Yes, I would also love to see the breakdown

 sure thing shannon, I'll send a messgge