What Actually Kills Returns in Detroit Rentals (Not What You Think)

Question

One thing I’ve noticed managing ~270 rentals in Detroit with a +95% occupancy rate:

Most deals fall apart because of operational drag instead of purchase price or even tenant quality.

A few examples: - Missed compliance / blight tickets → avoidable fines -  Delayed maintenance → small issues turn into $3–5k problems - Pricing slightly too high → 30–45 extra vacancy days

On paper, a deal might look like an 8–10% return… but these small operational misses quietly compress that down.

Curious how others factor in operational risk when underwriting Detroit deals?

Drew Sygit · Answer

We politely disagree.

In the City of Detroit specifically, EVERY property we take over from a competitor has tenant nonpayment issues.

Poor screening, tenant-management, eviction procedures => lost rental income + damages.

This is what usually causes the main hit to investor ROI.

Yes, the stuff you've listed has an impact, but not as much as nonperforming tenants and the damages they cause.

95% occupancy, is nice, but meaningless w/o performance context.

FYI - we've been blogging our portfolio's performance metrics, at least quarterly, since 2020.

Mark Fedorov · Answer

Very true and great business model Jon, do you manage just in Fort Worth/Texas or are you in other areas/states?

Jon Westrom · Answer

This is the truth nobody wants to talk about. The spreadsheet always looks great until the operational drag hits. Delayed maintenance is the silent killer... a $150 fix today is a $1,500 emergency next month. That's exactly why we dont markup maintenance at Westrom. When your PM profits off repairs, their incentives are backwards. Tight operations and total transparency are what actually protect your yield.

Mark Fedorov · Answer

Appreciate you sharing this Drew, and I don’t disagree with you.

Tenant nonpayment + damage is absolutely one of the biggest hits to ROI, especially when screening and enforcement aren’t tight. We’ve seen the same thing when taking over properties where that side wasn’t handled well.

I think where I was coming from is that once you do have strong screening + collections processes in place, the next layer of drag tends is from the operational side.. ie pricing, maintenance speed, compliance, etc. That’s where we’ve seen deals quietly underperform even with paying tenants.

So probably less disagreement and more sequencing:

• Weak ops + weak screening → tenant issues dominate
• Strong screening + systems → operational inefficiencies become the limiter

Also agree with you on occupancy, it only matters if it’s paired with collections and tenant quality.

I just sent you a connection request as well :-) would be great to connect and compare notes. Always open to seeing if there’s any opportunity for collaboration between our teams given we’re both operating at scale in Detroit.