If you're underwriting Detroit from out of state, these are the numbers most people get wrong:
Insurance: $1,500–$3,000+/year for landlord insurance on a standard SFH. Detroit's older housing stock, urban risk profile, and crime rates push premiums well above national averages. Vacant periods and certain zip codes push even higher. Get quotes before you close.
Property taxes: ~$4,000–$4,500/year on a $100K home at non-homestead rates (~85 mills on $50K taxable value). This is the #1 cost most new Detroit investors underestimate. And remember, you don't get the Principal Residence Exemption that knocks ~18 mills off an owner-occupant's bill.
Maintenance: Budget 10–15% of gross rent, not the 5% your guru's spreadsheet template suggests. Roofs, plumbing, electrical, and foundation issues are common.
Vacancy: Budget 8–10% citywide. Rougher neighborhoods can run higher. Winter vacancy is harder to fill.
Management: 8–10% of collected rent if you use a PM. Factor this in from day one, even if you plan to self-manage initially.
A Detroit SFH that looks like a 15% cash-on-cash return with rosy assumptions becomes 6–9% with realistic ones. That's still solid by national standards, but only if you model honestly.
1) Don't confuse the City of Detroit with the suburbs of Detroit! - Each city has its own millage rates and insurance rates, both lower than the City of Detroit.
2) Don't treat all City of Detroit Neighborhoods that same! - Detroit has Class A thru D Neighborhoods & Properties, be sure to understand what you are considering buying.
Our key metrics for each Property Class:
Class A Properties: Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years. Tenant Default: 0-5% probability of eviction or early lease termination. Section 8: Class A rents are too high and won’t be approved. Vacancies: 5-10%, depending on market conditions. Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Class B Properties: Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions. Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation. Section 8: Class B rents are usually too high for the Section 8 program.
Class CProperties: Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability. Tenant Default: 10-20% probability of eviction or early lease termination. Section 8: Class C rents usually meet program requirements, proper screening still recommended. Vacancies: 10-20%, depending on market conditions and tenant screening. Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.
Class DProperties: Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”. Tenant Default: 20-30% probability of eviction or early lease termination.
Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection. Vacancies: 20%+, depending on market conditions and tenant screening. Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.
Where did we get our FICO credit score information from?
1) Don't confuse the City of Detroit with the suburbs of Detroit! - Each city has its own millage rates and insurance rates, both lower than the City of Detroit.
2) Don't treat all City of Detroit Neighborhoods that same! - Detroit has Class A thru D Neighborhoods & Properties, be sure to understand what you are considering buying.
Our key metrics for each Property Class:
Class A Properties: Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years. Tenant Default: 0-5% probability of eviction or early lease termination. Section 8: Class A rents are too high and won’t be approved. Vacancies: 5-10%, depending on market conditions. Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Class B Properties: Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions. Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation. Section 8: Class B rents are usually too high for the Section 8 program.
Class CProperties: Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability. Tenant Default: 10-20% probability of eviction or early lease termination. Section 8: Class C rents usually meet program requirements, proper screening still recommended. Vacancies: 10-20%, depending on market conditions and tenant screening. Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.
Class DProperties: Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”. Tenant Default: 20-30% probability of eviction or early lease termination.
Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection. Vacancies: 20%+, depending on market conditions and tenant screening. Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.
Where did we get our FICO credit score information from?
Great additions @Drew Sygit, and you're absolutely right on both points.
My post was focused specifically on City of Detroit numbers, and I should have been clearer about that distinction. The suburbs are a completely different underwriting exercise (lower millage, lower insurance, different tenant pool dynamics). An investor buying in Redford or Hazel Park is running very different math than someone buying in Brightmoor, and lumping them together does a disservice to both.
Your property class breakdown is gold and honestly should be required reading for every out-of-state investor before they make their first offer. The piece that jumps out to me is Class C and D, that's where we see the most OOS investors get burned. They see the rent-to-price ratio on paper, don't understand the tenant default rates or vacancy risk you outlined, and assume the spreadsheet will play out like it does in a Class B neighborhood. It doesn't.
The 132 cities / 183 neighborhoods point is also critical. "I invest in Detroit" could mean a $180K home in Grandmont-Rosedale or a $35K home in a D-class pocket on the east side. Those are not the same investment, not the same tenant pool, and not the same outcome, even though both technically have a Detroit mailing address.
Appreciate you taking the time to add this level of detail. This is the kind of nuance that actually helps people make better decisions.
What class of properties are you seeing the most OOS investor interest in right now?
Great additions @Drew Sygit, and you're absolutely right on both points.
My post was focused specifically on City of Detroit numbers, and I should have been clearer about that distinction. The suburbs are a completely different underwriting exercise (lower millage, lower insurance, different tenant pool dynamics). An investor buying in Redford or Hazel Park is running very different math than someone buying in Brightmoor, and lumping them together does a disservice to both.
Your property class breakdown is gold and honestly should be required reading for every out-of-state investor before they make their first offer. The piece that jumps out to me is Class C and D, that's where we see the most OOS investors get burned. They see the rent-to-price ratio on paper, don't understand the tenant default rates or vacancy risk you outlined, and assume the spreadsheet will play out like it does in a Class B neighborhood. It doesn't.
The 132 cities / 183 neighborhoods point is also critical. "I invest in Detroit" could mean a $180K home in Grandmont-Rosedale or a $35K home in a D-class pocket on the east side. Those are not the same investment, not the same tenant pool, and not the same outcome, even though both technically have a Detroit mailing address.
Appreciate you taking the time to add this level of detail. This is the kind of nuance that actually helps people make better decisions.
What class of properties are you seeing the most OOS investor interest in right now?
Unfortunately, we see a lot of naive OOS investors interested in cheap acquisition prices, with very little thought given to the Class of Neighborhood/Property/Tenant Pool😌
Hey! Really solid breakdown on the Detroit numbers — the property tax piece especially is something I see trip up out-of-state investors all the time.
I'm Troy, I work on the property management side here locally in Metro Detroit (Macomb/Oakland side, mostly). Always good to connect with people who are actually doing the math right.
Are you actively buying in Detroit, or still in the research/underwriting phase?
