Detroit Bankrupt
Los Angeles, CA · Member since 2013 · 44 posts · 15 votes
My dad just sent me this link.
http://theextinctionprotocol.wordpress.com/2013/07/18/motor-city-goes-bust-largest-ever-municipal-bankruptcy-in-u-s-history/
What do you all think about the REI market in Detroit after hearing about this?
For starters, the $500. Then being on the hook for taxes and other liens.
Here's the elephant that's stomping on Detroit: The city once has 1.8 million residents. It now has 700,000. That means it has enough housing units to hold 1,800,000 but need only enough for 700,000. That means that many of the housing units in Detroit are completely unnecessary. The right answer is for these to be razed. Not just individual houses or buildings (there are MANY totally abandoned and totally useless auto factory buildings right in Detroit) but entire neighborhoods. People need to be concentrated toward the core of Detroit so large swaths of land can be abandoned. Not just houses, but streets, electric lines, water and sewers - everything. Otherwise, the city is stuck providing services to an area three times larger than is needed. That's a burden that must somehow be shed.
There are a couple of other threads on this topic you might want to check out:
http://www.biggerpockets.com/forums/48/topics/95012-detroit-bankruptcy-any-silver-lining
Thanks Jon, just read the threads. If properties are starting at $500 at auction and aren't selling, what's to lose? Not a seasoned REI, simply a beginner in this game--but it seem like there's a lot of potential to make money in the Detroit market. Any further input on the matter is greatly appreciated, especially from the PROS. Thanks in advance!
Jonathan La Rosa, the issue is with the neighborhoods those $500 houses are in. No one wants to live there. They are abandoned, run down, burnt down and crime ridden.
There is a vast area with these types of neighborhoods unfortunately.
I personally have been watching the northward shift since it started back in the beginning of 2008. Although it has slowed down, Tens of thousands of people have left Detroit for it's Northern bordering Cities such as Warren, Southfield, Oak Park, Roseville, Hazel Park, Fraser and the list goes on.
I'm assuming they moved in all other Directions out of the city as well.
The Westside still has some Decent areas and there are a handful of neighborhoods in the Heart of Detroit that are nice. The problem is the surrounding neighborhoods are not. So who wants to live in a nice area when they still have to drive through destruction every time they leave their house.
Sure there are people who still live there and want to stay.
Here is a blog
I started in hopes to get people involved. I myself am on the fence still about venturing into Detroit and trying to help bring some people back who WANT to go back as well as give people within the city to have a nicer place to live.
Aaron, you are right about the migration going west and south as well as north. Southfield is basically ex-Detroiters. I have said before that I would not invest in Detroit without being personally familiar with the property, but I think the bankruptcy is a long-term positive in that Detroit dumps a ton of debt payments and can use the money for fire, police, and lighting.
John Knappmann, I think I am going to drive some neighborhoods this weekend. I have been talking with Annette Hibbler and her husband about some properties they have. I'm just so nervous since I haven't had time to do my due diligence.
I was suppose to go check out 4 properties she gave me this past weekend but ended up having to work my day JOB and never made it.
They are offering a pretty good deal right now on properties.
I am also breaking into wholesaling and another fellow BP'er has been discussing options that he can help me with.
We got into the discussion about Detroit last night as well.
Aaron, I think it's great that BP is helping you connect for potential deals. Keep it up. I have a feeling this might have been the missing piece that will allow you to ramp up your business to the next level.
For starters, the $500. Then being on the hook for taxes and other liens.
Here's the elephant that's stomping on Detroit: The city once has 1.8 million residents. It now has 700,000. That means it has enough housing units to hold 1,800,000 but need only enough for 700,000. That means that many of the housing units in Detroit are completely unnecessary. The right answer is for these to be razed. Not just individual houses or buildings (there are MANY totally abandoned and totally useless auto factory buildings right in Detroit) but entire neighborhoods. People need to be concentrated toward the core of Detroit so large swaths of land can be abandoned. Not just houses, but streets, electric lines, water and sewers - everything. Otherwise, the city is stuck providing services to an area three times larger than is needed. That's a burden that must somehow be shed.
A lot remains to be seen in how the city treats its creditors. If they default on their GO munis then they will have a hard time getting the good financing they need. Will others come in to help once the city has burned its creditors? That remains to be seen. There are start-ups there because you can buy cheap so it should be interesting to see what happens.
Jon Holdman, that makes alot of sense. The owner of quicken loans is buying up buildings downtown and cleaning it. So it only makes sense to invest in housing close to downtown for the people who work downtown and want to be close to their job or love the city.
Thank you for that input. That gives me some ideas of where to start driving
Oh, rest assured Detroit it going to burn both its creditors and its retirees. It really has no choice. There is just no money to pay these obligations. The battle may take years and do a lot of damage in the process, but the outcome in inevitable.
Aaron Yates whether this consolidation really happens or not remains to be seen. Its easy to say that the few remaining occupants of some neighborhood shoudl be moved somewhere else and the entire neighborhood abandoned. Actually making that happen is very, very difficult. At some point the city might have to do something very drastic. Like shrinking the borders and saying "sorry, all you folks outside the city no longer get any services from Detroit." Essentially the reverse of when a city expands. Some areas might be able to forum their own municipalities. Many won't and those areas will turn into ghost towns and the residents will have no choice but to "live in the wilderness" or move.
Here's a clip from an article and video series focusing on educating the public at large regarding Detroit's resurgence.
"Quicken Loans founder Dan Gilbert has moved his headquarters and team of 3,700 people to downtown Detroit, where he is committed to spurring the revitalization of the city’s downtown core. Twitter has established an outpost in Gilbert’s M@dison Building. The Detroit metro is home to numerous great universities, from Wayne State to the University of Michigan and the College for Creative Studies, each of which attract thousands of students every year. The city’s Corktown district has become a dining destination, with Slows BBQ, Astro Coffee, Mercury Bar, and Green Dot Stables. And while cities around the world struggle to add green spaces, Detroit has Lafayette Park, an amazing intersection of modernist architecture and landscape designed by Mies Van Der Rohe, working in close collaboration with the urban planner Ludwig Hilberseimer and the landscape architect Alfred Caldwell.
Detroit is still a part of a large, diverse metro region. With a population of more than five million, according to the U.S. Census Bureau’s combined statistical area (which includes Ann Arbor), and an economic output of more than $200 billion when you add Ann Arbor, greater Detroit is the nation’s 14th largest metropolitan economy. It remains one of the world’s leading centers of automotive technology and industrial design and with its recently expanded and renovated airport, it has aerotropolis-style connections to the world. Nearby Ann Arbor and Lansing, home to the University of Michigan and Michigan State, respectively, provide research and development assets that few places can match. If Detroit has lost much, it still has much to build on—and it is. "
Read full article and watch video at:
http://www.theatlanticcities.com/jobs-and-economy/2012/05/how-detroit-rising/1997/
A fiscal crisis and an economic crisis aren't the same thing. Bankruptcy is a restart, not a defeat.
"Bankruptcy is not likely to disrupt the flow of capital, technology and talent back to the urban center.
More than 40 per cent of the young adults living there are university educated, according to a recent report, compared with 11 per cent for the city as a whole, 29 per cent for the state of Michigan and 31 per cent for the nation. The urban center is home to more than 600 new companies and draws 10.5m visitors to its leisure attractions each year.
This revitalization is powered by a new model of public-private partnership backed by local entrepreneurs, city-builders and philanthropic foundations, in tandem with community groups that are pumping billions of dollars into the urban center.
Bankruptcy is likely to have little, if any, effect on this flow of investment capital back to the core. As Detroit Venture Partners chief Josh Linkner told Venture Beat on Friday, “I’m proud to say Detroit is my hometown,” Linkner said. “It will still be my town tomorrow, the day after, and in the years to come.”
Read full article:
http://www.theatlanticcities.com/jobs-and-economy/2013/07/dont-let-bankruptcy-fool-you-detroits-not-dead/6261/
Jon, I absolutely do not see a possibility of the Detroit municipal government disowning tracts of land within it's boundaries. Not even an Emergency Manager would do that, and no elected official would. As for concentrating residents, that should be done and would be a long-term project.
There are still a lot of reasons to invest in Detroit. 700,000 people live there, they want decent housing, and many of them rent.
I was listening to the Mayor of Detroit on tv the other day, discussing the issues that they're facing, and they are vast. The inner city is rife with violence and crime. There are no jobs, and no economy to speak of. The area of the city is so large that it's impossible for them to provide the services they need. The mayor said they are working on a plan.
The mayor said nothing is off the table. They are considering possibly selling the international airport, parks, etc. It seems he is open to creative ideas to save the city.
On the program they showed areas of Detroit where the houses were built pre WWII, and they are in horrible condition. Those neighborhoods that are old and abandoned should definitely be razed. There should also be incentives for business and families to move closer into the core of the area. Maybe then, the area will slowly begin to grow.
Annette Hibbler what you have described seems like a very creative way some of those with the ability to make a change are actually committing to take action, that's great!
Jonathan La Rosa remember, just because you can do something, doesn't mean you should! Though it sounds like change is in the making, if you don't know the areas, you definitely need to do your homework!
For starters, the $500. Then being on the hook for taxes and other liens.
While there's money to be made in Detroit, think about the tens of thousands of abandoned homes still standing. Every one of those owners lost everything. Look at the thousands of acres of vacant lots where homes once stood. Every one of those owners lost everything. If you don't know what you're doing you can lose your entire investment.
I'm not trying to be overly pessimistic but I know with the news of the bankruptcy there will be an influx of potential investors in Detroit. Folks on the coasts or overseas look at Detroit real estate prices and many do think "If I buy, how could it possibly be worth any less?" Between the unforgiving real estate market in Detroit, and an abundance of unscrupulous turnkey rental outfits, you can lose everything you invest.
I've talked to a number of out-of-state and foreign investors whose investments went sour that were looking for an honest opinion on what their options were. I didn't have good news for them. I know local investors who have been offered Detroit properties for free by long-distance investors, and they didn't take them. Be careful.
Also keep in mind that Detroit's population is decreasing by one person every 22 minutes. Even if everything else was "good", the fact that the population is shrinking means that demand for housing will continue to drop. That results is lower property values, lower rents, and increased vacancies on the existing housing stock.
This is NOT the time to be dropping your investment dollars there!
Marco Santarelli, while I generally agree with your first paragraph, the city of Detroit is too large to paint with one broad brush.
There are areas in the city where rents have been rising by double-digit percentages over the last few years and vacancy rates are in the low single digits. There are stable middle-class neighborhoods that have survived the worst of the foreclosure onslaught where new for-sale listings and rentals go very quickly. There are also lots of neighborhoods in various stages of decline where people are moving out, when they can, to better housing situations.
Hi Tom A.: Yes, I was generalizing to some degree. There are always pockets of good neighborhoods in every city -- Detroit included. Although I have a fair amount of personal experience investing in Detroit, one of the biggest challenges I see as an investor is the city's economy and it's effect on long-term investing there. There are many other cities to invest in where there is less risk from the local economics and health of the housing market, let alone the decreased (or non-existent) fire, medical, and police response. :-(
Thanks for the comments!
Detroit is no longer on my radar. Thanks for all the comments!
The city of Detroit would love to consolidate their land area to only supply services to concentrated areas. This would leave large tracts of vacated land for: future development, farming operations, and land bank vacant property with manageable carry costs.
The Problem: in the late 70's, Detroit used eminent domain to displace 4,200 people, 1,300 houses, businesses, churches and a hospital from their property and transferred that land to GM to build their Pole Town plant. Many cities followed suit using eminent domain as an economic tool for developing under-utilized areas within their cities. Displaced residents sued the city and the decision was upheld by the Michigan Supreme Court. It became a landmark case Poletown v. Detroit.
In 2004 this case was challenged in the Supreme Court (20 years later) and the decision was overturned. The city had to pay damages for an unlawful taking.
In 2005 the State of Michigan adopted into the STATE CONSTITUTION that cities can not use eminent domain for economic gain.
As it currently stands, to vacate one block in the city, which may have 100, 30' parcels, of which their may only be 5 houses standing, the city would have to take each parcel owner to court. Then they would end up paying fair market value for the vacant lots and have to relocate those 5 occupants to habitable, alternative housing (at a cost of $50-$70,000 a piece) for property worth virtually nothing. Now multiply that one block effort to a land area the size of Manhatten.
Without eminent domain this can not be done on the scale necessary to help the city gain control of large tracts of land. The State Constitution would have to be changed which takes a vote of the people and right now the conservative view in the state is that individual personal rights trump governmental economic turmoil.
I am paraphrasing the facts of the case but unfortunately this is not just a legislative exercise rather a constitutional one.
Bankruptcy aside, detroit is rising from the ashes. My generation is flocking to the city and creating a downtown they always wanted. We don't have the memories of race riots, only stories. It's the last frontier in the US where you can do what you want without much hassle.
Here's a picture from a penthouse party at the http://en.wikipedia.org/wiki/David_Broderick_Tower broderick tower I was at last weekend.
https://www.dropbox.com/s/j2180c4oxdn9p49/photo.JPG
Can't get the photo to post, but click it if you want.
Well said Joe Delia, that is the intangible that the statistics can't reflect. Statistics are trailing indicators, intangible/organic movements are leading indicators that I feel only local investors can see.
Our market is on the rise in spite of bankruptcy. I think that says a lot for the market here. There are substantial issues within the city, yet I'm having a hard time finding product and my market is up 50% from 18 months ago. Go figure?
I read somewhere, can't remember where, that Detroit was giving vacant land/lots to adjacent occupied lots. These were lots that have been long since abandoned and they seized through non payment of taxes. The idea being that the new owners would take care of the land, mowing, picking up trash (yeah, right) and maintain the land.
Detroit is a use to be and a lost cause in my opinion. How do you go about displacing all of the trash that lives there that is the root of the crime problem? These type of people do not want to work, they would rather be the Democrat base and be the takers, be it through the system or at gun point, likely both. All the do-gooders want to "fix" the problem, I say leave the problem right where it is before you screw up someone else's neighborhood.