Why is Detroit the Right Palce and This the Right Time?
•As many property investors already know, Detroit, Michigan, currently has some of the best property investment opportunities in the world. This is due to the huge number of repossessions and foreclosures seen in the city over the past few years. •The large number of foreclosures has meant that investors with the capital in hand to make a cash purchase are able to buy properties that are already tenanted, or on a government-backed waiting list of over 9,000 people who are in need of suitable housing right away. In most cases, properties are up to 47% below market value (BMV) and are currently achieving rental yields of 21%. All of this from an investment of $45,000. •Located in the upper Eastern region of the United States, Detroit is now home to over 5.4 million people. Detroit is the largest city in the state of Michigan and has been massively affected by the economic downturn, which has led to an increased number of property repossessions and foreclosures. This has resulted in a massive shortage of affordable housing in the metropolitan area of Detroit. There is currently a waiting list of over 9,000 people. All properties available are 3 to 6 bedroom detached houses and are located in stable working-class communities. Properties can be acquired at very low prices ($40,000), while rental returns remain high (gross yields over 21%). Combine this with an extremely high rental demand, backed by the US government; it’s clear to see why Detroit is the right time investors. •Detroit is a vibrant industrial area and has a selection of companies located in and around the city specializing in technological innovation. These companies range from small businesses employing 10-20 people to multi-national corporations with thousands of employees. •The Detroit Metropolitan Airport is one of America’s largest and most recently modernized airports. With 6 runways and maintenance facilities to service and repair aircraft of a similar size to that of a Boeing 747, Detroit Metropolitan Airport is the gateway for many to Detroit and the surrounding area. There are also numerous shops, restaurants and hotels on the airport site, creating jobs for local residents and recreational facilities for travelers.
Comments (3)
It all starts with the neighborhoods you're investing in. As Aaron and Dennis have stated there's a very good reason why houses are selling for $1000 in the city of Detroit. It's because nobody wants that house. Now with that said, there are some very good areas of Detroit, and certainly the suburbs make a lot of sense. When we look for rental property, we look at the following criteria: 1. Location - When you drive through the neighborhood do you see many houses burnt out, falling down, and weeds growing through the bushes, or do you see well maintained properties with flowers growing in the gardens and people walking their dogs? I certainly go for the neighborhoods with the flowers. 2. Property size - I prefer 3 bed/1-2bath homes because this size property is going to maximize your tenant pool. You can rent this to a single person, a family of 2, a family of 3, or a family of 4. 3. Storage - The property must have a garage or a basement and preferably both. The fact is your tenants are likely going to have a lot of junk, and you need space for them to keep their junk. Don't worry this is a good thing because once you get them in, moving all that junk again will be a good reason for them not to move :) 4. Property condition - obviously if you are going to be renting the property everything has to function properly. It needs to be inspected, and you're going to want to stay away from any properties with water issues, mold issues, foundation problems, or any other major issues. I normally go after properties that need cosmetic and mechancial updates. These sort of things are easily taken care of, and are not too expensive. 5. Financial Criteria - Obviously the property must cash flow, and more is better. You need to study the market to determine what the cap rates are to determine where you want to be. However, you must not lose sight of the first 4 points when considering these numbers. If you're able to meet all of the criteria above you're going to find a great rental property. I disagree with Dennis in his generalization that ALL of Detroit is a cesspool, this is simply not the case. I think a great deal more care needs to be taken when investing in the city of Detroit, but there certainly are neighborhoods where you can make very good investments.
Todd Brittingham, about 15 years ago
Phill, I have to agree with Dennis on this one. The numbers on Detroit may look good to someone who has never visited or heard of Detroit. But for those of us who work and interact in the city, we know the truth. There is a reason why some homes are up to 47% below market value. It's because some of those homes are the only homes not burned out, burned down, or torn down on their respective blocks. There are severe safety issues for your investments here. You have to do some serious research and leg work if you are even considering investing in Detroit. Now the suburbs, as Dennis points out are a completely different animal, and much more beneficial for what I, in my humble opinion, would consider to be safe investments. Don't get me wrong I love the city of Detroit, and I hope to be able to assist in some real revitalization of this once great city. However, I couldn't in good conscious recommend Detroit as a good place to buy rental property. If Dennis and I haven't deterred you, and you still are interested in getting property in Detroit. You need to go look at the neighborhoods, and the properties you are considering, and understand fully what you're getting into. Good Luck
Aaron Kelley, about 15 years ago
You are making a very large generalization. And that's grouping the city of Detroit in with the suburbs. Detroit is a cesspool of graft and corruption. I wouldn't spend a dime there and wouldn't suggest that others do either. The suburbs however are an entirely different story. There are great houses available, at great prices, and rental demand from GOOD tenants is strong. You do another disservice by quoting a 21% gross ROI. Gross is irrelevant. The truth is, Detroit properties generate ROIs in the 5-7% range and suburban properties generate them in the low to mid teens. So yes, this area is a great place to own rental properties. But ONLY in a few select SUBURBS.
Dennis F., about 15 years ago