Deep Dive into Detroit Neighborhoods: Bagley
Are you thinking of investing in the rental real estate market in the City of Detroit?
The affordable housing market invites all kinds of investors—even those with limited capital. You can acquire plenty of properties at $100k and take advantage of the increasing demand for single-family homes in the area.
Michigan's famous "Motor City" is indeed a hotspot for investors to yield solid cash flow from rental properties. If you're ready to invest in a high-risk, high-reward real estate market, this "Deep Dive into Detroit Neighborhoods" series—which evaluates the potential risks and rewards of investing in each particular area—is made for you!
There are 84 diverse neighborhoods in the City of Detroit, each with its own sub-areas, tenant demographics, property conditions, and expected returns. Investors need to know these differences to make well-informed decisions on where to start investing. Our experience comes from being residents and property managers in the greater Metro Detroit for over 20 years. We’re excited to help you find strong rental investments here, by equipping you with the right knowledge and resources to assess deals like an expert.
For this article, we'll be tackling Bagley—a neighborhood in the City of Detroit. This area is not to be confused with Bagley Township, a civil township in Otsego County, which is located in northern Michigan.
City of Detroit
Let’s quickly get some background into the different areas of Detroit itself. The City of Detroit is divided into 11 regions, all with their own personalities and features.Source: Wikipedia
New Center is known to be a historical district, while Midtown is a mix of business, university, and cultural areas. Downtown Detroit, meanwhile, is the central business and residential area, where property prices are highest.
Bagley sits on the West Side, which is primarily a residential area with some historical spots.
According to City-data.com, Bagley has a population of 12,246 and is only a little over a square mile in size. With lots of green streets, lined with well-maintained houses and front yards, living in Bagley gives a sparse suburban feel, and residents are primarily retirees or young families.
The neighborhood has plenty of historical-style brick homes, well-maintained structures, outdoor parks, upcoming developments, quiet streets, and improving educational systems. According to Bridge Michigan, Bagley is one of the most stable neighborhoods in the City of Detroit. Plus, it's experiencing an influx of residents—especially those who are attracted to the cheaper homes in the area.
A local expressed her thoughts in a Reddit thread, where she describes Bagley as "amazing, people are kind, helpful, friendly, and protective of its members and engaged in the surrounding city."
Bagley is also the heart of Live6 Alliance, a nonprofit that's improving the commercial districts around the Livernois and McNichols areas. It’s already leveled up the stretch of Livernois called "Avenue of Fashion", bringing in bike lanes, art installations, jazz concerts, and new businesses to the area.
So, should investors grab the opportunity to acquire rental properties in this neighborhood now?
Out of all the factors that an investor evaluates when choosing properties, the most critical factors are all about the investment's financial viability. This includes the following:
- 1. Average property condition
- 2. Average rent and rent-to-income ratio
- 3. Home value, price, and appreciation potential
Knowing these details will help you determine your investment's financial success as well as the quality of tenants you'll attract. Keep reading for how Bagley fares on each factor.
Compared to the City of Detroit, where most houses were built in 1939 or earlier, Bagley homes were mostly built from 1940-1949. This makes the average property age roughly 76 years old.Source: City-data.com
You'll find some properties that are in need of repair and modernization, although much of the property stock in Bagley has been well-maintained by homeowners or completely refurbished already.
There are some maintenance issues that you have to consider if you acquire homes built from the years 1940 to 1949. They might come with some age-related problems and underlying issues, such as:
- 1. Potentially-toxic asbestos materials around heating components and the ceiling
- 2. Lead-based paint used around the house
- 3. Damaged or deteriorated posts and piers
- 4. Lack of proper insulation around the house
- 5. Cast-iron or galvanized steel water pipes that are sloped and rusty
- 6. Exposed or worn out foundation (possibly concrete slab-on-grade)
- 7. Outdated roofing, plumbing fixtures, HVAC systems, electrical, etc.
The best way to evaluate the condition of the house is to hire professionals. They will help you identify issues ahead of time, allowing you to budget for the repairs and accurately factor the cost into your investment decision.
According to Niche.com, there are significantly more owner-occupied houses in Bagley than in the rest of Detroit. This means the properties are most likely in good condition, as homeowners tend to maintain their residence more responsibly than renters.
Average Rent and Rent-to-Income Ratio
According to City-data.com, the average rent in Bagley in 2019 was around $700 per month. This is 6.5% higher than the average rent in the City of Detroit.Source: City-data.com
However, fast-forward to 2021 and you can see these prices are already rising. Based on the three rental listings in Zillow and additional data from Niche.com, the average rent might be closer to $960-975 in the current market. So, while rent amounts are rising, City-data.com may not have the latest numbers yet.
According to Niche.com, Bagley residents have an average household income of $3,594 per month, which means that the rent-to-income ratio is at 27%. Most renters in the area need to set aside just under a third of their income for rent payments.
This fits the general rule of thumb that income needs to be 3x the rent amount. With this simple calculation, you can be relatively well-assured that most of your tenants in Bagley will be able to pay the average rent amount each month.
Home Value, Price, and Appreciation
The estimated average value of detached houses in Bagley is $98,802. This price is slightly higher than the average in Detroit as a whole, which is $94,140. Detached houses are also the most popular housing type in the area, with detached houses comprising 76.8% of all units.Source: City-data.com
Despite the average value being $98k, this data is probably a tad outdated, too. Looking at the current data from Zillow.com, the average home price out of 17 agent listings is $155,500. Prices are therefore rising, but are probably not reflected in the data just yet.
Aside from the sales or acquisition price, make sure to evaluate the property's potential to generate cash flow as a rental investment. You can do this by checking if the property passes the industry’s 1% Rule and calculating its rent-to-price ratio.
The 1% Rule says that the monthly rent should equal 1% of the total house value, including the purchase price and any renovations needed to bring the property up to scratch. The higher the percentage, the stronger the indication of positive cash flow.
The average reported rent of $700 for Bagley is also outdated, as we’ve homes there from a low of $850 for one with no updates, to a high of $1600 for an updated home.
This puts Bagley’s rent-to-price ratio right around 1%. Many investors are buying long-neglected homes in the area and applying the BRRR strategy - then buying another, and another, etc. This is a solid strategy here, especially since the City of Detroit holds the best rent-to-price ratios across the 50 of the largest cities in the country, according to Smartasset.com.
In other words, Bagley properties are suitable for investing in cash flow, and for equity gains.
Potential Tenant Pool
As they say, tenants are the bloodline of every rental investment. They're responsible for paying rent (i.e. your income) and taking care of the home (i.e. your assets).
With such variety among the City of Detroit's neighborhoods, each area's tenant quality and types will also be wildly different from each other. That means the area you choose could be the difference between having problematic tenants who'll cost you a fortune, and tenants who'll make your investment successful and worthwhile.
We've assessed Bagley's tenant pool based on demographics and livability—major factors that contribute to the kind of tenant you can expect. These evaluations are meant to help you budget for possible tenant issues, should you invest in rental properties in the neighborhood.
Tenant Demographic: A
Average income: Areavibes.com shows us that the median household income of the residents in Bagley is $43,133 per month. Compared to the city's average, this income is 39.6% higher.
Unemployment rate: The unemployment rate in Bagley is 12.6%, which is somewhat higher than the City of Detroit's overall average of 11.9%. Areavibes.com also mentions that the poverty level in Bagley is equal to the national average:Source: Areavibes.com
Educational attainment: Looking at the neighborhood's educational attainment compared to the rest of the city, residents in Bagley have generally achieved higher levels of education:
Neighborhood Livability: B+
As an investor, you want neighborhoods that are in high demand with high-quality tenants. This will allow you to attract quality tenants who will pay their rent, abide by your agreements, and take care of your properties.
Here are the details that contribute to the livability of the Bagley neighborhood. This overview will give you an indication of the kind of tenants the area will attract:
Diversity: Here's a breakdown of Bagley residents in terms of diversity:Source: Areavibes.com
School rankings: Bagley Elementary School—which some say is where Bagley's name comes from—continues to satisfy locals with their quality of education. Bagley is also anchored by Marygrove College and is adjacent to the University of Detroit Mercy. Public schools serving Bagley are Cass Technical High School, Renaissance High School, Bates Academy, and a few others.
Crime and safety: Niche.com and Areavibes.com both show that crime rates in Bagley are higher than the national average; however, Trulia.com shows that more than half of the residents describe their streets as well-lit, while a bit less than half of those surveyed said they would walk alone at night.
Transportation and walkability: The majority (73.5%) of the workforce in Bagley drive to work, which means properties located close to major thoroughfares will be attractive to prospective tenants who commute.Source: Areavibes.com
Overall score: A
We've given Bagley a score of A for rental investing. This decision is based on our research and experience as a property management company in the Metro Detroit area.
This conclusion is based on the following point:
- - There are beautiful, well-kept homes here, compared to the rest of the city.
- - Rent amounts and home prices are both increasing.
- - Properties in the neighborhood are suitable for cash flow but even better in terms of - appreciation.
Overall, we see Bagley as a good neighborhood for rental property investors to consider when looking into buying in Detroit. Our evaluation is largely based on its financial viability, seeing as the neighborhood hits all the right spots for a successful investment.
As every property scoring system is inevitably subjective, we highly encourage you to use this guide only as a kickstart to research the area yourself. Nothing beats first-hand evaluation of a property!
If there's anything else you'd like to know before you start investing in the City of Detroit, feel free to reach out to us, and we'll be glad to help you in your research process.
This is the fourth installment in our series on City of Detroit neighborhoods. We're not stopping here—we'll write these overviews until we've covered the whole city.
Leave a comment below if there's a particular neighborhood you'd like to see next!