Deep Dive into Detroit Neighborhoods: Palmer Woods
The City of Detroit is seeing a resurgence in recent years, with more and more people moving into the city. The rental market is following suit, with prices for apartments and houses increasing rapidly.
However, investing in the City of Detroit's rental real estate market is not without complications. There are many things to consider when investing in the City of Detroit, such as the different neighborhoods, market trends, and tenant demographics.
That's why we've decided to write this series of comprehensive guides to help newbies and expert investors navigate the complicated world of Detroit real estate investing. In this installment, we will be taking a deep dive into a quaint neighborhood near Palmer Park called Palmer Woods.
We'll be discussing the following:
- - Expected investment returns from rental properties
- - Types of tenants to expect and manage
- - Types of property management required
Without further ado, let's get started!
The City of Detroit
Before anything else, here is how the City of Detroit is divided:Source: Wikipedia.com
Each of these regions has unique features and personalities. Here are some examples:
- - Southwest Detroit is a vibrant business area.
- - New Center is a mix of entertainment and history.
- - Midtown is a cultural center with a university and business spots.
- - Downtown Detroit is a central business and residential area.
Palmer Woods, in particular, is in the region of the city called "Greater Northwest" where most of the neighborhoods are residential (typical for suburban areas) and some commercial and industrial areas.
Here's a map to see where Palmer Woods is and visualize where all the other neighborhoods are in the City of Detroit. Any names with hyperlinks will bring you to previously published deep dives so you can explore different investment area options:Source: Loveland’s Detroit Neighborhoods Map
Palmer Woods Neighborhood
Based on City-data, Palmer Woods has a population of 1,253 in an area of 0.392 square miles. These figures result in a population density of 3,197 people per square mile, which is 61.23% less than the average of the City of Detroit.Source: Google Maps
Palmer Woods is named after Thomas W. Palmer back in the nineteenth century. The land included areas on both sides of Woodward Avenue, where Palmer also donated some to the City of Detroit to establish Palmer Park. He eventually died and Charles W. Burton took over, envisioning an exclusive neighborhood for the richest Detroit citizens to enjoy. He hired Ossian Cole Simonds and created gentle curving streets, a park-like atmosphere, and unique lot shapes in the neighborhood.
Today, Palmer Woods is a beautiful place to live in. The neighborhood is known for its large Colonial Revival and Tudor Revival-style homes, which were popular during the 1920s and 1930s, and many of them were designed by well-known architects, such as Albert Kahn and William E. Niles. As you can imagine, most of the residents are wealthy enough to afford high rents or purchase high-end homes.
Plus, the neighborhood is seeing a resurgence in popularity recently, with prices for houses increasing rapidly. This is due, in part, to the fact that the community is located relatively close to Downtown Detroit while offering luxurious homes on large lots. Palmer Woods is one of the most affluent neighborhoods in the City of Detroit, thanks to many local business executives and professionals.
But, is Palmer Woods a place to invest in? First, let's look at the financial viability of its properties.
Many factors go into an excellent investment opportunity, but the most important is its ability to generate investment returns. Below, you'll see the average property conditions, the rent amount you can charge, and the property values in Palmer Woods. These are the key factors contributing to your real estate profitability and should give you a good grasp of the market.
City-data shows that most homes in Palmer Woods were built in 1939 or earlier. In other words, you’ll find many properties aged 83 and older, which is similar to most Detroit homes that are 70 to 100 years old.Source: City-data
Now, any property that is above 50 years old is considered “old” in the real estate industry. Still, it doesn’t mean that Palmer Woods properties are automatically bad for investment. In fact, there are many classic homes with undeniable charm here, as we’ve mentioned earlier. All it takes is some knowledge of how to handle older homes, like dealing with:
- - Outdated outlets & electrical systems
- - Obsolete plumbing systems
- - Old windows
- - Functionally obsolete heating systems
Plus, you’ll also come across many recently renovated and modernized homes in Palmer Woods. You can also hire a professional inspector to ensure that there aren’t any hidden structural issues before you purchase the home.
Average Rent and Rent-to-Price Ratio
City-data shows the distribution of rent paid by renters, where we can see that the average is roughly $600 per month. This figure is slightly lower than the $824 average in the rest of the city:Source: City-data
Still, to get a more accurate pulse on the current landscape, let’s pull up some Zillow listings to see how much you can realistically charge for rental properties in Palmer Woods:Source: Sold listings on Zillow as of July 2022
There aren’t any homes for sale on Zillow as of the writing of this article. So we looked at past sales in Palmer Woods to check Zillow’s rent estimates to get an idea of the average rent. Zillow estimates that they can be rented out for upwards of $3,000 per month for four-bedroom properties and larger.
Given that Palmer Woods properties sold in the last year are reflecting higher numbers, it seems to indicate that the real estate market here is on an uptrend. You will likely be able to charge higher rent and generate higher cash flows with no difficulty, as the Palmer Woods market is moving towards your advantage as a rental property investor.
Home Value, Price, and Appreciation
According to Niche, the median home value in Palmer Park is $422,400, which is immensely higher than the City of Detroit’s average value of $49,200. Redfin further confirms and increases the high price tag, where it reported that the average sales price in Palmer Woods is $715,000:Source: Redfin
Looking at actual listings on Zillow, we see three sold properties in Palmer Woods: a three-bedroom home sold for $480,000, a five-bedroom home sold for $1.25M, and a six-bedroom home sold for $1.06M. If we were to analyze these figures along with the rest of the sold listings shown earlier, it seems like Niche and Redfin’s home value estimates aren’t too far from the landscape today.Source: Sold listings on Zillow as of October 2022
Palmer Woods isn’t the cheapest place to purchase properties in, given that it’s a beautiful neighborhood where many people would like to live. But is it a good place to buy a rental property?
Let's look at the rent-to-price ratio.
An industry “rule of thumb” states that the estimated monthly rent should be at least 1% of the total house value, including the purchase price and any necessary renovations. If you stick to 1% and above, your investments will generate a strong enough cash flow.
Analyzing the three-bedroom property above, with a sold price of $480,000 and Zillow’s rent estimate of $3,473 per month, the ratio is, unfortunately, 0.
0072%. The figure is extremely below the minimum of 1%, which means you might not garner a healthy cash flow—unless you find a way to charge at least $4,800.
Still, a low ratio is common with higher-priced, Class A properties like the ones we see in Palmer Woods. This trend is because Class A homes don’t increase in step with prices.
We can’t determine the appreciation rates in Palmer Woods as of the moment. But it doesn’t discount the fact that property values in Palmer Woods are increasing—a sign of a developing neighborhood.
Potential Tenant Pool
With the average rent and property prices in mind, let’s take a closer look at the tenant pool in Palmer Woods. These are the potential tenants you’ll have to deal with, so knowing them allows you to prepare for the management required.
Plus, you’ll want to focus on investing in quality tenants that’ll cost you less in maintenance, repairs, missed payments, and troublesome disputes. Doing so increases your end profits and overall success as a rental investor and business owner.
So, let’s evaluate the tenant pool in Palmer Woods. We’ve listed their average income, employment, and racial diversity for you to have a glimpse of the potential cost and tenant management needed.
Tenant Demographic: A+
Average Income: Niche reports that the median household income of residents in Palmer Woods ranges from just above $25,000 per month to upwards of $150,000. Nearly half of them (46%) fall into the higher range, which is far greater than the City of Detroit’s average of $30,000 per month.
Areavibes also reports that the income per capita in Palmer Woods is $95,793 vs. the city average of $15,562. And the median household income is $148,977 vs. the city average of $26,249. Palmer Woods residents are earning far more than the average Detroiter, which means you can charge higher rent here.Source: Areavibes
As usual, we suggest you screen prospects thoroughly and only accept tenants who have a monthly income that’s at least 3x more than the rent you plan to charge. That way, they can keep up with payments with no financial strain—giving you stable cash flow.
Unemployment Rate: Areavibes also reports that the unemployment rate in Palmer Woods is 0.6%, which is basically nonexistent. This is significantly better than the city rate of 11.9%, although we have to consider that the majority of the city might still be recuperating from the economic challenges brought by the global pandemic.
Diversity: See below for Niche’s breakdown of the racial diversity in Palmer Woods:Source: Niche
Neighborhood Livability: A-
Next to evaluating the tenant pool is analyzing the neighborhood’s livability. As a rental investor, you want to focus on locations that attract high-quality tenants—those that’ll take care of your property, pay rent on time, and follow the lease agreement. Purchasing properties that they like increases your chances of securing responsible tenants that’ll protect your bottom-line profits.
Plus, it won’t make sense to invest in a neighborhood that people don’t like. You’ll have to deal with high vacancy rates and other challenging factors that make a place difficult to live in—high crime rates, high cost of living, and lack of good amenities.
So, here’s a glimpse of the livability in Palmer Woods:
Crime and Safety: Niche says that the crime rate in Palmer Woods is lower than the rest of the city and the national average. Moreover, if we look at the heat map from NeighborhoodScout, we see that Palmer Woods is truly one of the safer spots in the City of Detroit, which is where rental investors like you should prioritize to attract responsible tenants:Source: NeighborhoodScout
Transportation and Walkability: Areavibes’ survey results show that Palmer Woods has sidewalks that are completely safe to walk during the night, although it also shows that none of the locals here prefer walking to work or nearby stores. There is also no public transport available, and most Palmer Woods residents drive to work (90.6%) compared to the rest of the city where only 68.8% do so.
Schools: Trulia gives us a list of the schools available in Palmer Woods, which is a list based on GreatSchools’ ratings and metrics. The best schools that serve Palmer Woods are Bates Academy (K-8) and Cass Technical High School (9-12), where we highly suggest that you focus on purchasing larger properties within their vicinity to attract family tenants with younger children.
Overall score: A
Based on the research we’ve done and our knowledge of the Metro Detroit areas, we’ve given Palmer Woods a score of “A” for rental property investing. This score is mainly
driven by the following factors:
- * Palmer Woods properties are increasing in value and will likely continue to do so in the following years. While this means that your initial investment will be significant, you’ll also have the opportunity to reap equity gains as the market develops.
- * Palmer Woods has one of the best tenant demographics in the City of Detroit, where most locals can secure stable and high-paying jobs. You’ll likely come across many quality and responsible tenants who’ll help you maintain the property and keep its value.
- * However, given its high price, Palmer Woods properties don’t have a favorable rent-to-price ratio, unless you can find an opportunity to charge 1% of the property price for rent. You’ll have to comb through the opportunities carefully to ensure that you generate positive cash flow.
Palmer Woods is one of the most beautiful places in the City of Detroit, where the roads are lined with trees and filled with long-standing mansions. While it’s not the easiest market to find lucrative opportunities in, we’d like to say that all property scoring systems are inevitably subjective, so we strongly suggest that you visit the area for yourself. Use this guide only as a kick starter for your own evaluation.
Ultimately, Palmer Woods should be on your list of options when deciding where in the City of Detroit to invest in rental properties. Should you need more help, feel free to get in touch with our team of expert and local property managers in Metro Detroit, so you can dip your feet in the Detroit real estate market with no issues.
This guide is part of our ongoing Deep Dive series that unpacks the rental investment potential of every Detroit neighborhood and Metro Detroit city. If you have any special requests, please drop a comment below or contact us. We’re not stopping until we’ve covered every inch of the famous Detroit real estate market.