Metro Detroit Cities Deep Dive: Madison Heights

With affordable housing stock and good rental cashflow opportunities, Metro Detroit is known for its strong rental real estate market, which attracts investors from all over the world.

However, while there are lots of investors who want to buy in Metro Detroit, the wide variety of neighborhoods in the area often makes it confusing for newcomers to decide where to invest.

With 25+ years of experience as local residents and property managers, we decided to put together this “Deep Dive into Metro Detroit Neighborhoods” series. Our goal in creating these articles is to show you the strengths and weaknesses of each Metro Detroit area, ultimately to help you decide where to buy.

We developed our own list of criteria that will help you evaluate the rental investment potential of each city, looking at the factors which most influence the expected returns you’ll get from your properties, and what type of management they’ll require.

For this deep dive, we’re getting up close and personal with Madison Heights—an area originally part of Royal Oak Township that’s been incorporated as its own city since 1955.

Madison Heights

Madison Heights is a medium-sized city in Oakland County, Michigan, with a population of 30,120 and seven constituent neighborhoods. It’s not technically one of the Ring Cities, as Madison Heights does not directly touch the City of Detroit, but sits right above its “sister city” Hazel Park, which is a Ring City. According to NeighborhoodScout.com, homeownership rates are:

• - 41.4% renters
• - 58.6% owners

The city is deemed one of the best places to live in Michigan according to Niche.com, with a bustling suburban feel. In Madison Heights, there are a lot of shopping malls, hotels, restaurants, coffee shops, and parks that are populated with young professionals and families alike, the latter of which are attracted to the many above-average public schools in Madison Heights.

It may sound like a great place so far, but does Madison Heights have opportunities for good rental investments? Let’s start with the most important factor: money.

Rent Prices

From Niche.com’s data, the median rent of homes in Madison Heights is $967 per month. The majority (82%) rents range somewhere between $500 and $1,499. This estimate is 8% lower than the average national rent of $1,062 and is described by residents to be affordable.

For a visual overview of the average rent per type of housing in Madison Heights, see below:

Source: Bestplaces.com

With Madison Heights experiencing modest increases of median rent in recent years, it’s still an ideal area for investors looking to expand their real estate portfolios.

House Value and Appreciation

Based on Zillow.com’s data, we can see that the average value of homes in Madison Heights is $167,956. This represents an increase of 10.5% over the past year, and prices will probably continue to increase in the years ahead:

Source: Zillow.com

This growth puts the area on the higher end of the competitive real estate housing market:

Source: Redfin.com

Redfin’s Compete Score for this area is 85, meaning you can expect many of Madison Heights’ properties to get multiple offers, sometimes with waived contingencies. Good deals (or “Hot Houses”) can sell for 3% above list price (pending in around 4 days), while the majority of homes sell for 1% above list price (pending in around 12 days).

NeighborhoodScout.com also confirms that Madison Heights is still in the running as one of the highest appreciating communities in the nation. With a gross appreciation of 111.66% over the past 10 years (with an average annual appreciation rate of 7.79%) and a recent appreciation rate of 8.15% in the latest quarter alone, Madison Heights shows strong potential for realizing both equity gains and cash flow from rental investments.

Rent-to-Price Ratio (The 1% Rule)

The rent-to-price ratio is a quick indicator of whether or not a particular property is likely to yield positive cash flow. It’s not a foolproof way of assessing the strength of a deal, but it is a handy metric for choosing an area to focus on as a rental investor.

At $967 per month for the average rent and with an average home value of $124,000 (according to Niche), Madison Heights has an average rent-to-price ratio of 0.7%—indicating that its properties are not exactly ideal for generating cash flow. This is the opposite of most Ring Cities in Metro Detroit, where the ratio is typically in the favorable 1-1.5% range.

Given Madison Heights’ ratio of 0.7%, it might be better to buy with both appreciation and equity gains in mind, rather than purely focusing on cash flow when assessing rental investments here.

Quality of Properties, Living, and Tenants

We developed quantitative scores (grades A through F) for the type of properties, quality of living, and tenants that you can expect to find in Metro Detroit areas like Madison Heights. These are all factors that heavily influence the success of a rental investment.

The scores for Madison Heights that you’ll see below are based on a variety of data points and our own knowledge. They are meant to provide a rough guide for newcomers to assess and understand each Metro Detroit neighborhood, and shouldn’t be taken as formal advice.

Average Property Class and Condition: B+

According to polls conducted by Niche, nearly half (47%) of residents say the exterior quality of homes is either good or excellent, and the same goes for the interior quality. Nearly half (47%) also said that there is a good variety of homes in the area, although roughly a third (63%) said there are a few vacant or abandoned properties here and there.

Based on Neighborhoodscout, single-family detached homes are the most common housing type in Madison Heights, accounting for 70.2% of the city’s homes. Most of these homes have 3 bedrooms and were built around 1940-1969.

Average property age: 67 years old

This means you can expect larger homes that may require rigorous maintenance and potentially costly fixes. Some common problems of these older homes are:

•  - Outdated building codes
• - Structural problems (i.e., sagging roofs or dangerous chimneys)
• - Lack of energy efficiency and insulation
• - Clay or cast-iron underground pipes that have deteriorated
• - Lack of outlets and minimally-sized electric panel
• - Toxic lead paint and asbestos

While some of the houses may have been recently updated, investors still need to account for all the risks when analyzing the financials of a deal. Some houses will only require minimal (or no) work, while others may need a total refurb.

Property class and condition are important, as these will determine the types of tenants you attract. If you want to understand this more, check out this article, where we explain the relationship in greater detail.

That’s why understanding the type of area you’re buying in is so important—the quality of tenants you get will impact your rental’s profitability more than any other single factor.

Quality of Life in the Neighborhood: A

Get to know the neighborhood where your potential property is located to know what types of tenants you’re likely to attract. You ideally want to be in neighborhoods that are in demand amongst high-quality applicants.

Areavibes.com gave Madison Heights a livability score of 75/100 and ranked the city as #122 in Michigan and #4,743 in the USA. These numbers are well above the scores of most cities, signaling that Madison Heights is a great option for anyone looking to move to (or invest in) a good area.

Here’s a summary of life in Madison Heights:

Local Economy - Madison Heights has a mix of both white- and blue-collared jobs. Niche shows that 45% of residents said they describe themselves as hardworking. An interesting fact is that there are more residents here who work in computers and math than 95% of the rest of the country!

School Rankings - According to Niche, notable schools in Madison Heights are Lessenger Elementary School, Royal Oak High School, and Bishop Foley Catholic High School (private school), all of which rank highly.

Crime and Safety - Niche tells us that more than half (73%) of the residents say they feel “pretty safe” in Madison Heights, owing to visible and responsive local police. At only 166 crimes per 100k residents, Areavibes also rates the city as far safer than the national average.

Liveability - In reviews from Niche, people describe Madison Heights as a family-friendly city that’s close to desirable Royal Oak, without having to pay Royal Oak prices. There isn’t much of a downtown area; however, residents say everything they need is walkable and nearby. According to Walk Score, Madison Heights is somewhat walkable, as some errands can be accomplished on foot. Neighboring towns provide plenty of entertainment options and scenery as well, and the city has easy access to major expressways. Niche also shows that 67% of residents said there’s a good sense of community and 55% said LGBT residents are very accepted. The cost of living is also 8.7% lower than the national average, according to Best places.

Tenant Demographics: B+

The quality of tenants in a rental plays a big part in the performance of any investment property. So it’s important to know what kind of tenants live in an area before buying.

We’ve assessed the tenant pool of Madison Heights based on the following key factors, however, it’s important to note that some factors (like poverty and unemployment) might still be affected by the ongoing pandemic.

Income - NeighborhoodScout shows that the median household income in Madison Heights ($50k) is lower than the average of Michigan ($54k), but this is offset by the lower cost of living here.

Unemployment - The unemployment rate in Madison Heights (4.2%) is lower than the Michigan state average (5.2%) and the national average (4.7%) according to areavibes. This is thanks to the recent job growth of 0.3%, as reported by Bestplaces (a figure that would be even higher in non-pandemic times).

Education - According to Censusreporter, Madison Heights has fewer high school and college graduates compared to the rest of the Metro Detroit MSA. However, Madison Heights also has a high percentage of people working in educationally-demanding fields, so this reflects the split in demographics in the city.

• Diversity - (See below)

Source: Niche.com

Based on these details, the tenant class of Madison Heights falls in the middle of the spectrum, owing to the fact that there are two different demographic pools here. As a landlord, you can expect both lower and higher quality tenants, which means you need to still be careful and thorough with tenant screening. That being said, the area is in strong demand amongst high-quality tenants, so with thorough screening, it shouldn’t be hard to find reliable applicants.

Overall Score: A

Taking all of these factors into account, we can confidently say that Madison Heights’ overall rental investment score is an A.

Financially, the continuing and forecasted growth of Madison Heights’ home values shows potential for equity gains and appreciation. While the rent-to-price ratio isn’t as favorable as in some of the Ring Cities surrounding the City of Detroit, the modest increase in rent amount over the past years still shows promise for generating decent cash flow. Overall, the rental and real estate market in Madison Heights is flourishing.

The same goes for the quality of properties, livability, and tenants' demographics. Madison Heights boasts plenty of housing options, proximity to local amenities, and low crime rates. Residents can definitely have a positive experience in this city, therefore attracting even more high-quality tenants to your potential property.

Nevertheless, every investment still needs to have thorough tenant screenings, property evaluations, and financial calculations to mitigate risks as much as possible. It’s all about the money at the root of every investment—that’s why we put more emphasis on the financials when calculating our overall scores. However, it should be said that every property scoring system is somewhat subjective.

Purely based on our research and experience in the area, we can say that Madison Heights is a great place for investors to see a solid return on their investment.

This is the latest installment in our deep-dive series on Metro Detroit neighborhoods, but we’ll be updating you with a closer look at other areas in the weeks to come until we’ve covered them all.

Any specific areas that you’d like to know about? Leave a comment below, and we’ll be sure to cover it in one of our next installments.

All references used in this article are credible sources. This includes Niche, Areavibes, Zumper, Redfin, NeighborhoodScout, Zillow, and plenty more.