Deep Dive into Detroit Neighborhoods: The North End
Image courtesy of Anon
The housing market in the City of Detroit is famous for being affordable. In fact, the whole of Metro Detroit is known to spark curiosity and interest among property investors. Yet, Michigan’s “Motor City” is a mix of very diverse communities, totaling 84 neighborhoods that each have their own sub-areas and demographics to consider.
Given this, the real estate market in the City of Detroit is known for high-risk, high-reward investment strategies. Investors from out of state or country need to know the neighborhoods well enough to make calculated, intelligent choices when investing in the city if they want to take advantage of this potentially high-reward environment.
With our experience as local residents and property managers, we created this “Deep Dive into Detroit Neighborhoods” series to help interested investors do just that. In this series, we assess the real estate potential and risk of each neighborhood—evaluating rental investment strengths, weaknesses, and the factors that matter the most, such as:
- 1. Expected returns from rental properties
- 2. Types of tenants to expect
- 3. Type of management required
This way, you’re able to make informed decisions when investing in this varied rental market.
Let’s get started with our assessment of the North End—a neighborhood at the "north end" of Detroit’s Paradise Valley.
City of Detroit
The City of Detroit is divided into several regions:
Source: Wikipedia.com
Each region has its own “personality” that differentiates it from the rest. For example, New Center is a historic district, Downtown Detroit is the central business district, and Midtown is a mix of business, residential, and university neighborhoods.
This article will focus on the North End, a neighborhood located in the Central Region of the City of Detroit. The neighborhood sits in Woodward Corridor, a densely populated region along Woodward Avenue, or “Detroit's Main Street”, which runs all the way from Downtown Detroit to Pontiac.
The North End Neighborhood
The North End neighborhood has a population of 4,401. The population density is 3,113 people per square mile, which is 35.8% lower than the average density in the City of Detroit.
The North End is considered a desirable place to live because of its location and accessibility. Life in the neighborhood is a mix of both urban and suburban—with many bars, restaurants, cafes, and parks.
Historically, the North End is known by Detroiters for contributing to the city’s famous music scene, hosting some of the greatest soul and R&B artists, such as James Brown, George Clinton, and The Parliaments. Motown icons Diana Ross, Aretha Franklin, and Smokey Robinson are also from the area.
Nowadays, there is a strong sense of community within the North End. Locals are proud of the recent development in their urban core, seeing it as an indicator of significant growth soon to come. It’s a relatively safe and incredibly diverse neighborhood - with Wayne State students comfortably living alongside retirees in some areas.
In terms of real estate, North End is primely located close to the heart of the city, just north of the New Center area. In other words, North End is perched just outside the stretch where the City of Detroit’s development boom is happening.
In an interview by Michigan Radio with local residents, one of them said, “Five years ago, there were abandoned houses, and it looked like World War III around here. Now when you come around here, it looks like the '70s, like the early '80s used to be… houses, beautiful houses, parks, fruit stores.” This shows that the development boom is already being felt in North End, with more improvements set to come in subsequent years.
Big investors have started to invest in the real estate around Woodward Avenue, too. Crain’s Detroit Business reported more than $1 billion in real estate deals in North End since 2011.
So, should you join in and invest in North End rental properties now, before prices rise too high?
Investment Opportunity
Property development in Woodward Corridor has been extending north over the past few years - it started with Downtown, then Midtown, then New Center (where Wayne State University is), and now is hitting North End - the next hot property investment area that's being developed, but this process has only just begun.
Already, though, it shows signs of serious development underway - for example, the Q Line train currently ends at nearby Grant Blvd, so the next extension will be to North End.
There are lots of vacant lots that people are holding and speculating with, waiting for values to spike before selling. However, there are also lots of people using or buying the lots next to their homes to do urban gardening projects. Either way, the next step is for people to build brand new buildings on those empty lots as demand drives prices higher.
Let’s take a closer look at the financial side of North End as a rental investment area.
While there are many factors that contribute to a real estate opportunity, the most important element that determines the success of an investment is its financial viability.
To help you assess the rental investment potential of the North End, here’s a rundown of the average property conditions, rent amounts, and home values. These factors will significantly impact the financial viability of your investment, in addition to the quality of tenants, you’ll eventually secure.
Property Condition
As properties in the City of Detroit, many of the houses in North End are around 100 years old. The housing stock is mostly farmhouses and bungalows, as it was once a farming community.
Since then, demolitions of abandoned houses have created empty lots in the North End. With the side-lot program provided by the Detroit Land Bank, local property owners were able to purchase empty lots adjacent to their property for just $100. This means properties are now fairly spaced out and have large lots, especially when compared to other City of Detroit neighborhoods.
Some of North End’s turn-of-the-century properties have been fully refurbished, but should you acquire one of these older homes which still requires repairs or modernization, be ready to deal with underlying issues, such as:
1. Settling issues, often toward the center of the house
2. Outdated wiring, heating, plumbing, and insulation systems
3. Lead paint and asbestos
4. Water damage inside the house
5. Aging infrastructure
Spot these issues early on by having your property professionally inspected prior to purchase. This will allow you to catch and budget for all repairs needed before renting out your property.
Average Rent and Rent-to-Income Ratio
According to Niche.com, 70% of North End residents rent their homes, while 30% own them. There are therefore significantly more renters in the North End than in the City of Detroit or Michigan as a whole, where the percentage of renter households is 51.8% and 29.2% respectively.
The median rent price in the North End is $657 per month, which is lower than the rent amount for the City of Detroit ($754), the state of Michigan ($799), and the rest of the country ($1,062), according to Areavibes.com. However, these figures don’t accurately reflect the current market environment. For example, there’s a 3-bedroom townhouse for rent on Zillow right now for $1,800 a month in North End, and rents are expected to continue to rise as demand in the area grows.
The housing stability rates (according to Weichert.com) are as follows:
Considering the median household income of $1,985 per month (or $23,830 per year, according to Niche.com), the rent-to-income ratio for the North End is around 33%. This means most renters set aside roughly a third of their income for rent payments.
The general rule of thumb for landlords is to make sure that your tenants’ rent-to-income ratio is 3-to-1. Fortunately, you’ll find many applicants in the North End who’ll pass the “income = 3x rent” rule.
Home Value, Price, and Appreciation
According to Niche.com, the median home value of properties in the North End is $72,181 ($75,000, according to Redfin). This is less than half of the national average of $217,500. However, the median sale price is around $145,000, and currently, there are houses ranging from $200,000-$650,000 listed on Zillow.
Overall, home prices for the North End have decreased 6.3% since February 2020. The total number of homes for sale has also decreased roughly 40% since last year.
Source: Redfin.com
More than a good sales price, you want to invest in rental properties with a strong rent-to-price ratio.
As a rule of thumb, the ratio of the monthly rent/house value needs to be at 1%, if not higher. The house value includes both the purchase price and repairs needed prior to being rented out. This is known as the 1% rule and is used as a quick way to estimate the cash flow potential of a rental investment.
In general, the City of Detroit has the lowest rent-to-price ratio across the 50 biggest cities in the U.S.—this means that investing in rental properties in this area is perfect for generating cash flow.
The North End is no exception, with an average rent of $657 and an average home value of $72k, resulting in a rent-to-price ratio of 0.9%, which is pretty close to the 1% Rule threshold.
Potential Tenant Pool
We’ll now discuss the type of tenants you can expect to find in the North End, as your renters will largely contribute to the success of your rental investments.
The neighborhoods in the City of Detroit vary greatly from each other, so you’ll find some neighborhoods where you’re more likely to run into issues like late payments, vandalism, or theft, while others contain plenty of reliable tenants working white-collar jobs.
Knowing the difference is crucial when it comes to planning and budgeting for your rental investment. Let’s take a look at the tenant pool specifically in the North End to help you estimate the possible costs you might incur due to tenant issues.
The following scores are based on multiple data points, coming from our own research, knowledge, and experience operating as a property management company in Metro Detroit. These evaluations are not “official”, but are meant to be a guide for you to determine if the North End is the right area for you as an investor.
Tenant Demographic: C (transitioning to A)
While the demographics in North End used to be mostly Wayne State students, it’s increasingly attracting white-collar Gen Xers who work at tech companies in the City of Detroit. This means that the tenant pool is shifting from Class C to Class A, so you can expect to find a mix of tenants within this range.
Here’s a breakdown of some key demographic statistics for the area:
Average income: According to Niche.com, the median household income of the North End is $1,985 per month or $23,830 per year. This is 23% lower than the average of the City of Detroit and 62% lower than the national average.
Education attainment: 68% of the locals in the North End have either achieved the equivalent of a high school diploma or an undergraduate degree. This percentage is higher than the average of the City of Detroit at 66% and the national average at 56%.
Neighborhood Livability: B
A neighborhood’s livability score is closely related to the type of tenants you can expect to find there.
As an investor, you want properties in high-quality neighborhoods. These are the ones that will attract high-quality tenants—the kind who will likely be responsible for paying the rent and maintaining your property.
Here’s how life in the North End is like, and what kind of tenants the area attracts:
Diversity: See below for the breakdown of the population in the North End in terms of diversity:
Source: Niche.com
School rankings: Schools in the area include Cass Technical High School, Renaissance High school, and Bates Academy.
Crime and safety: Locals say that it’s a pretty safe area to live in and that feeling is increased by the strong sense of community here, as fellow neighbors tend to look out for each other the way they would in a small town.
Transportation and walkability: The North End is a bike-friendly neighborhood, similar to the rest of the Central region (New Center and Boston-Edison). There are also many transit developments in the works, such as the QLine, increased bike lanes, and MoGo bike share stations. This makes the neighborhood attractive for young professionals and is ranked #36 out of 157 of Niche.com’s “Best Neighborhoods for Young Professionals in Detroit” list.
Overall score: A
Taking all these factors into account, we scored North End with an A for rental investing. This is largely based on the following:
- 1. Strong rent-to-price ratio, perfect for cashflow investments
- 2. A whopping 70% of residents being renters, with most being able to pay rent consistently
- 3. Next area in line to be impacted by the property price boom in Detroit
Overall, the North End is a hot, up-and-coming neighborhood for landlords to invest in. It’s “trending” right now, and is going to trend even higher in the future.
At the moment, it’s probably mostly a Class C neighborhood, with a few blocks of Class A scattered throughout. But give it 5-10 years, and this will be a strong Class A area - so get in right now, before the bubble reaches here.
While every property scoring system might be somewhat subjective, we hope to have helped you kick start any plans to invest in the City of Detroit with this informative overview of the North End. Our evaluation is based on in-depth research, our own knowledge, and our personal experience as a property management company in Metro Detroit.
But, this guide is only the beginning! We encourage you to go out and screen the area yourself.
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This is the latest of our deep-dive series on City of Detroit neighborhoods. Our series will continue until we've covered the whole city. So leave us a comment below if you have a specific neighborhood you’d like us to cover next
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