Metro Detroit Cities Deep Dive: Dearborn

source: Old House Online

Whether you're new or experienced in the industry, you've likely heard of the famous rental market scene and affordable housing stock in Metro Detroit—the metropolitan area encompassing Macomb, Oakland, and Wayne counties.

However, despite its popularity in the world of real estate investing, it's also notorious for being confusing and overwhelming, even for veteran investors. In addition, there are 185 cities and 290 neighborhoods in the area, making it difficult to sift through them all to find good investment opportunities.

Meaning, there's no doubt that investors of levels need advice on which areas to invest in… and which to avoid.

So, given our two decades’ worth of experience as a local property management company, we've decided to use our knowledge to write a series of comprehensive articles, called "Deep Dives into Metro Detroit Neighborhoods." Our goal is to present and evaluate the critical factors for successful investment, most notably in every city and neighborhood in Metro Detroit.

We aim to provide you with the necessary information to see the strengths and weaknesses of each area—pointing you in the right direction for your next investment. And to make it easier, we prioritized the details that contribute the most to rental property investment, including your returns on investment and the type of property management required.

For this article, we'll be diving into the City of Dearborn—formerly named Dearbornville. Despite the name, it’s not to be confused with Dearborn Heights or Dearborn Township.

Source: Google Maps

Dearborn

The City of Dearborn sits right beside the City of Detroit in Wayne County, Michigan. It has a population of 94,701 within 24.52 square miles (63.50 km2), segregated into 24 constituent neighborhoods. It’s the seventh-largest city in Michigan and is home to the largest Muslim population in the country (per capita).

Since Dearborn borders the City of Detroit, it’s one of the “Ring Cities” where you can find affordable properties without the common investment risks that come along with Detroit investing.

Here’s where Dearborn is in the Metro Detroit area:

Map showing Tri-County Metro Detroit Cities

Source: Georgetown Public Policy ReviewHere’s a list of the cities in Metro Detroit. The ones highlighted in green are the Ring Cities, and the ones with hyperlinks are the areas we’ve already covered in previous Deep Dives:

Major Manufacturing Hub for the Automotive Industry

In the early years, the founder of Ford Motor Company, Henry Ford, established the River Rouge Complex in Dearborn—the largest factory of his Ford empire. He then grew this complex for mass production of automobiles and eventually based his Ford World Headquarters in the same city. Since then, Dearborn became known as a key manufacturing hub for the automotive industry.

Within the city is also the University of Michigan, Henry Ford College, and The Henry Ford—the country's largest indoor-outdoor history museum complex. More than 1.7 million people visit the museum every year, making it Metro Detroit's leading tourist attraction.

The majority of home-owning residents here are made up of larger families (2.9 people compared to Michigan’s average of 2.5) and young professionals. On weekends, locals enjoy the many bars, restaurants, coffee shops, and parks around the area.

Residents in Dearborn are mostly of European or Middle Eastern ancestry, coming from 19th and 20th-century immigrants. Some of the common ethnicities are German, Polish, Irish, and Italian. Dearborn experienced new waves of immigration from the Middle East in recent years and is now home to large groups of immigrants from Syria, Iraq, Yemen, as well as Muslims and Christians from Lebanon and Palestine.

In terms of real estate, the market in Dearborn is experiencing "low inventory and extremely high demand with extremely low-interest rates" especially amid the recent pandemic. This is according to Dav Abdallah, a local realtor in Dearborn. He further noted that there is a "high demand market and it's doing very well. There are absolutely no indicators of a crash happening in the foreseeable future." MediaNews Group also described the market to have homes that sold more quickly than homes sold the year before This is likely due to sellers receiving multiple offers and a variety of options and offers to close deals.

With Dearborn's recent real estate market activities, should you grab the opportunity to snag a couple of rental properties in the city?

Let's dive into the details to help you decide.

Rent & Rent-To-Price Ratio (The 1% Rule)

Based on data from Niche, the average rent across all property types in Dearborn is $1,022 per month. Looking at specific bedroom sizes, the rent amounts in Dearborn tend to be higher than the greater Metro Detroit and Michigan area but lower than the nations.

BestPlaces provides a breakdown of the rent amounts in Dearborn by bedroom size, in comparison to Metro Detroit, Michigan, and the United States:

Source: BestPlaces

Based on the following three listings from Zillow, we can see that 2-bedroom homes are the most popular property size in Dearborn. Bestplaces also reports the average rent amount for such a size as $1,125, but this number might be outdated. Actual listings show higher estimates, averaging to around $1,346:

We'll use the rent-to-price ratio calculation to evaluate if these homes are good rental investment opportunities to check the potential cash flow you can generate in Dearborn. The industry standard is to have the monthly rent at least 1% of the property price.

To illustrate this, let's pull up some two-bedroom listings for homes for sale on Zillow. With a rent estimate of $1,500 and a property price of $149,900, the ratio comes in at 1.00%. This number reflects most rates in Ring Cities, indicating strong positive cash flow potential.

Source: Listings on Zillow as of August 2021

Now that we know the cash flow potential, let’s see if equity gains are just as possible. We’ll discuss the home values and appreciation rates to see how much equity you can gain from Dearborn properties.

House Value and Appreciation

The average house value in Dearborn is $191,560, according to Zillow. This number increased 19.8% over the past year and only includes middle-price tier homes. Zillow does not have a forecast for Dearborn properties, but we can likely expect it to continue in the upward trend based on the past few years:

Redfin also provides some insight into the market trends of Dearborn, where they reported an increase of 19.3% in home prices since last year. They sold for a median price of $198k, which is 1.6% over the list price. Homes sell after just six days on the market, which makes Dearborn a “very competitive” real estate market, according to Redfin’s Compete Score.

Source: Redfin

In terms of home size and type, NeighborhoodScout’s data show that the majority (74.2%) of Dearborn properties are single-family homes, with some (12%) apartment complexes. Nearly half of the homes (48.4%) have three bedrooms, and 22.9% have two.

Looking at current listings online, Dearborn properties are priced relatively evenly across the city, ranging from roughly $95,000 to $500,000:

Source: Listings on Zillow as of August 2021

Based on Redfin, Dearborn property listings often receive multiple offers—some with waived contingencies, too. On average, these homes sell 2% above list price, with “hot homes” selling 6% above list price. Based on these rates, Dearborn has a healthy housing market.

NeighborhoodScout gives us an overview of the appreciation rates in Dearborn. Properties have appreciated 20.11% since 2000, at an average annual increase rate of 0.87%. As we can see in the heatmap, the highest appreciating areas in Dearborn include:

• 1. Michigan Ave / Greenfield Rd
• 2. Tireman St / Miller Rd
• 3. Miller Rd / Ford Rd
• 4. Payne Ct / Greenfield Rd
• 5. Ford Rd / Schaefer Hwy

Source: NeighborhoodScout

Quality of Tenants, Properties, and Living

Now that we’ve established the financial viability of investing in Dearborn properties, let’s look at the quality of tenants, properties, and living in the city. All of these factors are important because they dictate the type of tenants you’ll have, the general property conditions to expect, and the attractiveness of the neighborhood you’ll invest in. We’ve scored Dearborn-based on these factors, using information from our local knowledge and other research points.

Average Property Class and Condition: B+

Average property age: 66 years

According to Bestplaces, many of the properties in Dearborn were built from 1939 to the 1950s, but there are still some built earlier. Unlike the greater Metro Detroit area, where property ages are evenly varied, Dearborn homes are skewed towards the older end of the spectrum:

Source: Bestplaces

It’s hard to generalize what’s considered “old” for a home, but the industry’s rule of thumb is that any property that’s been around for at least 50 years is considered “old.” This means you might run into some older homes in Dearborn. Knowing this, you should budget appropriately for renovations to bring them up to rental standards. With careful analysis before purchase, you’ll find profitable investments within Dearborn’s housing stock.

Quality of Life in the Neighborhood: A+

You’re probably not going to live near your rental property, so investing in a nice neighborhood that is in high demand among high-quality tenants will help you secure responsible renters. These are the tenants that’ll pay their rent on time and maintain your properties well. In our opinion, neighborhood quality and livability directly impact your rental investment returns more than any other factors.

Here’s a glimpse of what life is like in Dearborn:

Local Economy

From 2011 to 2015, Dearborn was recognized as a “Five-Star Community” by the researchers at iLabs, University of Michigan-Dearborn’s Center of Innovation Research, for five years in a row. Dearborn has been awarded for championing economic development, passing the project’s six-factor, 32-item index on entrepreneurial activity, expansion, and diversification of Michigan's regional economies with flying colors.

Over the years, Dearborn has gone through many economic developments:

• 1. In 2008, the Montgomery Ward in East Downtown Dearborn transformed into a medical complex that brought in $45-50 million in investment. An additional $20 million was also given to building senior housing and additional retail stores, creating new jobs and homes in the city’s core.
• 2. In 2011, the city redeveloped an old Kroger building into Dearborn Fresh—a locally owned and operated supermarket offering diverse options, like halal meats.
• In 2016, City Hall ArtSpace Lofts was launched as part of the $16.5 million rehabilitation project in the old city hall area in East Downtown Dearborn. The project gave 53 affordable live-work spaces and community gallery spaces for local artists.
• In that same year, Dearborn also adopted “transformative strategies” to create walkable public spaces, a tight-knit community, a strong appeal to millennials, and retail diversity.
• 3. In 2013, Dearborn received a planning grant from the Michigan Municipal League to develop their transit surrounding the Amtrak station. A few months later, in 2014, the $28.2 million John D. Dingell Transit Center began its operations.
• 4. More recently, with the help of the Michigan Strategic Fund, Ford Land Development Corp. announced a $60 million commitment to redevelop the space along Michigan Avenue in West Dearborn into a mixed-use center for retail and office for Ford employees.

The commitment by Ford Land Development Corp. alone will bring in approximately 650 staff in two new buildings, as well as about 50,000 square feet for new retail locations. This project is expected to provide a serious boost to the downtown area. Brome Burger, Yogurtopia, and Ford’s Garage will also enter the business scene in West Dearborn.

These economic developments and potential job growth will attract new residents to Dearborn, creating a great opportunity for investors like yourself to invest in rental properties. Bestplaces also reports that Dearborn’s future job growth will increase by 37.28%—higher than the national average of 33.51%.

School Rankings

According to GreatSchools.org, the following are the top-rated public schools in Dearborn:

• 1. Charles A Lindbergh Elementary School
• 2. Howard Elementary School
• 3. Bryant Middle School
• 4. Smith Middle School
• 5. Henry Ford Early College
• 6. Henry Ford Early College Advanced Manufacturing
• 7. Dearborn High School

The many quality schools to choose from in Dearborn make the area an attractive place for families with children who are still studying. As an investor, you can also consider buying properties near these schools.

Crime and Safety

While the crime rate in Dearborn may be higher than the majority of Michigan and the national average, Niche's surveys show that nearly half (47%) of the locals feel safe, and they experience little to no crime. The other half (47%) said the crime rate doesn't impact them much. Most of them (81%) said the police are very visible and responsive to their needs.

NeighborhoodScout provided the following heatmap for crime rates in Dearborn:

Source: NeighborhoodScout

As an investor, you need to scout the exact location of your investment property. Crime rates can differ from one street to another, meaning you can find "safe" neighborhoods even within areas deemed "dangerous" by the map.

Livability

In terms of livability, Niche ranked Dearborn #19 in their 25-item list of Best Places to Raise a Family in Wayne County. They also gave the city a score of B+ in terms of schools, housing, jobs, cost of living, activities, crime rates, diversity, commute, and more.

Here are some other awards that Niche gave Dearborn:

Source: Niche

Moreover, Areavibes gives Dearborn a score of 69/100, ranking in the 60th percentile against all cities in the country. Dearborn is ranked #209 in Michigan and #7,299 in the nation—making it more livable than 75% of total areas. Specifically, Dearborn ranked well thanks to its amenities and cost of living.

Data from Bestplaces breaks down the cost of living in Dearborn in more detail:

Source: Bestplaces

Tenant Class and Demographics: B

As a rental investor, you need to evaluate the potential tenants you’ll get in the area. Doing so makes all the difference between getting responsible tenants and irresponsible tenants. If you want your property to retain its value, you can’t rent to just anyone.

So, we’ve assessed the tenant pool in Dearborn based on the following key factors that contribute the most to tenant class and demographics. Remember that some of these factors (e.g., average income and unemployment rates) may still be affected by the coronavirus pandemic.

• - Income: The income per capita and median household income in Dearborn is relatively low compared to Metro Detroit, Michigan, and the nation:

• - Unemployment: Data from Bestplaces shows an unemployment rate of 3.6% in Dearborn, which is lower compared to Metro Detroit’s 4.5%, Michigan’s 4.8%, and the nation’s 6%. Job growth in the city is also positive, where jobs have increased by 0.7% in the past year.
• - Education: Bestplaces show that Dearborn residents fall short in terms of educational attainment compared to Metro Detroit and Michigan. Still, Niche reports 28% of Dearborn residents have some college or associate's degree, 23% have a high school diploma, 18% have a bachelor's degree, and 12% have a master's degree or higher.
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• - Diversity: Niche provides the following breakdown of the racial diversity in Dearborn:

Source: Niche

The tenant pool in Dearborn leans towards the higher end of the spectrum than the greater Metro Detroit area and the rest of the state. Still, it’s important to conduct thorough tenant screening to ensure that you secure good quality tenants that are financially responsible, good at property maintenance, and will abide by your lease agreements. Doing so will make Dearborn a low-risk area to invest in rental properties.

Source: Google Maps

Overall Score: A

Based on the information given in this article, we gave Dearborn an overall score of A. Here are the driving factors that led us to give Dearborn a high score:

• 1. Properties have high cash flow potential, meeting the standard 1% benchmark for rent-to-price ratios. Rental investors looking to earn rental income will find many opportunities in Dearborn's housing stock.
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• 2. There are increasing home values and appreciation rates, especially in some regions of the city. Investors seeking equity gains can find many good opportunities in Dearborn.
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• 3. There are good quality tenants and properties within a firm, developing economy. The area can attract new residents seeking job opportunities in the coming years.

Not only are Dearborn properties financially viable, but other factors such as tenant pool, property conditions, and neighborhood livability are also showing potential in the city.

In your search for your next rental home, we suggest visiting Dearborn yourself to see which property can give you the cash flow and equity gain you desire. Based on our experience and thorough research, Dearborn is filled with opportunities that yield both kinds of returns.

If you ask us, Dearborn is an excellent place to start investing in the Metro Detroit area.

Do you want to scout other Metro Detroit areas aside from Dearborn?

Check out our other Deep Dives (we’ve already covered a lot of areas), or drop a comment below to request a specific city or neighborhood you’d like us to prioritize. We’re not stopping until we’ve evaluated all of Metro Detroit!