Why Chinese Investors (and YOU) are at Risk in Detroit!

It has been way too long since my last blog post. And, I didn't forget that I promised to share why so many Chinese Investors are at major risk when investing in Detroit. Before I get into it, allow me to apologize for such a delay between posts. If you recall, several posts ago, I mentioned that I would be working with more investment groups and funds. And, quite honestly, it has been consuming. However, I share this not to be boastful or for sympathy, but because it is really pertinent to today's blog and may reshape your investment strategy.

Much like some of the investment groups that my team and I work with, there are very wealthy Chinese Investors and Investment Groups that have taken great interest in Detroit. And, they are looking to buy properties in the droves. However, unlike some of the groups that I work with now, I have personally seen several Chinese Investors and Investment Groups placing themselves at great risk. And, here are just 2 (Yes, I had many more reasons, but didn't want to overwhelm you!) of the underlying reasons why and simple ways you can keep yourself out of harm's way:

#1 Many Asian countries have not yet seen the type of recent recession that we have

gone through. It is quite the opposite in many countries, experiencing only rapid appreciation. Consequently, Chinese Investors are purchasing homes in this region based upon a flawed business model - appreciation only. They are purchasing without regard to cash-flow and focusing solely on growth. While there are several challenges with this model, I will keep the focus narrow. Purchasing vacant and un-rehabbed homes, expecting to ride the market up in Detroit is a mistake! Not only is your property at risk of theft and vandalism, now, ALL investors are at risk of being sued and losing their properties. This is based on the Mayor's new initiative to fight blight. Vacant homes are considered a nuisance to the community. So, if you own properties that are vacant and receive a notice like the one in the picture above, you will have 6 months to rehab the property and get a tenant or your home will be auctioned off. Yes, you will lose your entire investment.

Solution - Here is a simple one. Focus on purchasing homes that have already been rehabbed and tenanted with professional management in place.

#2 Bulk deals rarely ever turn out well. Chinese investors are now well known for purchasing Detroit properties in bulk, spending millions of dollars in an effort to get a better deal. While this sounds like a great idea and even looks really good on an Excel Spreadsheet, it is another great danger. The problem is that most bulk single-family deals contain too many junker properties. With the exception of one package out of many, I have NEVER seen (nor have any of my colleagues) a really good quality bulk package of properties beyond 50. While I think that there are some somewhere, I am confident that there aren't many. What is often the case is about 10% of the portfolio is great; if you are lucky, 20% of the portfolio is barely average; and, unfortunately, the other 70% of the portfolio is junk. The very small percentage of the portfolio that is truly investment grade isn't enough to carry the rest of the portfolio profitably.

Solution - To experience the same level of savings or close to it, place a "bulk order," acquiring the same desired number of properties. But, the difference is you do so over time so that you can properly vet each set of deals. For example, if the goal is to purchase a package of 100 properties, do so over 6 months as opposed to all at once. There is a greater level of accountability and vetting that you can do when spreading your purchases out over time. Yet, you can gain almost the same discount.

As I mentioned earlier, there are many more reasons that I could have shared. However, I think that the two that I have just shared will have the most benefit for most of you right now. This is because much of the current dialog that I am experiencing is centered upon buying for appreciation and investors trying to purchase as much as they can, while they can.
It is really interesting how things have shifted so quickly! When I first began blogging, it was with the intent of both equipping and encouraging the "underdog" to take advantage of the Detroit market - still a passion of mine. This was done with an eye toward the future, sharing what I truly felt would take place in the city based primarily on objective data. What a difference a year makes! Now, I am excited to say that the very transformation that was projected, we find ourselves right in the middle of! (Some quick internet research on appreciation, employment, etc. will reveal this.)
Somewhere inside of most of my posts is one or several warnings. And, this post is no

different. But, what I hope that I also conveyed is that the change is here. And, although I am a facts-and-figures guy, there is really something to be said about how the culture of Detroit has shifted. There is a positive buzz that the

city has that I don't ever recall. And, I am born and raised here. I can't say enough of how excited I am with where we are now in the city and where we are quickly headed to...a thriving city that has risen from the ashes - a thriving city that has also been the source of great wealth for a select number of investors who wouldn't have had this opportunity otherwise!

Contact Me Today for Investment Opportunities!

Ian Watts

Your Detroit Real Estate Investment Partner

www.piersonandcompany.com | [email protected] | 313-744-2003

Posted Ian Watts