I grew up in Plymouth, a suburb just west of Detroit. I now have flipped hundreds of homes and happen to run a property management company that has over 3,000 rentals and 85 W-2 team members, many live in the city. My little sister lived in Detroit for a long time. I am a HUGE supporter of the revitalization efforts, but I have to share the real scoop. I have nothing to gain to tell you to what I am going to say, so please take as my advice from the bottom of my heart to help you become successful. Here are the details of Detroit proper and my HUGE recommendation to take a look at the VERY investable suburbs that also offer great yields and FAR less issues. We have homes in St. Louis, Baltimore and the South Side of Chicago... but Detroit is different from them all.
1) Remodeled nice homes (that you will be all in around $40K to $50K) will have hundreds of people that want to rent for $800/mo to $900/mo. This surprises most and this is where is seems great. But it is actually not good. As a manager, it is incredibly difficult to handle what will amount to 100 to 200 hundred calls in a couple days for a property while 90% will end in an unqualified tenant.
2) The police do not respond in Detroit. Period. Full Stop. Let that sink in for a minute. Your property manager is NOT the police. Your appliances will be stolen in broad daylight. Your tenant will want to break a lease because a neighbor was murdered (this happened to us 3 months ago). Your tenant will have belongings stolen and it will break your heart because the police won't even show up. As a manager, we will buy back the copper pipes from the people that stole them, because that is how it is. Appliances, HVAC and copper are traded in alleys. People will walk straight into your home and take everything and the police WILL NOT EVEN RESPOND TO THE CALL.
3) You will get a tenant and you will get them fast. With our system, less then 2 weeks. But set aside $5K a year to replace stolen items. Some say 50% of rent is a reasonable reserve for repairs, in Detroit, it is probably closer to 70%.
4) Section 8 - Many like section 8. the Detroit Housing Authority is special. They simply don't respond. Everyone is eventually made right over time, but I have had 2 to 4 months pass prior to getting the first payment. They catch it up, but this wreaks havoc with cash flow if you have 10 units.
5) Water Authority - They refuse to turn water into anyone's name unless you show up in person (or have a lot of docs to let us do it). Trust me, this is not a great place to go. Chalk up a day of standing in line. The amount of properties with outstanding water bills is shocking.
6) Taxes are Rediculous - Over 50% of ALL properties in Detroit are currently behind on taxes. Think about that! This is not the great recession, this is the great boom! Detroit is 75 mills for investors making it the highest tax rate of any city in Michigan. That works out to nearly 4% of the value of a home. So a $50K home may be $2K a year in tax. Imagine if you actually purchase a nice $200K home.... yep... could reach tax of over $8K/yr! Wowza!!! This, of course, leads to corruption and the non-payment issue and then the annual tax auctions where you can buy these lovely gems for $500. But remember, there are hundreds of thousands of homes behind on taxes. The numbers are off the charts.
7) Income tax - The city punishes those that liive in the city with a 1.25% income tax. They then hit you with an additional $1.25% if you work there too. This is a 2.5% tax that makes sure anyone with income will more often chose the subburbs. (more on that in a second)
8) 87% of Detroit transactions closed cash in 2017. For our California friends, this was not because of the huge level of assets in the city. These deals are all of the out of state investors that purchase homes only to see all the issues above and bail out a year or two later and pass on to the next out of state investor.
9) Schools- The schools are rated a 1. A 1! The only blessing is that Michigan has schools of choice to help kids that stuck here and they can use vouchers in Michigan to goto charter schools. Outside of that, the public schools system is completely unproductive by any measure and ripe with corpution and fraud as many members of the school system have been sent to jail for issues with rigging bidding with vendors.
10) Crime - 43 murders per 100,000 in 2017. This means that you 1/2,500 shot of being murdered in the city. If you figure that everyone might know a couple hondred people, it is highly likely you or someone you know is murdered every year. That is INSAIN.
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What I would HIGHLY recommend.
Consider the suburbs of Detroit! The step up to cites that include Redford, Livonia, Warren, Ferndale and Westland are a completely different game from Detroit.
At the time of this writing, homes can still be purchased in the $75K to $125K range in all of those areas and get well 10% to 12% CAP rates. Prices are rising so that won't last forever, but it is there.
Big difference -
1) The police respond and are active in enforcing laws to protect your tenants and homes
2) The schools are much better
3) The crime is MUCH lower
4) You will be happier with your property manager
5) The homes will actually sell to end buyers, not just out of state investors.
6) People pay taxes and water bills in every city other then Detroit nearly all of the time
Can you make a HUGE return in Detroit! HELL YEAH!!! I have clients that do. But if you are a newbie, if you have not bought over 100 homes in your career, if you are using a decent percent of your wealth to invest, PLEASE PLEASE PLEASE do not choose this city as your tuition bill. So many have paid the price prior, please learn from them.
From a Property Manager in Detroit that Loves the City but cares about investors mental stability.
