This will be a controversial post. I got an email from a investor (out of the country) that thought Detroit real estate were an absolute bargain. I get this all of the time. I have helped people buy Detroit foreclosures. That is when they knew what they were getting into.
The out of state investor saw homes that were $500 - $1000. He asked me my opinion. What is my opinion about buying Detroit real estate.
I am going to get grief from some people but this is the way many people see Detroit. Well here is my opinion.
When you are looking at Detroit foreclosures for $500 they are definitely going to need work. Without even seeing them I would venture $10,000 - $20,000 in repairs. If you are an out of state or out of country investor you need a repair crew. The problem in Detroit is that many times items are stolen out of uninhabited homes. Many Detroit foreclosures have had the furnaces, water heaters, and copper plumbing stripped and stolen out of them. I had clients that had Detroit rental homes. One of my investors told me one time he put in new doors and the next day all of them were stolen. Some investors have their repair crew live in the homes until they are rented. You do not want to leave tools in the home. They probably won't be there when you return.
Detroit City Services................Detroit city services are poor to fair. The city government spends more time fighting each other than improving the city. The last mayor was forced to resign. There are vacant homes waiting to be demolished for months, there are piles of garbage in vacant lots waiting to be removed. Many roads and parks are in need of help.
Detroit neighborhoods.........................This is one of the keys to buying Detroit investment properties. Know the area. You want the stable areas. You don't want as they say "the combat zones". There are some very nice neighborhoods in Detroit such as Rosedale Park, Palmer Park. There are many stable areas. There are nice brick home areas. But much of Detroit is very mixed in terms of quality of homes. You can have nice brick home neighborhood right next to a blighted area. There are homes that are nice right next to burned out abandoned homes.
Detroit has a higher insurance rate than many of the surrounding communities because of the violence and crime rate. The crime rate is higher than many of the surrounding communities. So you as a home investor that will be a higher cost to insure the rental property. Another item to keep in mind when trying to figure cash flow.
Detroit Property Taxes..........................Detroit Property Taxes are hard to fight. The City has added an additional hurdle to jump when fighting your Detroit Property taxes. So if you buy a $500 Detroit foreclosed home you may have a $4000 property tax bill per year. So you have to be very careful in your calculations when determining cash flow. Definitely do not anticipate lowering the property tax bill. Some Detroit foreclosures may not be a good investment because of the property taxes. For more on Michigan property tax assessment.
Detroit Schools.............. Detroit school system is sub standard. They have a very low graduation rate. The school system doesn't seem to spend the money in the right places. There has to be a police officer on duty in the schools because of the violence. The state meap scores are low compared to the surrounding suburbs. People want to buy homes in areas where they can raise a family. But I think Detroit would be the last place in Southeastern Michigan somebody would buy if they had kids and schools were a priority.
Your prospective Detroit renters. ......... Year after year Detroit is experiencing a population decline. A Detroit newspaper once said that "all the people that could move out of Detroit did." I think they were overstating the facts. There are many people that do want to live in Detroit. Some of the homes are beautiful and of course right now they are very inexpensive. What I believe the paper was trying to say is that if they could have bought a house in a nicer neighborhood or city they would have. So drawing that out.....the paper was saying all the renters that were left in Detroit had bad credit. Bad credit so they couldn't buy anywhere else. That will be your rental pool. You will need to have a GOOD property manager to collect your rent.
So can you make money in buying Detroit foreclosures?..... the answers is yes. You have figure your cash flow carefully and buy smart. Do I think long term appreciation will be good for Detroit foreclosures?......NO Do I think it is the best city to buy in....;. NO... because I believe Detroit foreclosures will not bring a return on investment because of the city itself. But there are some investors making money in Detroit investment properties.
I just don't want you as an out of state or out of country investor think everything is peachy in Detroit. Don't let somebody con you and sell you a "lemon". Some of these foreclosures are from previous smart "out of state investors" that overpaid and were "outsmarted".
If you are looking for a good investment home you should be looking in a city that is not declining, that has a good school system, and has a normal crime rate. I wish I could say better things about Detroit. All my life I have said I am from Detroit when somebody asks, not Livonia, not Allen Park. I have worked in Detroit and had many a good time in Downtown Detroit. It is a great place, has the foundation to be a good city. Detroit needs the city officials to come together to fix the problems that have taken years to accumulate. Detroit needs the tax dollars to be spent wisely in the future. Detroit needs its citizens to come together to help work, and to clean up the city. If not it will continue to decline. I hope not.......
