Invest in Quality High-Yield Property in Detroit
Detroit, ‘Motor City’, gets a lot of press. Some good (rock bottom property prices and high rental yields) and some bad (low employment, high crime and burned out streets). In this article, we uncover the real reasons why you, as a sensible investor, would consider investing in Detroit. To do this we interview our Detroit partners on the crucial areas of acquisition, management and the real Detroit.
If you can’t wait to see what’s on offer in Motor City today, our new Detroit portfolio is available for download along with our Detroit: Maximum Income and Growth Through Recovery investment guide. Read on for insider information on property investing in Detroit.
A message to you from our Detroit partners
“We understand transparency is massively important for international investors, so that’s what we focus on and build our business around.”
Our target neighbourhoods are usually the more densely-populated areas, with well-built, three-to-four bedroom brick colonial houses. These command higher market rents and are easier to let. We like to focus on the east side and west side pockets of the city.
It is critically important to have the right team in Detroit because there are pockets of the city where you might find a quality home, but it’s not very rentable. Houses which look well-kept and structurally sound may look attractive to investors if presented with good photos on the internet. They might sit next to equally nice-looking houses, giving the impression the whole street is in the same state of repair.
However, these properties can be surrounded by houses and lots which have become run down, or even burnt out. So, no matter how well-built and well-kept the attractive houses are, they are not going to be desirable rental properties if in a ‘bad’ street.
Location is pivotal!
Within a mile, mile and a half from each other, you can go from the absolute worst neighbourhood in Detroit, to one of the best neighbourhoods in the whole city. This is why it is so important to know the local market and understand where (as well as what) you are buying. In fact, the most pivotal thing in Detroit is the location. Not the price, not the property, but the location.
Our preferred neighbourhoods are prime areas, populated by city officials, police, fire fighters, teachers and similar professionals. They will be close to universities, amenities, shopping and transport. They will also, typically, be leafy, green neighbourhoods with lots of trees and pretty plots (gardens).
Twenty-five prospective tenants per property
It takes a lot of skill and patience to acquire property in prime areas like this and they rent within a few hours of being marketed. We can have twenty or twenty-five prospective tenants per property and often have interest from tenants before the refurb is even complete.
Investors save $100,000 from open market value
While open market sales may be slower, we see properties in the same street with values of $145,000 or $150,000. Our investors are buying for $45,000 to $55,000 and, after being refurbished, our cheaper properties are probably far nicer than the more expensive open market houses. While room size and layout are important, it doesn’t matter if they are run down inside, as we completely refurbish them before sale.
Strict selection criteria
We have strict selection criteria for our investment property, to ensure we can achieve target rents of between $800 and $1,100 per month. Firstly, they have to be brick-built colonials, typically 1930s or 1940s, ideally with three or four bedrooms and in pristine structural condition. We physically go to inspect them, with “the eyes of a tenant” (as though we were assessing them to live in ourselves) and also speak with neighbours and local people to gain a full perspective.
We have learned which areas rent best and build on those successes; rejecting any ‘trial’ areas which don’t rent as well as we go along. As we manage the properties as well, our selection criteria is one step ahead as we are already thinking about the management side when we are in the first stages of acquisition.
We currently have close to two hundred tenants on our books and these are happy tenants. We look after both our investors and our tenants and have developed a reputation as a number one management company in Detroit.
Our head of acquisitions is a lifelong Detroiter and has been in real estate for fifteen years, including specialising as an REO agent handling properties for banks.
Summing it up
Detroit is not what the media makes it out to be. It is Motor City, home of the auto industry and on the up and up. Right now it is also a big hub for movie studios because of the tax breaks. Plus, you can buy valuable houses for the same price as a car! If you haven’t been to Detroit and question Detroit, then you should come and check it out for yourself. Detroit has more than our visitors expect!