In Midwest

“Homes are going for only a thousand dollars in Detroit!”

“I read you could buy them for one hundred!”

This was the gist of the conversation I overheard at the Los Angeles International Airport just before boarding my flight back to DTW. You’ve probably heard something like it too if you’ve traveled outside of Detroit and found yourself talking about, or listening to, trends related to our local real estate market. But, the fire sales that have made the news over the years don’t necessarily mean that investing in Detroit real estate in 2019 is a good idea. That’s not to say that buying, renovating, and selling houses here is a bad idea either. It simply means that there is more to the story and, if you’re a real estate investor like me, it’s good to get a solid read on where you’re buying before you actually do.

Investing in Real Estate: Is Detroit Where You Should Look in 2019?

The Outlook for Investing in Detroit Real Estate in 2019

Prior to the housing crisis, Detroit’s economy suffered several near-fatal blows that eventually led the Motor City to file for the largest municipal bankruptcy filing in U.S. history. The “Big Three” automakers—Ford, GM, and Chrysler—cut jobs and pensions in an effort to stay afloat, eventually relocating much of their manufacturing facilities to other, less expensive counties and countries. As a result, thousands of Detroit residents, many of whom depended on the auto industry for their livelihood, left. The number of Detroit families living in poverty rose, crime increased, and homes were abandoned.

Then, the housing crisis struck. By 2007, national news outlets were already reporting that four of the top ten zip codes with the highest number of foreclosures could be found within Detroit’s city limits. In 2011, some of the city’s most decrepit homes were being sold for as little as $100. And, in 2014, the Detroit Land Bank Authority, much like the Cook County Land Bank Authority in Chicago, stepped in to help reduce neighborhood blight by selling vacant, abandoned, and foreclosed homes for rehabilitation or demolition—for prices starting at $1,000.

These fire sale prices, however, reflected the truly poor the condition of these homes. Many were dangerous and too expensive to be brought back to code, so they had to be demolished. Others were costly to renovate or remediate, if there were liens attached or back taxes due, and abandoned a second time. Neighborhoods like Westwood Park, Petosky-Ostego, and Grixdale Farms started to resemble ghost towns. Finding fixer-upper homes for sale didn’t seem to be the problem. Finding good investment opportunities, and those willing to take them on, did.

But, in spite of the housing market’s slow recovery and the reticence of investors to aid in its revitalization, the landscape of Detroit is starting to change. By mid-2017, median home sales prices had jumped 50 percent year-over-year to $36,000, according to Crain’s Detroit Business. And, prices continued to rise throughout 2018. The increase, according to Crain’s, is primarily due to decreasing inventory and a swell in demand, which shifted down in 2017 by almost 27 percent from the previous year, then down again in 2018. So, at first glance, it does appear that demolishing some of the worst homes in the city and selling others for cheap over the years has helped to reduce neighborhood blight, attract more buyers, and, ultimately, increase property values.

But, there’s more happening in Detroit that’s contributing to its improved housing market than meets the eye. High-end grocery chains, like Whole Foods, have moved in and tech giants, like Microsoft, Google, and Pinterest have opened local offices. LinkedIn is revving up to take over the historic Sanders building. Additionally, the city has plans to continue improving the public transportation system, including the newly-opened M-1 Rail. So, not only are more jobs regularly coming down the pipe, but increased access to these jobs are in the works too. Already, unemployment has dropped to 4.2%, bringing the city closer to the national average, according to the Bureau of Labor Statistics. And, both weekly wages and yearly salaries are rising faster than many other major metropolitan areas.

We’re seeing the greatest impact of these economic shifts in the increasing ability of some homeowners to stay in their homes. Foreclosure activity is down overall in the U.S., but foreclosure auctions throughout Michigan dropped a staggering 41% between 2016 and 2017, according to ATTOM Data Solutions. And, though that number rose some in 2018, it didn’t come close to reaching the dark days of the state’s housing crisis. When homeowners do decide to sell, especially in areas like Corktown, Rosedale Park, and Sherwood Forest, buyers line up for homes that are in move-in condition—and pay at or above asking. In fact, by December of last year—a time when housing markets typically cool off—the median home sales price for Detroit was more than double the list price, according to Realtor.com.

Also, it’s important to remember that though foreclosure auctions are down, foreclosure starts are up by a whopping 82% from last year. Of course, that doesn’t mean that the number of homes moving through the final stages of the foreclosure pipeline will increase, especially since the process takes longer than ever. But, it does indicate that distressed homeowners still fall behind on their mortgages and the upkeep of their homes for a variety of reasons not tied to the economy or their zip codes. So, if you can find these motivated sellers before they lose their homes, you’ll get closer to finding a good investment.

In my opinion, there’s never been a better time to buy and renovate property to sell in Detroit. Detroit is home to several up-and-coming areas, but these neighborhoods often live right next door to others where boarded-up windows remain the norm. It’s in these communities where you’ll likely find the greatest potential for growth in the years to come. But, to have a good chance of finding deals that can yield potentially great returns, don’t rely on fire sales. Rely on a property investor lead generation strategy that finds distressed homeowners of undervalued properties and leads them to you.

How to Find Deals in Detroit Now and in the Future

I’ve been a real estate investor for years and if there’s one thing I’ve learned it’s that getting good leads is the foundation for building a great business. Without motivated sellers of distressed homes, it’s hard to succeed as an investor anywhere. That’s why, shortly after I decided to invest in Detroit, I became an independently owned and operated HomeVestors® franchisee. HomeVestors®’ nationally-known “We Buy Ugly Houses®” ad campaign reaches distressed homeowners across Detroit. And, when those homeowners reach back, those leads come to me. I get better deals on homes that can produce a potentially good ROI and the homeowners get out of a bad situation before it turns worse. No fire sale can claim that.

Look into what becoming a HomeVestors® franchisee can do for you and distressed homeowners in our neighborhoods. Contact HomeVestors and start investing in Detroit real estate today.

 

Each franchise office is independently owned and operated.

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