Should I Buy Property in Detroit: The Most Important Market Conditions to Consider
Sami Abdallah, has been successfully buying and renovating property to rent or sell in Detroit as an independently owned and operated HomeVestors® franchisee since 2012. He’s also the president and a broker at Temple Realty in Southfield, Michigan. But, even before he started investing, he achieved prominence on the Detroit real estate scene. As a real estate agent specializing in bank-owned homes with Re/Max Leading Edge between 2007 and 2012, he ranked in the top two percentile of agents for selling homes, according to HomeLight. So, when it comes to understanding how to leverage Detroit’s up and coming real estate trends, I don’t think anyone has their finger on the pulse of our market quite like Sami does.
In considering how Detroit’s real estate market—and reputation—has shifted so dramatically over the years, I asked to pick his brain a bit. Sami always has an eye on the future and I wanted to get to the bottom of this question: If I were a new real estate investor, or an experienced one looking to explore another market, should I buy property in Detroit? His answer may, or may not, surprise you.
Should You Buy Property in Detroit After the Housing Crisis?
Back in 2007, Michigan led way as one of the states with the highest number of foreclosures, and four of Detroit’s zip codes ranked in the top ten. Thanks in part to the desertion of the “Big Three” auto manufacturers, Detroit had already suffered some pretty serious blows that left it in shambles and many of its residents in poverty. With job opportunities falling and unemployment rising, people were simply unable to meet their mortgage obligations. Banks took over homes and homeowners moved on.
It was around this time—when foreclosure inventory was high—that Sami began working as a real estate agent and as a broker, specializing in the sale of bank-owned properties. By the time he entered the market as an investor, however, the backlog of foreclosures was all but disappearing and Detroit’s economic climate, generally, had started to change. Since then, Sami says, the market has done a 180:
Detroit entered the housing crisis before most of the country, but we exited before a lot of the country too. I would say that by 2012–2013 our market started to stabilize and the amount of foreclosures declined. Then, within the past four years, the number of private sellers bringing their homes to market began to increase. We went from having a really depressed market, heavy in distressed property and foreclosures, to a strong seller’s market with high prices and high buyer demand.
According to Sami, two main forces drove the resurgence of the city’s economy and its revitalization overall. The first is the large concentration of new corporations, and a few old ones, like Ford, moving in and bringing good-paying jobs with them. These new jobs are doing more than just putting money in the pockets of Detroit residents and helping them pay the bills. They’re strengthening people’s ability to eat, shop, and play where they live and work and, thus, further contributing to the economy’s growth. Job growth is also attracting new residents to the city, increasing the demand for housing, which, in turn, helps to boost median home sales prices.
The second factor that has contributed to Detroit’s economic restoration, and its subsequent re-emergence as a sought-after city to live in, is the commitment of several government programs to reduce neighborhood blight, repair faulty infrastructure, and improve the overall quality of life. Sami says:
HUD sending the city federal funds to demolish vacant and dilapidated structures has done wonders for neighborhoods and is probably the single biggest factor that has increased property values in the past year. Neighborhoods with nice homes, but that were surrounded by destruction, are finally getting cleaned up. And, the Lighting Authority, which is a local government program, pooled funds from different entities within the state to update the city’s entire lighting grid. That really improved livability.
The Detroit Land Bank Authority has helped to improve and stabilize neighborhoods as well. The Land Bank will form a partnership with a lender, identify a property, and complete the rehab. Then, the lender will commit to lend on that home to a family at a fair market price. Additionally, the Land Bank will go after people who do not maintain their property and aggressively attack them in court to get them to comply with existing ordinances. This helps to further reduce neighborhood blight, increase property values, and bring good properties to the marketplace for owner-occupants.
One of the benefits of government involvement for investors, Sami notes, is that a path was cleared into otherwise hard-to-reach neighborhoods. The demolition or rehabilitation of decrepit properties created comparable sales that helped real estate investors more accurately determine market values for nearby homes. So, they were better able to make good property investment decisions and also actively participate in the revitalization of neighborhoods throughout downtown, midtown, and in New Center.
Selecting Your Detroit Investment Niche
There are several neighborhoods, even now, that continue to evolve and on which Sami, and other investors, are focusing their efforts. The up-and-coming Boston–Edison area, as well as the westside neighborhoods of Corktown and Warrendale, are some examples. Indian Village, University District, and Rosedale Park, though more established and high-end, are also favorites. Each of these areas is desirable for different reasons, of course, but they all have the potential to deliver the kind of investment property that fits a performing portfolio. “You can pretty much have it all in Detroit,” said Sami, “Whatever type of property you’re looking for or whatever type of market you’re looking to invest in. It’s available for you within our city.”
The thought of pretty much having it all in Detroit is most certainly behind the renewed interest of owner-occupiers looking to the Motor City to buy a home. With a lower cost of living than many major metropolitan areas, increasing job opportunities, a significant reduction in neighborhood blight, and an ever-improving infrastructure, would-be homeowners are competing to get in. As a result, all inventory—not just foreclosures—has dropped and median home sale prices have jumped. In fact, according to Crain’s Detroit, the year-over-year percentage gain for median home sale prices are up by 48%. With new listings also down by 23%, and the backlog of foreclosure inventory almost gone, the housing squeeze is sure to get tighter.
Still, not everyone in Detroit can afford to buy a home. Whereas the national poverty rate is 14%, Detroit’s is 36%, reports the New York Times. So, though the local economy is improving, not all of Detroit’s residents seem to be benefitting—at least in terms of their ability to purchase property. In fact, the vast majority of people still rent, contributing to Detroit’s latest nickname, the “City of Renters.” Sami insists, however, that this is a potentially good thing for investors.
For us, it’s really driven the percentage of rentals we acquire versus what we would call flips. Rentals make up 60 to 70 percent of our portfolio. So, the majority of properties we buy, we hold. We’ve got historically high rents at the moment and we’re able to purchase properties at low prices, giving us a tremendous return on investment. It’s a perfect storm for landlords right now, and we are capitalizing on that.
Considering Detroit’s Market Future
Sami likes to point out that choosing whether, and how, to invest in Detroit comes down to much more than just deciding if you should sell your investment properties or keep them as holdings. One of the biggest market conditions that he thinks all new potential investors to the area should consider is that, despite Detroit’s underdog reputation, it’s a big city poised for a major comeback. He explains:
People are slowly waking up to the realization that it’s cool to be here. Detroit has this amazing brand that’s unique and recognizable worldwide—and it can’t be duplicated or imitated. You know, New York’s got a style and a certain vibe. L.A. has one. Chicago has one. And, I really believe that Detroit will end up being mentioned in the same category as those beautiful cities someday because of the uniqueness of our brand.
We’re the Motor City. We’re Motown. We’re the underdogs. You know, it’s Detroit versus everybody. Whether you’re selling sandwiches or selling homes, it’s a cool thing to be in Detroit.
Considering the combination of market conditions we discussed, however, naturally led me to another, critical question that I think other investors will also want an answer to. If attitudes are shifting towards Detroit, thanks in part to the city’s revitalization and a burgeoning economy, and the renewed interest of both renters and homeowners is driving prices high and inventory low, how do you find great investment properties? And, can you find enough to make a career out of investing in Detroit real estate?
Being in the Right Place at the Right Time
It wasn’t that long ago, Sami admits, that he had the very same concerns. At the tail end of the housing crisis, watching foreclosure filings drop month after month, he realized that the market was changing. And, he was no longer interested in being a traditional real estate agent. He wanted to buy houses. But, like a lot of would-be investors, he didn’t know where to start.
I had no idea how to even begin to find sellers in the market that we were in. Then, through a Google search, I came across the caveman, UG, and the iconic “We Buy Ugly Houses®” brand. It just struck me and I said, “This is it.” I loved the ability to enter into something that was established and that had a system. I didn’t need to create processes or a brand. I didn’t have to worry about advertising. Plus, I was drawn to the credibility that the HomeVestors name gives you, whether you’re a seasoned investor looking to take your business to the next level or you’ve never bought a home before—it doesn’t matter. As a franchisee, you instantly get the training and credibility of America’s number one home buyer.
Since becoming a franchisee, I’ve learned that there are a million ways to get your hands on a property. But, I get the best properties by just being in the right place at the right time, by being positioned in the marketplace as a leader—as HomeVestors has done. As a HomeVestors® franchise, we get the cream of the crop. We advertise the nationally-recognized brand and let the qualified leads come to us. The best deals I’ve ever purchased have come to me thanks to the HomeVestors’ “We Buy Ugly Houses®” brand.
In fact, the HomeVestors brand, which was established in 1996, has helped its independently owned and operated franchisees buy more than 95,000 houses not only in Detroit but nationwide, regardless of market conditions. HomeVestors has one of the most effective real estate investor lead generation systems available—the “We Buy Ugly Houses®” marketing campaign—that drives motivated sellers to local franchisees. The decades-long success of the HomeVestors brand is certainly why I chose to become a franchisee. Apparently, it’s why Sami became one too.
Have you decided that you want to buy investment property in Detroit? Let HomeVestors help get you started. Join UG, Sami, and me by contacting the “We Buy Ugly Houses®” team for more information about opening your own independently owned and operated HomeVestors® franchise.
Each franchise office is independently owned and operated.