As a lad in 1969, I remember accompanying my Dad to purchase my sister’s first car, shortly after she (barely) passed her driver’s exam. Molly’s first ride was a red Volkswagen Beetle and, in that time period, you saw those vehicles all over the place. The compact, rounded coupes, along with the automaker’s mini-buses, became somewhat of a symbol of an era when a young generation preached peace, love, and harmony. On long drives, my friends and I even played a game called “punch buggy” in which you slugged your backseat traveling partner in the arm upon first sight of a Beetle. Needless to say, 45-50 years ago there were a lot of sore appendages among myself and many other kids who drove their parents crazy from the second row of family sedans and station wagons. And then somewhere around 1977—poof—the company stopped production for U.S markets until the car enjoyed a remarkable comeback in the early 2000s. What had once fallen out of favor among drivers was suddenly trendy again.
Irony would have it that the fall of Detroit began when foreign auto manufacturers gained significant traction in domestic markets by out-innovating and underpricing their American counterparts. The Motor City, inextricably tied to the success of General Motors, saw demand shrink, resulting in shuttered plants and rampant unemployment. A bellwether for the U.S. economy, the auto industry stumbled mightily. Residents sought opportunity elsewhere and investors followed suit. Turn the clock ahead to 2019 and the once-battered region is experiencing somewhat of a rebound, much like the VW Bug did in 2002. When it comes to real estate investing in Detroit, I’ve found the city to be one of the hottest markets in Michigan as well as the nation. Property values are on the rise and the veil of blight, crime, and joblessness is lifting.
Where Should You Invest in Detroit Real Estate?
Unquestionably, Detroit plays out as one of the best cities in which to buy residential real estate right now. With a variety of neighborhoods stretched out over 138 square miles, the question becomes how to find the locales that present the greatest chance of earning a solid return on investment (ROI). In my travels, I’m finding numerous pockets in the city to acquire distressed houses to either rent out or sell. Here are five shining examples.
In realizing the advantages of real estate investing, the goal will forever be purchasing homes as inexpensively as possible, making the necessary repairs, and unloading the dwellings at a market peak. With those objectives in mind, I like to initially concentrate my efforts in neighborhoods that offer the deepest discounts to potentially increasing market values. My search takes me to locales whose median home prices have suffered the worst and Fitzgerald qualifies. But, revitalization projects have begun in this urban section of Detroit that sits between Wyoming and Livernois Avenues. Along with developing parks and green spaces, the city has committed to rehabbing about 115 vacant homes in Fitzgerald. In addition, the project has targeted the business zones along McNichols and Livernois for an injection of capital aimed at buoying local merchants. And, though the timeline to completion for some of the projects has been pushed to late 2020, others—like the reopening of Ella Fitzgerald Park—have already started to revitalize community spirit.
If another party is willing to lay the groundwork for my own path to profitability, then I’m all for it. In battered, underdog neighborhoods such as Fitzgerald, I’m happy to find a few single-family homes to buy, renovate, and sell if public money points to the potential for private gain. In addition, a huge advantage to buying in this neighborhood is reflected in the minimal dollar investment needed to get started. New investors who want to start small and grow their portfolios should look to Fitzgerald for longer-term holds as the market blooms on the heels of the government’s efforts. The Fitzgerald neighborhood looks poised for a notable resurgence and holds smaller downside risk than more expensive metro areas.
Public money is one thing—there’s an obligatory civic duty behind government efforts— but, private money is quite another matter. Real estate developers commit much of their resources to formulating a real estate investment strategy that focuses on finding the next hotspot. It’s not prudent to spend millions of dollars on projects that won’t yield an acceptable ROI. In neighborhoods such as Islandview, there’s a lot of private activity that makes me think this Detroit neck of the woods might make the grade. Renovations such as the ongoing project in the former St. Charles School bring affordable luxury living for individuals and families who desire an urban lifestyle surrounded by attractions such as bars, restaurants, and coffee shops. Popularity seems to be on the rise in this East Side village along the Detroit River where residents actually can see another country (Canada) from their house.
Condos in the St. Charles Residences appear eminently affordable when compared to other Midwest metro areas such as Chicago. In the nearby Windy City, you can expect to pay two to three times more when buying comparable investment properties along the lakefront. While it’s difficult to say the allure is the same in both markets, I feel the potential for growth bodes well in Motown, and a dollar earned in Michigan is the same as a dollar earned in Illinois. To boot, all the news sources were reporting in 2018 that Detroit was witnessing its first increase in aggregate residential property values in over a decade-and-a-half. And, by January of this year, that property values were finally rising by double digits. Those types of economic indicators point toward opportunity in a city that has been markedly undervalued for years. The time seems right to capitalize on that growth.
When I picture the setting for idyllic family living, I see old neighborhoods with single-family homes along tree-lined streets where kids ride their bikes and folks walk their dogs. Strolling through Woodbridge, that vision seems to apply to the sights I see as I hunt for detached single-family homes to buy as investment property in one of Detroit’s historic venues. The quest to purchase undervalued homes in good locations isn’t always only about what I see, though. I like to look at desirability through the eyes of potential buyers who, in this case, likely lean toward growing families seeking to plant roots for a few decades. The neighborhood has also been a draw for academics who attend and teach at nearby Wayne State University. As such, I see a chance to scoop up both rental properties and dwellings to buy, rehab, and sell quickly.
Finding good deals may be a bit of a challenge in Woodbridge. When I am able to locate motivated sellers, I have to close quickly on a purchase. Strong demand has become one of the foremost reasons that Detroit has suddenly become relevant in the real estate market. While the rest of the nation sees residential properties sit on the market for anywhere from 57 to 72 days, Motor City homes are being listed and sold in almost half that time. Woodbridge, one of the metro neighborhoods with a small town feel, has been a top contributor to the trend. With the area around the university noted as one of the safer places to live in Detroit, great opportunities to enhance ROI are out there. However, it may take a little more legwork to find off-market properties adjacent to Midtown. I’m willing to go the extra mile because demand and growth in Woodbridge are well worth the effort.
Grand Circus Park
I’m always on the lookout for rental properties downtown. The city vibe draws in young singles and couples who willingly pay premium rents to live close to work, shopping, nightlife, and other attractions. I’m a big fan of walkability in any locale and if I never had to get in a car to accomplish routine tasks for the rest of my life, that would be just fine by me. As unrealistic as my peculiar notion might be, city dwellers think somewhat along the same lines and demand in Grand Circus Park reflects my personal feelings. The main thrust behind buying and rehabbing rental property as an investment strategy is keeping units filled with reliable tenants who pay the bills on time. I focus on income properties near Comerica Park, the home of the Detroit Tigers baseball club. The kicker? Occupancy rates in the neighborhood are impressively high.
But correctly calculating cap rates are an important part of evaluating appealing real estate deals, too. Dividing annual net income—total rents minus expenses such as mortgages and taxes—by the purchase price, the resultant percentage gives an indication of how well an investment in a hard asset is performing. Moreover, a cap rate allows comparison to other rental properties to gauge which units meet acceptable rates of return and which may require a bump in rental price to meet the standard. Grand Circus Park fetches some of the highest rental prices among all Detroit metro neighborhoods. Couple top rents with strong demand and I feel Grand Circus Park presents an ideal outlook for projected ROI.
Do you know what I think is cool? Any innovative, outside-the-box concept that adds to a city’s revitalization efforts, attracts investment, and makes a difference in the community at the same time. Such an effort is being put forth in Detroit’s North End in the form of an ‘agrihood.’ A two-acre farm has been established in the locale that neighbors the General Motors Hamtramck assembly plant. Melding farming with urban living, the initiative stands out as the first of its kind in a major U.S. city. The tiny, but viable, patch yields tens of thousands of pounds of produce annually and the vast majority of the food is supplied to needy families, churches, and food banks. The unique, mixed-use locale has been attracting buyers who relish the blend of rural and city life. I can’t argue otherwise.
Of course, my investing success in North End depends on connecting directly with home sellers who will accept bids below market price. The key to finding these deals on investment property is digging beneath the surface to uncover homeowners in distress who want, or need, to sell fast; then, offering to buy their homes as a means of helping to solve their problems. At any rate, the North End seems to be onto something and I’m willingly on board for all the right reasons. As creativity abounds, opportunity for ROI knocks.
Sifting Through the Detroit Real Estate Market
In a big city with many diverse neighborhoods, knowing which spots will flourish can often seem a daunting task. When I looked around in Detroit, I imagine it might be difficult for some to know which way to turn. But, as an independently owned and operated HomeVestors® franchisee, my footing is solid. In a city where such a changing dynamic exists, HomeVestors® “We Buy Ugly Houses®” marketing campaign helps bring motivated sellers to my door and puts me in the figurative driver’s seat on the Motor City streets.
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