One of the principal rules of any investment program is not to put all your eggs in one basket. Diversification has allowed me to create balance in my real estate portfolio, positioning my properties for quick sales and as longer-term holds. Between my exits, I’ve always maintained a number of rentals that provide income to boost my return on investment (ROI) while I look to lock in profits on purchase and sales price differentials. Geography plays a big part in my strategy. Real estate investing in Michigan gives me the opportunity to satisfy all the criteria of my master plan. I have been able to choose from blighted homes in notable urban markets and explore desirable rentals in lakeshore communities.
With so many variables in the Michigan real estate market, I don’t adopt a scattershot approach to buying and selling homes. I have to buckle down and focus my research on the areas that present the greatest upside potential. One of the keys to my system is not to discriminate. I have been able to land some great deals in cities that have garnered some unfavorable press throughout the years while also counting some wins in towns that fly under the radar. The bottom line is a dollar earned in Detroit is as good as a dollar earned in Ypsilanti. The success I’ve realized has resulted from carefully researching these specific markets and paying less-than-market value for flips, rentals, and buy-and-hold homes.
Where to Look for Michigan Real Estate Investing Deals
Michigan is the tenth-most populous state in the nation and borders four Great Lakes. From the far northern reaches of Copper Harbor along the shores of Lake Superior to the college town of Ann Arbor in the south, there are a ton of markets to investigate in search of great properties with promising ROI potential. These six markets rose to the top of my list when I looked for the best deals in the state.
Like the geographic diversity of the state itself, Detroit offered me many options across the spectrum of investment property types. Furthermore, the city most tightly connected to the U.S. auto industry has experienced a real estate market rebirth as of late. The Motor City is getting attention as both one of the hottest places to buy and sell homes and one of the most undervalued places to buy in the nation. I saw opportunity situated among luxury condominiums in the metro area along with numerous foreclosures in many other neighborhoods. Turnkey single-family investment homes exist but require a more thorough search among Detroit’s many residential areas because of constrained inventory. The best value of all is in buying, renovating, and selling distressed houses as Motown bounces back from a sputtering economy and a shrinking population.
The first fact that grabbed my attention in Detroit sprung from the demand for housing. Since inventory is tight, Motown homes are being scooped up 27-31 days faster than the national average, according to Realtor.com. That time frame beats the average in the rest of the country by nearly a month. This is because residents have more buying power when they find what they like; median income remains in line with the national average. Declining inventories may prove a slight challenge but acquiring investment houses in a market with high demand makes the extra effort worth my while, and I also realize patience will be a necessary virtue while I wait for a continuing rebound in home prices.
Variable costs such as home prices can be negotiated with motivated sellers. With a lot of wiggle room in the initial and biggest part of the investment calculation, I have to shift my focus to the costs I can’t control. Most growing cities see property taxes rise along with property values and the actions of political authorities are difficult to predict or influence. Kalamazoo officials recently secured a considerable win for homeowners and real estate investors as they lowered the city’s property taxes by 38%. These reductions, made possible by a $70 million donation from local benefactors, cut the number of tax-delinquent properties on the city rolls by 10%. However, I was still able to find opportunity among the 3,000 or so homes that still remained on the list in 2017.
Stronger job markets spell increased demand and an accompanying rise in home prices. Along with tax relief, the local economy expects to get a lift from the medical marijuana industry that was approved by voters in 2016. I welcome any economic stimulus in my target zones and along with getting vacant industrial spaces back on the tax rolls, the momentum from burgeoning business pursuits has already seen March 2018 median sale prices increase in neighborhoods northeast of downtown Kalamazoo. Furthermore, I didn’t need to come up with a large out-of-pocket investment to purchase single-family homes as home prices average about $80,000. Of course, any investors’ goal is to pay much lower than that to realize the highest returns on the flipside.
Ann Arbor has been experiencing a duality in demand between single-family home buyers and those who eye coveted condos in the downtown area. Many buyers tend to be University of Michigan alumni who wish to plant roots or retire close to their alma mater. Additionally, it’s not just graduates of the university that spur this demand. I have invested in upscale rentals that are often secured by parents of U of M attendees who want more amenities than normally found in traditional student housing venues. I don’t need to concern myself with over-improving these income properties as renters in this segment have traded spartan accommodations for stainless-steel appliances and granite countertops. However, the rents I command must be in line with the cap rates I’ve projected or else the upgrades might serve to diminish my ROI.
As I invest in Ann Arbor, one positive trend I’ve witnessed is the continued new development in the city. If large commercial players pour dollars into the community, then it’s probably wise for individual investors to follow suit. Developers allocate considerable resources to finding which neighborhoods promise optimal ROI for their own pursuits, so I stick to my practice of following the money when I concoct my personal real estate investment strategy. The city’s planning commission recently recommended that council approve a proposed 267-unit apartment complex slated to begin construction in 2018, according to local news. The $44 million project assures me that the rental market remains hot in Ann Arbor and any additional opportunities I find should probably be seized.
In areas where my buy-and-hold strategies take shape, I always like to get inside the head of a potential buyer before I pull the trigger on a deal. One of the most appealing features about Michigan is its vast stretch of beachfront that borders the lake that bears the state’s name. The acquisition of waterfront properties, along with suburban and metro purchases, helps complete the variety of locations I seek when building my real estate portfolio. In Muskegon County, Ludington has proven to be a hidden gem among Michigan’s numerous lakeshore communities. The visual attraction of the beach community became apparent as I strolled among the dunes, dotted by lighthouses and cozy cottages. Under the right circumstances, observers can catch a view of the northern lights so it’s difficult to soak in all the sights and not fall hard for this place.
I don’t usually make impulsive buys based on love at first sight. There have been occasions on which favoring emotion instead of logic have led to some unsavory financial outcomes. Consequently, I need to back up my feelings with hard data that points to prospective profit. Median list prices have approached pre-2009 meltdown levels marked by a significant 2017 surge in value. While Ludington home prices remain very reasonable, my personal plan involves purchasing upscale vacation homes and allowing 7-10 years for growth to kick in. The opportunities to find properties in this niche are rare but anxious sellers have popped up in light of the new federal tax code that limits property tax deductions to $10,000. I feel that a lack of development coupled with the splendid aura given off in Ludington will eventually yield an acceptable ROI when I’m ready to sell in about a decade.
After my rehab property project comes to an end, a sale before the paint on the front porch dries presents the best-case scenario for heady returns. Therefore, when I buy, renovate, and sell homes, the number one criteria I search for in a location is a very brief stay on the market. In 2018, Lathrup Village stands out as one Michigan town that fits the mold perfectly. Homes have been flying off the proverbial shelf in the community that sits about 20 miles northeast of Detroit.
Dwindling home supply has played a role in rising Michigan home prices and that phenomenon has pushed buyers from Royal Oak and Berkley into Lathrup Village. Prospects who can’t find deals in their primary market become part of a one-town-over effect—a trend where purchases in adjacent neighborhoods supplant a home buy in a locale of first choice. Most homes in the village sell for $100,000-$200,000 and one-family units on sizable lots are being scooped up at a frenzied pace. In such a sizzling market, I have to move quickly when deciding on a purchase. Dwelling on a deal could make me lose it outright or become subjected to a bidding war that yields a price point beyond the one I factored into my projections.
Near the eastern shore, Saginaw represents a recurring Michigan tale of a struggling city hoping to regain its economic footing. And, like a few other towns I’ve been through, there appears to be some light at the end of the tunnel. Ten miles south of Saginaw Bay, along the river that also shares its name, the county seat has always maintained a bond with the Detroit auto industry. Several General Motors manufacturing plants called Saginaw home but only one remains currently operational. The non-profit economic development agency known as Saginaw Future has played a large part in the city’s renaissance, injecting life into the downtown area and the real estate market. Development has found its way to Saginaw in the form of a $7 million luxury apartment project that restored some splendor to the historic Abby and Bancroft buildings.
But, I looked to the other end of the market, waging that a few of the many foreclosures in the city could be successfully purchased below market and subsequently sold into a residential property rally. Since the auction market doesn’t thrill me, I was presented with a method to find sellers who were looking to get what they could for their homes, and move forward. Most of those homes were detached units that, in some cases, required no more than some cosmetic work unable to be performed by the owners. The key to finding these was not to bypass the property inspection phase, in case some major structural issue derailed my route to solid returns. But, the leads keep coming in and I’ve found some solid deals in this area.
Scaffolding Your Michigan Real Estate Investing Business
There’s more than one way to mount a successful real estate investment career but you’d be well-served to find the path of least resistance. The obstacles I faced came in the usual forms—especially finding good leads in the best locations for investment. However, becoming an independently owned and operated HomeVestors® franchisee solved that challenge for me. The nationally-known “We Buy Ugly Houses®” advertising campaign brings leads from across the state, allowing me to scale up my real estate investment business faster than I could on my own.
Contact HomeVestors® to discover how you can clear the hurdles to your own real estate wins.