Good idea to Invest in Detroit?

[Mike Sullivan]

Hello BP,

I’m 23 years old and live in New York City. I’m really looking to start real estate investing to become financially free. I have 20k saved up that I’m looking to invest with. I’ve been looking into the Detroit market and notice good trends in certain neighborhoods. I’m looking for anyone that has any experience/advice for investing in the Detroit area. Also wondering if there’s any boots on the ground that could help guide me into what areas I should be looking at and which ones are trending upwards?

Thank you for your time.

[Drew Sygit]

This is a great discussion about Detroit! 

Would like to address some of the negative comments, by clarifying what we've experienced first hand, managing over 200 properties in the City of Detroit.

1) Detroit offers high returns for a reason - correspondingly high risk. 

2) Risks: 
---Tenant Pool: Relatively high percentage of low demographic population of renters with low income, low education, low credit scores, etc. Many will break a lease when a landlord tries to enforce their lease provisions about extra people living in the home, getting rid of unapproved pets, charging them for damages, etc.
---Stretched City Resources: Detroit is geographically one of the largest cities in the USA, built for a population of 2 million, with less than half that now. The resulting cut in city revenues led to the obvious cut in fire, police & other city supplied services - BUT the size of the city didn't shrink! So, city resources are spread thin and are prioritized. EXAMPLE: the police don't really respond to nonviolent crimes like squatters unless you call multiple times and are persuasive.
---Theft: vacant properties have furnaces, hot water heaters, copper, etc stolen all the time. We've even had toilets, kitchen cabinets and new windows stolen occasionally. Mysteriously, when tenants being evicted move without warning, many of these things disappear. Naive investors think calling the police will help - see above Stretched Resources.
---Deferred Maintenance: most properties were built 70+ years ago and have been neglected for decades and need much more than just paint & carpet or new kitchens & baths. They often need insulation, new windows (custom-sized and a LOT of them), underground sewer line replacement, structural work, etc.

3) Many wholesalers, flippers & turn_key providers misrepresent the risks above to out-of-state and out-of-country investors. The risks are downplayed or not mentioned at all. 

4) Many wholesalers, flippers & turn_key providers sell properties by hyping the potential returns. Property prices are based on these hyped returns, not the true market values. So, many investors over pay.

5) So, naive investor buys an over priced property or two, not understanding all the risks involved. They think they have a stable rental with stable tenants and expect a stable ROI. Then the troubles start (see Risks above). Usually, the issues are downplayed as the wholesalers, flippers and/or turn_key provider that sold them the property(s) wants them to buy more. Eventually though, the problems add up and the truth starts coming out. The investor then has to confront the fact that they were scammed a bit (or a lot) and decide what to do. Many are very upset and end up selling their property(s) at a significant loss.

All this leads to Detroit getting a bad name!

As many on this thread have stated, they are investing in Detroit successfully, because they understand the risks - often learned the hard way. 

If you're thinking about investing in Detroit, read everything you can to make sure you understand the risks. This will help you avoid the multitudes of scammers out there trying to sell you junk! 

We want you to invest your money in Detroit wisely and keep it here. That makes everyone's investment worth more and we all win!