Best way to invest in Detroit rental property?

Question

I’m pretty committed to investing in a buy and hold rental in Detroit and not yet sure the best approach. First let me say I live in another city but am in absolute love with Detroit (I’ve been many times) and its communities and want to plant roots. I’ve been thinking of investing in a turnkey with tenant for under 60k. I’ve read all the warnings on the post, however I think I’m in a bit of a different position in that I’m not against holding on to this home for 5+ years with 2%+ rent to price ratio with the the chance of it becoming my own home and investing in a 2nd property (maybe even a land lot).
Any updates on a reputable turnkey company in Detroit? I’ll be back in Detroit in a couple of weeks and would like to meet with turnkey companies, mortgage brokers and any likeminded people who truly believe in building back up Detroit.

Lamar Lee · Answer

@Clarissa Cummings

Hey Clarissa,

I've purchased over 30 SFH rentals in Detroit, most of which I own free and clear. Some of them I've bought tenant occupied. Most of them I bought distressed, rehabbed, and rented. I've helped a dozen or so other investors get started in the market, as well. We have a full-service team in place to help investors (in-state and out of state) earn passive income investing in Detroit.

As I’m writing this, most of the properties we are purchasing right now are in the $40k-45K (purchase and rehab) range and rent for $800/month. After PM, taxes, insurance, and maintenance, we typically bring home $500/month on average, per property.

Its still tough to get mortgages in Detroit, especially if you're trying to capitlize on properties in neighborhoods that are undervalued (which is our strategy).

We're not a turnkey company. We are investors who were In the market before 2008, stayed in during the crash of 2008, and now have a strong position in the market today.

We’ve literally built our wealth investing when there’s blood in the streets. That’s not the mindset of most investors on this platform. We are perfectly fine holding our properties forever and cash flowing them to the grave, which is also unlike most investors on this platform.

By the way, despite all the madness of COVID, eviction memorandums etc. we had our best year of rental income, in 2020!

If this sounds like something you'd be interested in or if you have general question, let's connect!

Paul S. · Answer

I understand your goals and think they are great!  Please don't take my comments as discouragement in any way - I plainly outline the risks to Detroit investors (especially OOS investors).  This is a tenant friendly city.  If YOU are not boots on the ground to show up at the door weekly to shake down rent it's not going to happen.  A PM is not going to be able to secure your property when it goes vacant, stop the neighborhood from pillaging anything of value within the property the night it goes vacant.  Passive income becomes very large debt in Detroit VERY quickly.  Invest where you like - I just like to advise OOS investors to go to a more landlord friendly place like many places in Ohio.  Property in Detroit is dirt cheap for a reason... and the reason isn't because people don't know about it LOL... it's been dirt cheap for 60 years.

Drew Sygit · Answer

We manage around 200 Detroit rentals and Paul & Travis are pretty accurate.

We haven't seen a good Detroit turnkey provider yet.

It's the Wild West, so lots of scams.

In our opinion, use every avenue you can to source potential purchase, screen a good PMC you can then rely on to filter those potential purchases, then get a real good inspection (including sewer cam). Plan on having the property rehabbed to your specs - which should pass the city inspections.

Paul S. · Answer

There are many "Turnkey" people out there willing to sell you their crap.. uh, er.. I mean gold - then buy it back from you for pennies on the dollar in 12-24 months when you are broke.

Drew Sygit · Answer

@Clarissa Cummings What are you hoping for with long-term existing tenants?

In our experience, this usually means the previous owner hasn't raised rent in quite some time, trading stability for income. If you buy and try to raise rents by more than $25-$50/month, when they are $100+ under market rent, most of these tenants stop paying or move because they can't afford it.

Additionally, many of the properties with long-term tenants also have a lot of deferred maintenance.

Clarissa Cummings · Answer

@Travis Biziorek Oh I’m not surprised you and @Paul S. are friends! Lol. I’ve seen much of your comments and there is a lot of criticism but I need that type of reality check. It doesn’t scare me away but makes me face some serious questions that need to be honestly considered to best shape my plan.

@Drew Sygit  Ive learned that I should stop saying “turnkey”. What I’m really saying is that I have interest in purchasing property that already has long standing tenants. I don’t see this option as much in other cities I’ve considered, and it seems to be a little more particular to Detroit and how they use the term. I don’t want to go through traditional turnkey outfit. I’m looking at buy and hold and increasing doors slowly.

Travis Biziorek · Answer

Clarissa, believe it or not, @Paul S. and I are actually friends. We hang out in real life, talk all the time, and are looking to partner on something soon.

Paul is far more critical about Detroit, and pessimistic, than I am. But one thing we agree on is that it’s generally not the place for OOS folks.

That said, it seems you’re doing more research than most and are pretty familiar with the city. That’s a good start.

But there are no legitimate turnkey operators here. I believe this is simply because the numbers just don’t make sense. Property values are low and most rehabs require you to address delayed capex (new roofs, updating plumbing and electrical, etc.). Any “cosmetic rehabs” often let the big capex items slide and you’ll end up dumping money into them soon after purchase.

Detroit is plagued by scammers, and it’s still very much the Wild West. I’ve never seen anything like it.

That’s not to say you can’t be successful. You’ll just need to be extra careful and I don’t think a turnkey operator is the way to go.

Clarissa Cummings · Answer

@Paul S.

Yes, I’ve read your past comments with appreciation and it’s made me become more critical about the pros and cons. Also Detroit’s version of turnkey is little different and unique. Not everybody is in the position to oversee a rehab. Also, I’m not trying to gain some big profit quickly. I’m looking for indefinite hold and making long term stakes in the city. Passive return is fine by me.

Clarissa Cummings · Answer

@Lamar Lee

I’m interested in learning more. Thanks!

Best way to invest in Detroit rental property?

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