Tired of people ripping on Detroit

[Scott W.]

The city, of course, is bad for investing. There's crime in every city I wouldn't touch with a 10' pole.

Have you not seen the appreciation numbers? Think it was 20% last year & 10% so far this year. Plus, the cash-on-cash return with rentals of 20-50%.

Sounds like a good investment to me.

The thing I keep hearing is the Detroit auto industry is dead. It is not dead! A couple of the them have made quite a turnaround since the govt bailout.

Our nation has some great entrepreneurs and continues to amaze the rest of the world.

[Tom A.]

Detroit's an interesting market. Local knowledge is critically important when it comes to investing. The city of Detroit has huge problems. There is a financial manager that has been brought in to stabilize it financially which is something that many have thought is long overdue. He has the power to make radical changes that the mayor and council frankly weren't up to. So that's probably a good thing, though it may be very contentious if big changes are implemented.

The city of Detroit is not monolithic. It's 139 square miles (equal to SF, Boston and Manhattan combined). Many neighborhoods are blown out, abandoned and crime-ridden. Some are full of historic homes from the glory days -- opulent Tudors, restored Victorians and Craftsman styles from 1000 to 10,000 sqft. There's an exceptional modernist neighborhood designed by architect Mies Van der Rohe. Woe to the investor who buys without knowing what's what, whether local or out-of-area. Some have invested foolishly and lost everything.

Yet there is opportunity. Homes in Woodbridge and Corktown are selling in the first week on market. The residential occupancy rate Downtown is 97%. New developments and restorations are leased up immediately. There are numerous multifamily new-build and loft conversions in the Midtown area, home to Wayne State University, the medical center complex and the museums, aimed at filling increased demand (low single-digit vacancy rates here as well).

Then there are the suburbs where crime, schools and population decline are not issues. Rents that are 2% - 3% of asset value are still not that hard to find in lower-middle class areas, despite being a seller's market in most areas. This is where long-distance investors ought to be looking, not in the city. The returns are slightly less (still good) but the headaches are much reduced. For some reason though, the turnkey guys seem to concentrate on Detroit. Probably because that's what out-of-area investors hear about, and that's where the turnkeys can pickup houses dirt cheap in bad areas.

We don't have much interest from the hedge funds. That cuts both ways. They're not buying up all the inventory which makes it easier to invest as a little guy, but the reason they're not buying here is because they seek areas with higher predicted job growth. Forecasts for SE Michigan are pretty flat. The auto industry is booming, and the companies are making a bunch of money due to their lower cost structure, but they're doing it with fewer people, both on the white-collar and blue-collar side.

Bottom line, there's opportunity here but it requires some intelligent decision-making.