Investing in Detroit? Best Zip Codes?

[John A.]

Hello,

I plan on investing in Detroit some time in the near future. Personally, I think this will be one of the biggest investments in real estate once Detroit figures everything out. I am looking for advise from others on where the best zip codes are in the city, where should I invest, etc.. Any advise from investors in/around Detroit would be great...

[Tom A.]

Originally posted by John A.:

@Tom A.- Sound advice. Since you have ample experience with Detroit, what areas of the city would you recommend and what areas would you away from? I plan on visiting but I want to have a few spots in mind so I can compare with the rest of city to determine if it's right for me. I know it will be a good investments if I get sound info and pick my spots right!

I'm not actively investing in the city of Detroit so I won't pretend to be an expert in that market on a block-by-block basis which is what's necessary. There are several challenges to becoming expert in the Detroit market.

One, the city is very large. In terms of area, Detroit is larger than San Francisco, Boston and Manhattan combined. Imagine trying to be an expert regarding real estate values in all three cities simultaneously.

Two, many areas are in transition, some upward but most downward. Detroit's population dropped from 870K to 711K from 2000 to 2010. The majority of that was in the second half of last decade. There are areas that declined rapidly in just a few years. There are areas right now that are seeing abandonment.

Three, the future is uncertain due to Detroit's financial condition and the presence of an Emergency Manager. Detroit's Mayor Bing has talked about plans to consolidate city services in certain areas resulting in more-favored areas and less-favored areas. The plan was never approved or implemented, which areas are which is obviously a huge political football which, if a similar plan is enacted, will be subject to contentious political fights. However, Mayor Bing has no power under the Emergency Manager. We don't know what the Emergency Manager, Kevyn Orr, will do with regard to this plan or anything else, aside from the fact that the city's creditors and bondholders will be taking a huge haircut. It's rumored that they'll be getting less than 10 cents on the dollar.

Four, which areas would be "best" for you depends on your tolerance for risk, desired return and frankly, how much "crap" you can handle. There are up and coming areas with high demand, low vacancy and momentum, like Midtown, Downtown, Corktown, Woodbridge and others but your return will be very different from that available in stable or semi-stable residential neighborhoods, or in war zones. Most people want to invest in Detroit because they see huge ROI projections from the turnkey folks. Those properties are not in the up and coming areas.

Fifth, your final sentence, "I know it will be a good investments if I get sound info and pick my spots right!" isn't how investors think or talk. There's no guarantee that Detroit's population won't bottom out around 600K and your properties won't be located in soon-to-be-abandoned neighborhoods, trashed, scrapped, gutted and burned. Detroit was a city of 2.0 million and over time 1.3 million left. What's the value of their abandoned real estate, much of which are now dirt lots surrounded by other dirt lots?

Finally, understand I say all this as someone who actually likes/loves much about the city. I'll defend it against ignorant generalizations and trash talking but I'll also call it as I see it. Investing in Detroit is for the advanced investor. Feeling lucky or hopeful isn't enough.