If Detroit comes back will it help other cities Real Estate??

Question

I have landed a job along Lake St. Clair and am considering moving to the area. My commute is pretty ridiculous right now. However, I know I don't want it to be permanent. I am torn between buying a place or just renting. I was thinking of buying, living there and then moving when I find something different. I would either rent it out or sell.

I have had discussions with some that if the Detroit market takes off and the city starts booming that it might hurt the realestate values in the cities around the area. That is coming from people who don't necessary invest but they have been living around the area their whole lives and pay attentions to home prices for their own good. What do you guys think? Granted, it's really hard to know exactly what the future holds but I wanted to see what people from Biggerpockets thoughts.

Thanks guys

Christian Hutchinson · Answer

Well it depends...If Detroit rebounds, you get more people living in the tri-county area/SE Michigan.  That drives up values.

You then have the added issue of where do a population that was heavily poor, and even with an economic rebound will only be able to do lower wage jobs anyway. They will be pushed to certain sections of the City.

You will see some inner-ring suburbs Southfield, Oak Park, Redford basically get flooded.  The cost of living will be lower, most likely a little safer, and closer to the jobs this population can perform(retail, call-centers).

Other, places will be strengthen, because they are established and have good services and attractions anyway for people.  Think Ferndale, RO, B-Ham, Pointes, Dearborn.

People tend to live close to work.  The reason why this Detroit rebound seems a little more real, because its being lead by jobs.  Basically, people have decided the Downtown/Greater Downtown Area has been secured pretty well in regards to safety.  Basically people are saying if they can find a home in this area for a price they are willing to pay they will do it.  20 years ago thats not the case.

Its people like's my Wife's co-workers who commuted from Macomb Twp or South Lyon in Apartments or Condos, deciding that one hour commutes isn't worth it anymore, and looking for apts/condos next to the DMC.

The catch will be convincing these same people that they will stay when they decide they want a house and a yard.

I believe the towns who will be hurt by Detroit's improvements will be Sterling Heights, many places in Macomb County in general, until you cross 16 mile except Warren, Warren will improve as Detroit improves, because the auto industry will be doing well, up and down the supply chain. Oakland County will be immuned except the areas I named because of the nicer housing stock and schools. Also, White Collar workers that are attracted to Downtown Detroit have  major footprint in Oakland County already, its just natural once people "establish" themselves they look into Oakland County.

Livonia will probably feel a large uptick but lots of Western Wayne Cities will become a Detroit dumping ground, at least until you get to Canton, Plymouth, Northville areas which will become even more exclusive.

Christian Hutchinson · Answer

The schools are an issue, but not as large as you think.  Again, the people you are trying to flip, are people making 35K-55K a year. Convincing them living in Detroit is a better option than living in Fraser, Westland, Auburn Hills.

People are going to switch employers every 2-3 years in todays economy so distance to work matters.  Job Centers matter. If you can afford to live in Canton, you have a household income of 80K to $150K easily.  Households that are "families" do not live in Urban areas in mass at that income levels outside of say NYC, Boston, Seattle. At those income levels you probably have control over your work schedule, you can work from home.  You are a senior worker, or in Management.

Schools systems are headed towards you will have good/elite schools then everyone else. People will decide being Westland/Garden City is too expensive and far from the job centers and the schools are not any good anyway. They potentially will be commuting into the Detroit for medium-wage work.

I can't tell you how many Residents, Nurses, RTs, Surgical Techs contact me for housing near the DMC.  Again its the $17/hr to $28/hr crowd.  If the area is safe and there are lots of jobs, the area will change...and frankly if the area changes the school will change too organically.

I'm saying this because I have 6 units with 1.5 Miles of the DMC campus. Where else can they work? Henry Ford Detroit, St. John's Detroit all less than 15 min drives.  Then you the expanded Beaumont System of Botsford/Oakwood/Grosse pointe less than 20 Minutes from Midtown. If you live near RO Beaumont there is no medical facility for a 30 mins(Troy Beaumont or Providence).

Thanks just an example of one industry.  IT is heavily in Troy/Southfield many of those firms are Offices or Multi-Nationals getting cheap space or established locally owned medium-sized companies.  The Multi-Nationals will relocate Downtown once its viewed as needed to retain talent or clients. Its not there and it won't be for a while, but when people like Lear and Tweddle start opening up Detroit Offices for their Technology Divisions.  That tells you where its heading.

Wendy Patton · Answer

There is no "if" about it - Detroit is definitely on a rebound and upward trend and has been for years.   It has really turned around and prices are going up like crazy still - the suburbs are still hot (but so is the rest of the country)  - we still have the best ROI for rentals I have seen anywhere.    Although it was so much better in 2009-2013 for cash flow deals...it is still better than anywhere else.

Michael O. · Answer

@Jonathan Twombly, and anyone that is skeptic, I would encourage you to come pay a visit to Detroit soon. There are no "ifs" anymore, it's already happening: https://detroit.curbed.com/maps/detroit-constructi...

Rental rates are at a consistent 90+% occupancy. More residential units are being built or rehabbed left and right: http://www.crainsdetroit.com/article/20180125/news...

https://detroit.curbed.com/2018/1/26/16934714/cass...

https://detroit.curbed.com/2018/1/11/16871194/stat...

http://www.crainsdetroit.com/article/20170526/NEWS...

Businesses have been moving back at a consistent clip: https://www.freep.com/story/money/business/2017/10...

https://www.freep.com/story/money/business/michiga...

https://www.freep.com/story/money/2017/08/18/linke...

Detroit has been named by multiple sources as a top tourist destination in 2018: https://www.nytimes.com/2017/11/20/travel/detroit-...

https://www.freep.com/story/travel/michigan/2017/1...

Not to mention the fact that every major sports team has moved back into the city, and I won't even begin to link out all of the new restaurants, bars, and retail that have popped up over the last 3 years.

We still have our hardships, which people have mentioned. The school system needs to be improved, mass transit needs to be fixed, there is still a strained relationship between the "elitest" Oakland and Macomb county politicians not playing fair with Wayne County and the city of Detroit...

The biggest issue with the population not looking like it is increasing in the city is due to the fact that the outrageous insurance rates within the city keep people from changing their address to the city. They use their parents or relatives addresses in the metro area so they don't have to pay astronomical prices in auto insurance and city taxes. Is it shady? yes. Will it keep happening until there is universal auto insurance reform? yes.

I'd love to grab a cup of coffee in 5 years and discuss this topic with anyone that is still unsure.

Andrew Syrios · Answer

I think it will probably lift up the whole area (assuming it actually happens) because it will probably cause people to start moving back to the area and investing in the area in general.

Account Closed · Answer

My siblings and I recently sold my dad's house in Riverview, MI.  We listed it in the first week of July and it was sold the end of August. From what I can see the suburbs are thriving.  Plans of auto makers to develop properties in Flat Rock, as well as other surrounding areas, might play a role.  Ford moving offices to Fairlane Center in Dearborn, another reason.  There are lots of unused retail spaces, as unfortunately many have closed or are planning on closing.  That may cause problems.  There was a lot of commotion about Detroit as a site for Amazon's new headquarters, but it didn't make the grade, for many obvious reasons.  I don't know it that was for the better or not.  While on the positive side, lots of interest in historical centers, Corktown, Mexicantown. as well as the Eastside.  Not to mention the purchasing and renovation of old mansions in the neighbouring areas.  Maybe an irrelevant question.... Should a city and it's residents be always held responsible for the mistakes it made in the past?  Especially if they weren't the reasons for this, but rather the victims.

I also believe that the reason that the population hasn't grown has lots to do with the weather.  MI winters are harsh and it is difficult to attract people there.  Also, there is a problem with finding young people to work in the auto-industry, as many now prefer IT, and computer related jobs.  Sort of a form of "creative destruction" where old technologies are replaced by new ones... leaving many behind.

Account Closed · Answer

I was born and raised in the Detroit area.  As far as I can remember, the city itself was the place you'd go for work or pleasure... sports, arts, theatre,  shopping.  Many people chose to live in the suburbs and commute to work.  So, I believe that if the city of Detroit fully recovers, the nearby cities will follow... though some are so bad, that it would take a lot more than that.   I agree, that it was taking all these out to the suburbs that played a role in Detroit's decline. Especially when many sports teams left... but some have returned.  We have friends, that have invested in Detroit and have established successful businesses there.  They speak of a signs of recovery and have encouraged us to look into the area for our first investment.  We are keenly interested in the Downriver area... Wyandotte, Dearborn, Dearborn Heights, Lincoln Park, as well as other nearby cities.  We are counting on Detroit's recovery, and hope to be a part of it, by bringing life  into an area with a dwindling population... by acquiring a multi family residence... 2-4 units, and renting it out as affordable housing... so those with low wages or measly pensions can have a place to stay.  After all, they make up a large part of the population.  (As pet owners, we are looking for some properties with a back yard.)  I prefer Lincoln Park, because it is still a nice town,  affordable  and close enough to Detroit.  Also, I grew up there...

Jonathan Twombly · Answer

Believe me, I'm rooting for you.  I would love nothing better than for one of America's great cities to make a huge comeback.  But the articles you cited are all anecdotes.  Nothing overcomes the data that says that 40,000 people have left the city since it "bottomed out" ten years ago.

And one of the articles you posted contained this important tidbit, which speaks louder than stories of a handful of development projects:

"In September, FBI statistics showed Detroit was No. 1 as the most violent big city in America, and earlier this month an online financial news group, 24/7 Wall St., ranked Detroit as the No. 1 worst American city to live in."

It may be absolutely true that there are vibrant neighborhoods in Detroit, and that young people want to live in the city and amenities are following them into certain neighborhoods.  And, if you can focus on those places and make money, that's awesome.  But the mistake would be to extrapolate from a few data points and say "Detroit is recovering" and decide that it's a good idea to invest outside of proven areas without good data to back it up.

I hope that you prove me wrong in five years.  I have no axe to grind here except that I constantly want to remind people to make investment decisions based on hard data, rather than on feel-good stories and speculation about what neighborhood is next to gentrify.

Jonathan Twombly · Answer

I see a lot of "ifs" in this thread.  I'm not directly involved, so I may be missing something, but people have been talking about Detroit "coming back" since the crash.

But looking at the statistics, Detroit proper has lost 2/3s of its population since the peak in 1950.  It lost 25% of its population just in the ten years from 2000 to 2010.  Since it started its "comeback," it's continued to lose population - down another 6% from 2010 to 2016.  https://en.wikipedia.org/wiki/Detroit#Demographics

Metro Detroit, on the other hand, has surprisingly strong growth.  A whopping 15.3% from 2010 to 2017!  https://en.wikipedia.org/wiki/Demographics_of_Metr...

I just don't see a case for Detroit proper, unless you get very granular and can show strong population and job growth within certain neighborhoods.  (After all, real estate is about location, location, location.)  Ten years after the supposed "bottom" in Detroit proper, when things were supposedly getting better, people are still talking about "if" it's going to get better.  My prediction is that it won't.  Stick to the suburbs.

Plus, I have another caveat about Metro Detroit.  The state of Michigan is predicted to grow an anemic 0.8% (i.e., less than 1.0%) from 2010-2017.  https://en.wikipedia.org/wiki/Michigan#Demographic...  Yet, Metro Detroit grew 15% during the same period.

Are people moving from rural areas to Metro Detroit at that fast a rate?  If so, that's great for investors.

Or have the towns included in the definition of the Detroit MSA been annexing outlying areas, so that the actual population has not grown, the boundaries of the MSA have just moved outward to sweep in more people.  I don't know the answer.

I'm NOT saying you can never make money in a flat market.  But I AM saying that if you are speculating in real estate, you should be very careful where you have flat or negative population growth because your expectations of appreciation are unlikely to be met.

Mike T. · Answer

It absolutely will prop up the real estate values in the other surrounding areas. Thinking otherwise is simply arse-backwards, and how our region unfortunately as whole has thought to be the ideal way for far too many decades now. Arguably, we are the only major city in the U.S. that has intentionally destroyed our urban core by doing all possible to move business out to the suburbs. Though race relations, crooked politicians, overbearing unions and other major mismanagemnets/oversights have played a significant factor, the truth is that Metro Detroit honestly believed that dismantling it's core would be beneficial in the long-run. And if history/the present day hasn't slapped us back in the face then I don't know what will. I do believe that today's leaders have realized the mistakes and are trying to make an effort to correct, but as a whole we are still not where we need to be.

Now, in regards to Detroit's rebound there are of course a number of factors contributing, but it really boils down to a couple of  significant ones IMO:

1. The southeast-MI/northwest-OH and even MI at large economy is driven purely by the automotive industry. Point blank that is fact, no doubt about it. I was at the MMSDC downtown office about 2 weeks ago and one of the top people there made the statement that the difference between now and before when it comes to automotive is that: pre-2008 crash, the average break-even for the OEM's was something like 14M units (vehicles) and at the time combined they were doing around 16M. Then when the financial crisis hit and tanked everything, the OEMs dropped all the way down to where they doing less than or around 8M units/year. Now fast forward today, and the OEMs plus all the tiers that supply up to them have gotten the break-even down to like 10M units, yet they are doing 18M+ units annually. So don't quote me on those exact numbers as I'm trying to jog my memory, but you get the point..."a rising tide lifts all boats".

2. The heavy-hitters of Metro Detroit [Uncle Dan (Gilbert), the Ilitch's, Tom Gore, Ford's, Penske Family, etc.) are now beginning to act on all the prime real estate they have been sitting on. Now a lot of this has simply been due to projects finally coming out of the planning stages and breaking grounds finally occurring. But surprise surprise it should be no coincendence that everything seems to be happening at once as the US economy surges. Much of this can be attributed to favorable legislature and getting the city/state to bend in the way they want.

3. Speaking of politics, Mayor Duggan and even Govenor Synder to a lesser extent have been just what the doctor ordered for these power elite. Duggan has pretty much handed the keys over and is giving full creative control for big money to shape things as they want.

So in getting back to your question, will the surrounding areas be hurt by the newly reinvigorated success of their urban core? My answer is to that is not the slightest bit, or at least no worse than they already exist today. I suspect that one underlying assumption is that as Detroit bounces back and property values continue to rise, what happens with all of the existing uneducated/low-income residents? Well the Bing Administration devised a plan to push the lower income into certain pockets of the region; however, Duggan seems to have disbanded that and instead is looking at ways to blend the low income in with everyone else via affordable housing credits on large new developments. Now, that's not to say that largely Section 8 type communities will not arise, because inevitably they will. And I'm sure that's already been dealt out to close friends to some extent, as I've noticed some of the exterior locations that heavy-hitting investors/developers currently thriving in the downtown/midtown core have taken on.

That said, it will be interesting to see how things play out a decade from now. Regardless, if here a year later you have still yet to make that move it would certainly be wise to do so ASAP.

If Detroit comes back will it help other cities Real Estate??

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