Why aren't people interested in apartment buildings Detroit

Question

My partner (he's a finance guy) ran the numbers on some of the city owned apartment complexes up for sale.  From both of our stand points, the numbers make sense.  These buildings are burned out, filled with trash, and require a complete renovation, but the numbers still make sense.

My question is why aren't these buildings being flipped?  Has anyone looked into these places?  Is it the cost associated with the project?  Regulations? Too much work?  What are we not seeing?

Shaun C. · Answer

Lots of you guys are only getting the narrative that the news tells you. They aren't going on about how Detroit is experiencing its first change in population decline in 50 years, there is billions, and billions of dollars literally pouring into the city, and how things truly are beginning to turn. I drive everyday down woodward to the heart of the city at campus martius, through North Detroit, Highland Park, midtown, brush Park, and finally downtown. I see more burned out, derelict properties on a daily basis than most see in an entire year probably. That still wouldn't stop me from keeping a close eye on certain areas that are being gentrification and rebounding faster than others. When a city fails as miserably as Detroit did, there's only one way to go from there, and it's up. Too many people want to cry about investment not being made in the neighborhoods, but with crime as high as it is, how can you blame the investors? It will take years for Detroit to turn around its miserable school system and high crime rates, but when it does happen, those who already own property or are in a position to will make a killing.

Jay Hinrichs · Answer

I think the only way a city can turn this around is like Portland did when they took their Pearl district that was full of run down commercial.. and creating TAx incentive investing zones.. IE NO property taxs for 10 years...

now Portland is not Detroit by a long shot.. as the distressed real estate is not off the charts distressed as Detroit

but in my mind the city of Detroit to turn this stuff around will need to subsidize it big time.

1. No tax's maybe for 20 years.

2. City bonds or money with Zero interest rates available to developers to rehab.

3. give the properties away free and with no back tax's

4. Massive breaks on UTLS....

5. Enter into development deals that the developers must hold the properties for 10 to 20 years and provide some low cost housing as well as market rents...

In Oregon we have state bond programs for this and it works.

The open market simply will not turn these areas around most of the time it takes a progressive and aggressive city council that is sharp and on the ball and a Major who wants it done.. the last Major Kwami or what ever his name was .. was a thug and thief and him and his posse all ended up in Prison after they raped the city coffers.

Thomas S. · Answer

Due to the tenant pool, being the shallow end, burned out abandoned buildings once renovated only eventually end up as burned out abandoned buildings again.

If the city is not throwing money at the area to gentrify there is no point in investors throwing their money at the problem either. The tenant base and community needs to be upgraded along with the buildings for any investment to work long term otherwise the tenants simply destroy the property again.

Dante Pirouz · Answer

High taxes and utility costs start to make the numbers go sideways. Plus abandoned buildings sometimes have back owed taxes and utilities that are hard to research and know ahead of time. Also areas with high crime are very hard to manage/monitor/access...did you check the crime map for the areas? I absolutely love Detroit but you MUST have boots on the ground to invest there. Otherwise the numbers are much, much better in other parts of Michigan.

Account Closed · Answer

Take your pick or any combination thereof:

• Cost of rehab. 
• Cost of redoing some/all of 1st rehab after vandals steal or vandalize as much as possible.
• Outrageous taxes paid to to Treasurer, City of Detroit or lengthy time/cost to appeal those assessed tax value. 
• Insurance through the roof.
• Challenging tenants who know how to work the eviction laws. 
• Then the whole Class C or Class D property ownership thing.

I'm sure I'm forgetting more than a few but you get the gist of my argument.

Josh Smith · Answer

I think you nailed it in your own question, burned out filled with trash, maybe the numbers make sense, but how long will the rehab take, how long to get it up and running. Also it is Detroit I realize some people are making a killing, but more than likely you will have to hire security also to keep your rehab going forward, so your work is not destroyed and stolen. That is just me and all opinion

Iryna King · Answer

I agree with above - location, location, location...if it's in this poor condition now, a lot of your profit will be used up for securing your investment and managing the property. Also, many times people don't have that much money on hand to invest in such a huge rehab project, so depending on how long it has been on the market (if had enough exposure) - you might, or might not want to pursue it, unless you make an offer in the range that would make your numbers work for you...

George P. · Answer

my guess is the numbers dont make sense.

i have never been able to find anything in the suburbs that makes any positive cashflow without purchasing a job with it!

Why aren't people interested in apartment buildings Detroit

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