Investing in Detroit

[German Tapia]

Hi Comunity!! I will be investing in Detroit. BRRRR, I will get 3 properties this year. 50 doors in 5 year plan. Looking to form a team. I will be in Detroit on March 13-17. If you have any info that can help that will be great. German

[Michael Smythe]

@German Tapia here's some advice:

1) Anyone that has to call themselves an expert - isn't.

2) Many looking to help - are actually trying to sell you something (us included)

3) Big difference between City of Detroit and Suburban Detroit area. Not figuring this out can wipe you out.

4) Ring Cities are best in Suburban Detroit - PM us for definition or search for our company blog posts here that cover this.

5) If you go into City of Detroit, you really have to check each block-by-block. That can only be done locally, so you need a trustworthy team. You can NOT use zip codes or someone will scam you. Happy medium is focusing on 1-3 of the 173 Detroit Neighborhoods.

6) Make sure you understand below:

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

When investing in areas they don’t really know, investors should research the different property Class submarkets. If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

Our OPINION for the Metro Detroit market (always verify each area for yourself!):

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

What else can we assist you with?