Detroit Cracks Down On City Landlords

[Annette Hibbler]

The city of Detroit has declared that tenants need no longer pay rent unless the landlord complies with the city's new stringent inspection & registration regulations. They have identified their enemy and declared them landlords. 

Among the regulations are yearly lead paint inspections are required. I don't know how accurate this is but the word is that inspections include gutters, roofing, chipped or peeling paint, cracked or damaged sidewalk and steps, are among the inspection requirements.

The Buildings, Safety Engineering & Environmental Department has begun a Residential Rental Compliance & Enforcement program. According to the city's new ordinance, all landlords have three months to register their properties with the city and six months to comply with the new stricter code. Then enforcement program is adding new zip codes on a monthly basis.

Properties registered with the city will be listed on a public search website where anyone can look up a property to see if it is listed as "in compliance" or not. After January 2, 2020, landlords will not be permitted to legally collect rent if you have not obtained a certificate of inspection. Rents will be held in an escrow account until you have been issued a certificate of compliance. After 90 days, the rent is to be returned to the tenants and then again every 60 days. On the city's brochure, there's no indication as how these escrow accounts will be set up and who will monitor and control them. 

Landlords who are more than 12 months behind in property taxes will be unable to obtain a certificate. 

On the one hand, I recognize this as an attempt by the city to force landlords to come up to date with their property taxes. On the other, I heard the inspection requirements are considered over the top and difficult to pass without a big expense. Rarely, does anyone pass the first time.

On the other side of the equation, city landlords are weighing the often high cost of compliance every year (or two) added to property taxes (many of whom are on payment plans with the city) and lack of income that would otherwise help offset the costs. I haven't heard if those who are on payment plans will still be considered as "non-compliant" as they do still technically owe the city. 

Property values in Detroit remain extremely low with the exception of new townhomes and luxury apartments in the heart of the city which, contrary to political promises, have not extended very far from the city center. 

Now that tenants are encouraged to refrain from paying rent, there is a growing exodus of landlords as a result. Given the low market values, it seems the solution many landlords have chosen is to offer land contracts for the properties or abandon them altogether.

[Account Closed]

@Annette Hibbler thanks for sharing this. Boy am I glad I sold my 20 or so Detroit SFRs back in 2012. Wayne County as well as the city of Detroit is horribly run and very tough to do business in.

$4,000/year property taxes on a $5,000 house which rents for $500. Costs $10,000 to rehab it once your tenant who only paid 3 months rent needs to be evicted and trashed the place. Now one month’s rent just for a lead inspection. I was no slumlord but these houses are 100 years old. Surely there’s lead paint somewhere.

These are the economics for the roughest areas (south of 8mile, north of downtown). I’m sure nicer areas such as Southfield which rents for $1,200+ have much better returns overall.

But I am glad I stopped the OOS thing. I started investing locally in Oakland in 2014 and turned $12,000 into a $11M Multifamily empire.