Obstacles in Detroit?

[Billy Farley]

I was wondering what obstacles rehabbers have in Detroit, I’ve heard permitting can be tough. What are some things to look out for when looking at distressed houses?

[Leroy K. Williams]

Quote from @Travis Biziorek:

Quote from @Leroy K. Williams:

I would say the biggest obstacle is understanding that Detroit offers a plethora of substantially lower priced housing which if renovated properly will generate strong income yet will not see much appreciation, versus other markets where there are fewer properties, the total upfront cost is higher yet there is a greater chance of appreciation.  Many investors don't get this and are derailed right here. 

Detroit is either one of two sorts of places. Its where you come if you want to purchase a three bedroom property for $30,000-$35,000  Renovate for $$35,000-40,000 and collect $1,300.00 per month in Section 8 income.  It would be difficult to match those numbers anywhere else and scale in the way you can in Detroit.  You can't be greedy and attempt to shave more meat off the numbers. If you are all in for $70,000-75,000k for a brick three bedroom home generating $1,300.00 per door consistently you should be happy if you are a cash flow investor. -OR- Detroit is where you land if you want to make a name for yourself as an investor in one of the many emerging neighborhoods and want to be part of the energy of rebuilding one of America's greatest cities.  This is where you can buy and flip (i.e, West Village, Jefferson Conner, East English Village, Milwaukee Junction, Northend) 

Having a realistic renovation budget allows you to hire a project manager which in turn makes finding a "good contractor" or "contractors" easier since this will be a local person (Like our company) who has access to hundreds of skilled tradespeople and understands the neighborhoods (each one), the various housing agencies, city government and how to approach a project in a specific community.  You also want someone who understands the trajectory of redevelopment so that you can position yourself properly.  

Your project manager can carry you through tenant placement and passing all the Section 8 and Municipal inspections. From there you switch over to a Property management firm for ongoing bookkeeping and collection of rents.  

Thats the recipe for Detroit.  

Hey Leroy, I agree with a lot of what you say here but much of it applies to the past, particularly the appreciation stuff.

Detroit has been stellar for me from both an appreciation and cash flor perspective. So much is happening in the city with revitalization and investment that it's hard to continue ignoring.

Yes, there is a lot of housing stock that is older or needs significant repair, but a lot of people are unwilling or unable to take on projects like that. As a result, you're seeing new development in the hotter areas and this will only continue to spread.

If you buy right in Detroit today I believe you can thread the needle of both cash flow and future appreciation. But you really need to understand the market.

Travis, I agree with you that there are neighborhoods with tremendous potential for appreciation and like you I own property in some of those areas.  But I tend to think that out of state investors are lured here by our cheaper (in the core neighborhood) housing stock.  I am always coaching investors on how not to over invest in properties expecting appreciation to cover the gap.  The Detroit Land Bank Authority thinks like that and so far they haven't changed the value of many neighborhoods by pouring money into neighborhoods where there is not a real demand for that kind of Class A or B rental.