Where is the market going In Detroit, Michigan

Question

I am planning to buy some SFR in Detroit for an LTR. I would love your opinion about the market there including ROI, legal system (Tenant/Land Lord) vacancy rate, appreciation and other info to help Land Lords. Pls give your advice.

Joe Hammel · Answer

@Jose Jacob

Roi is 2nd to none as proven by the best price/rent ratios in the country.

Everyone likes to point out that Detroit has gone through some population loss, but they don’t notice that surrounding areas have population growth.

I have 20 doors and simply don’t have any problems will laws being too tenant friendly. I know evictions can be tough in Detroit proper. I personally don’t buy in the city, largely for that reason. Otherwise it’s fine and doesn’t seem to be getting “worse”

I think the bottom line is that it’s so hard to beat what you can get in metro Detroit.

- low price to entry

- great price/rent ratio = high rio and cash flow

From there, as long as the area appreciates and even just a little bit and “doesn’t get worse” (which in all my experience everything has only gotten better) you’re getting high cash flow, loan pay down and in 30 years you’ll have a cash cow that’s paid off and worth double/triple/quadruple what you bought it for. The rest of the details don’t matter that much.

You’ll be making $100k-$300k in cash flow and the game is over.

Green lights from me.

(My 20 doors purchased starting in 2019 cash flow me $100k/year with very little trouble and I’ve doubled my equity)

Thomas Harari · Answer

I'm a newer investor in Detroit and am struggling with insurance rates (and previously PMs). Found one that works, but seems the annual rates have gone up a lot in the past year, and some quotes I got while shopping around are over 5x the one I am going with (over $5000 a year for a 140k house). At this point my property is doing fine, but I'm hesitant to do another in Detroit based on insurance and reliable property managers. @Travis B.and and @Joe Hammel do you guys have any contacts that have been key in both of these?

Travis Biziorek · Answer

Hi Jose, I went from zero to 12 doors in Detroit in 2.5 years between mid-2019 and 2021.

My strategy was simple... buy cash, do cosmetic updates, refinance out. I didn't always get all of my money out but if I was doing better than had I put 25% down upfront on a conventional loan that was a win in my book.

Several times I did get all of my capital out and more.

Those doors now produce over $16,000 in gross rents. About $8,500 of that is net profit after ALL expenses.

Appreciation has also been great. Everything I own is up 2-3x since purchasing. That really speaks to a) all the investment revitalization that's happening in Detroit and b) having an intimate knowledge of the market and what the potential growth drivers are.

The suburbs area also decent but if you know what you're doing Detroit proper will grossly outperform the suburbs.

Travis Biziorek · Answer

Happy to talk via PM about the city in general and investing there.

That renewal fee is crazy. I see it usually at 50% but everything else seems standard when it comes to what I see for Detroit PM pricing. You have to run it as part of your numbers to make sure the deal works, that's for sure!

Joe Hammel · Answer

@Dan Tran

Sure Dan.

Purchase: $80k-$130k

Rent: $1100-$1500 (no rent control in MI)

1% rule: 1%-1.4% rule deals

ROI: 10-14%

Cash flow: $250-$350/door (after all expenses and budgeting for maint, capex, vacancy)

Appreciation: 3-15% (has been double digit for a decade)

Location: C+, B-

These numbers are based on the “sweet spot” in Metro Detroit. These are largely in the suburbs and some markets in the city. You can find higher ROI (on paper) here and probably in other cities…but the probability of actually collecting rent significantly decreases. Where these numbers are found, there is a very high rate of rent actually being paid.

Let me know if you have any specific questions

Account Closed · Answer

@Travis B. just sent you a message.

Mark

Account Closed · Answer

@Travis B.How do I learn more about investing in the city? I'm only familiar with the burbs.Also, you're right, the PM fees are crazy.Do you know of any that is reasonable? My current one charges 1 month's rent after every lease renewal. 10%. For 2-year lease, they get 1 month's rent for the first year, and half for the second year.thanks TravisMark

Account Closed · Answer

@Joe HammelI'm looking for a rental in the metro detroit area.Which towns do you invest in?Thanks a bunch,

Mark

Travis Biziorek · Answer

I had to shop my insurance recently. All mine were with NREIG and they were upping coverage rates significantly. I'm hearing it from many others as well.

PM's are notoriously terrible in the area. Mine are self-managed internally with our company. We manage for other investors we work with but don't solicit outside PM specific business. I have no interest in being in the PM biz. It's brutal.

Where is the market going In Detroit, Michigan

Where is the market going In Detroit, Michigan

Most Popular Reply

15 Replies