Deep Dive into Metro Detroit Cities: Warren

The Metro Detroit area has a great stock of affordable housing that has long been interesting for rental property investors—plus, it doesn’t hurt that it’s one of the best-performing buy-and-hold markets in the country.

Its northern region has a lot of relatively new and prosperous suburbs, such as Troy, Farmington Hills, and our focus for this article, the City of Warren. Northern Metro Detroit is also home to cities like Southfield, Pontiac, Royal Oak, Auburn Hills, and Bloomfield, which we’ll likely tackle in our future deep dives.

All of these areas are business-friendly, family-friendly, and—most importantly—rental investment-friendly.

However, with 185 cities and 290 neighborhoods in Metro Detroit, new landlords in the area have to know the differences between each one before they invest.

Wouldn’t it be great if someone who knew the market inside out could summarize and analyze each area's investment potential?

That’s exactly why we created this “Deep Dive into Metro Detroit Neighborhood” series, to guide incoming investors who are choosing where to invest in Metro Detroit. Our analysis is based on our experience as residents and property management company in the local area for 20+ years, and all the current data available on each city in the Metro area.

Our goal is to lay out all the factors that influence your ROI the most and inform you of the kind of management property in Metro Detroit will require. This way, you’re well-informed and prepared to expand your rental portfolio to Warren, or a neighboring city, and set yourself up for rental business success.

Warren

In this article, we’re taking a look at Warren—a city whose slogan is: “Small Town Lifestyle, Big City Commerce.”

Warren is part of Macomb County, Michigan. With a population of 134,056, according to the 2010 United States census, Warren is the largest city in Macomb County, the third-largest city in Michigan, and the largest suburb of Metro Detroit. However, it’s still less built-up than the City of Detroit.

As it borders Detroit, we consider Warren to be a “Ring City” - a term we’ve coined to describe the cluster of individual cities in the metropolitan area that are distinct from Detroit itself. 696-I splits it into two fairly distinct regions, south and north: northern Warren is mostly white/blue-collar, whereas the south is predominantly blue-collar, and this divide is reflected in the house prices. In the north, you generally can’t find a house for less than $100k, but in the south, you can find 3-bedrooms for sale easily below this price.

The city is a mix of both white- and blue-collar jobs, with a large workforce for office and administrative support (13.40%), sales jobs (8.38%), and food service (6.90%). There are also many businesses in the area, including General Motors Technical Center and several US Army technical and research facilities, such as the United States Army Detroit Arsenal and the Tank-Automotive and Armaments Command (TACOM).

So, is Warren a good place to invest in rental properties?

Rent & Rent-To-Price Ratio (The 1% Rule)

According to Zumper, the average rent (as of April 2021) for a one-bedroom apartment in Warren is $797—a 6% increase compared to last year. The average rent for a two-bedroom apartment also increased by the same rate, now at $950 per month. Still, this is lower than the greater Metro Detroit area average of $1,125.

BestPlaces gives an overview of how each unit size compares in terms of price:

Source: Bestplaces.net

Using the monthly rent average for a 3-bedroom home from Zumper ($1,232) and the median home value from Zillow (see below), let’s calculate the price-to-rent ratio for homes in Warren. This simple calculation helps you see the purchase value of a property versus its monthly rental income, giving you a better understanding of the property’s potential to produce positive cash flow.

Warren’s average rent-to-price ratio is 0.7%. This ratio isn’t necessarily ideal for investing purely for cash flow. For that, you’ll want the percentage of your monthly rent/house price to be at least 1%, if not higher. This is often called the One Percent Rule in real estate.

However, this ratio is an average of northern and southern Warren. North of 696-I, you’ll be hard-pressed to find a property that meets the One Percent Rule, but south of the interstate, you’ll find plenty that do. For example, a 3-bedroom house in south Warren is currently renting at about $1,300 per month, while a similar property in northern Warren rents for roughly $1,700.

Meanwhile, a 3BR in North Warren will currently set you back at least $180-190k, while the same property south of 696-I is closer to $80-90k. That gives south Warren a rent-to-price ratio of 1.4%, and North Warren a ratio of .9%.

Most of the Ring Cities surrounding the City of Detroit have a ratio of 1.0-1.5%, which makes them ideal for cash-flow generating properties—but where Warren (south and north combined) has a slightly lower rent-to-price ratio, it also has a much higher potential for equity gains than other cities.

House Value and Appreciation

NeighborhoodScout tells us that Warren homes appreciated 93.23% over the past decade, resulting in an average annual appreciation rate of 6.81%. In the recent 12 months, Bestplaces.net reveals that home appreciation is up 10% in Warren. This puts Warren in the top 10% nationally for real estate appreciation and makes it particularly appealing to rental investors looking for equity gains.

Zillow shows that the typical home value in Warren is $163,452. This has increased by 12.2% over the past year and is forecasted to continue growing at a considerable rate.

Source: Zillow.com

Redfin data also shows that, with a median sale price of $161,250, Warren's YOY home value growth is at a whopping 21.7%. This makes it a highly competitive real estate market.

Source: Redfin.com

The majority of the homes in Warren are single-family homes (75.1%), with a couple of apartment complexes (11.4%) and some townhomes (6.4%). Most of them have three bedrooms (56.7%) or two (22.4%).

Redfin even gave Warren a Compete Score of 82 for being “very competitive.” The properties get multiple offers, some with waive contingencies. Typically, the homes sell for list price and go pending in 13 days, while “hot” homes (a term Redfin uses for homes that are expected to be competitive) can sell for 4% above list price and go pending in 4 days—a confirmation of how competitive this market can be.

As home values continue to increase, more early-stage rental investors may get priced out of Warren, so if you want to take advantage of the high appreciation potential here, it might be better to act sooner, rather than later.

Quality of Tenants, Properties, and Living

Aside from the financials, it’s also crucial for rental property investors to check out a city's tenant pool, average property condition, and general livability before investing. All of these things will impact how much money you can expect to make from your rentals, as different areas will attract different tenants (and some tenants pay on time and maintain your properties, while others don’t).

The evaluation below comes from our research and experience as a local property management company in Metro Detroit. These scores are not “official” ones but should be treated as guides to help you get a preliminary understanding of the Warren area.

Average Property Class and Condition: B-

Average property age: 67 years

Based on a Niche survey, a third of Warren's residents said there is a good variety of homes in the area. Nearly half (40%) also said that homes' exterior quality is either good or excellent.

NeighborhoodScout says that most of the houses (56.7%) have three bedrooms, and many (68.6%) were built around 1940-1969. This means that you may run into larger, older homes that require more renovation and maintenance.

Common problems for homes built between 1940-1969 include:

• 1. Lack of proper insulation
• 2. Water damage due to pipes made of clay and cast iron
• 3. Outdated electrical systems (e.g., number of outlets and energy capacity)
• 4. Use of toxic materials such as asbestos in fittings (e.g., weatherboarding, pipes, and cement)
• 5. Presence of lead paint on the walls

As an investor, you need to take these costs into account when analyzing a deal. We suggest that you hire a professional to screen the structure before the acquisition, as it will help you budget for any possible problems and required renovations ahead of time.

Quality of Life in the Neighborhood: B

You’re not going to live in the area yourself, but knowing the neighborhood class will determine the types of tenants you get. Ultimately, this determines the profitability of your rental investment more than any other factor. You want tenants who’ll pay rent responsibly and take care of the rental property diligently, and great neighborhoods tend to attract people like this.

Your goal should therefore be to choose neighborhoods with a good quality of life, as those will attract the most high-quality tenants.

Below is an overview of life in Warren:

Local Economy

In efforts to make Warren a positive place to live and do business, the US Department of Housing and Urban Development (HUD) has funded several programs organized by the Community and Economic Development Department (CED), including:

• 1. The Community Development Block Grant (CDBG) Program
• 2. The Home Investment Partnerships (HOME) Program
• 3. The Neighborhood Stabilization Program (NSP)

These programs help poorer residents in Warren access a decent living environment and more economic opportunities.

On top of this, Bestplaces shows that the job market in Warren increased by 0.2% over the past year, despite the pandemic. Future job growth over the next decade is forecasted to reach 35.1%—higher than the national average of 33.5%. This means Warren will see an increase in terms of both population and tenant quality, as more people will be attracted to its growing job opportunities.

School Rankings

Warren has 58 schools—18 of which are public, with the remaining being private. GreatSchools has ranked four elementary schools in Warren to be “above average”:

• 1. Mckinley Elementary School
• 2. Wilde Elementary School
• 3. Lean Elementary School
• 4. May V. Peck Elementary School

This makes Warren an attractive choice for families with kindergarteners to fifth-graders (ages 5-10) in particular.

Crime and Safety

According to Areavibes, Warren has a crime rate 14.34% higher than the State of Michigan’s, but 7% lower than the national average, and is safer than 23% of the cities in the country.

Niche’s area survey also revealed that half of their respondents (49%) said the police are very visible and responsive, with more than half (61%) saying they feel pretty safe, as Warren's crimes don’t impact them as much.

Liveability

In terms of overall livability, Areavibes lists Warren ass the #398 city in Michigan and #15,063 in the country. This makes Warren’s livability better than 48% of all areas. While slightly higher than the rest of the state, the cost of living here is 10% lower than the national average.

Warren has conveniently located amenities and many attractions to enjoy on the weekends, in addition to the many grocery stores, restaurants, and coffee shops in downtown Warren.

Reviews on Niche also show that residents love the wealth of sports opportunities and programs for their children, such as the Police Athletic League (PAL) and free basketball program for kids. The city overall is clean and family-friendly, with infrastructure projects constantly taking place to improve life in the area even more.

Tenant Class and Demographics: B

The quality of tenants plays a crucial role in the success of your rental investment. Your income and assets are completely dependent on their consistent payments and responsible property maintenance during their tenancy. Because of that, you should know what kind of tenants live in Warren before buying rental property here.

Here’s an overview of the tenant class and demographics in Warren, using data pulled from Niche, City-data, and Bestplaces.net:

Income - According to City-data, the average annual income for households in Warren is $52,739, which is slightly lower than the state average of $59k and significantly lower than the national average of $62k.

Here is a breakdown from Bestplace.net that compares Warren’s income brackets to the Detroit-Warren-Dearborn Metropolitan area and Michigan state as a whole:

Source: Bestplaces.net

• Unemployment - Unemployment in Warren is at 6.2% currently—slightly higher than the state average of 5.2% and the national average of 4.7%.
• Education - There are more people with a college or associate’s degree in Warren than the national average, with 34% of residents holding one. There are also more high school graduates here than the rest of the country, with 34% of residents having the equivalent of a high school diploma.
• Diversity - See below:

Source: Niche.com

Based on this, you can expect the tenant class in Warren to be around the middle of the spectrum, compared to Metro Detroit as a whole. There are many Class A or B, white-collar tenants here, but also some lower-demographic Class C and D tenants.

With proper screening, you should be able to find good quality tenants that won’t be difficult to manage. This makes Warren a relatively low-risk investment area for landlords.

Overall Score: B

Based on our research and experience, we’re giving Warren an overall rental investment score of B.

This score considers the following factors:

• 1. While the average rent isn’t ideal for cash flow, there will be a large and reliable tenant pool, as residents will likely rent instead of own.
• 2. Appreciation rates in the last quarter continue to indicate great equity gains on the horizon.
• 3. The local economy is thriving and will attract new, even higher-quality tenants into the city.

In the end, rental investing is all about finding the balance between cash flow and appreciation—which the majority of properties in Warren provide, with the rent-to-price ratio at 0.7% and an annual property appreciation rate of 6.81%.

Money is at the root of every investment. That’s why we’ve anchored our overall score on the financial viability of rental properties. However, it should be said that every property scoring system is inevitably subjective. Our advice is to use this guide as a kickstart to researching the city yourself.

We see Warren be a city that’s ideal for investors to buy, rent, and expand their rental portfolios in the Metro Detroit area. For any further help, reach out to me directly, and I’ll be more than willing to offer all the guidance that I can to help you familiarize yourself with the area even more.

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We’re taking requests for our Deep Dives. Our goal is to cover all of Metro Detroit—one city and neighborhood at a time!

Just let us know which area you want to see next, and we’ll break it down for you in a future installment.