Ring Cities and Why they're Goldmines for Metro Detroit Investors
Photo by Pexels
Unless you’ve constrained yourself to investing only in your local area, real estate investors know of the affordable properties in the Detroit real estate market. However, they also know that the city is awfully complex, with many investment risks to understand and navigate.
Now, it’s true that the City of Detroit has gone through ups and downs before. But if you look at it from a real estate investing perspective, you’ll see that the greater metro area has a lot to offer.
With below-average housing prices and increasing rents, investors are turning their eyes to the cities surrounding the City of Detroit to take advantage of Detroit’s affordability while avoiding most of the risks typically associated with the market.
Read on to learn the secret to successfully investing in Metro Detroit!
The Detroit-Warren-Dearborn Metropolitan Statistical Area
Before anything else, let’s take a quick look at where Metro Detroit is in Michigan.
The Detroit-Warren-Dearborn Metropolitan Statistical Area (MSA) includes the 6 Michigan counties of Lapeer, St. Clair, Livingston, Oakland, Macomb, and Wayne. When we say “Metro Detroit,” though, we’re referring to the Detroit Tri-County area of just Macomb, Oakland, and Wayne.
If you’re not familiar with these areas, here’s a map for you to visualize:
Source: ProximityOne
Take note that there are varied definitions for “Metro Detroit,” but these are the regions we’re describing in this article.
The Uniqueness of Metro Detroit as a Real Estate Market
Here’s where the fun begins. Metro Detroit has a unique real estate market because properties get more affordable the closer you get to the City of Detroit. If you’ve been in the industry for a while, you’ll know that this is the opposite of what usually happens with metropolitan areas near its main city.
Let us give you a background.
Back in the 1960s and 1970s, a lot of wealth left the City of Detroit for the suburbs. Automaker giant General Motors (GM) went bankrupt; racial riots, the White Flight, and many other factors fueled the Detroit exodus. However, the city is now rising from the ashes with population and land prices stabilizing. Plus, there are multiple developments in progress in the downtown and residential areas.
Still, the properties in the City of Detroit are very affordable due to its overwhelming supply of housing that used to house more than a million residents. Assuming that income reflects property values, take a look at the map below to see what we mean by cheaper properties near the city:
Source: ProximityOne
The Goldmines for Metro Detroit Investing: Ring Cities
Since the Great Recession in 2008, the City of Detroit has seen significant growth in job opportunities and population growth. These factors caused property values and rents to climb faster than the other suburbs outside of Metro Detroit. And while many people fled the city back in the day, they actually just moved to the neighboring suburban cities bordering the City of Detroit, which we fondly call “Ring Cities.”
Here’s a list of all the cities in Metro Detroit, where we’ve highlighted all the Ring Cities in green. If you see any hyperlinks, those will take you to our Deep Dives where we’ve analyzed the investment potential of each city and neighborhood in Metro Detroit, so check those out as well:
Macomb County
Oakland County
Wayne County
Center Line
Auburn Hills
Allen Park
Clinton Township
Berkley
Beverly Hills
Dearborn Hts
Fraser
Bingham Farms
Detroit
Harrison Township
Birmingham
Ecorse
Macomb
Bloomfield Hills
Garden City
Mt Clemens
Bloomfield Township
Grosse Pointe
Roseville
Clarkston
Grosse Pointe Farms
Clawson
Grosse Pointe Park
Sterling Heights
Commerce Township
Grosse Pointe Shores
Utica
Farmington
Grosse Pointe Woods
Shelby
Farmington Hills
Ferndale
Franklin
Highland Park
Inkster
Huntington Woods
Lincoln Park
Pleasant Ridge
Livonia
Keego Harbor
Melvindale
Lathrup Village
Northville
Plymouth
Novi
River Rouge
Orchard Lake / Oakland Township
Southgate
Pleasant Ridge
Taylor
Pontiac
Westland
Rochester
Wyandotte
Royal Oak
Sylvan Lake
Troy
Walled Lake
Waterford
West Bloomfield
Basically, these Ring Cities of Metro Detroit have the following advantages:
1. Affordable housing stock
2. Strong rental cash flow opportunities
3. High buy-and-hold investment potential
Most investors, including out-of-state ones, don’t realize that expanding their Detroit investments to its surrounding cities increases their chances of gaining cash flow and equity without spending a fortune.
Of course, there are different classes to consider as well. Investing in rental properties in Metro Detroit and the City of Detroit is not the same from one neighborhood to another. Generally speaking, however, there are fantastic opportunities in the area as long as proper due diligence is done.
Let’s take a closer look at the house value, property appreciation, average rent, and rent-to-price ratios in Metro Detroit, so you see the investment viability of this area.
House Value and Appreciation in Metro Detroit
Zillow reports that the average home value in Metro Detroit is $206,340. This value came from an impressive increase of 10.7% over the past 12 months, and is expected to grow by 9.6% in the future:
Source: Zillow
If you head over to Zillow listings, however, you’ll see that there are many properties that fall below the average value. Take a look at all these below $100k properties both in the City of Detroit and in its surrounding areas or Ring Cities:
Moreover, in terms of property appreciation, NeighborhoodScout provides us with a heat map that shows how you can gain much more equity from Ring Cities than in the City of Detroit itself:
Source: NeighborhoodScout
NeighborhoodScout also reports that the home appreciation rate in Metro Detroit over the past decade is 29.8%—significantly higher than the national average of 14.5%. As you can imagine, there are plenty of great opportunities for you to acquire affordable houses around expensive, developing neighborhoods in Ring Cities. It takes some digging and insider knowledge, but trust us—thery’re out there.
Average Rent and Rent-to-Price Ratios in Metro Detroit
For all those rental property investors out there, you’ll be glad to know that the average rent in Metro Detroit is higher than that of Michigan, which means you’ll have higher cash flow in Ring Cities:
Source: Bestplaces
The listings on Zillow also reflect similar amounts:
Source: Zillow
Of course, we can’t know if a rent amount is good or not without using the rent-to-price ratio. This simple calculation shows a property’s likelihood to yield strong cash flow, where the industry standard is to have a ratio of at least 1% to shortlist prospective properties.
We’ve pulled up a property in Metro Detroit to illustrate the rent-to-price ratio you can get in Metro Detroit:
Source: Zillow
The photo above shows a property listed for $85,000. Assuming that the monthly rent will be around $1,216 (based on Bestplaces), the ratio comes out as 1.43%. This figure is above the industry standard, which means that you’ll have positive cash flow every month.
It only takes a quick scan of the opportunities in Ring Cities to see that you can earn rental income that’s more than enough to pay off the property and start pocketing your returns.
Metro Detroit: Your Investment Success Begins Here
When you expand your coverage beyond the City of Detroit, you’ll see other tons of opportunities surrounding the up and coming real estate market. Overall, it’s safe to say the Ring Cities are an ideal investment spot for those looking for Detroit real estate benefits without the typical risks associated with the market.
If you’re still not convinced, check out our ongoing series called Tale of Two Rental Markets, where we compare the investment potential of Metro Detroit versus other real estate hotspots like Indianapolis, Memphis, Cleveland, and Milwaukee. You’ll see what we mean when we say that Ring Cities truly are goldmines for impressive investment returns,
if you want to start investing in Ring Cities or the City of Detroit, and our expert property managers will guide you towards success. As a property management company operating in Metro Detroit, our team has decades of experience and knowledge on its real estate market.
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