Is Detroit Now a Good Single Family Rental Play?

We all know the first rule of investing.... buy low, sell high. Its pretty simple. If you follow this line of thinking when it comes to real estate investing, it would make sense to look for markets around the U.S that have experienced some kind of short term pain but have something going on now that can turn it all around. Detroit is one of those markets.

One of my clients, an owner of 35 Single Family Rentals (SFR) in the greater Detroit area gave me a call to let me know that single family home prices in some of his neighborhoods were enjoying some pretty major gains. So I started to pay attention and did some asking around and research. It is based on this research I formed my buy low, sell high thesis for Detroit.

The low point for Detroit was undeniable: Prior to 2013, it was reported that Detroit owed money to more than 100,000 creditors. The city was facing $20 billion in debt and unfunded liabilities amounting to $25,000 per resident. In 1950, there were about 296,000 manufacturing jobs in Detroit. That number dwindled to less than 27,000 in 2013. Less than half of the residents of Detroit over the age of 16 were working at this point. If you can believe it, 60 percent of all children in the city of Detroit were living in poverty. About one-third of Detroit’s 140 square miles is either vacant or derelict. An astounding 47 percent of the residents in the city of Detroit at that time were functionally illiterate. And on July 18, 2013, the city of Detroit became the largest city in America to file for Chapter 9 bankruptcy.

Now that we understand and agree that Detroit hit a low point, let's look at the upside.The unofficial pioneer of the Renaissance now taking place in Detroit is billionaire businessman Dan Gilbert, the owner of the Cleveland Cavaliers, and the founder of Quicken Loans, the second largest mortgage lender in the country. At the end of 2014, he had purchased more than 60 properties for a cost of $1.3 billion. He moved over 12,000 of his own employees into the downtown area, and 6,500 of these people were new hires. On top of that the city’s violent crime rate saw significant drops in 2014. And according to Forbes, when General Motors filed for bankruptcy in 2009, there were 48 unoccupied large buildings in the heart of the city. Today, more than 31 of those buildings are once again occupied, with many others undergoing renovation in preparation to be put to use. Clothing companies, such as Stheart, have put their headquarters in the heart of the city and it has become a haven for start-up businesses run mostly by... wait for it.... Millennials.

When smart money decides to bet on commercial real estate, and increased job opportunities in turn attracts population, it equates to higher demand for housing. The fact that my client's rental property values have popped in the past year, points to the fact that this upward trend that has taken hold to the point that it is affecting the local housing values. So I ask you... could it be time to give rentals in Detroit a harder look?

Sources: Elite Daily, 2015; The Economic Colapse Blog