Investing in Detroit
The word is out! Property values in Detroit have recovered and suddenly
everyone wants to invest in what is turning out to be one of the greatest
comeback cities in American history. Every week, we receive calls from buyers
as far away as California, New York, and even other countries, interested in
investing in Detroit. Countrywide media coverage of real estate in Detroit,
however, lags behind quite a bit and does not accurately reflect current market
activity. The notion that you can buy a house for $1,000, flip it, and make
$100,000 on the sale is an outdated fairytale that has caused a lot of confusion
with a number of long distance investors in the past 3-5 years. Detroit is still a
fantastic place to invest, but you need all of your ducks in a row and good
information before you dive in. First, decide what kind of investor you want to
be. Do you want to become a landlord, invest as a flipper, or do you want to buy
and hold property? With all the attention and interest Detroit has recently
earned, time is of the essence; it only takes one property in the neighborhood
to sell at a premium to reset all others in that area.
As a new investor, how do you determine which investment option is best for
you? Before you decide anything, you must pin down your investment goals.
1. Do you want a long-term or short-term investment?
2. How much time do you have to invest?
3. How much money are you willing to invest?
4. Do you have a specific amount you are planning on making or are you
simply looking for steady financial growth?
Any of our agents at Gilson Home Group are happy to help counsel you through
these preliminary steps. Here are your three investment options:
LANDLORD
The first option is to purchase a property with the intent of becoming a
landlord. This is a long-term investment for those looking for slow and steady
financial growth. Here are a few tips:
1. Know the neighborhood: There are a multitude of different
neighborhoods in Detroit, and not all are suitable for rental properties.
You’ll need to know the ins and outs of Detroit’s micro-communities in
order to choose a property in a location that makes sense for this type of
investment.
2. Boots on the ground: You need to either be here yourself or hire a local
property management company that can handle maintenance issues,
deal with tenants, and all of the other inherent landlord responsibilities.
3. Financial waiting game: When you become a landlord, you might not
turn a profit for a number of years. Rental income is a slow and steady
build, but if you have the funds to invest and you’re able to choose a
transitional neighborhood, you’ll not only be profiting from rental
income, but hopefully you can sell the house years down the line for
more than originally purchased. Traditionally, the most important
measure of a good investment is cash flow, but in this market,
appreciation can be an overriding factor.
FLIP
If executed properly, investing as a flipper garners a quicker return on
investment. The risks, however, can be much greater than investing as a
landlord. Here are a few things to keep in mind:
1. Find neighborhoods with potential: It is impossible to know which
neighborhoods in Detroit are appropriate for purchasing a home with the
intention of flipping without a profound knowledge of the city and its
residential nuances. Come to Detroit, meet our team, and research and
learn everything you can about the city before you invest.
2. Manage construction and rehab: Are you able to oversee the
construction and rehab of the property? Do you know which companies
are trustworthy and which are taking you for a ride? We’ve heard
nightmares, firsthand, about investors from afar losing their entire
savings to construction companies that promise the world and then
disappear altogether. Be present throughout the process and know where
your money is going.
3. Know your finances: You’re about to purchase a home that needs work.
You need to know if the neighborhood is worth the money you’re about
to invest and you need to know how much it will take to get the home
into tip-top shape. Do you have what it takes?
BUY AND HOLD
This is a long term strategy. In the buy and hold tactic, you’re counting on
property values going up, whereas when you flip a home, property values can
go down and you still have potential to make money. Buy and hold, however, is
a strategy that can be very financially rewarding in the long run if executed
effectively. Our advice is as follows:
1. Absolute highest potential: Choose a property with the highest potential
of appreciation of value. It’s all about location. All of our agents have a
working knowledge of Detroit’s neighborhoods and we have a resident
expert on the subject. We can guide you through the process of choosing
the best location for this investment strategy.
2. Keep it up: You’ll need to hire someone locally for upkeep and
maintenance. If the property is deemed in “unacceptable condition” at
any time, it could be seized by the city and your investment will have
been wasted. Same goes for vacant land – you still need to keep it
looking good!
You can be successful as an investor in Detroit, but there are a couple items you
must check off your list first, in order to do so:
1. Decide what kind of investor you want to be: Landlord, flipper, or buy
and hold.
2. Get on a plane and come with us to view potential properties in Detroit. If
you are not able to view the property in person, please do not buy it.
With several agents who are well versed in the city, we’ll help guide you
through the process of finding and financing your dream Detroit investment
property.