Detroit Area Investing – The City versus the Suburbs

Either can make you money, but have you really considered everything when evaluating the risk versus reward of each?

It seems almost every day someone’s asking us about buying investment properties in the City of Detroit. While there’s nothing wrong with investing in Detroit properties, we’re amazed at the general naiveté of those asking us about it.

They inevitably have read something online or heard about someone through their personal grapevine that has made a lot of money doing so. The general context of these discussions is that it’s “so easy” to make money doing this.

Hmm, that sounds vaguely familiar doesn’t it? Didn’t a lot of people say the same thing about the stock market in the 1990’s – right up to the tech bubble bursting?

Or how about how “easy” it was to make money in real estate in the 2000’s – right up until the housing bubble burst?

It can be relatively “easy” to make money investing in Detroit & area Suburban properties, if you know what you’re doing or working with someone that does. FYI – we’re going to assume that anyone deciding between investing in the city versus the suburbs has already researched the pro’s & con’s of investing in real estate in general.

So, what are issues potential investors should be aware of when considering investing in real estate in the City of Detroit versus Detroit area suburbs? Let’s list a few (in no particular order):

City of Detroit 

Pro's

• 
  

  $10k+ Acquisitions (need work)

  
  


• 
  

  Turnkey Rentals for $25k-$40k

  
  


• 
  

  Cash-on-Cash Returns 24-38%

  
  


• 
  

  Large Supply of Homes

  
  


• 
  

  Lots of Wholesale Demand

  
  


• 
  

  Many Areas to Choose From

  
  


• 
  

  Ordinance Officials Overwhelmed*

  
  


• 
  

  Large Section 8 Tenant Base

  
  


• 
  

  Lots of Affordable Brick Homes

  
  


• 
  

  Philanthropic Investment in
  Detroit

  
  

Con's

• 
  

  One Block can make a Huge
  Difference!

  
  


• 
  

  Aggressive Lead-Based Paint
  Ordinance

  
  


• 
  

  Tenant Biased Court System

  
  


• 
  

  Property Stripping a Big Problem

  
  


• 
  

  Extremely High Insurance Rates

  
  


• 
  

  City Services being Continuously
  Cut

  
  


• 
  

  High Crime, Unsafe Neighborhoods

  
  


• 
  

  High Property Taxes & Millage
  Rates

  
  


• 
  

  City Income Taxes

  
  

Detroit Area Suburbs

Pro's

• 
  

  $20k+ Acquisitions (need work)

  
  


• 
  

  Turnkey Rentals for $30k-$45k

  
  


• 
  

  Cash-on-Cash Returns 20-34%

  
  


• 
  

  Rental Rates Increasing

  
  


• 
  

  Lots of Owner-Occupant Demand

  
  


• 
  

  Appreciation more likely than in
  Detroit

  
  


• 
  

  Overall Safer than Detroit

  
  


• 
  

  Less Property Stripping

  
  


• 
  

  Insurance more Affordable

  
  


• 
  

  Lower Millage Rates

  
  

Con's

• 
  

  Not as many Brick Homes

  
  


• 
  

  Aggressive Code Enforcement

  
  


• 
  

  Smaller Supply of Homes

  
  


• 
  

  More Frame than Brick Homes

  
  


• 
  

  Crime is up in Affordable Areas

  
  


• 
  

  Rental License Fees Increasing

  
  


• 
  

  More Owner-Occupant Competition

  
  


• 
  

  Higher Tenant Expectations

  
  


• 
  

  Harder to Wholesale Properties

  
  

 *An observation only, we do not suggest ignoring city ordinances.

The list shows that investing in either obviously has its pro’s & con’s. Can you think of more?

The real challenge for an investor is figuring out:

• 
  

  The specific risks they can handle

  
  


• 
  

  The risks they aren’t
  comfortable with and should avoid

  
  


• 
  

  Do the potential returns justify
  the risks?

  
  


• 
  

  How will they manage the specific
  risks

  
  


• 
  

  What reserves they have to absorb
  any risk events

  
  

With real estate investing in general we see too many people not doing their homework or putting in the effort to really understand the risks with investing. Often, they contact us for assistance after their attempted investment has turned into a train wreck. Most of these same investors should have looked to partner with an experienced investor (like us) or just lent their funds out to an experienced real estate investor (like us) for a nice return.

If we can be of assistance in answering any real estate investing questions, feel free to contact us. Be sure to also comment on any pro’s or con’s we may have missed, or if you disagree with any of ours.

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