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Buying Cheap Properties in Detroit

What Every Out-of-State Investor Needs to Know!

Detroit and Michigan have received a lot of press about buying cheap properties in Detroit. In fact, a recent article in the Oakland Press cited how many investors are purchasing properties for under $10,000.

To an outside investor, the idea of buying income property for under $10,000 sounds very appealing and has created a buzz around the country and beyond. I call this the “cheap-factor-fever.” It’s where an investor looks at only one thing when making a decision…price. I’ve seen investors ignore all other sound investing criteria simply because the property is cheap. I recently spoke to one such investor who said, “how can I go wrong, it’s so cheap!”

While I entirely agree that now is the time to buy and Michigan is an excellent market to buy and hold property, I also agree that it’s important to consider all factors when purchasing a property.

In my mind, there are 3 fundamental criteria that an investor must consider in order to be successful investing in Detroit.

Location:
There is usually a reason why a Detroit property is for sale for under $10,000 and it’s probably due to bad location and/or excessive repairs. The 2 go hand in hand but first we’ll discuss location. There are many areas in Detroit that are considered “war zones” and no matter what measures are taken, it will never be successful (unless the neighborhood conditions change). These areas have high crime, drugs and the calibre of tenant will always be very low. Evictions, break-ins, prostitution, theft, and non-payment will be the continual story. Of course there are better areas than others but Detroit is very tricky. You can have one street that is very desirable, the houses are kept up, rents are high, homeowners abound and then you can go the very next block over and be in a war zone. Out of state investors often overlook location when they’ve been stricken with “cheap-factor-fever.”

Renovations:
Many properties are prices very cheap because of the excessive repairs that need done. I am amazed how an investor won’t buy a property for $25k that needs $10k in work but he/she will buy, without hesitation, a property for $10k that needs $25k in repairs. Managing contractors is not an easy task, Ensuring timely, quality work for a fair price requires constant attention and many out-of-state investors are unable to successfully manage contractors long distance.

Furthermore, rehabbing in Detroit is not easy and requires a certain level of speciality. Theft is high in Detroit even in the good areas. Investors aren’t the only ones taking advantage of the housing market. Professional stealers rome the streets looking for investors who are sinking thousands into a home only to return that night and clean out the house stealing plumbing, electrical, furnaces, hot water heaters, kitchens, tools and doors and anything else that can be hacked on the streets. Usually once a house has been targeted, they keep coming back again and again.

Property Management:
Many out of state investors don’t understand how to successfully manage the tenant. Detroit rentals and any lower income rentals can be very successful if managed correctly. It is a very hands on approach and requires a PM that is experienced. An experienced PM’s get down and dirty and have a no tolerance policy to collect rents, often physically collect the rent, understand the section 8 process very well, have repair people on stand by, and are able to successfully determine if a perspective tenant qualifies.

Remember Smart Investing:
As I mentioned earlier, I believe now is the time to invest in Michigan. I believe investors who do it right, will reap the benefits in the years to come. Michigan is heading in the right direction by investing in businesses and fields that will make the state a leader in the country (i.e. alternative energy, bio tech, movie industry, etc.).I believe Michigan will turn around and investors who got in at the right time will make a fortune. I also believe an investor has to look past the “cheap” factor and make smart business decisions in order to be successful buying investment properties in Detroit.

Jerry Norton is co-owner of Equity Services, LLC. They provide investors with fully renovated, positive cash flowing investment properties for under $50,000.

To learn more about buying cheap properties in Detroit, visit our site and download our FREE worksheets “Rental Income and Expense Tracking worksheet” and “Financial Analysis Worksheet.”

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