Sunday, June 19, 2011
Why Investing In Detroit Rental Properties Isn't the Deal People Think
Last week was a perfect example of what we have preached for years. There is a vast difference between the City of Detroit, and the Suburbs. We received 5 calls last week alone, every single one of them was the same. “My name is XYZ, and I purchased 3-5 homes in Detroit in the last year. Their not performing as I expected. They’ve been broken into, I have tenants not paying, and the City is fining me for not cutting the lawn, even though my tenants are responsible”.
It absolutely frustrates me every time I get this call. If only we had the opportunity to steer these folks in the beginning, we could have saved them thousands, not to mention the sleepless nights. I just can’t say it enough. The numbers in Detroit are so intoxicating, that many investors fail to do their due diligence. Of the 5 calls I received last week, just ONE had come to the city prior to buying, and physicaly drove through the area they were buying in. Its 2011, even if you don’t want to get on a plane and come see the area, you can go on Google Earth, and look at the street views of virtually every street in the City!
The facts are this. Yes, Detroit offers properties for less then a decent used car. You can hire any realtor to send you hundreds of listings. You’ll see three and four bedroom brick homes, listed for 5000-15000.00. You will look at these prices and assume you have stumbled on a gold mine. You will compare these prices to the values in your own area, and again, think it’s a no brainer. But will you pull the property records detail and see how many people before you bought the same house and failed? Will you check the property taxes to see what they will adjust to in future years? Do you have any idea what the rental registration fee’s are? How easy is it to pull a permit if needed? What’s the process for evicting a bad tenant, and realistically, how long will it take? The answers will surprise the uneducated investor.
For the typical 10K house, your going to pay 2500-3000 a year in taxes. Some respond with, “well appeal the taxes”. And that’s a valid response. But, do the people giving that advice actually have any real experience in appeals? To conduct a real appeal costs several hundred dollars, and in todays economy, where the City is loosing money hand over fist, you have virtually no chance of receiving an adjustment.
An eviction in the City taxes up to 3 months to complete. 36th District court, is in the top 5 in the COUNTRY for evictions processed on a yearly basis. Court dates take longer to receive, having your tenant served will take weeks. Additionally, once you’ve received a judgment, the bailiffs often take another month to come and remove the tenants. Also, average cost of the bailiff is 600-800! And they only accept cash.
Lets compare that to Redford. Takes us 10 days from the day we file to have our court date. Another 10 Days for a writ. And less then 7 days from the day the writ is signed, to get a sheriff at the house removing the tenant. That’s 1 months lost rent, versus 3.
Also, the destruction in Detroit is astounding. The worst we see in the Suburbs, is maybe a hole in the wall. I can virtually guarantee, unless you secure your home like a medium security prison, you have very little chance of keeping your Furnace, Hot Water Tank, and often wiring and plumbing. Insurance companies will not cover you for these losses in the City! But they will in the Suburbs.
Check out this video we posted. http://youtu.be/rwP9D3qpwlI , a woman was being evicted in the city, and literally rips the front of her house off! That would NEVER happen in the suburbs. The police would have been called, and arrived. If your thinking of investing in the actual City of Detroit, try this exercise.
Call (313) 596-5900. That’s the number to the Eastern District of the Detroit Police Department. Ask them how quickly they’ll respond to a property break in, or theft. They will tell you, they DON’T respond to “non violent crime”. You have to go down to the main building, and file a report yourself. The people who live in Detroit, know this. They don’t wait until night to break into homes, they do it in the middle of the day. Often, the neighbors are the ones who will strip your rental property.
People selling in Detroit often claim to buy on “the good blocks”. Why in the world would you ever buy in an area that just has 1 good block? Why wouldn’t you put your money into an area that you can safely drive any time, day or night? That doesn’t have security bars on the doors? Where the police and fire departments are well funded and will actually show when called?
Give us a call if your thinking of Investing in Rental or Income Properties in Detroit, and we promise to not only save you thousands. But to direct you towards homes that you can actually be proud to own.
- Summit Consulting
- Roseville, Michigan, United States
- Detroit Property Management - www.MetroDetroitRentals.com. - www.DetroitRealEstateInvesting.com We are one of the fastest growing Investment and Management Companies in the area. We have a unique blend of talents, that no one else can match. A licensed, Appraiser, Builder, Realtor, our insites into the market have allowed to double in size, during the "worst real estate" market of our lifetime.