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Detroit Real Estate

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Byron

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Hello,

I was wondering if anyone has explored the option of investing in the down market of Detroit. I keep hearing people saying that they are able to buy income properties for under 20,000 and that they are appraised at over 100k. Let me know if anyone has heard of any good or horror stories about this and any advice you may have. Thank you.


Byron
 
Hi Byron
Give Thomas Beyer a message
He did and couldn`t make a go of it and has exited there...
I`ve met thousands of investors... not seen someone who`s figured out how to be profitably operating there yet...
 
I don`t know the Detroit market, but......
U.S forclosures are expected to peak in 2013. Ask yourself, how will you exit? who will buy it?
Maybe there is a very good reason its selling for 20k..
 
there is a guy right now in detroit who is picking up properties anywhere from 10-20K and then renting them out. He started putting up videos of the properties he bought and alot of people were wanting in but didn`t have a clue about detroit.

long story short he is now helping outside investors purchase proprties in Detroit and is now managing them for a fee. The guy is from detroit and seems to know the ins and outs here is the guys website and videos.


http://www.youtube.com/watch?v=h7mlLo3der0

http://www.thesheashow.com/
 
QUOTE (housingrental @ Nov 28 2009, 02:08 PM)
Hi Byron

Give Thomas Beyer a message

He did and couldn't make a go of it and has exited there...

I've met thousands of investors... not seen someone who's figured out how to be profitably operating there yet...


we bought a property in 2007 for $650,000 .. 45 units .. appraised for $1M !



I made the mistake of not personally visiting the property but relying on my (then) partner to do the inspection .. twice.



We could not cash-flow it .. without a mortgage !



The heating bills in the winter alone exceeded the rents collected



We sold it for $100,000 this summer.



Lesson learned:

a) don't buy in a market you know nothing about

b) don't buy in a market because it is "cheap" .. as it can get cheaper

c) don't believe an appraisal alone

d) the US has "war zones" or class D neighborhoods that are almost unheard of in Canada

e) if banks don't lend in certain areas .. there is usually a reason !

f) a cheap property can be an expensive lesson

g) sub $15,000/door sounds low .. but is expensive if not much is actually behind the door



Now, having said that if you know Detroit well, or care to investigate it well, there are probably areas that make sense .. or partner with someone like the video guy who knows what he is doing !



$20,000 may be a great buy if you can rent it (and collect it !! .. big difference ..) for $600 to $1000 / month !



Buy through a corporation, then the most you can lose is $20,000 !



More here: How to get started http://myreinspace.com/public_forums/General_Discussion/61-4391-How_to_get_started_.html
 
QUOTE (housingrental @ Nov 28 2009, 02:08 PM)
Hi Byron

Give Thomas Beyer a message

He did and couldn't make a go of it and has exited there...

I've met thousands of investors... not seen someone who's figured out how to be profitably operating there yet...


we bought a property in 2007 for $650,000 .. 45 units .. appraised for $1M !



I made the mistake of not personally visiting the property but relying on my (then) partner to do the inspection .. twice.



We could not cash-flow it .. without a mortgage !



The heating bills in the winter alone exceeded the rents collected



We sold it for $100,000 this summer.



Lesson learned:

a) don't buy in a market you know nothing about

b) don't buy in a market because it is "cheap" .. as it can get cheaper

c) don't believe an appraisal alone

d) the US has "war zones" or class D neighborhoods that are almost unheard of in Canada

e) if banks don't lend in certain areas .. there is usually a reason !

f) a cheap property can be an expensive lesson

g) chose your partner(s) carefully .. as 1 + 1 is not necessarily 3, or even 2 .. but sometimes only 1.5 or even 0.7 !!



Now, having said that if you know Detroit well, or care to investigate it well, there are probably areas that make sense !



Or invest with the youtube fellow as he seems to know what he is doing .. after careful research on him, past deals and some references.



$20,000 may be a great buy if you can rent it (and collect it !! .. big difference ..) for $600 to $1000 / month !



Buy through a corporation, then the most you can loose is $20,000



More here: How to get started http://myreinspace.com/public_forums/General_Discussion/61-4391-How_to_get_started_.html
 
I was curious if anyone had been interested in Detroit real estate
investing on this site, and found this post from back in 2009. The thing
with Detroit real estate is that you have to know the areas you are
buying in, or at least trust the company you are working with. $20,000
to buy a performing rental property is honestly pretty low and I'd be
careful with that purchase. The average price for a turn-key Detroit
rental is $38,000-$40,000 USD and those properties will rent for an
average of $800/Month. It's all about buying in the right areas though.
That is the single most important aspect.



Detroit is no longer an equity play at all. It's a strict ROI play, and the ROI averages out to be 14-16%. We have a lot of clients from the UK, Australia, and even Sweden that buy properties in Detroit simply for the ROI numbers.





_________________________________________________________________________________

Nathan Mazur

Detroit Cash Flow Properties, LLC

www.detroitcashflowproperties.com

(248) 930-9654
 
[quote user=detroitcashflow]buy properties in Detroit simply for the ROI numbers.


Consider not only return ON your capital but first and foremost return OF your capital !



Many mortgage investors also got burned investing in 16% "guaranteed" mortgages !



Thus, the BIG question is: how do you get your capital back, i.e. can you actually sell the (now used/lived-in) asset in a city with poor economics and ex-migration ?
 
The city's population has shrunk by 50% in 50 years. There are 70,000 abandoned structures in Detroit. What fundamentals are going to drive up prices? I'd stay out.
 
As investors is it a option to enter a higher risk market without being concerned about the return of your investment. What if you didn't care about a exit strategy but were willing to gamble on a payback over time that simply produced positive cash flow.

Rather than target quality properties providing quality service to quality tenants what about considering a alternative market. Someone must provide the services and my understanding is that with the higher risks these landlords are seeing higher returns.



Using the scenario of purchasing a $20,000 property with minimum down and renting for $800/ month you would conceivably have positive cash flow that would be increased when the mortgage is paid or you could refinance as it is paid down and pull cash out along the way.



The gamble of course is that the property goes belly up before you make back your down payment and you are forced to walk away.

This likely would be too risky for most, especially those already invested in real estate, which could expose there portfolio, but as a niche market for someone wishing to specialise this could be lucrative.



It would best be left to a local investor willing to rent to low income or welfare recipients requiring more hands on managing and minimum expenditures on repairs but still likely a solid return with minimum

investment.

Or is slumlord just tooooooooo dirty of a word for investors.
 
Good points above



Others to add:



Financing - and then the ability to pull out money from refinance - might not be possible (or at a premium rate / lower portion) in certain area's..... this is not the same as getting a mortgage on a house in Toronto....



Expenses - As Thomas Beyer has posted above from his experience, just because a property has a high rent to purchase price does not mean that it'll be particularly profitable...operating expenses might be much higher than a percent of rent than you can achieve in other properties.....



Less frequent negative events..... in some area's this might be the once every XX years tornado....for this situation I suspect it could be you might get your nice 15% cash on cash return for 4 years and then in year 5 have tenants that cause $30,000 in damage that you cannot recoup from them..... and you've owned the property for 5 years, the city has lost population, the value has dropped, and your net cash flow over 5 years is negative after year 5 even though year 1-4 seemed to be going so well......
 
Yes and no. Remember when things go terribly wrong you walk away.



You need to get your investment head around this type of property.

It would be low rental housing, you would not be putting money into repairs except the bare essentials for survival and if you could purchase for $2000 - $4000 down your investment would be returned in about a year. Maybe not doable financing wise but there is still the option to purchase with cash to "increase cash flow" and hold long term.

Initially your cash flow could be viewed as ROI but once your cash investment is recouped from that point forward, assuming 50% for expenses, your positive cash flow is profit. Going forward a exit strategy becomes less important on such a small investment although that does not exclude selling in the future.



As far as the tenants damaging the property is concerned it would be difficult to do $30,000 damage to a $20,000 property although possible. As stated all repairs would be kept to bare essentials. We are talking painted wood floors, patched walls and used materials for everything. Kitchen cupboards would be particle board or plywood with plan flat doors. Anything tenants damage you screw it back together and rent to the next welfare recipient waiting in line for a apartment.



Turnover would be high but there are LLs on "Biggerpockets", and in every major city in the world, operating this type of business renting to section 8 tenants in the US making very good profits. Clearly a specialty market that I doubt any REIN member would have the skills, certainly not the desire, to operate successfully but the demand is there and it is filled.
 
[quote user=invst4profit]you could purchase for $2000 - $4000 down your investment


You couldn't ! A $20,000 investment will be in cash .. no one will give you a mortgage. This is not Canada or main stream US .. this is a warzone !



And a tenant paying $700/month might leave the place in a year or 2 and leaves behind a $5000 wake of destruction (or $200-$400/month).



Probably OK for the not-so-faint at heart.



Consider first:

Return OF your capital.

Then: return ON your capital.

Then: monthly cash-flow.



This is likely very difficult in Detroit. Not impossible. Difficult !



Buy in Libya instead .. at least that warzone has much upside after they kicked out their dictator recently !!



Not knowing anything about Bengazi, Libya .. I bet $20,000 goes a long way there !
 
[quote user=ThomasBeyer]You couldn't ! A $20,000 investment will be in cash .. no one will give you a mortgage. This is not Canada or main stream US .. this is a warzone !



The big advantage of a $20,000 investment in cash is that your downside is limited to the 20,000 you invested. If it goes terribly, and a 30,000 repair bill comes up, you can sell for a dollar or turn back to the city for unpaid taxes. If you put that same 20,000 towards an investment in Canada where you personally guarantee the mortgage, you're maximum loss is much higher, as you could be on the hook for the whole amount if the market goes to zero. That is much less likely for Canadian real estate, but the investment case for the depressed US is helped by the downside protection.
 
From my limited, anecdotal perspective based only on empirical evidence, it seems pretty easy to make money buying rental property in Phoenix, AZ. Negligible downside.
 
[quote user=bizaro86]but the investment case for the depressed US is helped by the downside protection.


People thought that in 2009 when real estate in Phoenix was down 30% .. with Can $ at 90 cents per US $.



and now, 2 years later .. down another 20% and a US $s at par (i.e. down another 10%) !



Beware of exchange rate risk !



But yes, if you can hold long enough, the US will turn around .. the question is: what is that 40% gain on your property, AFTER TAXES IN US $s, in Can $s ? Flat ? up 10% ? down 10% ?
 
If a property cash flows with all expenses accounted for, then it doesn't matter if the price drops another 30%; it just cash flows more.
Speaking for myself, Phoenix RE has been easy good to me.



Paying $40k for a condo in Phoenix is like paying for a used BMW.
 
[quote user=ThomasBeyer]People thought that in 2009 when real estate in Phoenix was down 30% .. with Can $ at 90 cents per US $.



and now, 2 years later .. down another 20% and a US $s at par (i.e. down another 10%) !


Nobody who bought a property in Phoenix in 2009 for all cash has lost more than they've invested, which is all I was talking about with respect to downside protection. If you pay cash for a low priced property, you can't lose more than you've invested.



If you buy a higher priced (Canadian) property, you can lose more than you've invested if it goes down, because you could lose your downpayment plus some of the mortgage if you've guaranteed it.



Regards,



Michael
 
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