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Thursday, October 27, 2011

Investing in Detroit

The city of Detroit is ripe with opportunity. A current and momentary lack of liquidity in the mortgage market has created unprecedented market conditions. Investors are dictating acquisition prices while rent levels stay constant. The result of these factors is above average rental yields with the potential for long term capital appreciation. One can acquire a fully renovated property in this market for 25% of what it once traded for. A well informed investor will understand the phenomenal opportunity in this market because of a unified and strategic effort of revitalization of key neighborhoods by the city, state, and federal governments.

In Detroit's heyday it was second only to New York in terms of population growth, wealth, etc. Its infrastructure was built for a population at that time of 2MM people. There are only 800,000 people living in Detroit at this time. The population has slowly gravitated towards more stable neighborhood "pockets" however there are still many people who are living in areas where homes are boarded up, burnt out, or falling down. These are homes that were thrown up because of the city's significant growth in a short period of time due to an economy fueled by the automotive and manufacturing sectors creating a boom period in the areas like Detroit. Many of these "shotgun" homes were stick built; frame styled and only built to last 50 years or so. They are not viable anymore. These are the homes that you can find on an internet auction for $1k. Not worth buying though.

Many banks and institutional organizations who have been forced to become property owners do not see the differences in stable areas and not so stable areas. They see an address on a balance sheet and “write-off” great homes because of negative perceptions based on zip codes. By taking advantage of what you could say is a glitch in the banking world's accounting and strategically acquiring in the best neighborhoods, you are in essence insuring future capital appreciation because as the city's infrastructure shrinks around certain core neighborhoods, the values in the areas will only appreciate.

One company that is taking the lead in this area of investing in Detroit is Precise - Properties of Detroit. Visit their web site for more information about their investment programs for Detroit real estate.

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