Pros and Cons of Owning Rentals in Metro Detroit
The Detroit metro area has become somewhat of a hidden gem for real estate investors hunting for rental properties. After years of making headlines for its economic struggles, the region is in the midst of a comeback that’s getting attention nationwide and internationally. But like any market worth looking at, Detroit has its own mix of upsides and hurdles you’ll want to consider before jumping in.
At Rondo Investment, we’ve been helping investors get their footing in the Metro Detroit rental scene for decades. This guide walks you through what makes Detroit rentals worth considering and challenges you might face along the way, so you can make the best decision for your investment goals.
Pros of Owning Rentals in Metro Detroit
1. Low Purchase Prices
Detroit’s biggest draw is how much you can get for your money. Compared to other large metropolitan areas, Detroit’s housing prices are still very affordable but rising. The price tags in Metro Detroit are a fraction of what you’d pay in coastal cities or even nearby Midwest cities like Chicago.
This means you can get started with a smaller budget and purchase more properties to quickly build up your portfolio. With expert guidance, you can also get great deals in up-and-coming neighborhoods that will appreciate over the next few years.
2. Cash Flow That Actually Flows
Its affordable housing market paired with relatively high rental rates is a combination that keeps Detroit attractive to investors. The rents may not be as high as some of the other big cities in the United States, but the rental rates vs. cost of ownership are often much better. For example, you can purchase a decent single-family home in certain Detroit suburbs for $100,000-$150,000 and rent it out for $1,200-$1,500 a month. Compare that to the average home price in the US, which is around $500,000 for an average rental rate of $1850, and you can see why Detroit makes sense for most investors.
3. Diversified Industries
Detroit isn’t just the Motor City anymore. While car manufacturing still matters, the economy has branched out in ways that make the whole region more stable. There are many tech companies and startups that have opened locations in Metro Detroit; banks and financial institutions are putting down roots here; and major universities and hospitals are expanding in the area. The addition of these new jobs and attractions are also bringing in new entertainment venues and hotels.
Big names like Rocket Mortgage, GM, Ford, and Stellantis are doubling down on their Detroit commitments, creating jobs that, in turn, increase the need for housing.
4. Public and Private Investments
There’s been a lot of investment from both the government and private investors into Detroit’s rebound. The transformation of downtown and nearby neighborhoods has been lifting up the entire metro area. In addition to investments in infrastructure such as roads and bridges, there are many public programs to stabilize neighborhoods that have experienced a downturn in the past years. Tax breaks and incentives are also bringing businesses and homebuyers into areas that were previously neglected. Paired with exciting redevelopment projects and newly built amenities, Metro Detroit is becoming a much better place to live. All of this money pouring in means that Detroit will continue to improve and attract new residents, and the rental and property values will continue to rise accordingly.
5. Diverse Tenants
The Detroit rental market attracts many types of tenants. From young professionals looking for renovated downtown lofts to families looking for good schools, college students to those looking for rent-stabilized housing, there are different tenants you can target depending on what makes sense for your portfolio. Whether you’d like to focus on short-term rentals or prefer to own Section 8 housing, we’ll work with you to determine the best way to maximize your profits.
6. More Renters Than Ever
You may have heard that there is a nationwide trend of people renting longer before buying or even skipping buying altogether. We’re seeing this in Metro Detroit as well. In addition to new residents moving here for jobs and school, the number of renters is always growing.
Cons of Owning Rentals in Metro Detroit
1. A Tale of Two (or Twenty) Cities
One thing that surprises many out-of-state investors in Detroit is that you can drive five minutes in any direction and end up in a different world. The Metro area runs the gamut from ritzy suburbs with manicured lawns to blocks with boarded-up houses and potholed streets. This means investors have to be careful about the neighborhoods they pick, which makes working with a real estate investment firm like Rondo Investment, that knows the area inside out, especially important.
Location matters more in Metro Detroit. Knowing which areas have the potential to take off versus which may be struggling is key to building a successful rental portfolio. This isn’t a market where you can just throw a dart at the map and expect to hit a winner.
2. Aging Housing Inventory
Many houses in Metro Detroit were built before 1950 during the population boom. In fact, 4 out of 5 homes are over 60 years old. While this adds to the charm of some of Detroit’s most coveted neighborhoods, investors have to take into account the cost of fixing up any old homes they buy.
As an investor in Metro Detroit, it’s crucial to do your due diligence, carry out inspections, and crunch the numbers on any necessary repairs and renovations before you purchase a house. At Rondo Investment, we work with investors at the beginning of their search for a property and those who already have homes purchased. We’re here to guide you through the process of determining good investments from money pits, and will put our extensive list of trusted contractors to work on taking care of any repairs quickly.
3. High Tax Rates
Some investors new to the Detroit housing market are shocked to see the property tax bills. The bargain purchase prices, unfortunately, come with not-so-bargain property tax rates. Detroit’s tax rates rank among the highest in the US, which can take a serious chunk out of your profits.
As your local experts in real estate investments in Metro Detroit, we take tax rates into account when calculating potential profits and work with you in fighting any unfair assessments. Our decades of experience means we’ve been through it all and will always look out for the best interest of our clients.
4. Harsh Weather Conditions
Each region has its pros and cons when it comes to climate. Michigan winters can be harsh and damaging to properties, especially if they’re not well-maintained. Freezing temperatures and winter conditions can freeze pipes, damage roofs, and crack foundations; spring meltdowns and rains can cause flooding. If you’re not nearby to check on your property, make sure that you partner with a reliable property manager who will be on top of all maintenance and winterization tasks, and carry out repairs quickly to prevent bigger issues.
5. Finding a Reliable Local Team
If you’re not local, finding a trustworthy property manager in Detroit can be a daunting task. It’s hard to know how to tell the real professionals from fly-by-night operations. Owning property long-distance only works if you have a reliable team on the ground that will answer calls 24/7 and take care of your properties like they would your own.
What makes Rondo Investment different from other property management companies is the relationships we build with our clients. We’re easily accessible 24/7 to both our investors and tenants. In case of any issues, we’re proactive, focusing on solutions over problems. Our team consists of specialized professionals who are experts in their field. There is a true professional on our team for each area, such as certificate of occupancy, section 8 inspections, rent collections, accounting of properties, vacancies, maintenance, etc., leaving no room for mediocracy. In addition, we provide a truly hands-off full-service property management experience. From purchasing a home to renovating to rent, or flipping for profit, we work with investors with various goals. Our 45 years of experience mean you’re getting the most knowledgeable team on your side.
How to Succeed as an Out-of-State Investor in Metro Detroit
Looking at Detroit for real estate investment? Here’s what you absolutely need to know:
Find Your Local Crew: You need people you can trust on the ground – not just any realtor or property manager, but ones who actually know which blocks are coming up and which ones to avoid like the plague.
Inspect Everything (We Mean Everything): Those charming listing photos can hide a world of hurt. In this market of century-old houses and wild neighborhood differences, skimping on inspections can be disastrous.
Know Your Financing Options: Make sure to know your financing options. Many Detroit neighborhoods are “cash only” as far as banks are concerned. Partnering with a knowledgeable investment team can help you figure out your financing options as well.
Play the Long Game: The most successful Detroit investors are the patient types who can wait 5-10 years for neighborhoods to hit their stride. Knowing which neighborhoods will appreciate over time is crucial here.
Don’t Put All Your Eggs in One Neighborhood: Spread your bets across different types of areas – maybe one up-and-coming property balanced with something in a stable, boring suburb.
Detroit isn’t for everyone, but for savvy investors with the right approach, it offers something increasingly rare in today’s market: affordable rental properties that have great return on investment for landlords. The city’s renaissance is real, but so are the challenges – this isn’t a market for dabblers.
Success here boils down to doing your homework, picking spots with actual potential (not just cheap prices), and having people you can count on watching your back locally. Get those pieces right, and Detroit rentals can pay off handsomely while you help rebuild one of America’s great cities.
At Rondo Investment, we’ve got the inside track on which Detroit neighborhoods are worth your time and which ones to skip. Our team knows which blocks are heading up and how to help out-of-state investors like you avoid the pitfalls while catching the upside of this unique market. Contact us today by visiting our website or calling (313) 370-4841 to schedule a no-commitment consultation.