FEATURE: INVESTING IN REAL ESTATE IN DETROIT
FEATURE: INVESTING IN REAL ESTATE IN DETROIT
File: Investing in real estate in Detroit
The city of Detroit, historically known as the automobile capital, has also experienced some sad times. A city declared bankrupt following the 2008 crisis. So has this collateral victim rebuilt itself? Its real estate market attracts investors, particularly French-speaking ones, and Investir.us is looking into this question. This report on real estate in Detroit was compiled with the help of Julien Raynard, CEO of investir.us, a property dealer in the US and a real estate expert in the Midwest for several years.
REAL ESTATE CONSULTATION IN DETROIT WITH JULIEN RAYNARD
Origin and History to Understand Real Estate in Detroit
Detroit has a shared history with France, beginning in 1701 with European colonization and a French adventurer named Antoine Laumet de la Mothe (later Sieur Antoine de Lamothe-Cadillac), who settled in the territory with several compatriots. The colony was called Fort Pontchartrain du Détroit. Detroit refers to the geographical configuration of Lake St. Clair and Lake Erie. By 1740, approximately 100 French families occupied the area. In 1749, the crown graciously offered land to encourage French influence. Through the Treaty of Paris, France ceded its land to the new state of the United States of America. However, the British opposed it and went there to settle there, however the Native American nations did not see it that way and decided to oppose this installation. The Americans did not take possession of Detroit until 1796 under the terms of the Treaty of London. Several historical events marked this city. First, a devastating fire occurred in 1805, it took with it most of the French colonial architecture. Also during the Anglo-American War of 1812 the city was occupied by the British but recaptured a year later by the Americans.
Investing in Real Estate in Detroit
Photo by Antoine de Lamothe-Cadillac
The beginning of the 20th century marked the development of the city, both economically and demographically. This was the golden age of Detroit, which took the name "motor city", and saw the advent of a genius, Henry Ford, founder of the automobile manufacturer of the same name, which is still one of the leading manufacturers in the world today. The rise of the automobile industry pushed people to come and settle in this city with exponential growth. Between 1900 and 1930, the population increased from 265,000 to more than 1.5 million inhabitants, in 1950 it was 1,850,000 inhabitants. This led to many problems, particularly related to air and water pollution (automobile industry). Detroit has also long been known for its strong racial tensions, riots took place in 1943.
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Detroit's economy in crisis and housing market in decline
Racial tensions swept the city through some very sad times. On July 23, 1967, riots broke out in the northwest corner of the city. They were the bloodiest and most destructive riots in U.S. history, with 47 deaths, 467 injuries, and more than 2,000 buildings destroyed.
Unfortunately, this characteristic is in the city's DNA and notorious reputation, notably popularized for example by the famous story of rapper Eminem. These difficulties are accentuated by the economic decline of the city during the second half of the 20th century. Going from the status of historical capital of the automobile to a city symbolizing danger. Indeed, it is distinguished by record crime rates. Also sadly ranked among the 10 most dangerous cities in the world due to its homicide rate (43.7 murders per 100,000 inhabitants per year).
Detroit Real Estate Renaissance
Renaissance center “RenCen”
The early 2000s did not allow Detroit to escape this situation, as the subprime mortgage crisis occurred. As a result, on July 18, 2013, the city had to declare bankruptcy. Due to a debt of nearly $18 billion. Faced with difficulties, the White House came to the city's aid, with financial support of $320 million to demolish and repair abandoned houses. These funds also allowed for the development of the public transportation network. From an industrial perspective, the ravages of the crisis also affected the largest companies. Major automakers based in Detroit (General Motors, Ford, Chrysler) have laid off no fewer than 400,000 employees since 2008. In some neighborhoods, the unemployment rate was incredibly high, reaching 50%. Regarding the real estate market, Detroit in the USA was breaking all records in terms of economic decline. This is how we saw houses selling in Detroit for $1. Coming out of the crisis, buying a house in Detroit was inexpensive and had become a relatively small undertaking. However, this act was not trivial and often concealed enormous future expenses (destruction, debt of previous owners, etc.).
Also read: The best returns in the United States in 2020
Detroit and the Real Estate Market Rebirth?
With the election of Mayor Mike Duggan in 2014, a wind of optimism and a desire to revive the city blew through Detroit. In this mission, major investors came to support the city, including Dan Gilbert, founder of Quicken Loans (a leading mortgage lender), who purchased 95 downtown buildings. The second is Mike Ilitich, founder of Little Caesars Pizza, who invested $630 million in the construction of a hockey stadium. Thanks to these significant investments, downtown Detroit has gradually been revitalized. A historic player in the region has also contributed to the city's redevelopment. Ford Motor Company announced the purchase of Central Center, the former train station, to transform it into a research center that would become the hub for the future autonomous car. It also invested billions in its manufacturing plants, creating numerous jobs.
Although the efforts of public and private actors are undeniable, their effectiveness is questionable, firstly because they are almost exclusively focused on the city centre, that is to say, a district that has redeveloped very quickly, with these important actors. But this raises the question of the surrounding districts, the disparity is still glaring.
"One might legitimately wonder if these grand announcements aren't still somewhat masking the city's ongoing difficulties in redeveloping the city. The figures don't yet allow us to be sure that Detroit is on the verge of a renaissance. Starting with its ever-declining demographic curve, which demonstrates a persistent rejectionism. The flight of its residents cannot be a good sign, from any point of view. Thus, in 2018, there were 672,662 inhabitants, while in 2010 the population was 713,885, a decrease of 5.8%. Another alarming indicator is the rate of people living below the poverty line. In 2018, 36.4% of residents lived below the poverty line. This is considerable compared to a national rate of 14.1%.
Regarding public transportation, it's no surprise that the car-centric city isn't the most developed network in the United States! The opening of a new tram line in May 2017 should be noted, however. The latest statistics show that it's not yet carrying the expected number of passengers.
Julien Raynard, Partner , INVESTIR.US
Detroit real estate market population
population growth in Detroit between 1820 and 2018
CONTACT JULIEN RAYNARD, INVESTMENT REAL ESTATE EXPERT
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Should You Invest in Detroit Real Estate? USA Real Estate's Opinion
The question of investing in Detroit arises, since despite its popularity for very sad reasons, this city, in light of the real estate market figures, can prove interesting. And let's not forget that this is real estate investment, the mistake an investor could make is to only invest in markets where they could see themselves living. This can be a strategy, certainly, but will inevitably lead to missing out on the best opportunities.
USA Immobilier, like many investors, has been pondering the question of investing in Detroit. That is, buying and renting in Detroit. How can you resist the temptation of such low real estate prices? While many French daily newspapers are discussing a possible reconstruction of Detroit, add to this the city's own communication aimed at promoting a "renaissance." Why not invest in Detroit?
The signs seem to be green for real estate investment in Detroit...
If we were to focus on a simple analysis without going into detail, we could clearly see the benefits of investing in real estate in Detroit. However, as with every investment, analyzing the numbers and the terrain are essential.
"First, the economic recovery is not reflected in the figures, so all the announcements are powerless in the face of the reality of the figures. Not to mention the demographic decline, the unemployment rate remains too high for a city that is "reborn." It was 8.80% on January 31, 2020, compared to a national rate of around 3.5% on the same date. This is the first aspect that shows, in our opinion, that real estate in Detroit in 2019 was not an optimal investment solution.
Another important aspect is the proper functioning of the city's school system. However, Detroit still faces significant challenges in this regard. Its over-indebted school system offers appalling conditions for students. The New York Times reported this in an article on November 7, 2019, describing rooms with extreme temperatures, whether in summer or winter (particularly harsh), or even mold in the rooms. The problem is that the feverishness of such a school system is not only detrimental to students, but it will not ensure any stability for your tenants (often families) when renting a house in Detroit.
Detroit real estate danger
New York Times article, November 7, 2019, on the struggles of Detroit's school system
Bankruptcy leaves scars, and these are unfortunately still far from being healed. Despite such observations, it is clear that the city has experienced peaks in investment, both from individuals and real estate developers. This has, in a way, revived certain neighborhoods of the city. In recent years, investing in houses or apartments in the United States in Detroit has been popular among international investors. Due to significant media coverage, particularly in France, this has led to a certain attractiveness for real estate purchases in Detroit, making it somewhat the symbol of real estate investment in the United States. However, this raises questions, firstly, about the opportunity to invest in Detroit today, in 2020. Thus, the opportunity to take advantage of this "media bubble" at the time is certainly no longer relevant. Furthermore, it is legitimate to think that real estate prices in Detroit, in certain neighborhoods, may have increased artificially. The reality of the market is quite different. Let's not forget that the vacancy rate in Detroit at the end of 2018 was 23%. This correlates with a high poverty rate, as we've seen. These figures show that this American city offers poor tenant quality. Ultimately, profitability suffers.
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