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Detroit property crisis presents investment opportunities

Monday 19th August 2013

Last month’s announcement that Detroit had filed for Chapter 9 bankruptcy came as a huge surprise to many people, especially investors in the US and UK. No other major US city has ever filed for a chapter 9 bankruptcy.

But rather than deter investors for buying property in the city, located in the state of Michigan, the news appears to have stimulated fresh demand among investors for housing stock at bargain-basement prices.

Searches for Detroit property on Rightmove Overseas rose by a staggering 497.51% in July, reflecting greater demand for properties in Detroit, and some experts expect this trend to grow further.

“The saying “every cloud has a silver lining” has never been more true than in the case of the Detroit bankruptcy crisis,” said Shameem Golamy, Head of Rightmove Overseas.

He continued: “Whilst the news of Detroit declaring bankruptcy has saddened us, we have seen a huge rise in searches for Detroit property. Interest in the area has increased by 497.51% searches this month making this destination our highest climber. But are these users just online curtain-twitchers? Evidently not, enquiries about Detroit investment property increased 205% since July 2012 meaning there are serious buyers ready to invest.”

The rise in demand for homes in Detroit also coincides with greater interest in US property, as the country’s economy seems to be on the mend.

Charles Purdy, Managing Director at Smart Currency Exchange, said: “Admittedly, the recovery is far from robust but it is recovering at a faster pace than those economies to be found this side of the Atlantic.”

Purdy points out that Sterling has gained sme ground againt the US dollar in recent weeks, making it a good time to buy property across the pond.

He added: “We have seen sterling gain nearly seven cents [since early July]. This means that US$100,000 will cost you £3,000 less today than a month ago which should make that Detroit investment even more enticing.”

Detroit – the only way is up

The great irony, according to Crystal Investment and Real Estate’s Luke Smith, is that the bankruptcy comes just as the private sector is picking up in the ‘Motor City’ with commercial and residential occupancy at record levels.

Kevyn Orr, Detroit Mayor David Bing and the 700,000 remaining inhabitants in Detroit hope that the financial surrender will allow the city to restructure its debt and start fresh, to the point that it can continue to pay salaries and pensions and make vital improvements to its infrastructure.

The city will receive much needed help from the government to improve its services and infrastructure. Keen and knowledgeable private investors will also jump at the chance to buy in Detroit at this time knowing values will increase in coming years.

There are glimpses of a new Detroit to be seen in the city's crumbling centre. At the bottom of Woodward Avenue, the city's sweeping downtown artery, new arrivals fight for loft spaces in a pocket of urban renewal that has been overseen by Dan Gilbert, who owns Quicken Loans and is worth $3.5 billion, according to Forbes.

It has been Gilbert's mission in recent years to lead the city's revitalisation efforts. According to the New York Times, he has so far invested $1 billion in downtown Detroit through the purchase and refurbishment of real estate. Gilbert is now the third largest landowner in the city, behind only city of Detroit and General Motors, according to Fast Company. He has 7,000 employees at Quicken Loans in Detroit and 60 companies have been invited to work in downtown properties that Gilbert owns, including Twitter, Whole Foods and Uber.

Other entrepreneurs have also found that Detroit is greatly accommodating in terms of price efficiency and has a limitless landscape for creative potential.

Luke Smith, Managing Director of Crystal Investment and Real Estate commented: “There are many well-founded reasons for us to be hopeful as the city is already beginning to make a comeback with the assistance of a group of entrepreneurs, who see the city as a potential tech hub.

“Private enterprise has snapped up iconic Detroit real estate and businesses are moving downtown. With them have come new restaurants and bars, an ice rink and an ambitious plan to rebuild Detroit from its heart. Chrysler has moved offices back into the city, Twitter has taken space, Microsoft's Steve Ballmer recently toured the city.

“Detroit is the perfect canvas for innovation and both entrepreneurs and investors can see the potential for growth. The key thing to remember here is that it is only the city that has filed for bankruptcy and the only way from here is up. The fact remains - Detroit can offer you the opportunity to easily invest in real estate with a superb 20% net return per annum.”

Crystal Investment and Real Estate offers these top tips to investing in Detroit real estate:

+ Always make sure the property has been fully renovated before proceeding with the transaction. This significantly reduces risk and enables you to be sure that what you have agreed to purchase, is actually delivered.

+ Ensure the property is tenanted before you buy. A pre-tenanted property means there will be no initial void period and your income stream will start to flow into your account. Furthermore, there is also associated hassle and stress with an empty property such as the chance of vandalism, or the higher insurance premiums you may have to pay for an empty unit.

+ Chose an area which is a highly rentable eg close to schools, shopping centres, factories, and so forth.

              

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