Investing in Real Estate in Detroit: Is Detroit the New Wild West?

Worldwide, the internet is abuzz with talk of boom times for individuals investing in Detroit real estate. Foreign investors looking for good deals in U.S. real estate investment can be forgiven for catching Detroit “gold fever.”

How can anything possibly go wrong with a house that can be purchased for less than $10,000? The average home in the Detroit area is now going for $18,000, but it is not that hard to find homes close in for as little as $1,000.

How can a $1,000 house be a bad investment?

A $1,000 house can be a bad investment when it is located in the urban equivalent of a Demilitarized Zone and has to be defended with loaded firearms, sometimes unsuccessfully. A $1,000 house can be a bad investment if it takes $80,000 to replace plumbing and wiring stripped by urban ’scrappers’; indigent men who break into vacant homes and remove all the copper and iron to resell it on the lucrative scrap metal market. A$1,000 house can be a bad investment if it takes six months to find a renter once the home is rehabbed and that renter sets up a meth lab in the basement and stops paying the rent almost immediately, then blows up the house.

A $1,000 house can be a bad investment if constant bills from the city for vandalism and code violations make holding on to the property an expensive, never-ending headache. A $1,000 house can be a bad investment when it is located in the middle of a block filled with other homes that aren’t even for sale for $1,000 anymore because no one would buy them at any price. A $1,000 house can be  a bad investment if GM or Chrysler or both fail completely (which they might) within the coming year and Detroit becomes even more of a ghost town than it already is.

Detroit investor Jeremy Burgess is selling this $18,000 home to an out-of-state buyer at a $5,000 profit, but there are reasons locals are not biting.

Detroit has been in decline since the race riots of the late 1960s, and the recent failure of the American auto industry has only made that decline more rapid and more severe. Few people who live in or near Detroit see it as an investment opportunity, but articles on the web make it look like one to people who have never seen Detroit in their lives.

If you think Detroit looks good on the web, at least take the time to visit Detroit person. You may be shocked.

Be very wary of articles touting the Gold Rush mentality of Detroit real estate investing. Who is behind the article? If it has a positive spin, nine times out of ten you will find that the person gushing about how great it is to invest in Detroit is a person who has purchased a bunch of properties in Detroit… and now needs to sell them. Ask yourself why this entrepreneur isn’t selling these great homes locally. Maybe, just maybe, it’s because locals would never fall for it.

Is there a situation in which a $1,000 house in Detroit actually is a great deal?

Yes. For someone who works virtually (online), can pay cash, and doesn’t need to venture out too often, a $1,000 investment in a home to actually live in for a year or two or five might be a good investment. Everyone has to live somewhere, and there aren’t too many place on earth where a person can live for over a year for a mere $1,000. Keep in mind that violence will still be a constant issue and insurance (auto, home) will be ridiculously expensive. But for those with a pioneer spirit and a work-from-home livelihood, some of the (formerly) nicer suburbs of Detroit might be a good investment. Some of those homes are very nice.

Just don’t count on being able to get out. Everything depends on what happens with the American economy over the next two to five years. And so far, it doesn’t look good.