My hometown of Detroit has been all over the news recently. Thankfully, it’s been for something other than the transgressions of our former mayor.
The rest of the country (and world, it seems) has realized that Detroit has incredibly cheap real estate, and plenty of it. Investors – some from as far as away as the U.K. – are buying up lots of houses (for as little as $10,000) to fix up and rent out.
While it might be tempting to buy an investment property for only $10,000, there are at least three reasons to be cautious:
• In comparison to other parts of the country, real estate taxes in depressed areas are high and could get worse. A shrinking population means a smaller tax base, so everyone left has to cough up more money.
• Take your rehab bill and double it. Not because of cost overruns but because your upgrades will walk out the door at night. Theft is a major problem.
• Don’t count on getting government-assisted renters. The easy days of the government sending you the rent check are long gone. According to a friend of mine who has a few rental properties in Detroit, the number of landlords looking for Section 8 renters far outstrips the supply.
With that being said, I believe investing in Detroit is worth considering… as long as you do your homework first. Where else can you buy a house for less than a new car and generate cash flow every month?