Motor City has been hard at work over the past decade, recovering from the last recession. But despite the hard times the city has fallen on, one area continues its growth and provides opportunity: the Detroit housing market.
It’s true that the coronavirus caused the Detroit housing market 2020 to freeze and essentially miss out on a hot spring season. (The Michigan housing market as a whole was affected by COVID-19). However, expert forecasts quickly turned positive again towards the end of May when market data showed that buyers and sellers began to slowly return to the market.
Today, we’ll explore some of the foundations of the Detroit real estate market – those that are key to helping the market thrive even during tough times as well as those that we will need to keep an eye on. These Detroit housing market trends are important to know if you’re a real estate investor interested in buying rental property in the city.
And yes, owning a rental property in Detroit can be a good real estate investment. You just have to be aware of the risks and know exactly where to invest in real estate in Detroit. Keep reading to learn all of this and more.
12 Things to Know About the Housing Market in Detroit
If you are looking to invest in Detroit real estate, you’ll want to be aware of the following trends before you start your investment property search.
The Renter Population Is High in Detroit
Demand for long term rental properties in the Detroit real estate market is high. NeighborhoodScout reports that around 51% of the population lives in a Detroit rental property whereas home ownership stands at around 49%. This means that Detroit real estate investors who invest in the long term rental market should find a large tenant pool to choose from.
But the Population Is Slowly Declining
At the same time, the general population is declining. Although Detroit is home to the largest population in Michigan (667,272 in 2020) and the 24th largest in the US, more and more people are choosing to leave the city. The population is falling by a rate of 0.4% every year. Since 2010, the population has declined by a total of 6.52%. Detroit’s population has actually been dropping for more than 60 years.
Reports do show, however, that population decline has slowed down in recent years which is a somewhat positive sign. Detroit officials also pointed out that the response rate of the recent census has been quite low, which may be skewing the numbers reflected in the decline.
Still, the population decline is a key point to address when conducting a Detroit real estate market analysis. When choosing a real estate market to invest in, rental property investors are typically encouraged to look for areas experiencing population growth. This is usually accompanied by a growing economy with plenty of opportunities – an environment that supports the growth of a rental market.
Ultimately, population decline is something Detroit real estate investors have to be mindful of. If you do wish to buy a rental property in Detroit, focus on up and coming neighborhoods that are seeing population growth. Avoid neighborhoods with too many vacant or abandoned properties.
Learn More: How to Identify Up and Coming Neighborhoods for REI
The Unemployment Rate Is High
The high unemployment rate of Detroit offers some insight as to why the population would be declining. The city’s unemployment rate is 8.9% compared to the national average of 3.9% (this data is pre-COVID-19 as rates have jumped for both Detroit and the US in the face of the crisis).
This is another negative factor that impacts the Detroit housing market. Local landlords need to screen tenants carefully when it comes to employment and employment history and continue to watch unemployment trends closely.
But the Job Market Will See Growth in the Next 10 Years
Even with the currently high unemployment rate, the job market forecast predicts growth. The next 10 years are forecast to bring a growth of 29.3% to the Detroit job market. Both the economy and the local job market will continue to grow in the future, albeit at a very slow pace compared to the nation’s largest cities.
A Detroit Rental Property Can Earn a High Rental Income and a Good ROI
Despite some of the aforementioned negative trends, the high demand for long term rental properties in the Detroit housing market means an investor can make money in this location. Take a look at Mashvisor’s rental data for Detroit:
- Traditional Rental Income: $1,060
- Traditional Cash on Cash Return: 2.7%
As the rental data reveals, Detroit investment properties that are rented out can earn a high rental income as well as a good return on investment.
An Airbnb Detroit Rental Could Be Profitable as Well
The Detroit metropolitan area welcomes around 15.9 million tourists every year. So it’s no surprise that Mashvisor’s Airbnb data reveals that short term rental properties are also profitable in the Detroit housing market:
- Average Airbnb Daily Rate: $131
- Airbnb Rental Income: $1,651
- Airbnb Cash on Cash Return: 2.2%
- Airbnb Occupancy Rate: 4.8%
Strictly looking at the numbers of traditional vs Airbnb investments in Detroit, traditional rental properties are more profitable. Although Airbnb rental properties earn a higher rental income, long term rentals ultimately generate a (slightly) higher cash on cash return.
But There Are Airbnb Legal Issues
Of course, you cannot base your choice of rental strategy solely on the numbers. It’s important to note that Airbnb Detroit faces legal issues. Officials are keen on regulating and restricting Airbnb rentals. In fact, bans have been in place on Airbnbs in certain residential zones in the Detroit housing market, although this has not been enforced. Officials have been trying to make renting out a non-owner occupied property illegal as well as enforce permits, Airbnb occupancy rate limitations, and regulate the number of rentals allowed in an area.
In general, the environment in the Detroit housing market is not very Airbnb-friendly. It’s best to stick to a traditional rental property unless you are sure you fully understand the laws that would apply to your Airbnb and how they would affect your ability to make money.
Here is a list of Airbnb-friendly cities to consider: 20 Cities with No Airbnb Legal Issues in 2020.
Detroit Property Values Have Been Appreciating and Will Continue to Do So
Property values in the Detroit housing market have been on the rise.
Zillow reports that Detroit property values increased by a total of 7.7% over the last year. Although values have been slow to recover since the recession, recent years have shown that home values are back on the rise and rapidly increasing.
For the next year, Zillow forecasts that values will increase by a meager 0.8%. However, this estimate is likely impacted by the coronavirus which is causing most major cities to experience negative real estate appreciation. So the fact that properties in the Detroit housing market are expected to still see (a small) increase in value is a positive sign. A buy and hold real estate investment strategy where the property is rented out for positive cash flow is generally the best strategy for Detroit investment properties.
But Detroit House Prices Remain Affordable
Although property values in the market have been increasing for the past few years, Detroit house prices remain affordable compared to other major cities in the US housing market. Here is the median property price according to Mashvisor’s data:
- Median Property Price: $169,109
- Price per Square Foot: $106
Compared to the national median price of $330,000 (as reported by realtor.com), buying property in Detroit is an affordable option.
Detroit Is a Warm Seller’s Market
Because of the low inventory, the Detroit housing market is currently a warm seller’s market, according to Zillow. Since the beginning of May 2020, Mashvisor has also seen an increased interest in Detroit investment properties for sale on the platform. Redfin gives the market a Compete Score of 54 (somewhat competitive) and reports that some Detroit homes for sale get multiple offers. Even so, the real estate brokerage found that homes are often sold for 7% below list price.
Despite the fact that it is a seller’s market and you may find some competition, you should still be able to find good real estate deals in Detroit.
Single Family Homes for Sale Make for the Best Investment Opportunity
Looking at Mashvisor’s rental data, it seems that single family homes for sale make for the most profitable rental property investments. Not only do they dominate the real estate inventory, but they bring the highest return on investment:
- Median Property Price: $124,306
- Price per Square Foot: $80
- Traditional Rental Income: $1,064
- Traditional Cash on Cash Return: 4.2%
Related: 4 Tools for Finding Single Family Homes for Sale
However, if would rather invest in multi family homes for sale in Detroit, you can also realize good returns:
- Median Property Price: $143,730
- Price per Square Foot: $55
- Traditional Rental Income: $894
- Traditional Cash on Cash Return: 2.5%
These Are the Best Neighborhoods in Detroit for Real Estate Investing
To succeed with a Detroit real estate investment, you need to know where investors are enjoying the highest returns. Start your search for Detroit income properties for sale in any of these neighborhoods:
#1. Grandale
- Median Property Price: $56,170
- Price Per Square Foot: $55
- Price to Rent Ratio: 5
- Traditional Rental Income: $1,025
- Traditional Cash on Cash Return: 8.0%
#2. Boynton
- Median Property Price: $91,380
- Price Per Square Foot: $69
- Price to Rent Ratio: 6
- Traditional Rental Income: $1,215
- Traditional Cash on Cash Return: 7.4%
#3. Brightmoor
- Median Property Price: $69,967
- Price Per Square Foot: $90
- Price to Rent Ratio: 4
- Traditional Rental Income: $1,070
- Traditional Cash on Cash Return: 7.4%
#4. Chandler Park
- Median Property Price: $80,000
- Price Per Square Foot: $61
- Price to Rent Ratio: 6
- Traditional Rental Income: $1,120
- Traditional Cash on Cash Return: 7.0%
#5. Castle Rouge
- Median Property Price: $63,267
- Price Per Square Foot: $58
- Price to Rent Ratio: 6
- Traditional Rental Income: $941
- Traditional Cash on Cash Return: 5.6%
#6. Indian Village
- Median Property Price: $113,980
- Price Per Square Foot: $93
- Price to Rent Ratio: 9
- Traditional Rental Income: $1,008
- Traditional Cash on Cash Return: 4.7%
#7. Martin Park
- Median Property Price: $92,425
- Price Per Square Foot: $55
- Price to Rent Ratio: 8
- Traditional Rental Income: $997
- Traditional Cash on Cash Return: 3.2%
#8. Fitzgerald
- Median Property Price: $99,221
- Price Per Square Foot: $52
- Price to Rent Ratio: 9
- Traditional Rental Income: $950
- Traditional Cash on Cash Return: 3.2%
#9. Blackstone Park
- Median Property Price: $95,062
- Price Per Square Foot: $66
- Price to Rent Ratio: 9
- Traditional Rental Income: $910
- Traditional Cash on Cash Return: 2.7%
#10. Russell Woods
- Median Property Price: $88,246
- Price Per Square Foot: $43
- Price to Rent Ratio: 8
- Traditional Rental Income: $918
- Traditional Cash on Cash Return: 2.7%
Start your search for a rental property for sale now in one of the best neighborhoods in Detroit.
So, What’s the Deal?
Ultimately, Detroit real estate investing comes with some risks. It may not be the best real estate market for beginners. On the other hand, an experienced investor has a lot to gain from a Detroit rental property. As long as the investment is approached with all of the risks in mind and you use the right real estate investment tools to ensure you’re investing in a positive cash flow property, the Detroit housing market can hold some interesting opportunities for you.
