The US real estate market is home to many rental markets, some of which are well-known, and some are overlooked. One of the more underrated markets is the Detroit real estate market. Today, we’ll tell you why you should consider investing in the Detroit housing market by discussing the city averages, real estate market trends, and the best neighborhoods to invest in the Detroit real estate market 2019.
The Detroit Real Estate Market Data
First thing’s first: how does the Detroit real estate market 2019 fare statistically? Understanding the data behind the average Detroit real estate investment will give investors an idea of the city’s real estate capabilities. Using Mashvisor’s investment property calculator (which you can learn about by clicking here), we have compiled a list of the city’s current averages:
- Median Property Price: $167,923
- Price per Square Foot: $119
- Price-to-Rent Ratio: 14
- Rental Income: $979
- Cap Rate / Cash on Cash Return: 1.3%
- Rental Income: $2,246
- Cap Rate / Cash on Cash Return: 7.1%
- Occupancy Rate: 50%
There is much to be said about the Detroit housing market based on Mashvisor’s data, for both Detroit short-term rentals and long-term rentals. For that, we move on to the reasons to invest in Detroit, based on its real estate market trends.
Reasons to Invest in the Detroit Real Estate Market
The most striking feature of the average Detroit real estate investment is its relatively low price tag. In the last 12 months, the median property price in the US real estate market has hovered between $300,000 and $320,000. The average Detroit investment property, however, has a median property price of $167,923. Because this figure is merely an average, it is likely investors will find even more affordable Detroit investment properties. This is definitely the case in the city’s best neighborhoods. Of the 6 neighborhoods to be mentioned later, all are below the city median, 5 are below $100,00, and 2 are around $54,000!
The cost of living is also more affordable in Detroit compared to the US average, as it is 5.6% lower. The low cost of living is a key influencer for investing in Detroit real estate as it can attract tenants to your future rental property.
Along with affordability comes profitability for the Detroit real estate market. While the average Detroit investment property does not boast the rental income of San Francisco properties, per se, it is still lucrative, especially in terms of return on investment. This is especially true for an Airbnb investment property in Detroit. The average Airbnb return on investment is at 7.1% and the occupancy rate, 50%.
Detroit investment properties also benefit from appreciation. While the city’s annual appreciation rate of 1.26% during the last 10 years is somewhat average, it was still increasing during the recession. As of late, however, appreciation has been growing rapidly for the typical Detroit rental property. The current appreciation rate is 8.62%, which is higher than roughly 85% of cities and towns in the US, according to Neighborhood Scout. The latest quarter experienced a rate of 2.35%, which equates to an annual rate of 9.74%. Not only is The Motor City’s appreciation rate top-tier on a national level, but it is also supreme in the Michigan real estate market. According to Neighborhood Scout, the appreciation rate of the Detroit real estate market is higher than 70% of cities and towns in Michigan.
As previously seen, Airbnb is the most profitable strategy for Detroit investment properties. Airbnb Detroit has been very successful in the last few years. In 2017, 47,000 guests visited the city and stayed in Airbnb Detroit rentals, which generated $5.2 million in income. While these statistics are great, it is important to ask: is Airbnb legal in Detroit for real estate investors?
Related: The Best Places to Buy a Vacation Home in Michigan
Is Airbnb Legal in Detroit?
Since the beginning of its Airbnb history, the Detroit real estate market has been a conducive environment for the short-term rental platform. According to the Roomscore 2016 Report on Airbnb legality in major American cities, Detroit earned a score of 90 out of 100. The situation became somewhat muddled, however, for a brief moment in early 2018. In an effort to update the city’s zoning laws, a short-term rental ordinance was passed. The ordinance prohibited Airbnb hosts from renting out single rooms in R1 and R2 zones, which would impact half of the city’s 430 Airbnb rentals. However, the law was not enforced the very next day, and ever since, due to misinterpretations among the city council. While hosts are free to rent out rooms in the R1 and R2 zones at the moment, investors should monitor any developments for Airbnb regulations in Detroit. Aside from this, investors should be aware of the business license requirement and the 6% sales tax before investing in Detroit real estate for Airbnb.
Related: 13 US Cities with the Least Airbnb Legal Issues in 2019
Best Neighborhoods for Traditional Investing in Detroit
We can finally address the last part of this blog: what are the best neighborhoods in the Detroit real estate market? According to Mashvisor’s heatmap, these are the best neighborhoods for traditional investing:
- Median Property Price: $54,900
- Price per Square Foot: $53
- Price-to-Rent Ratio: 4
- Rental Income: $1,260
- Cap Rate / Cash on Cash Return: 13.8%
- Median Property Price: $55,000
- Price per Square Foot: $22
- Price-to-Rent Ratio: 6
- Rental Income: $800
- Cap Rate / Cash on Cash Return: 5.2%
North Rosedale Park
- Median Property Price: $85,429
- Price per Square Foot: $61
- Price-to-Rent Ratio: 7
- Rental Income: $1,035
- Cap Rate / Cash on Cash Return: 5.6%
Best Neighborhoods for Airbnb Investing in Detroit
What about Airbnb investing? These are the best neighborhoods for Airbnb Detroit:
Eight Mile Wyoming
- Median Property Price: $135,967
- Price per Square Foot: $91
- Price-to-Rent Ratio: 11
- Rental Income: $2,880
- Cap Rate / Cash on Cash Return: 27.6%
- Occupancy Rate: 59.8%
- Median Property Price: $84,900
- Price per Square Foot: $63
- Price-to-Rent Ratio: 9
- Rental Income: $2,578
- Cap Rate / Cash on Cash Return: 17.0%
- Occupancy Rate: 50.9%
- Median Property Price: $99,900
- Price per Square Foot: $44
- Price-to-Rent Ratio: 7
- Rental Income: $2,750
- Cap Rate / Cash on Cash Return: 15.0%
- Occupancy Rate: 54.2%
Related: Find the Best Investment Properties Using Heat Map Analysis
All in all, the Detroit real estate market provides affordable and profitable traditional and Airbnb investment properties that are appreciating. To start looking for the best Detroit investment property, click here to start your 14-day free trial with Mashvisor!