What are the Down Sides of Buying Property in Detroit?

From my Quora Post:

The upsides outweigh the downsides for me. I’m still making money! But these are some of the issues:

Know what you are buying: We buy the houses ourselves and renovate them before we sell them so the buyer doesn’t have the issues we have. But if you are buying them for under $25k, expect they will need another $20k-ish in renovation work to get them up to code. I’m talking about the 3 bedroom bungalows here, which is our model of what we renovate.

Expect to pay the City of Detroit for your Certificate of Occupancy: In response to the Flint crisis, Detroit now has I believe the toughest lead requirements in the country. All houses have to pass a lead test, which is around $500. If you fail, to abate the lead is outrageous but I’ve never been through that because that issue arises with old windows mostly. We replace all our windows. When old wood windows slide up and down, they leave old paint dust which exposes people to lead. There is lead paint in all the Detroit houses but it’s under the new paint so it’s safe as long as your new paint doesn’t chip. Then every 3 years you need a renewal lead test which is around $375. The city test itself is pretty fair. Only $159 for two tests. It’s mostly just safety items. Detroit uses a third party to do those tests so there is a better level of customer service than working directly with Detroit.

Expect to pay the City of Detroit tickets: If your house doesn’t have the Certificate of Compliance (C of C), the ticket is $250 for no registration (which is an easy free thing to do online), $250 for no C of C and $500 for no lead test. You can get it all done before your court date and they will waive the tickets. But good luck getting the city to produce the actual C of C. They’re backlogged. The other tickets are blight tickets for things like half your alley being overgrown. The investors are targeted and the homeowners next door and behind your house have no consequences for this. Other tickets are for bulk trash in your yard, which is tough because people dump tires and mattresses and stuff and you can’t always be there to know. We got one for our garbage can being left out after trash day. You cannot find a street in Detroit without multiple cans out on every single day. So again the investors are targeted. We got another one for having a dumpster filled too high while we were doing renovation. Blight court is a half a day of lost work and no mercy and pure evil. I heard someone at blight court ask if there’s a list somewhere of what can cause a blight ticket and they were told they were only to speak when spoken to. So who knows!

Your house could be on the demolition list: This is more of a hassle than anything. There is a published demo list online but the houses don’t actually appear on it for six months. We were told once we needed to produce photos of our house if we didn’t want it demolished and appear before city council. Again, a lost day of work. My husband brought in the photos and after waiting for his turn all day they said, oops, not the same house. It must be the one next door. Other people had to prove they were working on their houses. If they do come to demolish and you miss it in the mail, you will know because they will first come to dismantle your power and water. Be careful if you’re not working on the house and it’s just sitting there. You could miss all that and come back to a vacant lot. It’s happened to people.

Furnaces get stolen out of vacant houses: We secure our houses with house sitters. They will stay in the house as soon as renovation work begins. We pay them $50/week to stay in the house dusk to dawn. It’s not a perfect system but it’s better than nothing. We’ve had new kitchens and vanities stolen as well. But furnaces are the top thing people steal. They break in a window, open a door and walk out with your furnace. They scrap the metal for the money. I don’t even think it’s much money. Or they resell the furnaces out in the suburbs to HVAC guys. Furnaces will get stolen mostly at night but we’ve experienced them being stolen in broad daylight too when our house sitter steps out. Or when a tenant moves out and doesn’t tell us. It’s usually a neighbor watching for the house to go vacant or watching for a clueless contractor whose truck says FURNACES all over it. May as well have flashing lights saying ROB THIS HOUSE!

Tools and work trucks get stolen: We know to never leave our tools in houses when we renovate. They will be stolen. The thieving neighbors are watching. The good neighbors don’t snitch. There is the attitude around here that snitches get stitches or end up in ditches. We did have our work truck stolen from a guarded Home Depot parking lot. That really hurt. We don’t use that Home Depot anymore.

Deeds to houses aren’t always good deeds: When we buy the houses we have a process we go through that costs around $600 to get the deeds marketable. So when we sell the house, it comes with a warranty deed and thus insurable. We’ve had some deeds that required quiet title. That can be anywhere from $1,500-$3,000. Meaning there was something on the deed saying someone else still had a right to the house. Like a bank that isn’t in existence anymore. We’ve had to hire a lawyer to serve the people or nonexistent bank correctly and post it correctly. Then there is a court case. The person could show up and claim ownership but it’s never happened to us. And we’ve been through maybe 10 quiet titles. I’ve heard the circumstance where someone would get to keep their house and we’re out the money is if they were in the military under cover. A lot of people sell houses in Detroit with Quitclaim deeds. Beware! But the question you want to ask is if it’s a warranty deed. Warranty deeds will be insured by the title company. Ask though for how much. The original purchase price of the house or for the price you are paying. Good to know. If they say it isn’t a warranty deed, you can make a purchase requirement that it’s made into a warranty deed before you will close. I do this and it really makes agents and title companies mad. But the nerve of them to sell me something that could require quiet title! They prefer the naive buyers.

You could be hit with huge water bills: The water department has a new policy to protect homeowners’ privacy they say. No one can look up how much the water bill is unless you have the last four digits of the homeowners’ social security number. Seems to me a nice way for the water department to get the “rich” new buyer to pay the old deadbeat owner’s water bill. The title companies can’t even get the water bill amount anymore. If you buy a house, ask for proof of the last water bill. I’ve been able to get the workers at the water department to tell me what the bill is because they know me and like me but they won’t print it off for me because it could get them in trouble. There are a few water bills too. There is the owner bill and the tenant bill. The owner bill is supposed to end in 300 and the tenant bill in 301–305. But it isn’t always that way. So you have to specifically ask if that’s an owner bill — which you could be hit with — or the tenant bill, which stays in the tenant’s name. When we sell houses I transfer the water ownership myself in my office. The water department can’t for the life of them ever do a final water meter read until months after I’ve sold the house anyway. If ever. I swear they go to the casino instead of doing the final real estate meter read. The last one I requested came back that I needed the owner’s social security number. It’s owned by a BANK! Not happening.

Lots of scammers sell these properties: We have so many sad stories of investors finding us after being so scammed. If it sounds too good to be true, maybe it is. We always ask our investors to come here and meet us. It’s a big trusting relationship. We don’t work with every investor either. You should see the property. You should get to know the person doing your renovations. It’s common to be told it will only cost one amount and you end up paying a lot more. I’ve heard of owners sending in all the money to finish the renovations only to learn the money was never put to the house. Who pocketed it? We buy the houses ourselves and renovate them ourselves and we don’t always make a profit. Some we’ve sold at a loss to ourselves because of unforeseen problems. Others we just buy and hold ourselves. Getting reliable crews to work in the city is really hard. The good ones all have jobs these days in the suburbs where their tools and trucks won’t be stolen. One investor we met had already met someone else with big promises. He chose to go with that guy. That guy told him he bought a house for only something like $9k. I find that practice a little unethical myself. The seller trusted him that his house wasn’t worth more. I’m sure the seller wasn’t provided comps for his neighborhood. This guy then told this investor it would be around $20k to renovate. Possibly true. But then the worst part was he told him he could flip it for $90k. We know that street. We flip houses there for $50k, not $90k. This big talker renovater guy doesn’t even have a property management business. He’s very green too. Not sure he knows about the city requirements. Did he think a homeowner would pay that on that street? Not a chance. The homeowners are buying the $25k houses and whittling away at the renovations. If it’s rented, there’s no ROI left to be attractive to an investor on a $90k house especially when they can buy them for $50k. So this one bothers me. Gives Detroit a bad name. And of course my ego is bruised that this investor didn’t choose me.

Buying turnkey (renovated and rented) isn’t necessarily the answer: People have told us they did that only to learn the house was really only partially renovated. It’s hard to view the inside of a turnkey property because tenants get scared about showing it. They’ve been scammed so many times by landlords and property managers claiming to be the one to whom they pay the rent, only to find out it’s someone else and then they end up with an eviction on their record. So to get inside a rented house is tough. If you do get in, that tenant may start looking for a new place to rent as soon as you walk out the door because they think something fishy is going on. Solution to this one is to get referrals from other investors who bought from that property management company. I don’t actually allow investors in to my rented houses for the above reasons. Our houses are pretty cookie cutter. I’ll show them a few other houses we’re working on and they can see my Youtube channel of house tours on move in day. They’re all pretty much the same.

But isn’t it about the money? If you’re making a good return on investment, then these things are manageable. I think knowing what to expect helps. When investors call me and don’t ask me worst case scenarios, I just tell them anyway. I don’t want to work with someone naive to Detroit’s issues. They thank me! Other things with buying a turnkey house could be a bedbug or cockroach problem. That can take three months of no rent. One month before the people move without paying, another month of treatment, another month of killing off the newly hatched eggs. Or Section 8. It takes them 1–3 months before the payments are initiated. Ouch! But they pay back to the move in date so that’s good. Turning over a house can be costly because tenants can be rough no matter how tough my screening is. Expect a good $1,200 between tenants. Tenants don’t come out in the snow to view houses. So that can be an issue. Unless they have Section 8 and they’re on a time restriction to find a new place. I’m grateful for them in the winter! It’s all still a good investment though. I know because our investors keep buying more. And I still have my own properties generating a nice income for us. Two of my 10 tenants have been there since 2008. I like those ones!!!