Detroit turns to motoring its property market
Detroit, once the centre of America’s automobile industry, is now probably better known by investors as the ‘property investors dream’. Hit heavily by the US economic downturn and property foreclosures, Detroit has a large supply of under market value property. The city is said to have coined the $1 home phenomenon, and despite $1 being an extreme case, it can certainly be said that you can buy a home for less than the cost of one of Detroit’s newly manufactured cars.
Detroit is the largest city in the State of Michigan and one of the most important cities for research and development in manufacture in the US, attracting over half a million high tech workers (the fourth highest figure in the US) including the 70,000 in the automobile industry. However, despite the continued government investment in the city’s economy and infrastructure, a shift in urban sprawl to the suburbs and the subsequent housing crash has left the metro Detroit area seriously lacking in affordable housing.
Detroit’s real estate market is now fighting back with the help of the Department of Housing and Urban Development scheme (HUD), plus a collaboration of city officials, business people, politicians and property investors. President Barack Obama has himself pledged to support the regeneration of Detroit in the American Recovery and Reinvestment Act 2009. Property investors can benefit from an ethical investment that recycles houses, turning foreclosed and uninhabitable properties back into homes for the employed, low-income sector. And with a waiting list of over 9,000 people hoping to be one of the lucky ones to live in one of the newly desirable homes, there certainly is the demand.
But how does the HUD programme work? Well crucially the HUD and HCV programme has a ‘one strike policy’, unlike the UK and other parts of Europe where unruly tenants get re-housed, this does not happen under this scheme, which is a huge attraction for investors. Tenants that are evicted from the HUD scheme lose any future right to a HUD scheme home anywhere in the USA thereby securing the investment homes. Through HUD the government pays the tenant’s percentage of the rent, normally 80-100%, directly to the owner’s management company so investors are not reliant on collecting rents from the tenants personally.
Currently the City of Detroit has a waiting list of more than 9,200 pre-approved families with Housing Choice Vouchers (HCV) who are currently in unsuitable, emergency or temporary accommodation, some simply cannot find a suitable home. Understanding the HUD scheme leaves three more crucial elements to the investor puzzle, purchasing the houses, refurbishing the houses to government standards and managing the properties and tenants. Experience International, has enveloped this up for investors into an easy hands-free package, their ‘high yield, high quality, Detroit property investment’.
For the investment to work for both the investors and the re-housed tenants, only certified, quality companies are involved. The Home Depot Inc, a Fortune 500 US company, takes care of the property refitting plus provides a 24 month guarantee on all fixtures and fittings; Management Systems Inc, providing property management in Detroit since 1973, handles all the property and tenant management for the investor. It is Experience International that selects the properties through their local business partnerships, and yes, although properties for as little as $1 dollar are available they are in undesirable areas or even ‘no-go’ communities, hence better quality units being selected from £27,575 / US$45,500.
‘Regenerating’ the Detroit real estate has a massive impact on the community as a whole. If houses are left empty, they attract vandalism and have a huge negative impact on their surroundings, further driving out residents from the area, creating a spiral of decline. When properties are maintained they appeal to employed and more desirable tenants, who will in turn continue up the economic ladder, eventually creating housing and community stability. The fact that Experience International recommends the ‘Lease to Own’ scheme to investors further reinforces the positive effects of maintained housing in the community. 5 years after purchasing your 40% under market value home, you can sell the property to your tenants for a pre-agreed price, normally higher than the current appraisal or market value. Your tenant will of course want to look after their property within that 5 years with the knowledge that they will be owning it in the mid-term.
Exit strategies are the key to any sound investment and the ‘Lease to Own’ scheme is a valuable and ethical strategy. Other options include long term hold allowing investors to gain further yields from capital appreciation.
For further information on investing in the City of Detroit contact Experience International on 0207 321 5858 or visit their website on www.experience-international.com.
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High yield, high quality properties, Detroit, State of Michigan USA:
· 3 bed houses £27,576, 4 bed houses £28,484 – 40% below market value (plus approx £3,500 buying costs)
· Freehold – clean, clear and debt free
· 21% yields, Government backed (HUD – US Department of Housing and Urban Development) scheme. Secured rental paid back by the US government to you the owner (not tenant)
· All initial refurbishment costs and work covered by Home Depot Inc. A Fortune 500 company
· Fully managed and regularly inspected by Management Systems Inc. Management services in Detroit since 1973
· Large waiting list for qualified tenants (over 9,000),
· Choice of 3 exit strategies. Tenants ‘lease to own’ scheme, long term hold, short term refinance – long term hold.